CALIFORNIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY



                                       and


           FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, AS TRUSTEE







                               INDENTURE OF TRUST


                           Dated as of August 1, 1997






                                   $8,500,000
               CALIFORNIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY
                         VARIABLE RATE DEMAND INDUSTRIAL
                     DEVELOPMENT REVENUE BONDS, SERIES 1997
              (ADVANCED AERODYNAMICS AND STRUCTURES, INC. PROJECT)








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                                TABLE OF CONTENTS



                                                                           Page

PARTIES......................................................................1
PREAMBLES....................................................................1

                                    ARTICLE I

                DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS

SECTION 1.01.  Definitions...................................................2
SECTION 1.02.  Content of Certificates and Opinions..........................15
SECTION 1.03.  Interpretation................................................15

                                   ARTICLE II

                                    THE BONDS

SECTION 2.01.  Authorization of Bonds........................................16
SECTION 2.02.  Terms of the Bonds............................................16
SECTION 2.03.  Conversion of Bonds...........................................17
SECTION 2.04.  Execution of Bonds............................................19
SECTION 2.05.  Transfer of Bonds.............................................19
SECTION 2.06.  Exchange of Bonds.............................................20
SECTION 2.07.  Bond Register.................................................20
SECTION 2.08.  Temporary Bonds...............................................20
SECTION 2.09.  Bonds Mutilated, Lost, Destroyed or Stolen....................20
SECTION 2.10.  Special Obligations...........................................21
SECTION 2.11.  Book-Entry Only System........................................21

                                   ARTICLE III

                   ISSUANCE OF BONDS; APPLICATION OF PROCEEDS

SECTION 3.01.  Issuance of the Bonds.........................................23
SECTION 3.02.  Application of Proceeds of the Bonds..........................23
SECTION 3.03.  Establishment and Application of Project Fund and Costs of
               Issuance Fund.................................................23
SECTION 3.04.  Validity of Bonds.............................................25

                                   ARTICLE IV

                        REDEMPTION AND PURCHASE OF BONDS

SECTION 4.01.  Terms of Redemption...........................................25
SECTION 4.02.  Selection of Bonds for Redemption.............................26
SECTION 4.03.  Notice of Redemption..........................................27
SECTION 4.04.  Partial Redemption of Bonds...................................27
SECTION 4.05.  Effect of Redemption..........................................27
SECTION 4.06.  Purchase of Bonds by Tender Agent.............................28


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SECTION 4.07.  Mandatory Tender of Bonds.....................................28


                                    ARTICLE V

                          REVENUES; FUNDS AND ACCOUNTS;
                        PAYMENT OF PRINCIPAL AND INTEREST

SECTION 5.01.  Pledge and Assignment; Revenue Fund...........................29
SECTION 5.02.  Allocation of Revenues........................................30
SECTION 5.03.  Priority of Moneys in Revenue Fund; Letter of Credit Account..30
SECTION 5.04.  Letter of Credit..............................................32
SECTION 5.05.  Investment of Moneys..........................................32
SECTION 5.06.  Additional Duties of Trustee..................................33
SECTION 5.07.  Establishment of Rebate Fund..................................33

                                   ARTICLE VI

                              PARTICULAR COVENANTS

SECTION 6.01.  Punctual Payment..............................................34
SECTION 6.02.  Extension of Payment of Bonds.................................34
SECTION 6.03.  Against Encumbrances..........................................34
SECTION 6.04.  Power to Issue Bonds and Make Pledge and Assignment...........35
SECTION 6.05.  Accounting Records and Reports................................35
SECTION 6.06.  Arbitrage Covenants...........................................35
SECTION 6.07.  Other Covenants...............................................35
SECTION 6.08.  Further Assurances............................................36
SECTION 6.09.  Covenant to Enter into Agreement or Contract to Provide 
               Ongoing Disclosure............................................36

                                   ARTICLE VII

                  EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS

SECTION 7.01.  Events of Default; Acceleration; Waiver of Default............36
SECTION 7.02.  Institution of Legal Proceedings by Trustee...................38
SECTION 7.03.  Application of Revenues and Other Funds After Default.........38
SECTION 7.04.  Trustee to Represent Bondholders..............................39
SECTION 7.05.  Bondholders' Direction of Proceedings.........................39
SECTION 7.06.  Limitation on Bondholders' Right to Sue.......................39
SECTION 7.07.  Absolute Obligation of Authority..............................40
SECTION 7.08.  Termination of Proceedings....................................40
SECTION 7.09.  Remedies Not Exclusive........................................40
SECTION 7.10.  No Waiver of Default..........................................40
SECTION 7.11.  Consent To Defaults...........................................40




                                       ii

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                                  ARTICLE VIII

                          THE TRUSTEE, THE REMARKETING
                           AGENT AND THE TENDER AGENT

SECTION 8.01.  Duties, Immunities and Liabilities of Trustee.................41
SECTION 8.02.  Merger or Consolidation.......................................42
SECTION 8.03.  Liability of Trustee..........................................42
SECTION 8.04.  Right of Trustee to Rely on Documents.........................43
SECTION 8.05.  Preservation and Inspection of Documents......................44
SECTION 8.06.  Compensation and Indemnification..............................44
SECTION 8.07.  Notice to Rating Agency.......................................44
SECTION 8.08.  Qualifications of Remarketing Agent...........................44
SECTION 8.09.  Remarketing of Bonds..........................................45
SECTION 8.10.  Creation of Purchase Fund; Purchase of Bonds Delivered to 
               Tender Agent..................................................46
SECTION 8.11.  Delivery of Bonds.............................................47
SECTION 8.12.  Delivery of Proceeds of Remarketing...........................48
SECTION 8.13.  No Purchases or Sales After Default...........................48
SECTION 8.14.  Qualifications of Tender Agent................................48
SECTION 8.15.  Paying Agent..................................................48
SECTION 8.16.  Several Capacities............................................49

                                   ARTICLE IX

                   MODIFICATION OR AMENDMENT OF THE INDENTURE

SECTION 9.01.  Amendments Permitted..........................................49
SECTION 9.02.  Effect of Supplemental Indenture..............................50
SECTION 9.03.  Endorsement of Bonds; Preparation of New Bonds................50
SECTION 9.04.  Amendment of Particular Bonds.................................50

                                    ARTICLE X

                                   DEFEASANCE

SECTION 10.01.  Discharge of Indenture.......................................51
SECTION 10.02.  Discharge of Liability on Bonds..............................51
SECTION 10.03.  Deposit of Money or Securities with Trustee..................52
SECTION 10.04.  Payments After Discharge of Indenture........................52

                                   ARTICLE XI

                                  MISCELLANEOUS

SECTION 11.01.  Liability of Authority Limited to Revenues...................53
SECTION 11.02.  Successor Is Deemed Included in All References to 
                Predecessor..................................................53
SECTION 11.03.  Limitation of Rights to Parties and Bondholders..............53
SECTION 11.04.  Waiver of Notice.............................................53
SECTION 11.05.  Destruction of Bonds.........................................53
SECTION 11.06.  Severability of Invalid Provisions...........................53


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SECTION 11.07.  Governing Law................................................54
SECTION 11.08.  Notices......................................................54
SECTION 11.09.  Evidence of Rights of Bondholders............................55
SECTION 11.10.  Disqualified Bonds...........................................56
SECTION 11.11.  Money Held for Particular Bonds..............................56
SECTION 11.12.  Funds and Accounts...........................................57
SECTION 11.13.  Waiver of Personal Liability.................................57
SECTION 11.14.  Execution in Several Counterparts............................57
SECTION 11.15.  Actions Due on Saturdays, Sundays and Holidays...............57
SECTION 11.16.  References to Bank...........................................57

EXHIBIT A - Form of Bond



                                       iv

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                               INDENTURE OF TRUST


     THIS INDENTURE OF TRUST, dated as of August 1, 1997, between the CALIFORNIA
ECONOMIC  DEVELOPMENT  FINANCING AUTHORITY (the "Authority"),  a body public and
corporate,  and a  public  instrumentality  of  the  State  of  California  (the
"State"),  duly  organized  and  validly  existing  under the laws of the State,
particularly  Part 10.2 of  Division 3 of Title 2 of the  California  Government
Code (commencing with Section 15710) (the "Act"), and FIRST TRUST OF CALIFORNIA,
NATIONAL  ASSOCIATION,  a national  banking  association  organized and existing
under and by virtue of the laws of the United States of America (the "Trustee"),

                              W I T N E S S E T H:

     WHEREAS,  the  Authority was  established  for the purpose of promoting and
encouraging commerce and industry,  and generally to foster economic development
in the State,  and is empowered  under the  provisions  of the Act  (capitalized
terms used  herein  shall  have the  meanings  given such terms in Section  1.01
hereof) to issue its bonds and to enter into loan  agreements for the purpose of
financing private activity economic development projects; and

     WHEREAS,  in furtherance of the purposes of the Act, the Authority proposes
to finance the Costs of the Project more particularly  described in Exhibit A to
the Agreement, to be owned by the Borrower; and

     WHEREAS,  pursuant to and in  accordance  with the Act, the  Authority  has
authorized and undertaken to issue its Bonds pursuant to this Indenture in order
to provide funds to finance the Costs of the Project; and

     WHEREAS,  the Authority has  undertaken to finance the Costs of the Project
by  loaning  the  proceeds  derived  from the sale of the Bonds to the  Borrower
pursuant to the  Agreement,  under  which the  Borrower is required to make Loan
Repayments  sufficient to pay when due the principal  of,  premium,  if any, and
interest on the Bonds and to pay certain other expenses; and

     WHEREAS,  it has been  determined  that the estimated  amount  necessary to
finance the Costs of the Project,  including a portion of the necessary expenses
incidental  to the issuance of the Bonds,  will require the  issuance,  sale and
delivery of the Bonds in the aggregate principal amount of $8,500,000; and

     WHEREAS,  in order to provide for the  authentication  and  delivery of the
Bonds,  to establish and declare the terms and  conditions  upon which the Bonds
are to be issued and  secured,  and to secure the payment of the  principal  and
purchase  price thereof and interest  thereon,  the Authority has authorized the
execution and delivery of this Indenture; and

     WHEREAS,  in order to further secure the payments of principal and purchase
price of and interest on the Bonds,  the  Borrower  has obtained an  irrevocable
direct-pay letter of credit from the Bank; and

     WHEREAS,  all acts and proceedings required by law or necessary to make the
Bonds,  when executed by the Authority  and  authenticated  and delivered by the
Bond  Registrar,  the  valid,  binding  and  legal  special  obligations  of the
Authority, and to constitute this Indenture a valid and binding



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agreement  for the uses and  purposes  herein set forth in  accordance  with its
terms,  have  been  done and  taken,  and the  execution  and  delivery  of this
Indenture has been in all respects duly authorized;

     NOW,  THEREFORE,  THIS  INDENTURE  WITNESSETH,  that in order to secure the
payment of the principal and purchase price of and premium, if any, and interest
on all Bonds at any time issued and Outstanding under this Indenture,  according
to their tenor,  and, on a basis subordinate  thereto,  to secure the Borrower's
obligations  to the Bank under the  Reimbursement  Agreement,  and to secure the
performance  and  observance  of all the covenants  and  conditions  therein and
herein set forth,  and to declare the terms and  conditions  upon and subject to
which the  Bonds are to be issued  and  received,  and in  consideration  of the
premises and of the mutual  covenants  herein  contained and of the purchase and
acceptance  of  the  Bonds  by the  Holders  thereof,  and  for  other  valuable
consideration,  the receipt whereof is hereby  acknowledged,  the Authority does
hereby  covenant and agree with the Trustee,  for the benefit of the  respective
Holders from time to time of the Bonds, as follows:


                                    ARTICLE I

                DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS

     SECTION 1.01. Definitions. Unless the context otherwise requires, the terms
defined in this Article  shall,  for all purposes of this  Indenture and for the
purpose of any certificate, opinion or other document herein mentioned, have the
meanings herein specified.  Such definitions are equally  applicable to both the
singular and plural forms of any of the terms defined.  Unless otherwise defined
in this  Indenture,  all terms defined in the Act and used herein shall have the
meanings assigned to such terms in the Act.

Accountant

     "Accountant"  means any firm of independent  certified  public  accountants
selected by the Borrower and reasonably acceptable to the Trustee and the Bank.

Act

     "Act" means Part 10.2 of Division 3 of Title 2 of the California Government
Code (commencing  with Section 15710),  as now in effect and as it may from time
to time hereafter be amended or supplemented.

Act of Bankruptcy

     "Act of  Bankruptcy"  means  the  entry of an order or  decree,  by a court
having  jurisdiction  in the  matter,  for relief  against  the  Borrower or the
Authority in an involuntary case under any applicable bankruptcy,  insolvency or
other  similar  law now or  hereafter  in  effect,  or  appointing  a  receiver,
liquidator,   assignee,  custodian,  trustee,  sequestrator  (or  other  similar
official) of the Borrower or the  Authority  or of any  substantial  part of the
property of either the Borrower or the Authority,  or ordering the winding up or
liquidation  of the  affairs of either the  Borrower  or the  Authority;  or the
institution  or  commencement  by or against the Borrower or the  Authority of a
voluntary or  involuntary  case under any applicable  bankruptcy,  insolvency or
other similar law now or hereafter in effect,  or the consent by it to the entry
of an order for relief against it in any involuntary case under any such law, or
to the  appointment of a receiver,  liquidator,  assignee,  custodian,  trustee,
sequestrator (or other similar  official) of the Borrower or the Authority or of
any substantial part of the property of either the Borrower or the


                                        2

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Authority,  or  the  making  by  either  the  Borrower  or the  Authority  of an
assignment  for the benefit of creditors,  or the failure of it generally to pay
its debts as they become due, or the admission by it in writing of such failure,
or the taking of any action by the Borrower or the Authority in  furtherance  of
any such  action,  or if a receiver of the business or of the property or assets
of the  Borrower or the  Authority  shall be  appointed  by any court,  except a
receiver appointed at the instance or request of the Authority.

Additional Payments

     "Additional  Payments"  means  the  payments  required  to be  made  by the
Borrower pursuant to Sections 4.2(b), (c) and (d) of the Agreement.

Agreement

     "Agreement"  means that certain loan agreement by and between the Authority
and the Borrower,  dated as of August 1, 1997, as originally  executed and as it
may from time to time be  supplemented,  modified or amended in accordance  with
the terms thereof and of this Indenture.

Alternate Credit Facility

     "Alternate  Credit  Facility"  means bond insurance or other similar credit
enhancement facility meeting the requirements of Section 5.7 of the Agreement.

Alternate Fixed Rate

     "Alternate  Fixed  Rate"  shall have the  meaning  ascribed to such term in
Section 2.03.

Alternate Letter of Credit

     "Alternate  Letter of  Credit"  means an  alternate  irrevocable  letter of
credit or  similar  credit  facility  issued  by a  commercial  bank or  savings
institution,  the terms of which,  other than the expiration  date, shall in all
material  respects  be the  same as  those  of the  initial  Letter  of  Credit,
delivered to the Trustee pursuant to Section 5.8 of the Agreement.

Alternate Weekly Rate

     "Alternate  Weekly  Rate" shall have the  meaning  ascribed to such term in
Section 2.02.

Authority

     "Authority" means the California Economic Development Financing Authority.

Authorized Denominations

     "Authorized  Denomination" means (i) prior to the Fixed Rate Date, $100,000
or any  multiple of $5,000 in excess of  $100,000  and (ii) after the Fixed Rate
Date, $5,000 or integral multiples thereof.



                                        3

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Authorized Representative

     "Authorized  Representative" means with respect to the Borrower, the person
or persons at the time  designated to act on behalf of the Borrower by a written
certificate signed by the Borrower,  furnished to the Trustee and the Authority,
containing the specimen signature of each such person.

Available Moneys

     "Available  Moneys" means moneys which are (a) continuously on deposit with
the Trustee in trust for a period of 91 days for the benefit of the  Bondholders
in a separate and segregated account in which only Available Moneys are held and
(b) proceeds of (i) the Bonds received  contemporaneously  with the issuance and
sale of the Bonds,  (ii) a drawing  under the Letter of Credit,  (iii) any other
moneys  for which the  Trustee  has  received a written  opinion  of  nationally
recognized  counsel  experienced  in  bankruptcy  matters and  acceptable to the
Trustee to the effect that payment of such moneys to the  Bondholders  would not
constitute  an  avoidable  preference  under  Section  547 of the United  States
Bankruptcy  Code in the event the  Authority,  the Borrower or any Related Party
were to become a debtor under the United States  Bankruptcy  Code, which opinion
is  acceptable  to each  rating  agency  then  rating the Bonds,  or (iv) moneys
derived from the  investment of funds  qualifying as Available  Moneys under the
foregoing clauses.

Bank

     "Bank" means The Sumitomo  Bank,  Limited,  acting  through its Los Angeles
Branch,  or any other commercial bank or other financial  institution  issuing a
Letter of Credit then in effect and party to a Reimbursement Agreement.

Beneficial Owners

     "Beneficial Owner" means any person which has or shares the power, directly
or indirectly,  to make investment  decisions  concerning ownership of any bonds
(including  persons  holding  Bonds  through  nominees,  depositories  or  other
intermediaries).

Bond

     "Bond" or "Bonds"  means any Bond or all of the Bonds,  as the case may be,
of the Authority  authorized and issued by the Authority,  authenticated  by the
Bond Registrar and delivered hereunder.

Bond Counsel

     "Bond Counsel" means any attorney at law or firm of attorneys of nationally
recognized  standing in matters  pertaining  to the  exclusion of interest  from
gross  income for  federal  income tax  purposes  on bonds  issued by states and
political  subdivisions,  and duly  admitted to practice  law before the highest
court of any state of the  United  States  of  America,  but  shall not  include
counsel for the Borrower.

Bond Payment Date

     "Bond Payment Date" means any date on which any principal of, or premium or
interest on, any  Outstanding  Bond shall be due and payable whether at maturity
or on a scheduled Interest


                                        4

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Payment Date or upon  redemption,  in each case in accordance  with the terms of
the Bonds and this Indenture.

Bond Registrar

     "Bond Registrar" shall mean the Bond Registrar specified in Section 2.07.

Borrower

     "Borrower" means Advanced Aerodynamics and Structures,  Inc., a corporation
duly organized and validly existing under the laws of the State of Delaware,  or
any entity which is the surviving, resulting or transferee entity in any merger,
consolidation  or  transfer  of  assets  permitted  under  Section  5.2  of  the
Agreement.

Business Day

     "Business Day" means a day which is not a Saturday, Sunday or legal holiday
on which  banking  institutions  in the State or the State of New York or in any
state in which the principal office of the Bank, the Tender Agent or the Trustee
or the  office of the Bank  designated  for  presentations  under the  Letter of
Credit is located  are closed or a day on which the New York Stock  Exchange  is
closed.

Certificate,  Statement,  Request,  Requisition or Order of the Authority or the
Borrower

     "Certificate,"  "Statement,"  "Request,"  "Requisition"  and "Order" of the
Authority or the Borrower means, respectively, a written certificate, statement,
request,  requisition  or order signed in the name of the Authority by the Chair
of the  Authority or such other person as may be  designated  in a resolution as
authorized  to sign  for the  Authority,  or in the name of the  Borrower  by an
Authorized  Representative  of the Borrower.  Any such instrument and supporting
opinions or representations,  if any, may, but need not, be combined in a single
instrument with any other instrument, opinion or representation,  and the two or
more so combined shall be read and construed as a single  instrument.  If and to
the extent  required by Section  1.02,  each such  instrument  shall include the
statements provided for in Section 1.02.

Code

     "Code"  means the Internal  Revenue  Code of 1986,  as amended from time to
time,  and any  regulations  from time to time  promulgated  or deemed in effect
thereunder.

Component Issues

     "Component Issues" means five or more issues of securities, the interest on
which is  Tax-exempt,  selected  by the  Remarketing  Agent in  accordance  with
Section 2.03(B)(1).

Construction

     "Construction"  means,  with  respect  to  the  Project,  the  acquisition,
construction, installation,  rehabilitation,  expansion, improvement, equipping,
furnishing,  or other  activities  with respect to the Project  described in the
Borrower's application for financing assistance from the Authority.



                                        5

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Costs of Issuance

     "Costs of  Issuance"  means all items of  expense  directly  or  indirectly
payable by or  reimbursable  to the Authority or the Borrower and related to the
authorization,  issuance,  sale and  delivery  of the Bonds,  including  but not
limited  to  costs  of  preparation  and  reproduction  of  documents,  printing
expenses,  application,  filing and recording fees,  initial fees and charges of
the Trustee and Tender  Agent,  legal fees and charges,  including  the fees and
charges  of  Bond  Counsel,   fees  and   disbursements   of   consultants   and
professionals,  rating agency fees, fees and charges for preparation,  execution
and  safekeeping  of the Bonds and any other cost,  charge or fee in  connection
with the original  issuance of the Bonds which  constitutes a "cost of issuance"
within the meaning of Section 147(g) of the Code.

Costs of Issuance Fund

     "Costs of Issuance Fund" means the fund of that name  established  pursuant
to Section 3.03(E).

Costs of the Project

     "Costs of the  Project"  means and  shall be deemed to  include  all of the
costs of the  Construction of the Project,  to the extent  permitted by the Act,
whether incurred prior to or after the date of the Agreement, including, but not
limited to the following (but not including any Costs of Issuance):

     (1) the cost of construction, improvement, repair and reconstruction;

     (2) the cost of acquisition,  including  rights in land and other property,
both real and personal and improved and unimproved, and franchises, and disposal
rights;

     (3) the cost of  demolishing,  removing,  or  relocating  any  buildings or
structures  on lands so acquired,  including  the cost of acquiring any lands to
which such buildings or structures may be moved or relocated;

     (4) the cost of machinery,  equipment and  furnishings,  of engineering and
architectural  surveys and plans, and  specifications  and of transportation and
storage until the Project is operational;

     (5) the cost of  agents  or  consultants,  including,  without  limitation,
legal, financial,  engineering,  accounting, and auditing, necessary or incident
to the Project and of the  determination as to the feasibility or practicability
of undertaking the Project;

     (6) the  cost of  financing  interest  on the  Bonds  and  fees of the Bank
allocable  to the period  prior to and during  Construction  of the  Project and
reserves for principal and interest and for extensions, enlargements, additions,
repairs, replacements, renovations, and improvements to the Project; and

     (7) the  cost of  financing  the  Project,  and  the  reimbursement  to any
governmental  entity or agency,  or any Person,  of  expenditures  made by or on
behalf of such entity agency or Person in connection with the Project; provided,
that the  Borrower  shall at its own expense  insure,  repair,  and maintain the
Project,  pay such taxes with respect to the Borrower's interest in the property
relating to the Project,  and pay such  assessments  and other public charges on
the Project or shall cause the same to be provided by others to the satisfaction
of the Authority.



                                        6

<PAGE>



Date of Delivery

     "Date of Delivery" means August 5, 1997.

Determination of Taxability

     "Determination  of Taxability"  means the occurrence or existence of any of
the conditions or events more fully  described in Section  8.3(a)(ii) or Section
8.3(a)(iii) of the Agreement.

DTC

     "DTC"  means The  Depository  Trust  Company,  New York,  New York,  or any
successor securities depository.

Event of Default

     "Event of Default" means any of the events specified in Section 7.01.

Expiration Date

     "Expiration  Date" means the stated date upon which the Letter of Credit or
Alternate Letter of Credit shall expire in accordance with its terms.

Fiscal Year

     "Fiscal  Year" means the fifty two (or fifty  three) week period  ending on
the last  Saturday of December of each year,  or any other  twelve  month period
selected and designated as the fiscal year of the Borrower.

Fixed Interest Rate

     "Fixed  Interest  Rate" means the interest rate borne by the Bonds from and
after the Fixed Rate Date and determined in accordance with Section 2.03.

Fixed Rate Date

     "Fixed Rate Date" means the date on which the Bonds begin to bear  interest
at the Fixed Interest Rate, which shall be an Interest Payment Date.

Fixed Rate Index

     "Fixed Rate Index" means the interest index  determined by the  Remarketing
Agent pursuant to Section 2.03(B)(1).

Government Obligations

     "Government   Obligations"   means  and  includes  any  of  the   following
securities,  if and to the extent the same are  non-callable  and not subject to
redemption at the option of the issuer, at the time legal for investment: direct
obligations  of, or obligations  the full and timely payment of principal of and
interest  on which are  unconditionally  guaranteed  by,  the  United  States of
America, including obligations


                                        7

<PAGE>



issued or held in book-entry form on the books of the Department of the Treasury
of the United  States of America  and  including a receipt,  certificate  or any
other  evidence  of a  direct  ownership  interest  of  future  payments  in  an
obligation of, or  unconditionally  guaranteed by, the United States of America,
or in specified  portions  thereof held by a custodian  in  safekeeping  for the
holders of such receipt,  certificate or any other evidence of ownership  (which
may  consist  of  specified  portions  of  interest  thereon)  which is rated or
assessed  in the highest  rating  category of Moody's and S&P to the extent each
such rating agency is then rating the Bonds, but excluding any share or interest
in any unitary  investment  trust or mutual fund unless such unitary  investment
trust or mutual  fund is rated or assessed  in the  highest  rating  category of
Moody's and S&P to the extent each such rating agency is then rating the Bonds.

Holder or Bondholder

     "Holder" or  "Bondholder,"  whenever  used  herein with  respect to a Bond,
means the Person in whose name such Bond is registered.

Indenture

     "Indenture" means this Indenture,  as originally executed or as it may from
time  to  time  be  supplemented,  modified,  or  amended  by  any  Supplemental
Indenture.

Information Services

     "Information  Services" means Financial  Information,  Inc.'s "Daily Called
Bond Service," 30 Montgomery Street,  10th Floor, Jersey City, New Jersey 07302,
Attention:  Editor;  Kenny  Information  Service's  "Called  Bond  Service,"  65
Broadway,  16th Floor,  New York,  New York 10006;  Moody's  Investors  Service,
525077 Center Drive,  Suite 150,  Charlotte,  North Carolina  28217,  Attention:
Called  Bond  Department;  and  Standard  and Poor's  "Called  Bond  Record," 25
Broadway,  3rd  Floor,  New  York,  New  York  10004;  or,  in  accordance  with
then-current guidelines of the Securities and Exchange Commission, to such other
addresses  and/or such other  services  providing  information  with  respect to
called  bonds,  or no  such  services,  as  the  Authority  may  designate  in a
certificate of the Authority delivered to the Trustee.

Interest Account

     "Interest  Account"  means the  account  of that name in the  Revenue  Fund
established pursuant to Section 5.02.

Interest Payment Date

     "Interest  Payment  Date"  means (i) on and prior to the Fixed  Rate  Date:
September 2, 1997 and the first Business Day of each calendar month  thereafter,
and (ii)  after  the  Fixed  Rate  Date:  August 1 and  February  1 of each year
commencing on the August 1 or February 1 next succeeding the Fixed Rate Date.

Interest Period

     "Interest Period" means the period from and including the date of the first
authentication  and  delivery of the Bonds to and  including  September 1, 1997,
and,  thereafter,  the period from and including an Interest Payment Date to and
including the day next preceding the  immediately  succeeding  Interest  Payment
Date.


                                        8

<PAGE>




Investment Securities

     "Investment  Securities" means (A) obligations  described in Section 103 of
the Code, the interest on which is Tax-exempt,  including  certificates or units
of or in any entity that (i) is treated as a "grantor trust" under Subchapter J,
Part I, Subpart E of the Code in which the  certificate  holders or unit holders
are  treated as the owners of all  assets  owned by such trust and (ii)  invests
solely in  obligations  described  in Section 103 of the Code,  the  interest on
which is Tax-exempt; and (B) stock of a "qualified regulated investment company"
as such term is  defined  in  Section  (a)(2) of  Notice  87-22 of the  Internal
Revenue  Service,   including  qualified  temporary   investments   relating  to
Tax-exempt  obligations  pursuant to paragraph (a) (5) of Notice 87-22 but shall
not include  securities issued by the Authority or the Borrower.  At the time of
investment,  Investment  Securities shall be legal investments under the laws of
the State for the moneys proposed to be invested therein.

Letter of Credit

     "Letter of Credit"  means (i) that certain  Letter of Credit  issued by the
Bank  pursuant  to the  Reimbursement  Agreement,  as the same may be amended or
modified in accordance  with its terms,  naming the Trustee as  beneficiary  and
delivered on the date of issuance  and delivery of the Bonds,  (ii) in the event
of delivery of an Alternate  Letter of Credit,  such Alternate Letter of Credit,
or  (iii)  in the  event of  delivery  of an  Alternate  Credit  Facility,  such
Alternate Credit Facility.

Letter of Credit Account

     "Letter of Credit  Account"  means the account of that name  established in
the Revenue Fund pursuant to Section 5.03.

Letter of Credit Substitution

     "Letter of Credit  Substitution"  means the  substitution  of an  alternate
Letter of Credit for the then existing  Letter of Credit pursuant to Section 5.8
of the Agreement.

Letter of Credit Substitution Date

     "Letter of Credit  Substitution Date" means the date an Alternate Letter of
Credit is delivered to the Trustee pursuant to Section 5.8 of the Agreement.

Liquidity Account

     "Liquidity  Account"  means the  account  of that name  established  in the
Purchase Fund pursuant to Section 8.10.

Loan

     "Loan" means the loan of the proceeds of the Bonds made by the Authority to
the Borrower pursuant to the Agreement.

Loan Default Event

     "Loan  Default  Event"  means any one or more of the  events  specified  in
Section 7.1 of the Agreement.


                                        9

<PAGE>




Loan Repayments

     "Loan  Repayments"  means the payments  required to be made by the Borrower
pursuant to Section 4.2(a) of the Agreement.

Mandatory Tender Date

     "Mandatory  Tender  Date"  shall  mean the (i) Fixed Rate Date and (ii) any
Letter of Credit  Substitution Date, pursuant to which the Bonds are required to
be tendered for purchase in accordance with Section 4.07 hereof.

Moody's

     "Moody's"  means Moody's  Investors  Service,  a corporation  organized and
existing  under  the laws of the State of  Delaware,  its  successors  and their
assigns,  or, if such  corporation  shall be dissolved or liquidated or shall no
longer perform the functions of a securities rating agency, any other nationally
recognized  securities  rating  agency  designated  by the  Authority,  with the
approval of the Borrower, which is requested to provide a rating on the Bonds.

Net Proceeds

     "Net  Proceeds"  means  the  proceeds  from  insurance  or from  actual  or
threatened  condemnation  or eminent  domain action with respect to the Project,
less any costs reasonably expended by the Borrower to receive such proceeds.

Non-Tendered Bonds

     "Non-Tendered  Bonds"  shall  have the  meaning  ascribed  to such  term in
Section 4.07.

Opinion of Counsel

     "Opinion of Counsel" means a written opinion of counsel (who may be counsel
for the  Authority)  selected by the Borrower and the  Authority.  If and to the
extent required by the provisions of Section 1.02, each Opinion of Counsel shall
include the statements provided for in Section 1.02.

Organization Documents

     "Organization  Documents" mean the Borrower's  Certificate of Incorporation
and Bylaws, as amended from time to time.

Outstanding

     "Outstanding," when used as of any particular time with reference to Bonds,
means  (subject to the provisions of Section  11.10) all Bonds  theretofore,  or
thereupon  being,  authenticated  and delivered by the Bond Registrar under this
Indenture  except  (1) Bonds  theretofore  cancelled  by the Bond  Registrar  or
surrendered  to the Bond Registrar for  cancellation;  (2) Bonds with respect to
which  liability of the Authority  shall have been discharged in accordance with
Section  10.02,  including  Bonds (or portions of Bonds)  referred to in Section
11.10;  (3)  Bonds  for  the  transfer  or  exchange  of  or  in  lieu  of or in
substitution for which other Bonds shall have been  authenticated  and delivered
by the Bond  Registrar  pursuant to this Indenture and (4) Bonds which have been
deemed purchased pursuant to Section 4.07.


                                       10

<PAGE>




Participating Underwriter

     "Participating   Underwriter"   means  any  broker,   dealer  or  municipal
securities  dealer acting as an underwriter  in a primary  offering of municipal
securities subject to Securities and Exchange  Commission Rule 15c2-12 under the
Securities Exchange Act of 1934, as amended.

Paying Agent

     "Paying Agent" means, the Trustee, and any other paying agent for the Bonds
appointed pursuant to the provisions of this Indenture.

Permitted Investments

     "Permitted  Investments" means Treasury Funds,  Government  Obligations and
Investment  Securities,  which  are  rated  "AA"  by S&P or  "Aa3"  by  Moody's;
provided, however, that such rating requirement may be waived by the Bank in its
sole discretion.

Person

     "Person" means an individual, corporation, firm, association,  partnership,
trust,  or other legal  entity or group of  entities,  including a  governmental
entity or any agency or political subdivision thereof.

Pledge and Security Agreement

     "Pledge and  Security  Agreement"  means that certain  Custody,  Pledge and
Security Agreement,  dated as of August 1, 1997, by and among the Borrower,  the
Bank  and the  Tender  Agent,  as  custodian,  as the same  may be  amended  and
supplemented from time to time.

Pledged Bonds

     "Pledged Bonds" means Bonds tendered pursuant to Section 4.06 or subject to
mandatory  tender pursuant to Section 4.07 and purchased from funds described in
Section 8.10(B)(ii).

Principal Account

     "Principal  Account"  means the  account of that name in the  Revenue  Fund
established pursuant to Section 5.02.

Project

                  "Project" means (i) all land, buildings,  structures, fixtures
and improvements and (ii) all tangible personal property purchased with proceeds
of the Bonds by the  Borrower,  whether  now  existing  or  hereafter  acquired,
constructed or installed as more fully described in Exhibit A to the Agreement.

Project Fund

     "Project Fund" means the fund of that name established  pursuant to Section
3.03.



                                       11

<PAGE>




Purchase Date

     "Purchase  Date" means (i) the date  specified  in each  notice  given by a
Bondholder  pursuant to Section  4.06 on which the Bonds being  tendered by such
Bondholder  shall be purchased by the Tender Agent and (ii) the Mandatory Tender
Date.

Purchase Fund

     "Purchase Fund" means the fund of that name established pursuant to Section
8.10.

Rebate Fund

     "Rebate Fund" means the fund of that name created pursuant to Section 5.07.

Record Date

     "Record  Date"  means,  prior to the Fixed  Rate  Date,  the  Business  Day
preceding  each  Interest  Payment  Date,  and after the Fixed  Rate  Date,  the
fifteenth (15th) day of the calendar month preceding each Interest Payment Date.

Redemption Account

     "Redemption  Account"  means the  account of that name  established  in the
Revenue Fund pursuant to Section 5.02.

Reimbursement Agreement

     "Reimbursement  Agreement" means the Reimbursement  Agreement,  dated as of
August 1, 1997,  between the Borrower and the Bank (as from time to time amended
or  supplemented),  or any other similar  agreement entered into by the Borrower
and the Bank in connection  with the issuance of any Alternate  Letter of Credit
or Alternate Credit Facility.

Related Party

     "Related Party" means any general partner,  member,  affiliate or guarantor
of the Borrower.

Remarketing Account

     "Remarketing  Account"  means the account of that name  established  in the
Purchase Fund pursuant to Section 8.10.

Remarketing Agent

     "Remarketing  Agent"  means the  remarketing  agent or agents  appointed in
accordance with Section 8.08 hereof.  The  Remarketing  Agent shall be initially
Rauscher Pierce Refsnes,  Inc. "Principal Office" of the Remarketing Agent shall
mean the office thereof designated in writing to the Authority, the Trustee, the
Tender Agent, the Bank and the Borrower.



                                       12

<PAGE>



Remarketing Agreement

     "Remarketing Agreement" means the Remarketing Agreement, dated as of August
1, 1997,  between the Borrower the Remarketing Agent, as such agreement may from
time to time be amended and  supplemented,  to remarket  the Bonds  delivered or
deemed to be  delivered  for  purchase  by the  Holders  thereof,  and any other
similar agreement entered into with any successor  Remarketing Agent, subject to
approval by the Authority.  No such amendment or supplement or similar agreement
shall alter the rights or  obligations  of the Holders of Bonds to deliver their
Bonds for purchase as provided herein.

Revenue Fund

     "Revenue Fund" means the fund of that name established  pursuant to Section
5.01.

Revenues

     "Revenues"  means all amounts  received by the Authority or the Trustee for
the account of the  Authority  pursuant or with respect to the  Agreement or the
Letter of Credit,  including,  without limiting the generality of the foregoing,
Loan  Repayments  (including both timely and delinquent  payments,  and any late
charges,   paid  from  whatever  source),   prepayments,   insurance   proceeds,
condemnation  proceeds,  and all interest,  profits or other income derived from
the  investment of amounts in any fund or account  established  pursuant to this
Indenture, but not including any moneys paid for deposit into the Rebate Fund.

S&P

     "S&P"  means  Standard  &  Poor's  Ratings  Services,  a  division  of  The
McGraw-Hill Companies, Inc., a corporation organized and existing under the laws
of the  State of New  York,  its  successors  and  their  assigns,  or,  if such
corporation  shall be dissolved  or  liquidated  or shall no longer  perform the
functions  of a  securities  rating  agency,  any  other  nationally  recognized
securities rating agency  designated by the Authority,  with the approval of the
Borrower which is requested to provide a rating on the Bonds.

Securities Depositaries

     "Securities   Depositaries"  means  the  following  registered   securities
depositaries: (i) The Depository Trust Company, 711 Stewart Avenue, Garden City,
New York 11530,  Fax-(516)  227-4039 or 4190; and (ii)  Philadelphia  Depository
Trust  Company,  Reorganization  Division,  1900  Market  Street,  Philadelphia,
Pennsylvania  19103,  Attention:  Bond Department,  Fax-(215)  496-5058;  or, in
accordance  with   then-current   guidelines  of  the  Securities  and  Exchange
Commission,  to such other addresses and/or such other securities  depositories,
or no  such  depositories,  as the  Authority  or the  Securities  and  Exchange
Commission  may  designate in a certificate  of the  Authority  delivered to the
Trustee.

Special Record Date

     "Special Record Date" means the date established by the Trustee pursuant to
Section 2.02(B)(2) as a record date for the payment of defaulted interest on the
Bonds.



                                       13

<PAGE>



State

     "State" means the State of California.

Supplemental Indenture

     "Supplemental  Indenture" means any indenture hereafter duly authorized and
entered into between the Authority and the Trustee, supplementing,  modifying or
amending this  Indenture;  but only if and to the extent that such  Supplemental
Indenture is specifically authorized hereunder.

Tax Regulatory Agreement

     "Tax Regulatory Agreement" means the Tax Regulatory Agreement,  dated as of
August 1, 1997, among the Authority,  the Borrower and the Trustee,  as such Tax
Regulatory Agreement shall be amended from time to time.

Tax-exempt

     "Tax-exempt"  means, with respect to interest on any obligations of a state
or local  government,  including the Bonds,  that such interest is excluded from
gross income for federal income tax purposes (other than in the case of a Holder
of any Bonds who is a  substantial  user of the  Project or a  "related  person"
within  the  meaning  of Section  147(a) of the Code) but such  interest  may be
includable  as an item of tax  preference  or otherwise  includable  directly or
indirectly  for  purposes  of  calculating   tax   liabilities,   including  any
alternative minimum tax or environmental tax, under the Code.

Tender Agent

     "Tender Agent" means First Trust of  California,  National  Association,  a
national banking  association  organized and existing under and by virtue of the
laws of the United States of America having a principal  corporate  trust office
at 101 California  Street,  Suite 1150, San Francisco,  California 94111, or any
successor appointed pursuant to Section 8.14.

Treasury Funds

     "Treasury  Funds" means (i) any investment  portfolio  consisting of direct
obligations of the United States Treasury  Department and repurchase  agreements
in  respect  of  those  obligations,  including  any such  investment  portfolio
maintained by the Trustee or the Bank, (ii) any investment or security permitted
pursuant to Section  53601 of the  California  Government  Code,  including  any
investment  or  security  portfolio  consisting  of any  one  or  more  of  such
investments or securities and (iii) any other  investment or security  permitted
by law and approved by the Bank.

Trustee

     "Trustee" means First Trust of California, National Association, a national
banking  association  organized and existing  under and by virtue of the laws of
the United States of America  having a principal  corporate  trust office in San
Francisco,  California,  or its  successor  as Trustee  hereunder as provided in
Section 8.01.



                                       14

<PAGE>



Weekly Interest Rate

     "Weekly  Interest  Rate" means the  interest  rate on the Bonds  determined
pursuant to Section 2.02(C).

     SECTION 1.02.  Content of Certificates and Opinions.  Every  certificate or
opinion  provided  for in this  Indenture  with respect to  compliance  with any
provision  hereof shall include (1) a statement that the Person making or giving
such  certificate or opinion has read such provision and the definitions  herein
relating  thereto;  (2) a brief  statement  as to the  nature  and  scope of the
examination or investigation upon which the certificate or opinion is based; (3)
a statement  that,  in the opinion of such  Person,  he has made or caused to be
made such  examination or investigation as is necessary to enable him to express
an  informed  opinion  with  respect to the  subject  matter  referred to in the
instrument to which his signature is affixed; (4) a statement of the assumptions
upon which such  certificate or opinion is based,  and that such assumptions are
reasonable;  and (5) a statement  as to whether,  in the opinion of such Person,
such provision has been complied with.

     Any  such  certificate  or  opinion  made or  given  by an  officer  of the
Authority or an officer or an Authorized  Representative  of the Borrower may be
based,  insofar  as it  relates to legal,  accounting  or primary  matter of the
business of either of them,  upon a certificate or opinion of or  representation
by counsel, an Accountant or a management consultant, unless such officer knows,
or in the exercise of reasonable care should have known,  that the  certificate,
opinion  or  representation   with  respect  to  the  matters  upon  which  such
certificate  or statement  may be based,  as aforesaid,  is erroneous.  Any such
certificate  or opinion made or given by counsel,  an Accountant or a management
consultant may be based,  insofar as it relates to factual matters (with respect
to which  information is in the possession of the Authority or the Borrower,  as
the  case may be) upon a  certificate  or  opinion  of or  representation  by an
officer of the  Authority or the Borrower,  unless such  counsel,  Accountant or
management  consultant  knows, or in the exercise of reasonable care should have
known,  that the  certificate or opinion or  representation  with respect to the
matters upon which such Person's certificate or opinion or representation may be
based,  as  aforesaid,  is  erroneous.  The same officer of the Authority or the
Borrower,  or the same counsel or Accountant or  management  consultant,  as the
case may be,  need not certify to all of the  matters  required to be  certified
under  any  provision  of  this  Indenture,  but  different  officers,  counsel,
Accountants  or  management   consultants  may  certify  to  different  matters,
respectively.

     SECTION 1.03.  Interpretation.  (A) Unless the context otherwise indicates,
defined terms shall include all  variations  thereof and words  expressed in the
singular  shall  include  the plural  and vice versa and the use of the  neuter,
masculine,  or feminine  gender is for  convenience  only and shall be deemed to
mean and include the neuter, masculine or feminine gender, as appropriate.

     (B)  Headings of  articles  and  sections  herein and the table of contents
hereof are solely for convenience of reference,  do not constitute a part hereof
and shall not affect the meaning, construction or effect hereof.

     (C)  Unless  otherwise  indicated,  all  references  herein to  "Articles,"
"Sections" and other subdivisions are to the corresponding Articles, Sections or
subdivisions  of  this  Indenture;   the  words  "herein,"  "hereof,"  "hereby,"
"hereunder" and other words of similar import refer to this Indenture as a whole
and not to any particular Article, Section or subdivision hereof.




                                       15

<PAGE>



                                   ARTICLE II

                                    THE BONDS

     SECTION  2.01.  Authorization  of Bonds.  There  shall be issued  under and
secured  by this  Indenture  a  single  series  of  Bonds  to be  designated  as
"California  Economic  Development  Financing  Authority  Variable  Rate  Demand
Industrial  Development  Revenue Bonds,  Series 1997 (Advanced  Aerodynamics and
Structures, Inc. Project)" in the original principal amount of $8,500,000, to be
dated  as of the  Date of  Delivery,  and to  mature  fully  (subject  to  prior
redemption at the prices and dates and upon the terms and conditions hereinafter
set forth) on August 1, 2027.

     SECTION  2.02.  Terms of the Bonds.  (A) The Bonds shall be issued as fully
registered  Bonds without  coupons in the  Authorized  Denominations.  The Bonds
shall be in substantially the form set forth in Exhibit A hereto.

     (B)(1) Each Bond shall bear  interest at the rates  determined  pursuant to
Section  2.02(C) and 2.03(B) from and including  the Interest  Payment Date next
preceding the date of registration thereof (unless such Bond is registered after
a Record Date and on or before the next succeeding  Interest  Payment Date or on
an  Interest  Payment  Date,  in which  event it shall  bear  interest  from and
including  such  Interest  Payment Date, or unless such Bond is registered on or
prior to  September  1, 1997,  in which  event it shall bear  interest  from and
including the Date of  Delivery),  payable on each  Interest  Payment Date.  The
interest so payable on any  Interest  Payment  Date will be paid on the Interest
Payment Date to the Persons in whose name the Bonds are  registered at the close
of business of the Bond  Registrar on the Record Date for such Interest  Payment
Date; except as provided below.

     (2) Any such  interest not so  punctually  paid or duly  provided for shall
forthwith  cease to be  payable  to the  Holder as of the  Record  Date for such
payment of  interest,  and shall be paid to the Person in whose name the Bond is
registered at the close of business on a Special  Record Date for the payment of
such defaulted interest, to be fixed by the Trustee,  notice thereof being given
to the Holders not less than ten (10) days prior to such Special Record Date.

     (3) Interest shall be paid in lawful money of the United States by check or
draft  mailed to each  Holder at the  address  shown on the  registration  books
maintained by the Bond Registrar  pursuant to Section 2.07;  provided,  however,
interest  may also be paid by wire  transfer  to an address  in the  continental
United States in the case of a Holder of at least $1,000,000 aggregate principal
amount of Bonds upon written  request of the Holder thereof 15 days prior to the
applicable  Record Date to the Bond Registrar in a form satisfactory to the Bond
Registrar.

     (C)(1) The Bonds shall bear interest until payment of the principal thereof
and interest thereon shall have been made or provided for in accordance with the
provisions hereof, whether at maturity,  upon redemption or otherwise.  Prior to
the Fixed Rate Date, interest shall be computed on the basis of a year of 365 or
366 days, as appropriate, for the actual number of days elapsed.

     The Bonds shall bear  interest for each day from and  including the Date of
Delivery until the Fixed Rate Date or final maturity date, whichever is earlier,
at the Weekly Interest Rate;  provided that appropriate  adjustments may be made
for the initial period following the Date of Delivery.  The Weekly Interest Rate
shall be the rate  determined  by the  Remarketing  Agent  (on the  basis of the
examination  of  Tax-exempt  obligations  comparable  to the Bonds  known by the
Remarketing  Agent to have been priced or traded  under then  prevailing  market
conditions) to be the minimum interest rate which, if borne by the Bonds,  would
enable the Remarketing Agent to sell the Bonds on the date such


                                       16

<PAGE>



rate becomes  effective at a price equal to the principal  amount thereof,  plus
accrued  interest,  if any, but in no event  exceeding  twelve percent (12%) per
annum. The Weekly Interest Rate shall be determined by the Remarketing  Agent as
of the close of business on Tuesday in each  calendar  week until the earlier of
the Fixed Rate Date or payment in full of the Bonds;  provided  that, if Tuesday
in any calendar week shall not be a Business Day, then such determination  shall
be  made  on  the  next  preceding  Business  Day;  and  provided  further  that
appropriate adjustments may be made for the initial period following the Date of
Delivery. The Weekly Interest Rate shall be effective from Wednesday in the week
of determination  thereof to and including the following Tuesday irrespective of
when the rate was determined by the Remarketing Agent; provided that appropriate
adjustments  may be made for the initial period  following the Date of Delivery.
The Weekly Interest Rate shall be communicated  by telephonic  notice,  promptly
confirmed in writing,  by the  Remarketing  Agent to the Trustee on the Business
Day next following the day on which the Weekly Interest Rate is determined.  The
Remarketing  Agent shall also give written notice to the Tender Agent,  the Bank
and the Borrower of the Weekly  Interest Rate at the time it gives the aforesaid
written  confirmation  thereof to the Trustee. If for any reason the Remarketing
Agent  does not  determine  the  Weekly  Interest  Rate in any week,  the Weekly
Interest  Rate for the first such week in which the  Remarketing  Agent does not
determine the Weekly Interest Rate shall remain at the last Weekly Interest Rate
announced by the Remarketing Agent and the Weekly Interest Rate thereafter shall
be 90% of the "Alternate Weekly Rate" (as defined below).

     (2) If on any date on which the Weekly  Interest  Rate is  determined,  the
Weekly  Interest  Rate  determined  in  accordance  with  paragraph  (1) of this
paragraph (C) is held by a court to be invalid or unenforceable, then the Weekly
Interest Rate shall be 90% of the Alternate  Weekly Rate. The "Alternate  Weekly
Rate" shall be the A-1/P-1  30-day  commercial  paper rate as  determined by the
Remarketing Agent.

     (3) Each determination of the Weekly Interest Rate by the Remarketing Agent
shall be conclusive and binding on the Holders, the Trustee and the Authority.

     The Trustee  shall  calculate  the amount of interest due on each  Interest
Payment Date with respect to the then-concluding Interest Period by the close of
business  on the date one (1)  Business  Day  prior to the end of such  Interest
Period,  and shall notify the Borrower and the Bank of such amount.  The Trustee
shall inform any Bondholder who requests the same of the Weekly Interest Rate in
effect from time to time.

     (4) Anything herein to the contrary notwithstanding,  in no event shall the
interest  rate borne by the Bonds exceed  twelve  percent (12%) per annum or, if
lower,  the maximum rate of interest which may be charged or collected  pursuant
to applicable provisions of federal or state law.

     (D) The  principal  of the Bonds  shall be payable  in lawful  money of the
United  States of America  on August 1, 2027 at the  principal  corporate  trust
office of the Trustee in San  Francisco,  California  or at such other office as
the Trustee may  designate.  Except as provided in Section  2.09,  no payment of
principal  shall be made on any Bond  unless and until such Bond is  tendered to
the Trustee for cancellation, as the case may be.

     (E) The Bonds shall be subject to  redemption  and  purchase as provided in
Article IV.

     SECTION 2.03.  Conversion of Bonds.  (A) On any Interest  Payment Date, the
interest  rate on the Bonds may be  converted to a fixed annual rate of interest
upon receipt by the Authority,  the Trustee,  the Tender Agent, the Bank and the
Remarketing  Agent not less than 45 days in advance of the  proposed  Fixed Rate
Date of (i) notice from the Borrower  electing to have the interest  rate on the
Bonds


                                       17

<PAGE>



converted to a fixed rate of interest and the effective date of such conversion,
(ii) an opinion of Bond  Counsel  (which  shall be  confirmed  on the Fixed Rate
Date) to the effect that conversion to a Fixed Interest Rate is permitted by the
Indenture and the Act, that  conversion to the Fixed Interest Rate in accordance
with the provisions of the Indenture will not cause interest on the Bonds to not
be Tax-exempt and that, to the extent  required,  the Borrower has complied with
the Disclosure Requirements as provided in Section 5.12 of the Agreement,  (iii)
receipt by the Trustee of a commitment  from the Bank evidencing that the Letter
of Credit has been increased to provide for the interest,  principal and premium
requirements  on the  Bonds on and after  the  Fixed  Rate Date or an  Alternate
Credit  Facility  pursuant  to the terms of Section 5.7 of the  Agreement  or an
Alternate  Letter  of  Credit  pursuant  to  the  terms  of  Section  5.8 of the
Agreement,  (iv) the  written  consent  of the Bank to such  conversion  and (v)
receipt by the Trustee of written  evidence  from the rating  agency then rating
the Bonds of its rating on the Bonds.

     (B)(1)  After the Fixed Rate Date,  interest on the Bonds shall be computed
on the basis of a year of 360 days and 12 months of 30 days each.  The  interest
rate on all  Bonds  from  the  Fixed  Rate  Date  until  the  maturity  or prior
redemption or acceleration  thereof shall be a rate per annum equal to the Fixed
Interest  Rate,  which shall be  determined on or prior to, but not more than 15
days prior to, the Business Day  immediately  preceding the Fixed Rate Date. The
Remarketing Agent shall specify the Fixed Interest Rate to be borne by the Bonds
on and after the Fixed Rate Date. The Fixed Interest Rate shall be the rate, but
not  exceeding  the  rate,  which at the time of  determination  thereof  in the
judgment of the Remarketing  Agent,  having due regard for prevailing  financial
market conditions,  would be necessary to remarket the Bonds at a price equal to
100% of the principal  amount  thereof on the Fixed Rate Date. If on the date of
determination  by the  Remarketing  Agent of the Fixed  Interest Rate, the Fixed
Interest Rate so  determined is held by a court to be invalid or  unenforceable,
then the Fixed  Interest  Rate  shall be a rate  determined  by the  Remarketing
Agent,  not less than 90% or more than 130% of the "Alternate Fixed Rate," which
in the  judgment  of the  Remarketing  Agent,  having due regard for  prevailing
market conditions, would be the minimum rate at which Holders of the Bonds would
be able to sell the Bonds at a price equal to the  principal  amount  thereof on
the Fixed Rate  Date.  The  Alternate  Fixed  Rate  shall be  determined  by the
Remarketing  Agent and shall be a rate per annum based upon yield evaluations at
par of  Tax-exempt  securities  having a  remaining  term  equal,  as  nearly as
practicable,  to the time remaining  until the maturity of the Bonds of not less
than five Component Issues selected by the Remarketing Agent each of which would
be rated by either Moody's or S&P in a long-term  debt rating  category which is
the same as, or is immediately  proximate to, the long-term debt rating category
which will be assigned  to the Bonds after the Fixed Rate Date.  Anything to the
contrary herein notwithstanding, the Fixed Interest Rate shall not exceed twelve
percent (12%) per annum.  If, after the Fixed Rate Date, the Bonds shall fail to
be converted to a Fixed  Interest Rate, the Bonds will continue to earn interest
at the Weekly  Interest Rate as provided in this Indenture and the Holders shall
be notified thereof by the Trustee.

     (2)  Following an election of the Borrower to convert the interest  rate on
the Bonds to the Fixed  Interest  Rate as provided  in this  Section  2.03,  the
Holders of all of the Outstanding  Bonds shall be required to tender their Bonds
for purchase on the Mandatory Tender Date.

     (3) At least  thirty  (30) days prior to the Fixed Rate Date,  the  Trustee
shall give an irrevocable  notice to the Bondholders of conversion of the Weekly
Interest  Rate borne by the Bonds to the Fixed  Interest  Rate on the Fixed Rate
Date. If a Bondholder delivers a written request to the Trustee at least 45 days
prior to the Fixed Rate Date setting forth the  appropriate  telex or telecopier
number and other  necessary  information  to enable the Trustee to deliver  such
notice by telegram,  telex, telecopier or other telecommunication device capable
of  creating a written  notice  such  notice  shall be  delivered  in the manner
requested.  Such notice  shall (i) specify the  proposed  Fixed Rate Date,  (ii)
require the Holders of all of the  Outstanding  Bonds to tender  their Bonds for
purchase on the Mandatory Tender Date


                                       18

<PAGE>



pursuant  to  Section  4.07,  and (iii)  state  that all  Outstanding  Bonds not
purchased on or before the Mandatory  Tender Date will be deemed to be purchased
on the Mandatory  Tender Date at a price equal to the principal  amount thereof,
plus unpaid interest, if any, accrued to such date.

     (4) Any Bond  purchased by the Tender Agent  pursuant to the  provisions of
Section  4.06  hereof from the date  notice of the  proposed  Fixed Rate Date is
given to  Bondholders  through  the Fixed Rate Date shall be  remarketed  at the
Weekly  Interest  Rate for a period of time up to and  including  the Fixed Rate
Date; provided,  however,  that all Bonds remarketed from the date notice of the
proposed  Fixed Rate Date is given to  Bondholders  through  the Fixed Rate Date
shall be tendered by the Holders  thereof for purchase on the  Mandatory  Tender
Date.

     (5) The  determination of the Fixed Interest Rate by the Remarketing  Agent
shall be conclusive and binding on the Authority,  the Trustee, the Borrower and
the Holders of the Bonds.

     SECTION 2.04.  Execution of Bonds.  The Bonds shall be executed in the name
and on behalf of the  Authority  with the manual or  facsimile  signature of the
Chair of the  Authority  or the Chair's  designee  and attested by the manual or
facsimile  signature of its Secretary.  The Bonds shall then be delivered to the
Bond Registrar for  authentication  by it. In case any of the officers who shall
have  signed or  attested  any of the Bonds  shall  cease to be such  officer or
officers of the Authority before the Bonds so signed or attested shall have been
authenticated  or  delivered by the Bond  Registrar or issued by the  Authority,
such Bonds may  nevertheless  be  authenticated,  delivered and issued and, upon
such authentication,  delivery and issue, shall be as binding upon the Authority
as though  those who  signed  and  attested  the same had  continued  to be such
officers  of the  Authority,  and also any Bonds may be signed and  attested  on
behalf of the  Authority  by such  persons as at the actual date of execution of
such Bonds shall be the proper officers of the Authority although at the nominal
date of such  Bonds any such  person  shall not have  been such  officer  of the
Authority.

     Only  such  of  the  Bonds  as  shall  bear   thereon  a   certificate   of
authentication substantially in the form set forth in Exhibit A, with the manual
signature of the Bond Registrar, shall be valid or obligatory for any purpose or
entitled to the benefits of this  Indenture,  and such  certificate  of the Bond
Registrar shall be conclusive evidence that the Bonds so authenticated have been
duly  executed,  authenticated  and delivered  hereunder and are entitled to the
benefits of this Indenture.

     SECTION  2.05.  Transfer  of Bonds.  Any Bond may, in  accordance  with its
terms,  be  transferred,  upon the books  required  to be kept  pursuant  to the
provisions  of Section 2.07,  by the person in whose name it is  registered,  in
person or by his duly  authorized  attorney,  upon surrender of such  registered
Bond for  cancellation,  accompanied  by  delivery  of a written  instrument  of
transfer, duly executed in a form approved by the Bond Registrar.  Transfer of a
Bond shall not be permitted by the Bond Registrar: (i) if the Bond Registrar has
received notice from the Holder of such Bond that such Bond will be delivered to
the Tender Agent for purchase on or before the next succeeding  Interest Payment
Date or (ii) if the Bond Registrar  receives such written instrument of transfer
after the Record Date prior to the next succeeding Interest Payment Date.

     Whenever any Bond or Bonds shall be surrendered for transfer, the Authority
shall execute and the Bond Registrar shall  authenticate  and deliver a new Bond
or Bonds for a like aggregate  principal  amount in an Authorized  Denomination.
The Bond Registrar shall require the Bondholder  requesting such transfer to pay
any tax or other  governmental  charge  required to be paid with respect to such
transfer,  and may in addition  require the payment of a reasonable sum to cover
expenses  incurred by the  Authority and the Bond  Registrar in connection  with
such transfer.



                                       19

<PAGE>



     Notwithstanding the foregoing,  prior to the Fixed Rate Date, no Bonds held
by or for the account of the Bank or the Borrower shall be transferred  upon the
books required to be kept pursuant to Section 2.07 hereof unless the Trustee has
received positive affirmation that the Bank has received all reimbursements then
due under the  Reimbursement  Agreement  and the Trustee has notified the Tender
Agent in writing  of such  reimbursement,  so that the amount  that may be drawn
under the  Letter of Credit  shall have been,  or shall  concurrently  with such
transfer be, reinstated  (automatically or otherwise), in the amount of the draw
on the Letter of Credit used to purchase such Bonds proposed to be transferred.

     SECTION  2.06.  Exchange of Bonds.  Bonds may be exchanged at the principal
corporate trust office of the Trustee in San Francisco,  California,  or at such
other office as the Trustee may designate, for a like aggregate principal amount
of Bonds of other Authorized Denominations. The Bond Registrar shall require the
Bondholder requesting such exchange to deliver such Bonds to be exchanged and to
pay any tax or other  governmental  charge  required to be paid with  respect to
such  exchange,  and may in addition  require the payment of a reasonable sum to
cover  expenses  incurred by the  Authority or the Bond  Registrar in connection
with such  exchange.  Thereupon,  the Bonds  delivered to the Bond Registrar for
exchange shall be cancelled by the Bond Registrar.

     SECTION 2.07. Bond Register. The Trustee is hereby designated and appointed
as the bond  registrar (the "Bond  Registrar").  The Bond Registrar will keep or
cause to be kept at its corporate trust office in San Francisco,  California, or
at such other office as the Bond Registrar may designate,  sufficient  books for
the  registration  and transfer of the Bonds, and shall keep or cause to be kept
within  the  State a copy of such  books,  which  shall at all  times be open to
inspection   during  regular   business  hours  by  the  Authority;   and,  upon
presentation for such purpose,  the Bond Registrar shall,  under such reasonable
regulations as it may prescribe,  register or transfer or cause to be registered
or transferred, on such books, Bonds as hereinbefore provided.

     SECTION 2.08.  Temporary  Bonds.  The Bonds may be issued in temporary form
exchangeable  for definitive  Bonds when ready for delivery.  Any temporary Bond
may  be  printed,  lithographed  or  typewritten,  shall  be  in  an  Authorized
Denomination,  shall be in fully registered form without coupons and may contain
such  reference to any of the provisions of this Indenture as may be appropriate
and in a form  acceptable to the Paying  Agent.  Every  temporary  Bond shall be
executed by the Authority and be  authenticated  by the Bond  Registrar upon the
same conditions and in substantially the same manner as the definitive Bonds. If
the  Authority  issues  temporary  Bonds it will execute and deliver  definitive
Bonds as promptly  thereafter as practicable,  and thereupon the temporary Bonds
may be  surrendered,  for  cancellation,  in exchange  therefor at the principal
corporate  trust  office  of the Bond  Registrar  and the Bond  Registrar  shall
authenticate and deliver in exchange for such temporary Bonds an equal aggregate
principal  amount of  definitive  Bonds in  Authorized  Denominations.  Until so
exchanged, the temporary Bonds shall be entitled to the same benefits under this
Indenture as definitive Bonds authenticated and delivered hereunder.

     SECTION 2.09. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall
become  mutilated,  the  Authority,  at the  expense of the Holder of said Bond,
shall execute, and the Bond Registrar shall thereupon  authenticate and deliver,
a new Bond of like tenor in exchange and substitution for the Bond so mutilated,
but only upon  surrender to the Bond  Registrar of the Bond so mutilated.  Every
mutilated Bond so surrendered to the Bond Registrar shall be cancelled by it and
delivered  to, or upon the order of, the  Authority.  If any Bond shall be lost,
destroyed  or  stolen,  evidence  of such  loss,  destruction  or  theft  may be
submitted to the Bond Registrar and, if such evidence be  satisfactory to it and
indemnity  satisfactory to the Bond Registrar shall be given, the Authority,  at
the expense of the Holder, shall execute, and the Bond Registrar shall thereupon
authenticate  and  deliver,  a new  Bond  of  like  tenor  in  lieu  of  and  in
substitution  for the Bond so lost,  destroyed  or  stolen  (or if any such Bond
shall have


                                       20

<PAGE>



matured or shall be about to mature,  instead of issuing a substitute  Bond, the
Bond  Registrar  may pay the same without  surrender  thereof upon such maturity
date).  The Bond  Registrar  may  require  payment  by the  Holder  of a sum not
exceeding  the actual cost of preparing  each new Bond issued under this Section
and of the  expenses  which  may be  incurred  by the  Authority  and  the  Bond
Registrar in the premises.  Any Bond issued under the provisions of this Section
in lieu of any Bond alleged to be lost,  destroyed or stolen shall constitute an
original additional  contractual obligation on the part of the Authority whether
or not the  Bond so  alleged  to be lost,  destroyed  or  stolen  be at any time
enforceable  by anyone,  and shall be entitled to the benefits of this Indenture
with all other Bonds secured by this Indenture.

     SECTION 2.10. Special  Obligations.  The Bonds,  together with the interest
and premium (if any) thereon and the purchase price thereof, shall not be deemed
to constitute a debt or liability of the State or any political  subdivision  or
agency of the  State or a pledge  of the  faith  and  credit of the State or any
political  subdivision or agency of the State,  but shall be payable solely from
the funds provided  therefor  pursuant to this  Indenture.  The Bonds are only a
special  obligation  of the  Authority as provided by the Act and the  Authority
shall under no  circumstances  be obligated to pay the Bonds or respective Costs
of the Project except from Revenues and other funds pledged therefor.

     Neither  the  faith and  credit  nor the  taxing  power of the State or any
political  subdivision  or agency of the State is pledged to the  payment of the
principal of, premium, if any, purchase price of or interest on the Bonds nor is
the State or any  political  subdivision  or  agency of the State in any  manner
obligated to make any  appropriation  for such  payment.  The  Authority  has no
taxing power.

     SECTION 2.11.  Book-Entry Only System.  (A) Except as otherwise provided in
subsections (B) and (C) of this Section 2.11, the Bonds initially  authenticated
and  delivered  hereunder  shall be  registered  in the  name of Cede & Co.,  as
nominee of DTC or such other nominee as DTC shall request.  Payments of interest
on,  principal  of and any  premium on the Bonds shall be made to the account of
Cede & Co. on each Bond Payment Date at the address  indicated for Cede & Co. in
the  registration  books  maintained  by  the  Bond  Registrar  by  transfer  of
immediately  available  funds. DTC has represented to the Authority that it will
maintain  a  book-entry   system  in  recording   ownership   interests  of  its
participants  (the  "Direct  Participants")  and the  ownership  interests  of a
purchaser of a beneficial  interest in the Bonds (a "Beneficial  Owner") will be
recorded through book entries on the records of the Direct Participants.

     (B) The Bonds shall be  initially  issued in the form of a separate  single
authenticated  fully  registered  Bond in the  amount  of each  separate  stated
maturity.  With  respect to Bonds so  registered  in the name of Cede & Co., the
Authority,  the Trustee and the Tender  Agent  shall have no  responsibility  or
obligation to any Direct  Participant or to any Beneficial  Owner of such Bonds.
Without limiting the immediately preceding sentence, the Authority,  the Trustee
and the Tender Agent shall have no  responsibility or obligation with respect to
(i) the  accuracy  of the records of DTC,  Cede & Co. or any Direct  Participant
with  respect  to any  beneficial  ownership  interest  in the  Bonds,  (ii) the
delivery to any Direct Participant, Beneficial Owner or other person, other than
DTC,  of any  notice  with  respect  to  the  Bonds,  including  any  notice  of
redemption,  (iii) the payment to any Direct  Participant,  Beneficial  Owner or
other  person,  other than DTC, of any amount with  respect to the  principal or
redemption  price of, or  interest  on, the Bonds or (iv) any  consent  given or
other action taken by DTC as Holder of the Bonds. The Authority, the Trustee and
the Tender  Agent may treat DTC as, and deem DTC to be, the  absolute  Holder of
each Bond for all purposes whatsoever including (but not limited to) (i) payment
of the principal or redemption  price of, and interest on, each such Bond,  (ii)
giving  notices of conversion  or  redemption  and other matters with respect to
such Bonds and (iii)  registering  transfers  with  respect to such  Bonds.  The
Trustee  shall pay the  principal or  redemption  price of, and interest on, all
Bonds only


                                       21

<PAGE>



to or upon the order of DTC, and all such payments  shall be valid and effective
to fully satisfy and discharge the Authority's  obligations with respect to such
principal or redemption price, and interest, to the extent of the sum or sums so
paid. No person other than DTC shall receive a Bond evidencing the obligation of
the Authority to make payments of principal or redemption price of, and interest
on, the Bonds pursuant to this Indenture. Upon delivery by DTC to the Trustee of
written notice to the effect that DTC has determined to substitute a new nominee
in place of Cede & Co., and subject to the transfer  provisions hereof, the word
"Cede & Co." in this Indenture shall refer to such new nominee of DTC.

     (C) (1) DTC may  determine  to  discontinue  providing  its  services  with
respect  to the Bonds at any time by  giving  reasonable  written  notice to the
Authority, the Trustee and the Tender Agent and discharging its responsibilities
with respect thereto under applicable law.

     (2) The  Authority,  in its sole  discretion and without the consent of any
other person, may terminate,  upon provision of notice to the Trustee and Tender
Agent, the services of DTC with respect to the Bonds if the Authority determines
that the continuation of the system of book-entry only transfers through DTC (or
a  successor  securities  depository)  is  not  in  the  best  interests  of the
Beneficial  Owners of the Bonds or is  burdensome  to the  Authority,  and shall
terminate  the  services  of DTC with  respect to the Bonds upon  receipt by the
Authority,  the Trustee and the Tender  Agent of written  notice from DTC to the
effect that DTC has  received  written  notice from Direct  Participants  having
interests,  as shown in the records of DTC, in an aggregate  principal amount of
not less than fifty percent (50%) of the aggregate  principal amount of the then
Outstanding  Bonds to the  effect,  that:  (i) DTC is  unable to  discharge  its
responsibilities  with  respect to such  Bonds,  or (ii) a  continuation  of the
requirement that all of the Outstanding  Bonds be registered in the registration
books kept by the  Trustee in the name of Cede & Co.,  as nominee of DTC, is not
in the best interest of the Beneficial Owners of such Bonds.

     (D) Upon the  termination  of the services of DTC with respect to the Bonds
pursuant  to  subsection  (C)(2)(ii)  hereof,  or  upon  the  discontinuance  or
termination  of the  services  of DTC with  respect  to the  Bonds  pursuant  to
subsection  (C)(1) or  subsection  (C)(2)(i)  hereof  after which no  substitute
securities depository willing to undertake the functions of DTC hereunder can be
found  or  which,  in the  opinion  of the  Authority,  is  willing  and able to
undertake such functions upon reasonable and customary terms, the Bonds shall no
longer be restricted to being registered in the  registration  books kept by the
Bond  Registrar in the name of Cede & Co. as nominee of DTC. In such event,  the
Authority  shall  issue  and  the  Trustee  shall  transfer  and  exchange  Bond
certificates  as  requested  by DTC or  Direct  Participants  of like  principal
amount,  series and maturity,  in Authorized  Denominations  to the identifiable
Beneficial Owners in replacement of such Beneficial Owners' beneficial interests
in the Bonds.

     (E)  Notwithstanding any other provision of this Indenture to the contrary,
so long as any Bond is  registered in the name of Cede & Co., as nominee of DTC,
all payments with respect to the principal or redemption  price of, and interest
on, such Bond and all notices with respect to such Bond shall be made and given,
respectively, to DTC.

     (F) In connection with any notice or other  communication to be provided to
Bondholders pursuant to this Indenture by the Authority, the Tender Agent or the
Trustee with respect to any consent or other action to be taken by  Bondholders,
the  Authority,  the  Tender  Agent or the  Trustee,  as the case may be,  shall
establish a record date for such  consent or other action and give DTC notice of
such record date not less than  fifteen  (15)  calendar  days in advance of such
record date to the extent possible.



                                       22

<PAGE>



     (G) Notwithstanding any provision herein to the contrary, the Authority and
the  Trustee  may agree to allow  DTC,  or its  nominee,  Cede & Co.,  to make a
notation on any Bond  redeemed in part to reflect,  for  informational  purposes
only, the principal amount and date of any such redemption.

     (H)  Notwithstanding  any provision herein to the contrary,  so long as the
Bonds are  subject to a system of  book-entry  only  transfers  pursuant to this
Section,  any  requirement  for the  delivery  of Bonds to the  Tender  Agent in
connection  with a mandatory  tender  pursuant  to Section  4.07 shall be deemed
satisfied upon the transfer, on the registration books of DTC, of the beneficial
ownership  interests  in such Bonds  tendered for purchase to the account of the
Tender Agent, or a Direct Participant acting on behalf of the Tender Agent.


                                   ARTICLE III

                   ISSUANCE OF BONDS; APPLICATION OF PROCEEDS

     SECTION  3.01.  Issuance of the Bonds.  At any time after the  execution of
this  Indenture,  the  Authority  may  execute  and  the  Bond  Registrar  shall
authenticate and, upon Request of the Authority,  deliver Bonds in the aggregate
principal amount set forth in Section 2.01.

     SECTION 3.02.  Application of Proceeds of the Bonds. The proceeds  received
from the sale of the Bonds shall be  deposited  in trust with the  Trustee,  who
shall forthwith set aside such proceeds as follows:

     (A) The  Trustee  shall  set  aside  the sum of  $170,000  in the  Costs of
Issuance Fund,  together with any  additional  money supplied by the Borrower to
pay the Costs of  Issuance,  which  Costs of  Issuance  Fund the  Trustee  shall
establish and maintain as further provided in Section 3.03(E) hereof.

     (B) The Trustee shall set aside the remainder of said proceeds, $8,330,000,
in the Project Fund.

     SECTION 3.03.  Establishment  and  Application of Project Fund and Costs of
Issuance  Fund.  (A) The Trustee shall  establish,  maintain and hold in trust a
separate fund  designated as the "Project  Fund." The moneys in the Project Fund
shall be used and withdrawn by the Trustee to pay the Costs of the Project.

     (B) Subject to paragraph (C) of this Section 3.03,  before any payment from
the Project  Fund shall be made to pay any Costs of the  Project,  the  Borrower
shall file or cause to be filed with the Trustee a  Requisition  of the Borrower
stating (i) the item number of such payment; (ii) the name of the Person to whom
each such payment is due, which may be the Borrower in the case of reimbursement
for any  Costs  of the  Project  theretofore  paid by the  Borrower;  (iii)  the
respective  amounts to be paid; (iv) the purpose by general  classification  for
which each  obligation  to be paid was  incurred;  (v) that  obligations  in the
stated  amounts are  presently  due and payable and that each item  thereof is a
proper  charge  against the Project Fund and has not been  previously  paid from
said fund or from the  proceeds  of the Bonds;  and (vi) that there has not been
filed with or served upon the Borrower  notice of any lien, or attachment  upon,
or claim  affecting the right to receive  payment of, any of the amounts payable
to any of the persons named in such Requisition,  which has not been released or
will not be released  simultaneously with the payment of such obligation,  other
than materialmen's or mechanics' liens accruing by mere operation of law.


                                       23

<PAGE>




     Upon  receipt of each  Requisition,  the  Trustee  shall pay the amount set
forth in such  Requisition  as directed by the terms  thereof out of the Project
Fund. The Trustee may, upon  satisfaction  by the Borrower of the conditions set
forth in this Section 3.03(B), pay each Requisition without the written approval
of the Bank unless the Trustee has  received  written  notice from the Bank that
the payment of any subsequent  Requisition requires the Bank's written approval.
The  Trustee  shall not make any such  payment  if it has  theretofore  received
notice of any lien,  right to lien or attachment  upon,  or claim  affecting the
right to receive payment of, any of the moneys to be so paid, which has not been
released or will not be released simultaneously with such payment.

     (C) In the event the Borrower elects to invest any moneys on deposit in the
Project Fund in Permitted  Investments other than Investment Securities pursuant
to Section 5.05 of this  Indenture,  the Trustee shall,  prior to the payment of
any  Requisition  which would  result in the amount  remaining on deposit in the
Project Fund being less than 2% of the  principal  amount of the Bonds set forth
in Section 2.01,  notify the Borrower that a rebate  calculation  is required to
determine the Rebate Requirement (as defined in the Tax Regulatory Agreement) in
accordance with Section 5.07 of this Indenture. In addition, the payment of such
Requisition  by the  Trustee  shall  be  subject  to prior  compliance  with the
provisions of Section 5.07 of this Indenture and the Tax Regulatory Agreement.

     (D) Subject to paragraph (C) of this Section 3.03,  upon the receipt of the
Certificate  of  the  Borrower   required  by  Section  3.3  of  the  Agreement,
accompanied by the written  approval of the Bank, or at such time that there are
no Outstanding  Bonds,  the Trustee shall transfer any remaining  balance in the
Project  Fund,  less the amount of any such  retention,  to a  separate  account
within the  Redemption  Account,  which the Trustee shall  establish and hold in
trust,  and which shall be entitled  the  "Surplus  Account."  The moneys in the
Surplus Account shall be used and applied (unless some other application of such
moneys  would  not,  in the  opinion  of  Bond  Counsel,  adversely  affect  the
Tax-exempt  status of interest on the Bonds) to pay principal only in connection
with the call and  redemption  of Bonds to the  maximum  degree  permissible  in
accordance with Section 4.01 hereof, and at the earliest possible dates at which
Bonds can be redeemed  without payment of premium  pursuant to this Indenture or
to reimburse  the Bank for any draws  theretofore  made by the Trustee under the
Letter of Credit,  but not yet  reimbursed,  the  proceeds of which were used to
accomplish such  redemption;  provided,  however,  that the principal of Pledged
Bonds shall be paid from moneys in the Surplus  Account  prior to the payment of
principal of any other outstanding  Bonds. Any moneys in the Surplus Account not
used to call and redeem Bonds or to reimburse the Bank as herein  provided shall
be used and applied to pay the principal of the Bonds as such principal  becomes
due and  payable,  in annual  amounts  which  bear the same  ratio to the annual
principal  due on the Bonds that the amount  deposited  in the  Surplus  Account
bears to the  original  face amount of the Bonds  (unless in the opinion of Bond
Counsel another use would not adversely affect the Tax-exempt status of interest
on the Bonds).  Notwithstanding  Section 5.05, the moneys in the Surplus Account
shall be invested at a yield no higher than the yield on the  Outstanding  Bonds
(unless in the opinion of Bond  Counsel  investment  at a higher yield would not
adversely affect the Tax-exempt  status of interest on the Bonds),  and all such
investment  income  shall be  deposited  in the Surplus  Account and expended or
reinvested as provided above.

     (E) The Trustee shall establish, maintain and hold in trust a separate fund
designated as the "Costs of Issuance  Fund." The moneys in the Costs of Issuance
Fund shall be held by the  Trustee in trust and  applied to the payment of Costs
of  Issuance,  upon a  requisition  or  letter  filed  with  the  Trustee  by an
Authorized  Representative  of  the  Borrower  or a  designee  of an  Authorized
Representative  of the  Borrower.  Any money  remaining in the Costs of Issuance
Fund on February  1, 1998 shall be either  transferred  to the  Project  Fund or
returned to the Borrower, at the direction of the Borrower.



                                       24

<PAGE>



     SECTION  3.04.  Validity of Bonds.  The validity of the  authorization  and
issuance of the Bonds is not  dependent  on and shall not be affected in any way
by any  proceedings  taken by the Authority or the Trustee with respect to or in
connection with the Agreement.  The recital contained in the Bonds that the same
are issued pursuant to the Act and the  Constitution and laws of the State shall
be conclusive  evidence of their validity and of compliance  with the provisions
of law in their issuance.


                                   ARTICLE IV

                        REDEMPTION AND PURCHASE OF BONDS

     SECTION 4.01.  Terms of Redemption.  The Bonds are subject to redemption by
the  Authority  if and to the extent the Borrower is entitled to make and makes,
or is required to make, a payment or prepayment  pursuant to Articles IV or VIII
of the Agreement. All such prepayments by the Borrower shall be deposited in the
Redemption  Account.  The  Authority  shall  not call  the  Bonds  for  optional
redemption, and the Trustee shall not give notice of any such redemption, unless
the Borrower has so directed in  accordance  with the  Agreement and has made or
caused to be made all required installments of the Borrower's  obligations under
the  Agreement;  provided  that the  Authority  may require such  payment  under
Section 8.3 of the Agreement without the Borrower's direction.

     The  Bonds  shall  be  subject  to  redemption  by the  Authority  upon the
following  terms  in  increments  of  $5,000,  provided  that  in the  event  of
redemption of less than all of the Bonds,  the amount which remains  Outstanding
shall be in Authorized Denominations:

     (1) Sinking  Fund  Redemption.  The Bonds are not  subject to sinking  fund
redemption.

     (2) Prior to the Fixed Rate Date.  On or prior to the Fixed Rate Date,  the
Bonds are subject to optional  redemption on any Interest Payment Date, in whole
or in part, to the extent of prepayments of amounts due under the Agreement made
at the option of the Borrower  pursuant to Section  8.2(b) of the Agreement with
the written approval of the Bank, at a redemption price of 100% of the principal
amount  of the  Bonds to be  redeemed,  plus  interest  accrued  thereon  to the
redemption date.

     (3) Taxability. In the event of a prepayment pursuant to Section 8.3(a)(ii)
or  Section  8.3(a)(iii)  of the  Agreement  as a result of a  Determination  of
Taxability,   Bonds   Outstanding   on  the  date  of  the  occurrence  of  such
Determination  of  Taxability  shall be  redeemed in whole at any time within 60
days after  such  occurrence,  at a  redemption  price of 100% of the  principal
amount  thereof  plus  interest  accrued  thereon  to the  redemption  date.  No
redemption  of Bonds shall be made  pursuant to any of the other  provisions  of
this Section 4.01 following a Determination  of Taxability.  IF THE LIEN OF THIS
INDENTURE  IS  DISCHARGED   PRIOR  TO  THE  OCCURRENCE  OF  A  DETERMINATION  OF
TAXABILITY, THEN THE BONDS SHALL NOT BE REDEEMED AS DESCRIBED IN THIS SUBSECTION
4.01(3).

     (4) Letter of Credit. The Bonds shall be redeemed in whole, at a redemption
price equal to 100% of the  principal  amount  thereof,  plus  interest  accrued
thereon to the redemption  date, on a redemption date not less than fifteen (15)
days  preceding  the  Expiration  Date of the Letter of Credit  selected  by the
Trustee if no  Alternate  Letter of Credit has been  delivered to the Trustee in
accordance with Section 5.8 of the Agreement.



                                       25

<PAGE>



     (5)  Extraordinary  Events.  To the extent of a prepayment  by the Borrower
pursuant to Sections 8.2(a), 8.3(a)(i) or 8.3(b) of the Agreement, the Bonds are
subject to redemption  prior to their stated  maturity as a whole or in part, on
any date, at a redemption  price equal to 100% of the principal  amount thereof,
plus interest accrued thereon to the redemption date.

     (6)  Optional  Redemption  After the Fixed Rate Date.  After the Fixed Rate
Date,  the Bonds are  subject  to  redemption  to the extent of  prepayments  of
amounts due under the Agreement  made at the option of the Borrower  pursuant to
Section  8.2(b) of the  Agreement,  with the consent of the Bank, in whole or in
part,  on any Interest  Payment  Date during the  applicable  periods  specified
below, at the applicable  redemption  price stated below,  plus interest accrued
thereon to the redemption date:

Number of Years
From Fixed Rate Date          First Optional            Redemption
to Final Maturity             Redemption Date           Price

greater than 9 years          7 years from              102%,
                              conversion                declining
                                                        1% annually
                                                        to 100%

6-9 years                     6 years from              101%,
                              conversion                declining
                                                        1% annually
                                                        to 100%

less than 6 years             no optional
                              redemption

Notwithstanding the optional redemption schedule set forth above, on or prior to
the Fixed Rate Date,  the  Remarketing  Agent may provide an alternate  optional
redemption schedule if it obtains an opinion of Bond Counsel that such alternate
schedule will not cause interest on the Bonds not to be Tax-exempt.

     (7) Mandatory  Redemption for Reimbursement  Agreement  Default.  The Bonds
shall be redeemed in whole, at a redemption price equal to 100% of the principal
amount thereof,  plus interest  accrued thereon to the redemption  date,  within
five (5) calendar days (and before the following  Saturday if the fifth calendar
day is a Saturday)  from the date the Trustee  receives  written notice from the
Bank that an event of default has taken place under the Reimbursement  Agreement
and directing the Trustee to redeem the Bonds.

     (8)  Mandatory  Redemption  from  Excess  Funds.  The Bonds are  subject to
redemption in part on any Interest  Payment Date at a redemption  price equal to
100% of the principal  amount thereof,  plus accrued  interest to the redemption
date,  on the next  succeeding  Interest  Payment  Date to the extent of amounts
remaining in the Project Fund upon completion of the Project which are deposited
in the Surplus  Account and  directed to be used to redeem  Bonds as provided in
Section 3.03(D).

     SECTION 4.02. Selection of Bonds for Redemption. Whenever provision is made
in this Indenture for the redemption of less than all of the Bonds,  the Trustee
shall select the Bonds to be


                                       26

<PAGE>



redeemed from all Bonds or such given portion thereof not previously  called for
redemption by lot in any manner which the Trustee in its sole  discretion  shall
deem  appropriate and fair, to be credited against the principal of the Bonds to
be redeemed;  provided,  however, that in connection with an optional redemption
of the Bonds,  Pledged Bonds shall be the first Bonds  selected for  redemption;
and provided  further,  that the Bonds  Outstanding  after giving  effect to any
redemption  shall be in Authorized  Denominations.  Upon  selection of Bonds for
redemption  on or prior to the Fixed Rate Date,  the  Trustee  will  immediately
notify the Tender Agent of the Bonds selected for redemption.

     SECTION 4.03.  Notice of  Redemption.  (A) The Trustee shall mail notice of
redemption  (1) prior to the Fixed Rate Date,  not less than fifteen days before
such  redemption  date,  (except in the case of redemptions  pursuant to Section
4.01(4)  in which  case not less than  five  days or in the case of  redemptions
pursuant  to Section  4.01(7),  in which case  notice  shall be given as soon as
practicable),  and (2) after the Fixed  Rate  Date,  not less than  thirty  days
before  such  redemption  date  (except in the case of  redemptions  pursuant to
Section  4.01(4),  in  which  case  not less  than  five  days or in the case of
redemptions  pursuant to Section 4.01(7), in which case notice shall be given as
soon as  practicable)  to the  respective  Holders of any Bonds  designated  for
redemption at their addresses on the  registration  books maintained by the Bond
Registrar.  Each notice of redemption shall state the redemption date, the place
or places of redemption,  if less than all of the Bonds are to be redeemed,  the
distinctive numbers of the Bonds to be redeemed,  and in the case of Bonds to be
redeemed in part only, the respective  portions of the principal  amount thereof
to be  redeemed.  Each such notice shall also state that on said date there will
become due and  payable on each of said Bonds the  principal  thereof or of said
specified  portion of the principal thereof in the case of a Bond to be redeemed
in part only,  and that from and after such  redemption  date  interest  thereon
shall cease to accrue, and shall require that such Bonds be then surrendered.

     (B) Notice of  redemption  of Bonds shall be given by the  Trustee,  at the
expense of the Authority, for and on behalf of the Authority.

     (C) In the case of redemption  pursuant to Section 4.01 in connection  with
refunding  obligations to be issued for such purpose,  notice of such redemption
may be cancelled if such refunding obligations are not issued on or prior to the
date fixed for such redemption.

     (D)  Receipt of such  notice  shall not be a  condition  precedent  to such
redemption  and failure so to mail any such notice to a Holder  shall not affect
the validity of the proceedings for the redemption of Bonds of any Holder.

     (E) The Trustee shall,  at the same time the notice in subsection (A) above
is mailed,  also send a copy of the  notice by  certified  mail or by  overnight
delivery to each Securities Depository and to an Information Service. Failure to
provide  notice  to the  Tender  Agent,  the  Remarketing  Agent,  a  Securities
Depository  or to an  Information  Service  shall not  affect  the  validity  of
proceedings for the redemption of Bonds.

     SECTION  4.04.  Partial  Redemption  of Bonds.  Upon  surrender of any Bond
redeemed in part only, the Authority  shall execute and the Bond Registrar shall
authenticate and deliver to the registered owner thereof,  at the expense of the
Authority,  a new Bond or Bonds of Authorized  Denominations  equal in aggregate
principal amount to the unredeemed portion of the Bond surrendered.

     SECTION 4.05.  Effect of Redemption.  Notice of redemption having been duly
given as aforesaid,  and Available Moneys for payment of the redemption price of
the Bonds,  together  with  interest  accrued to the date fixed for  redemption,
being held by the Trustee, the Bonds (or portions


                                       27

<PAGE>



thereof) so called for redemption shall become due and payable on the redemption
date designated in such notice,  interest on the Bonds (or portions  thereof) so
called for redemption  shall cease to accrue,  said Bonds (or portions  thereof)
shall cease to be entitled to any benefit or security under this Indenture,  and
the  Holders of said Bonds  shall  have no rights in respect  thereof  except to
receive payment of said principal,  premium, if any, and interest accrued to the
date fixed for redemption.

     All Bonds  redeemed  pursuant to the  provisions  of this Article  shall be
cancelled  upon  surrender  thereof by the Trustee and  delivered to or upon the
order of the Authority.

     SECTION 4.06.  Purchase of Bonds by Tender  Agent.  Prior to the Fixed Rate
Date,  the Bonds may be delivered by the Holders  thereof to the Tender Agent at
its principal corporate trust office in San Francisco, California, or such other
place  as the  Tender  Agent  may  designate  in  writing  to  Bondholders,  the
Authority,  the Trustee,  the Bank, the Borrower and the Remarketing  Agent. Any
Bond so delivered shall be purchased by the Tender Agent on demand of the Holder
thereof  on the  close of any  Business  Day at a  purchase  price  equal to the
principal  amount thereof plus accrued interest to but not including the date of
purchase  (unless  such date is an  Interest  Payment  Date,  in which  case the
purchase  price will be the  principal  amount of such Bond);  provided that the
Tender Agent will be under no  obligation  to use its own funds to purchase such
Bonds and  provided  further  that  sufficient  funds in the  Purchase  Fund are
immediately available for purchase of the Bonds and upon:

     (A) delivery to the Tender Agent of an  irrevocable  written notice by 4:00
p.m.,  California  time,  (if not received by 4:00 p.m.,  California  time, on a
Business Day it shall be deemed  received on the next  succeeding  Business Day)
which  states (A) the name and address of the Holder,  (B) the number or numbers
of the Bond or Bonds to be purchased,  (C) the aggregate principal amount of the
Bond or Bonds to be  purchased,  and (D) the date on which  the Bond is or Bonds
are to be purchased, which date shall be a Business Day not prior to the seventh
(7th) calendar day next succeeding the date of delivery of such notice; and

     (B)  delivery  to the Tender  Agent at or prior to 10:00  a.m.,  California
time, on the Purchase Date  specified in the  aforesaid  notice,  of the Bond or
Bonds to be tendered; provided, however, that any Bond for which a notice of the
exercise of the  purchase  option has been given as provided in  subsection  (A)
above and which is not so  delivered  shall be deemed  delivered  on the date of
purchase and shall be purchased in accordance with the Indenture.

     All Bonds,  or portions  thereof,  purchased  pursuant to this Section 4.06
shall be purchased in an amount equal to an Authorized Denomination. The Trustee
shall upon request of the Tender Agent calculate the purchase price of any Bonds
purchased  pursuant to this  Section  4.06 and shall  notify the Tender Agent of
such amount prior to the Purchase Date.

     SECTION 4.07. Mandatory Tender of Bonds. On each Mandatory Tender Date, the
Bonds shall be subject to mandatory tender for purchase on such Mandatory Tender
Date at a purchase  price equal to the principal  amount  thereof,  plus accrued
interest,  if any. The Holders of all of the Outstanding Bonds shall be required
to tender their Bonds for purchase by the Tender Agent on the  Mandatory  Tender
Date.  All Bonds which on the  Mandatory  Tender Date have not been tendered for
purchase  ("Non-Tendered  Bonds"), shall be deemed purchased by the Tender Agent
on the  Mandatory  Tender Date at a price of the principal  amount  thereof plus
unpaid  interest  accrued,  if any,  to such  date.  Replacement  Bonds  for the
Non-Tendered  Bonds may be remarketed and delivered to new Holders as instructed
by the Borrower or the Remarketing  Agent.  The Tender Agent shall hold in trust
for the Holders of the Non-Tendered Bonds the purchase price thereof,  and after
the Mandatory Tender Date such owners will


                                       28

<PAGE>



no longer be entitled to any of the  benefits of this  Indenture  except for the
payment of such purchase price.


                                    ARTICLE V

                          REVENUES; FUNDS AND ACCOUNTS;
                        PAYMENT OF PRINCIPAL AND INTEREST

     SECTION 5.01. Pledge and Assignment;  Revenue Fund. (A) Subject only to the
provisions of this Indenture permitting the application thereof for the purposes
and on the terms and  conditions  set forth herein,  all of the Revenues and any
other  amounts  (including  proceeds  of the sale of Bonds)  held in any fund or
account established pursuant to this Indenture (except to the extent provided in
Sections  5.05,  7.03 and 8.06 and  excepting the Rebate Fund created by Section
5.07) are hereby pledged by the Authority to secure the payment of the principal
and purchase  price of and interest on the Bonds in accordance  with their terms
and the  provisions of this  Indenture and  thereafter,  on a basis  subordinate
thereto,   to  secure  the   Borrower's   obligations  to  the  Bank  under  the
Reimbursement  Agreement.  Said pledge  shall  constitute a lien on and security
interest in such assets and shall attach,  be perfected and be valid and binding
from and after  delivery  by the  Trustee of the  Bonds,  without  any  physical
delivery thereof or further act.

     (B) The Authority  hereby  transfers in trust,  and assigns to the Trustee,
for the benefit of the Holders of the Bonds,  and the Bank, to the extent of its
interest therein, all of the Revenues and other assets pledged in subsection (A)
of this Section and all of the right, title and interest of the Authority in the
Agreement (except for the right to receive any Additional Payments to the extent
payable to the  Authority,  any rights of the Authority to  indemnification  and
rights of inspection  and  consent).  The Trustee shall be entitled to and shall
collect and receive all of the Revenues,  and any Revenues collected or received
by the  Authority  shall be deemed to be held,  and to have  been  collected  or
received,  by the  Authority as the agent of the Trustee and shall  forthwith be
paid by the Authority to the Trustee.  The Trustee also shall be entitled to and
shall  take all steps,  actions  and  proceedings  reasonably  necessary  in its
judgment to enforce, either jointly with the Authority or separately, all of the
rights of the Authority  and all of the  obligations  of the Borrower  under the
Agreement.

     The Trustee  agrees that,  so long as the Trustee holds any Revenues or any
other  amounts  (including  proceeds  of the sale of the  Bonds)  in any fund or
account  established  pursuant  to  this  Indenture  which  are  pledged  by the
Authority or the Borrower to secure the payment of the principal of and interest
on  the  Bonds  and  the   Borrower's   reimbursement   obligations   under  the
Reimbursement Agreement, the Trustee shall hold the same as the collateral agent
and bailee of the Bank but only to the extent of amounts  paid by the Bank under
the Letter of Credit for which the Bank has not received  reimbursement from the
Borrower for purposes of perfecting  the lien and security  interest of the Bank
therein.  Upon  receipt of written  notice from the Bank that the  Borrower  has
failed to  reimburse  the Bank for a draw under the Letter of Credit as required
by the Reimbursement  Agreement, the Trustee shall either cause all accounts and
investments which are the subject of the preceding sentence to be titled in such
a manner to reflect  that the Bank has an interest  therein as  described in the
preceding  sentence or ensure  that each Person with whom the Trustee  places or
through  whom the  Trustee  invests  any  moneys  which are the  subject  of the
preceding sentence is advised of the Bank's interest therein as described in the
preceding  sentence and instructed to mark its records to reflect such interest.
The  Trustee  shall not  pledge,  hypothecate,  transfer  or release  all or any
portion of the  Revenues  to any persons  (including,  without  limitation,  the
Borrower) other than Holders of the Bonds in payment thereof or in any manner


                                       29

<PAGE>



not in accordance with this Indenture or the Reimbursement Agreement without the
written consent of the Authority and the Bank, except as otherwise required by a
court of law.

     (C) All  Revenues  shall be promptly  deposited by the Trustee upon receipt
thereof in a special fund designated as the Revenue Fund which the Trustee shall
establish,  maintain and hold in trust;  except as otherwise provided in Section
5.02,  all moneys  received by the Trustee and  required to be  deposited in the
Project  Fund shall be promptly  deposited  in the  Project  Fund and all moneys
received by the Trustee and required to be deposited in the  Redemption  Account
shall be promptly deposited in the Redemption  Account,  which the Trustee shall
establish,  maintain and hold in trust. All Revenues  deposited with the Trustee
shall be held, disbursed,  allocated and applied by the Trustee only as provided
in this  Indenture.  All moneys held by the Tender  Agent for the payment of the
principal  or purchase  price of,  premium,  if any,  and interest on the Bonds,
shall be held by the Tender Agent in trust for the payment of such Bonds.

     SECTION  5.02.  Allocation  of Revenues.  Loan  Repayments  received by the
Trustee from the Borrower  pursuant to Section 4.2(a) of the Agreement  shall be
deposited by the Trustee into the following  respective  accounts (each of which
the Trustee  shall  establish  and  maintain  within the Revenue  Fund),  in the
following amounts,  in the following order of priority,  and the requirements of
each such  account  (including  the  making up of any  deficiencies  in any such
account resulting from lack of Revenues  sufficient to make any earlier required
deposit) at the time of deposit  shall be satisfied  before any transfer is made
to any account subsequent in priority, and provided, that no moneys representing
drawings  under the  Letter of Credit  shall be  transferred  into the  Interest
Account, the Principal Account or the Redemption Account of the Revenue Fund:

     First:  to the  Interest  Account,  the  amount  paid by the  Borrower  and
designated as or  attributable  to interest on the Bonds in the most recent Loan
Repayment,  so that the  aggregate of such amounts  will,  on the next  Interest
Payment  Date,  equal the amount of interest  due on the Bonds on such  Interest
Payment Date.

     Second:  to the  Principal  Account,  the amount paid by the  Borrower  and
designated as or  attributable to principal of the Bonds in the most recent Loan
Repayment,  so that the aggregate of such amounts  will, on the next  succeeding
principal  payment date,  equal the amount of principal due (whether at maturity
or by acceleration) on such principal payment date.

     Third:  to the Redemption  Account,  the aggregate  amount of principal and
premium, if any, next coming due by redemption permitted (as directed in writing
by the  Borrower) or required  under Article IV hereof,  or any portion  thereof
paid by the Borrower.

     SECTION 5.03. Priority of Moneys in Revenue Fund; Letter of Credit Account.
(A) Funds for the payment of the principal or  redemption  price of and interest
on the  Bonds  shall be  derived  from the  following  sources  in the  order of
priority  indicated  in each  of the  accounts  in the  Revenue  Fund;  provided
however,  that amounts in the respective  accounts within the Revenue Fund shall
be used to pay the  principal or  redemption  price of and interest on the Bonds
held by Holders other than the Bank or the Borrower  prior to the payment of the
principal  and  interest  on the  Bonds  held by the Bank or the  Borrower,  and
provided further, that if principal or redemption price (or any portion thereof)
of and interest on the Bonds is paid with moneys  described in subparagraph  (i)
of this Section 5.03(A),  any other moneys on deposit in the respective accounts
in the Revenue Fund shall be applied to  immediately  reimburse the Bank by wire
transfer in the amount of any such drawings:



                                       30

<PAGE>



          (i) moneys paid into the Letter of Credit  Account of the Revenue Fund
representing the proceeds of drawings by the Trustee under the Letter of Credit;

          (ii)  moneys  paid into the  Interest  Account,  if any,  representing
accrued interest received at the initial sale of the Bonds and proceeds from the
investment  thereof  which  shall be applied to the  payment of  interest on the
Bonds;

          (iii) moneys paid into the Revenue Fund  pursuant to Section  10.01(B)
and proceeds from the investment thereof, which constitute Available Moneys;

          (iv) moneys deposited into the Redemption  Account pursuant to Section
3.03(D) and proceeds from the investment thereof;

          (v) any other moneys (not derived  from  drawings  under the Letter of
Credit)  paid into the Revenue Fund and proceeds  from the  investment  thereof,
which constitute Available Moneys; and

          (vi) any other moneys paid into the Revenue Fund and proceeds from the
investment thereof, which are not Available Moneys.

     The Trustee shall create within the Revenue Fund a separate  account called
the "Letter of Credit  Account," and all moneys drawn under the Letter of Credit
shall be deposited and disbursed  either in the Letter of Credit  Account or the
Liquidity  Account  established  pursuant to Section 8.10. None of the Borrower,
any Related Party, the Trustee or the Authority shall have any legal,  equitable
or beneficial  right,  title or interest in the Letter of Credit  Account or the
Liquidity Account.  The Letter of Credit Account and the Liquidity Account shall
be established and maintained by the Trustee and the Tender Agent, respectively,
and held in trust  apart from all other  moneys and  securities  held under this
Indenture  or  otherwise,  and over  which the  Trustee  and the  Tender  Agent,
respectively,  shall have the  exclusive  and sole right of  withdrawal  for the
exclusive benefit of the Holders of the Bonds with respect to which each drawing
is made.

     (B) The Trustee  shall draw moneys under the Letter of Credit in accordance
with the terms thereof in amounts  necessary to make full and timely payments of
principal of, premium, if any, and interest on the Bonds, other than Bonds owned
by or for the account of the Borrower or the Bank when due, whether at maturity,
redemption,  acceleration,  an Interest Payment Date or otherwise.  In addition,
the Trustee shall draw moneys under the Letter of Credit in accordance  with the
terms thereof to the extent necessary to make full and timely payments  required
to be made pursuant to, and in accordance  with,  Article VIII hereof to pay the
purchase price of tendered  Bonds.  The Trustee shall notify the Borrower of any
proposed  drawing on the Letter of Credit  (other than with respect to scheduled
payments of principal and interest), as and when it notifies the Bank.

     (C) If on the Fixed  Rate Date  there  shall  have  been  delivered  to the
Trustee an Alternate Credit Facility pursuant to Section 5.7 of the Agreement or
if at any time  there  shall have been  delivered  to the  Trustee an  Alternate
Letter of Credit  pursuant  to Section  5.8 of the  Agreement,  then the Trustee
shall accept such Alternate  Credit Facility or Alternate  Letter of Credit,  as
applicable,  and promptly  surrender the previously held Letter of Credit to the
issuing Bank for cancellation,  and shall promptly take all actions requested by
the  issuing  Bank to  convey to such Bank or  otherwise  relinquish  all of its
right,  title and interest in any security  held jointly by the issuing Bank and
the  Trustee.  If at any time  there  shall  cease to be any  Bonds  Outstanding
hereunder, the Trustee shall promptly surrender


                                       31

<PAGE>



the Letter of Credit to the Bank for cancellation. The Trustee shall comply with
the  procedures  set forth in the  Letter of Credit  relating  to the  surrender
thereof.

     SECTION  5.04.  Letter of  Credit.  Subject  to the  provisions  of Section
5.03(C),  the  Trustee  shall  hold and  maintain  the  Letter of Credit for the
benefit of the Bondholders until the Letter of Credit expires in accordance with
its terms.  The  Trustee  shall  diligently  observe  all terms,  covenants  and
conditions of the Letter of Credit,  including  payment when due of any draws on
the Letter of Credit,  and the  provisions  relating to the payment of draws on,
and reinstatement of amounts that may be drawn under, the Letter of Credit,  and
will not consent to,  agree to or permit any  amendment or  modification  of the
Letter of Credit  which  would  adversely  affect the rights or  security of the
Holders  of the Bonds.  If at any time  during the term of the Letter of Credit,
any successor Trustee shall be appointed and qualified under this Indenture, the
resigning or removed  Trustee shall request that the Bank transfer the Letter of
Credit to the successor  Trustee in accordance  with the procedures for transfer
specified in the Letter of Credit.  If the resigning or removed Trustee fails to
make  this  request,   the  successor  Trustee  shall  do  so  before  accepting
appointment.  The Trustee  shall send notice to the Bank and the Borrower of the
expiration of the Letter of Credit at least two months prior to the date of such
expiration.

     At least thirty (30) days prior to the Letter of Credit  Substitution Date,
the  Trustee  shall send a written  notice to the  Bondholders  relating  to the
Borrower's  election  pursuant  to Section  5.8 of the  Agreement  to deliver an
Alternate  Letter of Credit to the  Trustee.  Such notice  shall (i) specify the
proposed Letter of Credit  Substitution Date, (ii) require the Holders of all of
the Outstanding Bonds to tender their Bonds for purchase on the Mandatory Tender
Date pursuant to Section 4.07,  and (iii) state that all  Outstanding  Bonds not
purchased on or before the Mandatory  Tender Date will be deemed to be purchased
on the Mandatory  Tender Date at a price equal to the principal  amount thereof,
plus unpaid interest, if any, accrued to such date.

     SECTION 5.05. Investment of Moneys.  Subject to the following sentence, all
moneys in any of the funds or accounts  established  pursuant to this  Indenture
shall be  invested  by the  Trustee as  directed  in  writing  by an  Authorized
Representative of the Borrower, in Permitted Investments maturing not later than
the date on which it is  estimated  that such moneys  will be  required  for the
purposes  specified in this Indenture;  provided,  however,  that: (i) moneys on
deposit in the Letter of Credit  Account  and the  Purchase  Fund and any moneys
held pursuant to Section 4.07 shall be held uninvested;  (ii) any moneys held in
trust for the  payment or  redemption  of Bonds  pursuant  to Article X shall be
invested  as  provided in Section  10.03;  (iii)  moneys held in the Rebate Fund
shall be invested in direct  obligations  of the United States or bonds or other
obligations  guaranteed  by the United  States  government or for which the full
faith and credit of the United  States is pledged for the  payment of  principal
and  interest  thereof,  or in money  market  funds the  investment  of which is
limited to such  obligations,  in each case rated in the highest rating category
applicable to such investments  which mature not later than the date on which it
is  estimated  that such moneys will be required;  and (iv) moneys  described in
clause (ii),  (iii),  or (iv) of Section  5.03(A) shall be invested in Permitted
Investments  rated A-l or Prime 1 or higher by S&P and Moody's  which mature not
later than the date on which such  moneys  will be  required to pay the Bonds or
the interest  thereon.  Immediately upon the giving by the Trustee of the notice
provided for in paragraph (C) of Section 3.03 of this  Indenture,  all moneys in
any of the funds or accounts established pursuant to this Indenture,  subject to
the limitations set forth in (i) through (iv) of the first sentence above, shall
be invested by the Trustee in Permitted  Investments maturing not later than the
date on which it is estimated that such moneys will be required for the purposes
specified in this Indenture.

     Permitted Investments may be purchased at such prices as the Trustee may in
its discretion determine or as may be directed by the Borrower or its agent. All
Permitted  Investments  shall be acquired as directed by the Borrower subject to
the limitations set forth in Section 6.06, the limitations


                                       32

<PAGE>



as to maturities in this Section set forth,  and such additional  limitations or
requirements  consistent  with the foregoing as may be established by Request of
the Borrower.  Notwithstanding  any other  provision  herein,  in the absence of
written investment  instructions from the Borrower directing the Trustee by noon
of the Business  Day  preceding  the day when  investments  are to be made,  the
Trustee is directed to invest  available  funds not  described  in clauses  (i),
(ii), or (iii) of the first paragraph of this Section in Investment  Securities.
The  Trustee  shall  not be  liable  for any  consequences  resulting  from  any
investments  made  pursuant  to  the  preceding  sentence  except  for  its  own
negligence or wilful misconduct.

     All  interest,  profits and other income  received  from the  investment of
moneys in any fund established pursuant to this Indenture, (1) prior to delivery
to the Trustee of the  Certificate of the Borrower with respect to completion of
the Project (as provided in Section 3.03(D)) shall be deposited when received in
the  Project  Fund,  and (2) after the  delivery  of such  Certificate  shall be
deposited in the Revenue Fund; except that any such interest,  profits and other
income  received  from the  investment  of: (i) any moneys held in trust for the
payment  or  redemption  of Bonds  pursuant  to  Article X shall be  applied  as
provided  in  Article X; and (ii) any  moneys  held in the Rebate  Fund shall be
deposited in such fund.  Notwithstanding  anything to the contrary  contained in
this  paragraph,  an amount of interest  received  with respect to any Permitted
Investment equal to the amount of accrued interest,  if any, paid as part of the
purchase price of such Permitted  Investment  shall be credited to the fund from
which such accrued interest was paid.

     For the  purpose  of  determining  the  amount in any fund,  all  Permitted
Investments  credited  to such fund shall be valued at the market  value of such
Permitted Investments.

     The Trustee may act as principal or agent in the making or disposing of any
investment.  The Trustee may sell at the best price  obtainable in the Trustee's
sole  discretion,  or  present  for  redemption,  any  Permitted  Investment  so
purchased  whenever it shall be necessary to provide moneys to meet any required
payment,  transfer,  withdrawal  or  disbursement  from the  fund to which  such
Permitted  Investment  is  credited,  and the  Trustee  shall  not be  liable or
responsible  for any loss  resulting  from such  investment  except  for its own
negligence or wilful misconduct.  For investment  purposes only, the Trustee may
commingle  moneys  held in the  Interest  Account and  Principal  Account of the
Revenue Fund.

     SECTION 5.06.  Additional Duties of Trustee.  While the Bonds bear interest
at the Weekly  Interest  Rate,  on or prior to the Business Day  preceding  each
Interest Payment Date, the Trustee shall send to the Borrower an invoice for the
interest  accrued on the Bonds for the current  Interest  Period  which is to be
paid pursuant to Section 4.2 of the Agreement.  While the Bonds bear interest at
the Fixed Interest Rate,  thirty (30) days prior to each Interest  Payment Date,
the Trustee  shall send to the  Borrower an invoice for the  interest due on the
Bonds on the next succeeding  Interest Payment Date which is to be paid pursuant
to  Section  4.2 of the  Agreement.  The  Trustee  shall send a copy of any such
invoice sent to the Borrower to the Bank. If full payment of any such invoice is
not received by the date the Borrower is required to make such payment  pursuant
to Section 4.2 of the Agreement, the Trustee shall immediately notify in writing
the Bank, the Borrower and the Authority of such  nonpayment or  underpayment by
the Borrower.  The Trustee shall  immediately  give the Bank written notice upon
the failure of the Borrower to make any  principal  payment  pursuant to Section
4.2 of the Agreement.

     SECTION 5.07. Establishment of Rebate Fund. (A) The Trustee shall establish
and maintain a fund  separate  from any other fund  established  and  maintained
hereunder  designated  as the "Rebate  Fund."  There shall be  deposited  in the
Rebate Fund such amounts as are required to be deposited therein pursuant to the
written  instructions  of the Borrower.  All money at any time  deposited in the
Rebate  Fund shall be held by the  Trustee in trust,  to the extent  required to
satisfy the Rebate


                                       33

<PAGE>



Requirement  (as defined in the Tax  Regulatory  Agreement),  for payment to the
federal  government of the United  States of America and neither the  Authority,
the  Bondholders,  the  Trustee,  the Tender  Agent,  or the Bank shall have any
rights in or claim to such moneys.  All amounts  deposited into or on deposit in
the Rebate Fund shall be governed by this Section 5.07 and Sections 3.4 and 5.11
of the  Agreement and by the Tax  Regulatory  Agreement  (which is  incorporated
herein by reference).  The Trustee shall be deemed conclusively to have complied
with said  Sections if it follows the written  direction  of the  Borrower,  and
shall have no liability or responsibility to enforce  compliance by the Borrower
with the terms of the Tax Regulatory Agreement or said Sections.

     (B) Upon  receipt  of the  instructions  required  to be  delivered  to the
Trustee pursuant to the Tax Regulatory  Agreement,  the Trustee shall remit part
or all of the balance in the Rebate Fund to the United States government,  as so
directed. In addition, if the instructions  delivered to the Trustee pursuant to
the Tax Regulatory Agreement so direct, the Trustee shall deposit moneys into or
transfer  moneys  out of the  Rebate  Fund from or into such  accounts  or funds
excluding the Purchase Fund and the Letter of Credit Account,  Available  Moneys
and moneys being aged to become Available Moneys, as the instructions direct.

     (C) Notwithstanding any provision of this Section 5.07, if the Authority or
the  Borrower  shall  provide to the Trustee an opinion of Bond Counsel that any
specified  action required under this Section is no longer required or that some
further or  different  action is required to maintain the  exclusion  from gross
income for federal  income tax  purposes of interest  with respect to the Bonds,
the Trustee and the Authority may conclusively rely on such opinion in complying
with the  requirements  of this Section,  and the covenants  hereunder  shall be
deemed to be modified to that extent.

                                   ARTICLE VI

                              PARTICULAR COVENANTS

     SECTION 6.01. Punctual Payment. The Authority shall punctually pay or cause
to be paid the principal, premium, if any, and interest to become due in respect
of all the Bonds,  in strict  conformity with the terms of the Bonds and of this
Indenture,  according  to the true intent and meaning  thereof,  but only out of
Revenues  and  other  assets  pledged  for  such  payment  as  provided  in this
Indenture.

     SECTION  6.02.  Extension  of Payment  of Bonds.  The  Authority  shall not
directly or indirectly  extend or assent to the extension of the maturity of any
of the Bonds or the time of payment of any claims for  interest by the  purchase
or funding of such Bonds or claims for interest or by any other  arrangement and
in case the  maturity  of any of the  Bonds or the time of  payment  of any such
claims for interest  shall be extended,  such Bonds or claims for interest shall
not be  entitled,  in case of any  default  hereunder,  to the  benefits of this
Indenture,  except  subject to the prior payment in full of the principal of all
of the Bonds then outstanding and of all claims for interest thereon which shall
not have been so extended.  Nothing in this Section shall be deemed to limit the
right  of the  Authority  to  issue  bonds  for the  purpose  of  refunding  any
Outstanding  Bonds,  and such  issuance  shall not be deemed  to  constitute  an
extension of maturity of Bonds.

     SECTION 6.03.  Against  Encumbrances.  The Authority  shall not create,  or
permit the creation of, any pledge,  lien,  charge or other encumbrance upon the
Revenues and other assets pledged or assigned under this Indenture  while any of
the Bonds are  Outstanding,  except the pledge  and  assignment  created by this
Indenture.  Subject to this  limitation,  the Authority  expressly  reserves the
right


                                       34

<PAGE>



to enter into one or more other  indentures  for any of its corporate  purposes,
including  other  programs  under the Act, and reserves the right to issue other
obligations for such purposes.

     SECTION  6.04.  Power to Issue  Bonds and Make Pledge and  Assignment.  The
Authority  is duly  authorized  pursuant  to law to issue the Bonds and to enter
into this  Indenture  and to pledge  and assign the  Revenues  and other  assets
purported to be pledged and assigned,  respectively, under this Indenture in the
manner  and to the  extent  provided  in  this  Indenture.  The  Bonds  and  the
provisions  of this  Indenture  are and will be the  legal,  valid  and  binding
limited  obligations  of the Authority in accordance  with their terms,  and the
Authority shall at all times, to the extent permitted by law,  defend,  preserve
and protect said pledge and  assignment of Revenues and other assets and all the
rights of the Bondholders under this Indenture against all claims and demands of
all persons whomsoever.

     SECTION  6.05.  Accounting  Records and Reports.  The Trustee shall keep or
cause to be kept  proper  books of record  and  account  in which  complete  and
correct  entries  shall be made of all  transactions  relating  to the  receipt,
investment,  disbursement,  allocation  and  application of the Revenues and the
proceeds  of the Bonds  received by the  Trustee  with  respect to all funds and
accounts held hereunder. Such records shall specify the account or fund to which
each investment (or portion  thereof) held by the Trustee is to be allocated and
shall set  forth,  in the case of each  Investment  Security,  (a) its  purchase
price,  (b)  identifying  information,  including par amount,  coupon rate,  and
payment  dates,  (c) the amount  received at maturity or its sale price,  as the
case may be,  (d) the  amounts  and  dates of any  payments  made  with  respect
thereto, and (e) the dates of acquisition and disposition or maturity.

     Such records  shall be open to inspection by any Holder and the Bank at any
reasonable time during regular business hours on reasonable notice.

     SECTION  6.06.  Arbitrage  Covenants.  The  Authority  has in the Agreement
caused the Borrower to covenant that the Borrower  shall not make any use of the
proceeds  of the Bonds or of any moneys on deposit to the credit of the  Project
Fund,  the Revenue Fund or the Rebate Fund which may be deemed to be proceeds of
the  Bonds  pursuant  to  Section  148 of the Code and the  applicable  Treasury
Regulations  thereunder  which  would cause any Bond to be an  "arbitrage  bond"
within the meaning of said  Section and said  regulations  and that the Borrower
will comply with the requirements of said Section and said  regulations,  as the
same may be amended from time to time, so long as any Bonds remain Outstanding.

     SECTION 6.07. Other  Covenants.  (A) The Trustee shall promptly collect all
amounts due from the  Borrower  pursuant  to the  Agreement,  shall  perform all
duties imposed upon it pursuant to the Agreement and shall  diligently  enforce,
and take  all  steps,  actions  and  proceedings  reasonably  necessary  for the
enforcement of all of the rights of the Authority and all of the  obligations of
the Borrower.

     (B) The Authority shall not amend,  modify or terminate any of the terms of
the Agreement,  or consent to any such  amendment,  modification or termination,
without the written  consent of the Trustee and the Bank. The Trustee shall give
such written consent only if (1) in the opinion of the Trustee, in reliance upon
the advice of counsel,  such  amendment,  modification  or termination  will not
materially  adversely  affect the interests of the  Bondholders or result in any
material  impairment of the security  hereby given for the payment of the Bonds,
or (2) the  Authority  first  obtains  the  written  consent of the Holders of a
majority in principal  amount of the Bonds then  Outstanding to such  amendment,
modification  or termination,  provided that no such amendment,  modification or
termination  shall  reduce  the  amount  of  Loan  Repayments  to be made to the
Authority or the Trustee by the Borrower  pursuant to the  Agreement,  or extend
the time for making such payments, without the written consent


                                       35

<PAGE>



of all of the  Holders  of the Bonds  then  Outstanding.  The  Trustee  shall be
entitled  to rely upon an opinion of counsel  with  respect to the effect of any
amendments hereto or to the Agreement.

     SECTION 6.08.  Further  Assurances.  The Authority shall make,  execute and
deliver any and all such further  indentures,  instruments and assurances as may
be  reasonably  necessary or proper to carry out the  intention or to facilitate
the  performance  of this  Indenture and for the better  assuring and confirming
unto the  Holders  of the Bonds of the  rights  and  benefits  provided  in this
Indenture.

     SECTION  6.09.  Covenant  to Enter into  Agreement  or  Contract to Provide
Ongoing Disclosure. The Borrower has covenanted and agreed with the Authority in
Section  5.12  of  the  Agreement  to  enter  into  an  agreement  or  contract,
constituting an undertaking (the  "Undertaking"),  to provide ongoing disclosure
for the benefit of the  Bondholders  as required by  Paragraph  (b)(5)(i) of the
Securities and Exchange  Commission  Rule 15c2-12 under the Securities  Exchange
Act of 1934, as amended (17 CFR Part 240 Section  240.15c2-12)  (the "Disclosure
Requirements"),  to the extent the Bonds or the  remarketing  thereof are at any
time not exempt from the  Disclosure  Requirements.  The  Undertaking  is hereby
assigned by the Authority to the Trustee for the benefit of the Bondholders, any
Participating Underwriter and any Beneficial Owner. Such assignment is a present
absolute  assignment and not an assignment of a security interest.  Section 5.12
of  the  Agreement  shall  be  enforceable  by  any  Bondholder,   Participating
Underwriter or Beneficial Owner. However,  neither the Authority nor the Trustee
shall have any duty to enforce such Section 5.12.  The  Authority  shall have no
liability to the Bondholders,  Participating Underwriters,  Beneficial Owners or
any other  person with  respect to the actions by the  Borrower  relating to the
Disclosure Requirements.  Notwithstanding any other provision of this Indenture,
failure of the Borrower to comply with Section 5.12 of the  Agreement  shall not
be considered an Event of Default;  provided,  however, the Trustee may (and, at
the  request of any  Participating  Underwriter  or the  Holders of at least 25%
aggregate  principal amount in Outstanding Bonds, shall) or any Beneficial Owner
may take such action as may be  necessary  and  appropriate,  including  seeking
mandate or specific  performance by court order, to cause the Borrower to comply
with its obligations under Section 5.12 of the Agreement.

                                   ARTICLE VII

                  EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS

     SECTION 7.01. Events of Default;  Acceleration;  Waiver of Default. Each of
the following events shall constitute an "Event of Default" hereunder:

     (A) default in the due and punctual payment of the principal of, or premium
(if any) on, any Bond when and as the same shall become due and payable, whether
at maturity as therein expressed, by proceedings for redemption,  by declaration
or otherwise;

     (B) default in the due and punctual  payment of any installment of interest
on any Bond, when and as such interest  installment shall become due and payable
and the  continuation  of such  failure  for a period of five days after the due
date for such payment;

     (C) failure to pay the purchase  price of any Bond  tendered in  accordance
with the provisions of Section 4.06, and the  continuation of such failure for a
period of five days after such purchase price has become due and payable;

     (D)  failure  by the  Authority  to  perform  or  observe  any of the other
covenants,  agreements  or  conditions  on its part in this  Indenture or in the
Bonds contained, and the


                                       36

<PAGE>



continuation  of such  failure  for a period of sixty  (60) days  after  written
notice  thereof,  specifying such default and requiring the same to be remedied,
shall  have  been  given to the  Authority,  the Bank  and the  Borrower  by the
Trustee,  or to the  Authority,  the Bank,  the  Borrower and the Trustee by the
Holders of not less than twenty-five percent (25%) in aggregate principal amount
of the Bonds at the time Outstanding; or

     (E) the  occurrence and  continuance  of a Loan Default Event  described in
Section 7.1(a), (b) or (c) of the Agreement.

     No default  specified  in (D) above  shall  constitute  an Event of Default
unless the Authority and the Borrower  shall have failed to correct such default
within the applicable period;  provided,  however,  that if the default shall be
such that it cannot be corrected within such period,  it shall not constitute an
Event of Default if  corrective  action is  instituted  by the  Authority or the
Borrower within the applicable period and diligently pursued. With regard to any
alleged  default  concerning  which  notice is given to the  Borrower  under the
provisions  of this  Section,  the  Authority  hereby  grants the Borrower  full
authority for account of the Authority to perform any covenant or obligation the
non-performance  of which is alleged in said notice to  constitute  a default in
the name and stead of the Authority with full power to do any and all things and
acts to the same extent that the Authority  could do and perform any such things
and acts and with power of substitution.

     During the continuance of an Event of Default,  unless the principal of all
the Bonds shall have already  become due and payable,  the Trustee may, and upon
the written request of the Holders of not less than twenty-five percent (25%) in
aggregate  principal  amount of the Bonds at the time  Outstanding,  or upon the
occurrence  of an Event of  Default  described  in (A),  (B) or (C)  above,  the
Trustee  shall,  by notice in writing to the  Authority,  the Tender Agent,  the
Remarketing  Agent, the Borrower and the Bank,  declare the principal of all the
Bonds then Outstanding,  and the interest accrued thereon, to be due and payable
immediately,  and upon any such  declaration  the same shall become and shall be
immediately  due  and  payable,  anything  in  this  Indenture  or in the  Bonds
contained to the contrary notwithstanding. Upon any such declaration the Trustee
shall  immediately  draw upon any then  existing  Letter of Credit in accordance
with the terms thereof and apply the amount so drawn to pay the principal of and
interest on the Bonds so declared to be due and  payable.  Interest on the Bonds
shall cease to accrue upon the  declaration of  acceleration.  The Trustee shall
notify the Bondholders of the date of acceleration  and the cessation of accrual
of interest on the Bonds in the same manner as for a notice of redemption.

     The preceding  paragraph,  however, is subject to the condition that if, at
any time after the  principal  of the Bonds shall have been so declared  due and
payable,  and before any  judgment  or decree for the  payment of the moneys due
shall have been  obtained  or entered as  hereinafter  provided,  and before the
Letter of Credit has been drawn upon in  accordance  with its terms and honored,
there shall have been deposited with the Trustee a sum sufficient to pay all the
principal  of the  Bonds  matured  prior  to such  declaration  and all  matured
installments  of  interest  (if any) upon all the Bonds,  with  interest on such
overdue  installments  of  principal  as  provided  in the  Agreement,  and  the
reasonable expenses of the Trustee,  and any and all other defaults known to the
Trustee (other than in the payment of principal of and interest on the Bonds due
and payable solely by reason of such  declaration)  shall have been made good or
cured to the  satisfaction of the Trustee or provision  deemed by the Trustee to
be adequate  shall have been made  therefor,  then,  and in every such case, the
Holders of at least a majority in aggregate  principal  amount of the Bonds then
Outstanding,  by written  notice to the  Authority  and to the Trustee,  may, on
behalf of the Holders of all the Bonds,  rescind and annul such  declaration and
its  consequences  and waive such default;  but no such rescission and annulment
shall  extend to or shall  affect any  subsequent  default,  or shall  impair or
exhaust any right or power as a consequence thereof.


                                       37

<PAGE>




     SECTION 7.02.  Institution of Legal Proceedings by Trustee.  If one or more
Events of Default shall happen and be continuing,  the Trustee in its discretion
may,  and upon the written  request of the  Holders of a majority  in  principal
amount  of  the  Bonds  then  Outstanding  and  upon  being  indemnified  to its
satisfaction  therefor  shall,  proceed to protect or enforce  its rights or the
rights of the  holders  of Bonds  under the Act or under this  Indenture  or the
Agreement  by a suit in  equity  or  action  at  law,  either  for the  specific
performance of any covenant or agreement  contained herein or therein, or in aid
of the execution of any power herein or therein granted, or by mandamus or other
appropriate  proceeding  for the  enforcement  of any other  legal or  equitable
remedy as the Trustee shall deem most  effectual in support of any of its rights
or duties hereunder.

     SECTION 7.03.  Application of Revenues and Other Funds After Default. If an
Event of Default shall occur and be continuing, all Revenues and any other funds
then held or thereafter  received by the Trustee under any of the  provisions of
this Indenture  (subject to Sections  5.05,  5.07 and 11.11) shall be applied by
the Trustee as follows and in the following order:

          (1) To the  payment of any  expenses  necessary  in the opinion of the
Trustee to protect  the  interests  of the  Holders of the Bonds and  payment of
reasonable  fees and  expenses of the  Trustee  (including  reasonable  fees and
disbursements  of its  counsel)  incurred  in and about the  performance  of its
powers and duties under this Indenture;  provided,  however,  that moneys in the
Letter of Credit  Account of the Revenue Fund and the Purchase Fund shall not be
used for the payment of any such expenses;

          (2) To the payment of the  principal of and  interest  then due on the
Bonds (upon  presentation  of the Bonds to be paid, and stamping  thereon of the
payment if only partially  paid, or surrender  thereof if fully paid) subject to
the provisions of this Indenture (including Section 6.02), as follows:

               (i) Unless the principal of all of the Bonds shall have become or
have been declared due and payable,

                    First: To the payment to the persons entitled thereto of all
     installments  of  interest  then due in the order of the  maturity  of such
     installments,  and, if the amount  available shall not be sufficient to pay
     in full any installment or installments  maturing on the same date, then to
     the payment thereof ratably,  according to the amounts due thereon,  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 any Bonds which shall have become due,  whether at
     maturity or by call for redemption,  with interest on the overdue principal
     at the rate borne by the  respective  Bonds,  and, if the amount  available
     shall not be  sufficient  to pay in full all the Bonds,  together with such
     interest, then to the payment thereof ratably,  according to the amounts of
     principal  due on such date to the persons  entitled  thereto,  without any
     discrimination or preference.

               (ii) If the  principal  of all of the Bonds  shall have become or
have been declared due and payable, to the payment of the principal and interest
then due and unpaid upon the Bonds,  with  interest on the overdue  principal at
the  rate  borne  by the  Bonds,  and,  if the  amount  available  shall  not be
sufficient  to pay in full  the  whole  amount  so due and  unpaid,  then to the
payment thereof ratably, without preference or priority of principal


                                       38

<PAGE>



over interest, or of interest over principal,  or of any installment of interest
over any other  installment  of  interest,  or of any Bond over any other  Bond,
according to the amounts due  respectively  for principal  and interest,  to the
persons entitled  thereto without any  discrimination  or preference;  provided,
however,  that neither  moneys derived from drawings under the Letter of Credit,
Available Moneys, moneys being aged to become Available Moneys, nor the proceeds
from  remarketing  of the Bonds shall be used to pay any of the items  listed in
clause (1) of this Section, provided,  further, that moneys held in the Purchase
Fund shall only be used to pay the purchase price of the Bonds.

     SECTION  7.04.  Trustee to  Represent  Bondholders.  The  Trustee is hereby
irrevocably  appointed (and the successive  respective  Holders of the Bonds, by
taking and holding the same,  shall be conclusively  deemed to have so appointed
the Trustee) as trustee and true and lawful  attorney-in-fact  of the Holders of
the Bonds for the purpose of  exercising  and  prosecuting  on their behalf such
rights and remedies as may be available to such Holders under the  provisions of
the Bonds, this Indenture,  the Agreement,  the Act and applicable provisions of
any other law. Upon the  occurrence  and  continuance  of an Event of Default or
other  occasion  giving  rise  to a  right  in  the  Trustee  to  represent  the
Bondholders,  the Trustee in its discretion may, and upon the written request of
the Holders of not less than  twenty-five  percent (25%) in aggregate  principal
amount  of the  Bonds  then  Outstanding,  and  upon  being  indemnified  to its
satisfaction  therefor  (except any actions required to be taken by Section 7.03
hereof, in which event no indemnification shall be required),  shall, proceed to
protect or enforce its rights or the rights of such Holders by such  appropriate
action,  suit,  mandamus or other proceedings as it shall deem most effectual to
protect and enforce any such right, at law or in equity, either for the specific
performance  of any covenant or  agreement  contained  herein,  or in aid of the
execution  of any power  herein  granted,  or for the  enforcement  of any other
appropriate  legal or equitable right or remedy vested in the Trustee or in such
Holders under this Indenture,  the Agreement, the Act or any other law; and upon
instituting  such  proceeding,  the Trustee  shall be  entitled,  as a matter of
right, to the appointment of a receiver of the Revenues and other assets pledged
under this Indenture,  pending such proceedings. All rights of action under this
Indenture  or the Bonds or  otherwise  may be  prosecuted  and  enforced  by the
Trustee without the possession of any of the Bonds or the production  thereof in
any  proceeding  relating  thereto,  and any such  suit,  action  or  proceeding
instituted  by the  Trustee  shall be brought in the name of the Trustee for the
benefit  and  protection  of all the  Holders  of  such  Bonds,  subject  to the
provisions of this Indenture (including Section 6.02).

     SECTION  7.05.  Bondholders'  Direction  of  Proceedings.  Anything in this
Indenture  to  the  contrary  notwithstanding,  the  Holders  of a  majority  in
aggregate  principal amount of the Bonds then Outstanding  shall have the right,
by an instrument or concurrent  instruments in writing executed and delivered to
the Trustee,  to direct the method of conducting all remedial  proceedings taken
by the Trustee  hereunder,  provided that such direction  shall not be otherwise
than in accordance with law and the provisions of this  Indenture,  and that the
Trustee  shall have the right to decline to follow any such  direction  which in
the opinion of the Trustee  would be unjustly  prejudicial  to  Bondholders  not
parties  to such  direction  or for  which  it has not  been  provided  adequate
indemnity to its satisfaction.

     SECTION  7.06.  Limitation on  Bondholders'  Right to Sue. No Holder of any
Bond shall have the right to institute any suit,  action or proceeding at law or
in equity,  for the  protection or enforcement of any right or remedy under this
Indenture,  the Agreement,  the Act or any other  applicable law with respect to
such Bond, unless (1) such Holder shall have given to the Trustee written notice
of the  occurrence  of an Event of  Default;  (2) the  Holders  of not less than
twenty-five  percent  (25%) in  aggregate  principal  amount of the  Bonds  then
Outstanding  shall have made  written  request  upon the Trustee to exercise the
powers  hereinbefore  granted or to institute such suit, action or proceeding in
its


                                       39

<PAGE>



own name;  (3) such Holder or said  Holders  shall have  tendered to the Trustee
reasonable indemnity against the costs,  expenses and liabilities to be incurred
in  compliance  with such  request;  and (4) the Trustee  shall have  refused or
omitted to comply  with such  request for a period of sixty (60) days after such
written  request shall have been received by, and said tender of indemnity shall
have been made to, the Trustee.

     Such notification, request, tender of indemnity and refusal or omission are
hereby  declared,  in every case, to be conditions  precedent to the exercise by
any Holder of Bonds of any remedy  hereunder  or under law; it being  understood
and  intended  that no one or more  Holders of Bonds shall have any right in any
manner  whatever  by his or their  action to affect,  disturb or  prejudice  the
security of this  Indenture or the rights of any other  Holders of Bonds,  or to
enforce  any  right  under  this  Indenture,  the  Agreement,  the Act or  other
applicable law with respect to the Bonds,  except in the manner herein provided,
and that all  proceedings at law or in equity to enforce any such right shall be
instituted, had and maintained in the manner herein provided and for the benefit
and  protection  of  all  Holders  of  the  Outstanding  Bonds,  subject  to the
provisions of this Indenture (including Section 6.02).

     SECTION 7.07. Absolute Obligation of Authority.  Nothing in Section 7.06 or
in any other  provision  of this  Indenture,  or in the Bonds,  contained  shall
affect  or  impair  the  obligation  of the  Authority,  which is  absolute  and
unconditional,  to pay  the  principal  of and  interest  on  the  Bonds  to the
respective  Holders of the Bonds at their respective dates of maturity,  or upon
acceleration or call for  redemption,  as herein  provided,  but only out of the
Revenues and other assets herein pledged therefor, or affect or impair the right
of such  Holders,  which is also  absolute  and  unconditional,  to enforce such
payment by virtue of the contract embodied in the Bonds.

     SECTION 7.08. Termination of Proceedings.  In case any proceedings taken by
the  Trustee or any one or more  Bondholders  on account of any Event of Default
shall  have been  discontinued  or  abandoned  for any reason or shall have been
determined adversely to the Trustee or the Bondholders,  then in every such case
the  Authority,  the Bank,  the  Trustee  and the  Bondholders,  subject  to any
determination in such  proceedings,  shall be restored to their former positions
and rights  hereunder,  severally and  respectively,  and all rights,  remedies,
powers and duties of the Authority,  the Bank,  the Trustee and the  Bondholders
shall continue as though no such  proceedings had been taken.  The Trustee shall
deliver copies of all  proceedings  taken by the Trustee under this Indenture to
the Tender Agent.

     SECTION 7.09.  Remedies Not Exclusive.  No remedy herein  conferred upon or
reserved to the Trustee,  the Bank or to the Holders of the Bonds is intended to
be exclusive of any other remedy or remedies, and each and every such remedy, to
the extent  permitted by law,  shall be cumulative  and in addition to any other
remedy  given  hereunder  or now or  hereafter  existing  at law or in equity or
otherwise.

     SECTION 7.10. No Waiver of Default.  In the event any agreement or covenant
contained in this  Indenture  should be breached by the Authority and thereafter
waived by the Trustee or the Holders of the Bonds,  such waiver shall be limited
to the  particular  breach so waived  and shall not be deemed to waive any other
breach  hereunder.  No delay or  omission of the Trustee or of any Holder of the
Bonds to exercise any right or power arising upon the  occurrence of 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  Indenture  to the Trustee or to the Holders of the Bonds may be  exercised
from time to time and as often as may be deemed expedient.

     SECTION 7.11. Consent To Defaults.  Notwithstanding any other provisions of
this  Article  VII,  so long as the Letter of Credit is in full force and effect
and the Bank has not wrongfully


                                       40

<PAGE>



dishonored  and is not  continuing  wrongfully  to dishonor  drawings  under the
Letter of Credit and all payments of principal or purchase price and interest on
the Bonds have been timely made, no Event of Default  shall be declared  (except
in a case resulting from the failure of the Borrower to pay the Trustee's fees),
nor any  remedies  exercised  with  respect to any such Events of Default by the
Trustee or by the  Bondholders  and no Event of Default under Section 7.01 shall
be waived by the Trustee or the  Bondholders to the extent they may otherwise be
permitted  hereunder,  without,  in any case,  the prior written  consent of the
Bank.  Unless an Alternate Credit Facility has been provided pursuant to Section
5.7 of the Agreement,  no Event of Default can be waived,  in any  circumstance,
unless the Letter of Credit has been fully  reinstated  and is in full force and
effect as evidenced in writing by the Bank to the Trustee.


                                  ARTICLE VIII

                          THE TRUSTEE, THE REMARKETING
                           AGENT AND THE TENDER AGENT

     SECTION  8.01.  Duties,  Immunities  and  Liabilities  of Trustee.  (A) The
Trustee shall, prior to an Event of Default,  and after the curing of all Events
of Default which may have occurred,  perform such duties and only such duties as
are  specifically  set forth in this  Indenture.  The Trustee shall,  during the
existence of any Event of Default  (which has not been cured),  exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in its exercise,  as a prudent person would exercise or use under
the circumstances in the conduct of his own affairs.

     (B) The  Trustee  may at any  time  and for any  reason  be  removed  by an
instrument or concurrent  instruments in writing  appointing a successor Trustee
filed with the Trustee so removed  and  executed by the Holders of a majority in
aggregate principal amount of the Bonds Outstanding.  The Trustee may be removed
by an instrument  in writing,  consented to by the Bank which may be executed by
the Authority,  appointing a successor Trustee filed with the Trustee so removed
upon the occurrence of any of the following events: (i) the Trustee shall become
incapable  of acting;  (ii) the Trustee  shall be adjudged  bankrupt;  (iii) the
Trustee shall become insolvent;  (iv) a receiver is appointed for the Trustee or
its property; (v) any public officer shall take control or charge of the Trustee
or of the property or affairs for the purposes of  rehabilitation,  conservation
or  liquidation;  or (vi) the Trustee  shall cease to be eligible in  accordance
with Subsection (E) of this Section;  provided that the Authority may not remove
the  Trustee  during the  occurrence  and  continuance  of an Event of  Default.
Notwithstanding the foregoing,  the Trustee may not be removed until a successor
Trustee has been  appointed and has assumed the duties and  responsibilities  of
successor Trustee under this Indenture.

     (C) The  Trustee may at any time  resign by giving  written  notice of such
resignation to the Authority and the Bank and by giving the  Bondholders  notice
of such  resignation by mail at the addresses  shown on the  registration  books
maintained by the Bond Registrar. Upon receiving such notice of resignation, the
Authority  shall  promptly  appoint,  with the consent of the Bank,  a successor
Trustee by an  instrument  in writing.  The Trustee shall not be relieved of its
duties until such successor Trustee has accepted its appointment.

     (D)  Any  removal  or  resignation  of the  Trustee  and  appointment  of a
successor  Trustee shall become effective only upon acceptance of appointment by
the successor  Trustee.  If no successor  Trustee shall have been  appointed and
have  accepted  appointment  within  forty-five  (45) days of  giving  notice of
removal or notice of  resignation  as aforesaid,  the  resigning  Trustee or any
Bondholder  (on behalf of himself and all other  Bondholders)  may  petition any
court of competent jurisdiction for the


                                       41

<PAGE>



appointment of a successor  Trustee,  and such court may  thereupon,  after such
notice (if any) as it may deem  proper,  appoint  such  successor  Trustee.  Any
successor Trustee  appointed under this Indenture,  shall signify its acceptance
of such  appointment  by executing  and  delivering  to the Authority and to its
predecessor Trustee a written acceptance thereof and a written instrument by the
successor Trustee  indemnifying the predecessor  Trustee for all costs or claims
arising after the acceptance of appointment hereunder relating to such successor
Trustee's  performance  of its duties under this  Indenture,  and  thereupon and
after the payment by the  Authority of all unpaid fees and  expenses  (including
legal fees and  expenses) of the  predecessor  Trustee such  successor  Trustee,
without any further act,  deed or  conveyance,  shall become vested with all the
moneys, estates,  properties,  rights, powers, trusts, duties and obligations of
such  predecessor  Trustee,  with like  effect as if  originally  named  Trustee
herein; but,  nevertheless at the Request of the Authority or the request of the
successor  Trustee,  such predecessor  Trustee shall execute and deliver any and
all  instruments of conveyance or further  assurance and do such other things as
may  reasonably  be  required  for  more  fully  and  certainly  vesting  in and
confirming to such successor  Trustee all the right,  title and interest of such
predecessor  Trustee in and to any property held by it under this  Indenture and
shall pay over, transfer,  assign and deliver to the successor Trustee any money
or other property  subject to the trusts and conditions  herein set forth.  Upon
request of the successor  Trustee,  the Authority  shall execute and deliver any
and all  instruments as may be reasonably  required for more fully and certainly
vesting in and  confirming to such successor  Trustee all such moneys,  estates,
properties,  rights, powers, trusts, duties and obligations.  Upon acceptance of
appointment by a successor Trustee as provided in this subsection, the Authority
shall mail a notice of the succession of such Trustee to the trusts hereunder to
each rating  agency which is then rating the Bonds,  to the  Bondholders  at the
addresses shown on the registration books maintained by the Bond Registrar,  and
to the Bank. If the Authority fails to mail such notice within fifteen (15) days
after acceptance of appointment by the successor Trustee,  the successor Trustee
shall cause such notice to be mailed at the expense of the Authority.

     (E)  Any  Trustee  appointed  under  the  provisions  of  this  Section  in
succession  to the Trustee shall be a trust company or bank having the powers of
a trust company, having a combined capital and surplus of at least fifty million
dollars  ($50,000,000),  and subject to supervision or examination by federal or
state authority.  If such bank or trust company  publishes a report of condition
at least annually,  pursuant to law or to the requirements of any supervising or
examining  authority  above referred to, then for the purpose of this subsection
the combined  capital and surplus of such bank or trust  company shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition  so  published.  In case at any time  the  Trustee  shall  cease to be
eligible in accordance  with the provisions of this  subsection (E), the Trustee
shall  resign  immediately  in the manner and with the effect  specified in this
Section.

     SECTION 8.02. Merger or  Consolidation.  Any company into which the Trustee
may be merged or converted or with which it may be  consolidated  or any company
resulting from any merger,  conversion or  consolidation  to which it shall be a
party  or any  company  to  which  the  Trustee  may  sell  or  transfer  all or
substantially  all of its corporate trust business,  provided such company shall
be eligible under  subsection (E) of Section 8.01 shall be the successor to such
Trustee  without  the  execution  or  filing of any  paper or any  further  act,
anything herein to the contrary notwithstanding.

     SECTION 8.03. Liability of Trustee. (A) The recitals of facts herein and in
the Bonds  contained  shall be taken as  statements  of the  Authority,  and the
Trustee shall assume no responsibility  for the correctness of the same, or make
any  representations  as to the validity or  sufficiency of this Indenture or of
the Bonds. In addition,  the Trustee shall assume no responsibility with respect
to this  Indenture  or  Bonds  other  than in  connection  with  the  duties  or
obligations  assigned to or imposed upon the Trustee herein or in the Bonds. The
Trustee shall, however, be responsible for its representations


                                       42

<PAGE>



contained in its certificate of  authentication  on the Bonds. The Trustee shall
not be liable in connection with the performance of its duties hereunder, except
for its own negligence or willful  misconduct.  The Trustee may become the owner
of Bonds with the same rights it would have if it were not  Trustee  and, to the
extent  permitted  by law,  may act as  depositary  for  and  permit  any of its
officers  or  directors  to act as a member  of, or in any other  capacity  with
respect to, any committee  formed to protect the rights of Bondholders,  whether
or not such  committee  shall  represent  the Holders of a majority in principal
amount of the Bonds then Outstanding.

     The Trustee  may  execute any of the trusts or powers set forth  herein and
perform the duties required of it hereunder by or through attorneys,  agents, or
receivers, and shall be entitled to the advice of counsel concerning all matters
of trusts and its duties herein, and the Trustee shall not be answerable for the
default or misconduct  of any such  attorney,  agent or receiver  selected by it
with reasonable care.

     (B) The Trustee  shall not be liable for any error of judgment made in good
faith by a responsible  officer,  unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts.

     (C) The  Trustee  shall not be liable with  respect to any action  taken or
omitted to be taken by it in good faith in accordance  with the direction of the
Holders of not less than a majority in aggregate  principal  amount of the Bonds
at the time Outstanding relating to the time, method and place of conducting any
proceeding for any remedy  available to the Trustee,  or exercising any trust or
power conferred upon the Trustee under this Indenture.

     (D) The Trustee  shall be under no obligation to exercise any of the rights
or powers vested in it by this  Indenture at the request,  order or direction of
any of the Bondholders  pursuant to the provisions of this Indenture unless such
Bondholders shall have offered to the Trustee satisfactory security or indemnity
against the costs,  expenses and  liabilities  which may be incurred  therein or
thereby.

     (E) The  Trustee  shall not be liable  for any  action  taken by it in good
faith and believed by it to be authorized or within the  discretion or rights or
powers  conferred  upon it by this  Indenture  except for its own  negligence or
wilful misconduct.

     (F) The  Trustee  shall not be deemed to have  knowledge  of any default or
Event of  Default  hereunder  unless and until it shall  have  actual  knowledge
thereof,  or shall  have  received  written  notice  thereof,  at its  principal
corporate  trust office.  Except as otherwise  expressly  provided  herein,  the
Trustee  shall not be bound to  ascertain  or inquire as to the  performance  or
observance of any of the terms, conditions, covenants or agreements herein or of
any of the  documents  executed  in  connection  with  the  Bonds,  or as to the
existence of a default or Event of Default thereunder.  The Trustee shall not be
responsible for the validity or effectiveness of any collateral given to or held
by it.

     (G) No provision of this  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 its rights or powers. The
Trustee  shall,  however,  in any case make drawings under the Letter of Credit,
pay principal of or interest on the Bonds as it becomes due, and  accelerate the
Bonds as required by this  Indenture,  notwithstanding  anything to the contrary
herein.

     SECTION 8.04.  Right of Trustee to Rely on Documents.  The Trustee shall be
protected  in acting  upon any  notice,  resolution,  request,  consent,  order,
certificate,  report, opinion, bond or other paper or document believed by it to
be genuine and to have been signed or presented by the


                                       43

<PAGE>



proper  party or  parties.  The Trustee may  consult  with  counsel,  who may be
counsel of or to the Authority,  with regard to legal questions, and the opinion
of such  counsel  shall be full and complete  authorization  and  protection  in
respect of any action  taken or  suffered by it  hereunder  in good faith and in
accordance therewith.

     The Trustee  shall not be bound to recognize  any person as the Holder of a
Bond unless and until such Bond is submitted for  inspection,  if required,  and
his title thereto is satisfactorily established, if disputed.

     Whenever  in the  administration  of the  trusts  imposed  upon  it by this
Indenture  the Trustee  shall deem it necessary  or  desirable  that a matter be
proved or established  prior to taking or suffering any action  hereunder,  such
matter  (unless  other  evidence  in  respect  thereof  be  herein  specifically
prescribed)  may be  deemed  to be  conclusively  proved  and  established  by a
Certificate of the Authority,  and such Certificate shall be full warrant to the
Trustee for any action taken or suffered in good faith under the  provisions  of
this  Indenture in reliance upon such  Certificate,  but in its  discretion  the
Trustee  may,  in lieu  thereof,  accept  other  evidence  of such matter or may
require such additional evidence as it may deem reasonable.

     SECTION 8.05.  Preservation  and  Inspection  of  Documents.  All documents
received by the Trustee under the provisions of this Indenture shall be retained
in its possession and shall be subject at all reasonable times to the inspection
of the Authority and any Bondholder,  and their agents and representatives  duly
authorized in writing, at reasonable hours and under reasonable conditions.

     SECTION 8.06.  Compensation  and  Indemnification.  The Authority shall pay
(solely from Additional  Payments) to the Trustee and the Tender Agent from time
to time reasonable  compensation for all services rendered under this Indenture,
and also all reasonable expenses,  charges,  legal and consulting fees and other
disbursements and those of its attorneys, agents and employees,  incurred in and
about the  performance  of its powers and duties under this  Indenture,  and the
Trustee  and the Tender  Agent each  shall have a lien  therefor  on any and all
funds (except  moneys on deposit in the Purchase  Fund,  the Rebate Fund and the
Letter  of  Credit  Account,  Available  Moneys,  moneys  being  aged to  become
Available Moneys and funds held for the payment of Bonds or the interest thereon
which is past due or for which notice of redemption has been mailed) at any time
held by it under this  Indenture  which lien shall be prior and  superior to the
lien of the Holders of the Bonds.

     SECTION 8.07. Notice to Rating Agency.  The Authority and the Trustee shall
give written  notice to each rating  agency then rating the Bonds of each of the
following: (i) a successor Trustee is appointed hereunder;  (ii) this Indenture,
the  Agreement,   the  Remarketing  Agreement,  the  Letter  of  Credit  or  the
Reimbursement  Agreement  is amended or  supplemented  in any manner;  (iii) the
Bonds are  converted  to a Fixed  Interest  Rate  pursuant  to  Section  2.03 or
defeased  pursuant to Section 10.01 or  accelerated  pursuant to Section 7.01 or
redeemed  in  whole   pursuant  to  Section  4.01;   or  (iv)  the   expiration,
substitution, termination or extension of the Letter of Credit.

     SECTION 8.08.  Qualifications  of Remarketing  Agent. The Remarketing Agent
shall be a member of the National Association of Securities Dealers,  Inc. or be
a banking  corporation or trust  company,  having a  capitalization  of at least
$15,000,000  and shall be  authorized  by law to perform all the duties  imposed
upon it by this Indenture.  The Remarketing  Agent may at any time resign and be
discharged of the duties and obligations  created by this Indenture by giving at
least 45 days'  notice to the  Authority,  the  Borrower,  the Bank,  the Tender
Agent,  the Trustee,  S&P and Moody's,  to the extent each rating agency is then
rating  the Bonds.  The  Remarketing  Agent may be  removed at any time,  at the
request of the  Borrower  and the  Authority,  by an  instrument,  signed by the
Borrower and the Authority


                                       44

<PAGE>



and filed  with the  Remarketing  Agent,  the  Bank,  the  Tender  Agent and the
Trustee.  The Borrower and the  Authority,  with the consent of the Bank,  shall
appoint a successor Remarketing Agent.

     The Remarketing  Agent shall designate to the Trustee its principal  office
and signify its acceptance of the duties and obligations imposed on it hereunder
by a written instrument of acceptance delivered to the Authority and the Trustee
and the Tender Agent under which the Remarketing Agent will agree to perform the
obligations of the Remarketing Agent set forth in Section 8.09 hereof.

     If the  Letter of  Credit  is  terminated  for any  reason,  or an Event of
Default under this Indenture occurs,  the Remarketing Agent shall have the right
to resign  immediately.  The initial  Remarketing  Agent appointed  hereunder is
Rauscher Pierce Refsnes, Inc.

     SECTION 8.09.  Remarketing of Bonds. (A) The Tender Agent shall immediately
provide the Remarketing  Agent, the Bank and the Trustee with telephonic notice,
promptly confirmed by written notice by 12:00 noon, California time, on the next
succeeding  Business  Day, of the receipt by the Tender Agent of a tender notice
from any Bondholder  pursuant to Section 4.06 or the receipt by the Tender Agent
of a notice from the Borrower of its election to substitute an Alternate  Letter
of Credit for the then existing  Letter of Credit pursuant to Section 5.8 of the
Agreement and providing the Remarketing Agent, the Bank and the Trustee with the
information  contained in such notices.  Upon receipt of such telephonic notice,
the Remarketing  Agent shall offer for sale and use its best efforts to sell the
Bonds described in such notice, any such sale to be made at a price equal to the
principal amount thereof plus accrued interest.

     (B) The Remarketing  Agent shall (i) by 4:00 p.m.,  California time, on the
Business Day prior to the Purchase Date, give telegraphic or telephonic  notice,
promptly  confirmed by a written notice,  to the Trustee,  the Tender Agent, the
Borrower and the Bank (A) directing the Tender Agent to make  available for pick
up by 11:00 a.m.,  California  time,  on the  Purchase  Date,  at the  principal
corporate  trust  office of the  Tender  Agent (or at such  other  office as the
Tender  Agent shall  designate)  any Bonds for which the  Remarketing  Agent has
arranged  sales  pursuant to this  Section  8.09 and (B)  stating the  principal
amount of Bonds sold pursuant to subsection  (A) of this Section 8.09,  and (ii)
deliver or cause to be  delivered  to the Tender Agent at or prior to 8:00 a.m.,
California  time, on the Purchase Date the principal of and interest  accrued to
such  Purchase  Date on the Bond or  Bonds to be so  purchased  that  have  been
remarketed by the  Remarketing  Agent,  in  immediately  available  funds.  Upon
receipt of amounts for the  purchase of Bonds from the  Remarketing  Agent,  the
Tender  Agent shall  immediately  give  telephonic  notice to the  Trustee,  the
Borrower  and the  Bank,  promptly  confirmed  in  writing  of (i) the  proceeds
received from the  Remarketing  Agent to be applied to the purchase of the Bonds
tendered for  purchase,  and (ii) the amount that must be drawn under the Letter
of Credit for Bonds which have been  tendered  as to which the Tender  Agent has
not received the principal of and interest  accrued thereon to the Purchase Date
from the Remarketing  Agent.  None of the moneys so provided to the Tender Agent
for purchase of Bonds may be derived  directly or indirectly  from the Borrower,
any Related Party or the Authority and therefore the Bonds may not be remarketed
to any such entity or person.  The notice by the Remarketing Agent shall specify
the names, addresses,  and taxpayer identification numbers of the purchasers of,
and the principal amount and  denominations of, such Bonds, if any, for which it
has found  purchasers as of such date and the principal amount of such Bonds, if
any,  for which it has not found  purchasers  as of such date.  The Tender Agent
shall make available for pick up new Bonds properly executed,  registered in the
name(s) and issued in Authorized Denominations as may be specified in the notice
by the Remarketing Agent to the Tender Agent by 11:00 a.m.,  California time, on
the Purchase  Date.  The  Remarketing  Agent and the Tender Agent shall hold all
moneys  available  for the  purchase of Bonds in trust solely for the benefit of
the person or entity  which  shall have so  delivered  such  moneys  until Bonds
purchased with such moneys shall have been delivered to or for


                                       45

<PAGE>



the account of such person or entity,  and such moneys  shall not be  commingled
with any  other  moneys.  Under  no  circumstances  shall  the  Tender  Agent be
obligated to expend any of its own funds in connection with this Indenture.

     (C) On the date Bonds are to be  purchased  pursuant to Section  8.10,  the
Trustee shall, prior to 8:30 a.m., California time, draw on the Letter of Credit
in accordance with the provisions thereof to the extent of the purchase price of
the Bonds  for  which  the  Tender  Agent  has not  received  proceeds  from the
remarketing  of such Bonds as  evidenced  by the notice from the Tender Agent to
the Trustee and shall  immediately  transfer or direct the proceeds of such draw
to the Tender  Agent to pay the  purchase  price of such  Bonds on the  Purchase
Date;  provided  however,  that no  drawings  shall be made  under the Letter of
Credit to purchase Bonds held by or for the account of the Borrower or the Bank.

     SECTION 8.10.  Creation of Purchase  Fund;  Purchase of Bonds  Delivered to
Tender Agent. (A) There is hereby created and established with the Tender Agent,
in a trust capacity, a separate fund to be designated as the "Purchase Fund" and
there shall be created  within the Purchase Fund (i) a separate  account  called
the  "Remarketing  Account" into which all moneys  representing  the proceeds of
remarketing  pursuant  to  Section  8.09  (which  moneys  shall  be  in  a  form
immediately  available  on the  Purchase  Date)  shall be  deposited  and (ii) a
separate  account  called the  "Liquidity  Account"  into which the  proceeds of
drawings by the Trustee under the Letter of Credit shall be  deposited.  None of
the Borrower,  any Related Party,  the Trustee nor the Authority  shall have any
legal,  equitable or beneficial  right,  title or interest in the moneys held by
the  Remarketing  Agent or by the  Tender  Agent in the  Purchase  Fund,  or the
Remarketing  Account or Liquidity  Account  therein.  The Purchase Fund and each
such Account shall be established and maintained by the Tender Agent and held in
trust apart from all other moneys and  securities  held under this  Indenture or
otherwise,  and over which the Tender  Agent shall have the  exclusive  and sole
right of  withdrawal  for the  exclusive  benefit of the  persons  tendering  or
purchasing  Bonds with respect to which amounts were deposited into the Purchase
Fund and the Accounts created therein.

     On each day on which Bonds have been tendered for purchase or are deemed to
have been  tendered for  purchase  pursuant to this  Indenture,  after paying or
making  provision for the payment of the purchase price of such Bonds as in this
Indenture  provided,  the  Tender  Agent  shall  promptly  remit to the Bank any
moneys,  but not  exceeding  the  amount  drawn on the Letter of Credit for such
purchase, on deposit in the Liquidity Account not used to purchase Bonds.

     (B) Funds for the purchase of Bonds at the  principal  amount  thereof plus
unpaid  interest  accrued to the Purchase Date, if any, shall be paid out of the
Purchase Fund in the order of priority indicated:

          (i) from the  Remarketing  Account,  proceeds from the  remarketing of
Bonds pursuant to Section 8.09 hereof; and

          (ii) from the Liquidity  Account,  moneys  representing  proceeds of a
drawing by the Trustee under the Letter of Credit.

     (C) In the event that Bonds are not purchased pursuant to this Section, the
Trustee shall pay the  principal  amount of Bonds  tendered  pursuant to Section
4.06 or Bonds subject to mandatory  tender  pursuant to Section 4.07 with moneys
on deposit in the Revenue  Fund  pursuant to Section 5.02 hereof and cancel such
Bonds.



                                       46

<PAGE>



     (D) The Tender Agent shall:

          (i) hold all Bonds  delivered to it pursuant to Sections 4.06, 4.07 or
8.11 in trust solely for the benefit of the respective  Holders which shall have
so delivered  such Bonds until moneys  representing  the purchase price for such
Bonds shall have been delivered to or for the account of or to the order of such
Holders; and

          (ii) hold all moneys  delivered  to it under this Section 8.10 for the
purchase of Bonds in trust  solely for the benefit of the person or entity which
shall have so delivered  such moneys until the Bonds  purchased with such moneys
shall have been delivered to or for the account of such person or entity;

          (iii) only make such  payments  called for under this  Indenture  from
immediately available funds transferred to the Tender Agent for payment pursuant
to  this  Indenture  which  funds  are  on  deposit  in an  appropriate  account
maintained by the Tender Agent;

          (iv)  under no  circumstances  be  obligated  to expend any of its own
funds in connection with this Indenture;

          (v) in  acting  with  regard  to the  purchase  of  Bonds  under  this
Indenture be acting as a conduit and shall not be  purchasing  Bonds for its own
account, and in the absence of written notice from the Authority or the Trustee,
shall be entitled to assume that any Bond tendered to it, or deemed  tendered to
it for purchase, is entitled under this Indenture to be so purchased; and

          (vi) notify the Remarketing Agent by telephone, telegram or other form
of  electronic  communication  of the contents  of, and promptly  deliver to the
Borrower, the Trustee, the Remarketing Agent and the Bank a copy of, each notice
delivered  to it in  accordance  with  Section  4.06 and,  immediately  upon the
delivery to it of Bonds in accordance with said Section 4.06,  give  telegraphic
or telephonic  notice to the Borrower,  the Trustee and the Bank  specifying the
principal amount of the Bonds so delivered.

     SECTION 8.11. Delivery of Bonds.

     (A) Bonds  purchased  by the  Tender  Agent with the  moneys  described  in
subsection (B)(i) of Section 8.10 shall be made available by the Tender Agent to
the new purchasers.

     (B) (i) Bonds paid with the moneys  described in subsection  (C) of Section
8.10 shall be cancelled.

          (ii)  Bonds  paid  by  the  Tender  Agent  with  moneys  described  in
subsection  (B)(ii) of Section 8.10 shall be held by the Tender Agent as Pledged
Bonds  pursuant  to the Pledge and  Security  Agreement  for the  account of the
Borrower in which Bank shall have a security interest.

     (C)  Bonds  which  have  been  delivered  to the  Tender  Agent  and  which
thereafter  have  been  sold  shall  be  delivered  to such  new  owners  as the
Remarketing  Agent or the Bank may designate to the Tender Agent,  but only upon
(i) written  confirmation  to the Trustee by the Bank that the stated  amount of
the Letter of Credit has been  reinstated  with respect to the  principal of the
Bonds being so re-registered and delivered, together with the portion of the


                                       47

<PAGE>



Letter of Credit used to pay accrued interest for the purchase of such Bonds and
(ii)  written  confirmation  to the Tender  Agent by the Trustee that the stated
amount of the Letter of Credit has been reinstated with respect to the principal
of the Bonds being so re-registered and delivered,  together with the portion of
the Letter of Credit  used to pay  accrued  interest  for the  purchase  of such
Bonds.

     The Authority shall cooperate with the Trustee,  the Tender Agent,  and the
Borrower to cause the  necessary  arrangements  to be made and to be  thereafter
continued whereby funds from the sources specified herein will be made available
for the purchase of Bonds presented at the principal  office of the Tender Agent
and whereby  Bonds  executed by the Authority  and  authenticated  by the Tender
Agent,  shall be made available to the extent necessary for delivery pursuant to
this Section 8.11.

     SECTION  8.12.  Delivery of Proceeds of  Remarketing.  The  proceeds of the
remarketing by the Remarketing Agent of any Bonds delivered to the Tender Agent,
or delivered to the Remarketing Agent by the Bank or any other Bondholder, shall
be turned over to the Bank or such other Bondholder, as the case may be.

     SECTION  8.13.  No  Purchases  or Sales  After  Default.  Anything  in this
Indenture to the contrary notwithstanding,  there shall be no purchases or sales
of Bonds  pursuant  to this  Article  VIII if there shall have  occurred  and be
continuing  an Event of Default  described in clauses  (A)-(C) of Section  7.01.
Anything in this  Indenture to the contrary  notwithstanding,  there shall be no
remarketing  of Bonds pursuant to this Article VIII if there shall have occurred
and be continuing any Event of Default described in Section 7.01 or if any event
shall have occurred which with notice or the lapse of time would constitute such
an Event of Default.

     SECTION 8.14.  Qualifications  of Tender Agent. The Tender Agent shall be a
bank or trust company or another institution which has a rating on its long-term
debt from  Moody's of at least  "Baa3" and a short term rating of at least "P-3"
authorized  to perform  all duties  imposed  upon it by this  Indenture  and the
Remarketing Agreement. The Tender Agent may at any time resign and be discharged
of the duties and obligations created by this Indenture by giving at least sixty
(60) days' notice to the Authority,  the Borrower, the Remarketing Agent and the
Trustee.  With the consent of the Bank,  the Tender  Agent may be removed at any
time by the Authority, by an instrument, signed by the Authority, filed with the
Tender Agent, the Remarketing Agent and the Trustee.

     The initial Tender Agent  appointed  under this Indenture is First Trust of
California,  National Association.  The Authority, with the consent of the Bank,
shall  appoint a successor  Tender Agent.  In the event the  Authority  fails to
appoint a successor  Tender Agent prior to the effective  date of the removal or
resignation of the current Tender Agent,  the existing Tender Agent shall remain
in place until a successor  Tender  Agent is  appointed.  If a successor  Tender
Agent is not appointed  within  thirty (30) days as provided  herein the Trustee
shall be appointed as the successor  Tender Agent. The Authority shall appoint a
Tender  Agent in New York,  New York,  to the  extent  necessary  for the proper
marketing of the Bonds.

     SECTION 8.15. Paying Agent. The Authority, with the written approval of the
Bank,  may  appoint  and at all times have a Paying  Agent in such cities as the
Authority deems desirable, for the payment of the principal of, and the interest
(and premium,  if any) on, the Bonds.  The Authority hereby appoints the Trustee
as  paying  agent  in  San  Francisco,  California.  The  Trustee  shall  not be
responsible  for the  failure  of the  Bank or any  other  party  to make  funds
available to the Trustee.



                                       48

<PAGE>



     SECTION  8.16.  Several  Capacities.  Anything  in  this  Indenture  to the
contrary  notwithstanding,  the same entity may serve  hereunder as the Trustee,
Tender Agent, Remarketing Agent and Paying Agent and in any other combination of
such capacities, to the extent permitted by law.


                                   ARTICLE IX

                   MODIFICATION OR AMENDMENT OF THE INDENTURE

     SECTION 9.01. Amendments  Permitted.  (A) This Indenture and the rights and
obligations  of the Authority and of the Holders of the Bonds and of the Trustee
may be modified or amended  from time to time and at any time by an indenture or
indentures  supplemental thereto,  which the Authority and the Trustee may enter
into  when the  written  consent  of the  Holders  of a  majority  in  aggregate
principal amount of all Bonds then Outstanding,  the Borrower and the Bank shall
have been filed with the Trustee.  No such  modification  or amendment shall (1)
extend  the fixed  maturity  of any  Bond,  or reduce  the  amount of  principal
thereof,  or extend the time of payment,  or change the method of computing  the
rate of interest  thereon,  or extend the time of payment of  interest  thereon,
without  the consent of the Holder of each Bond so  affected,  or (2) reduce the
aforesaid percentage of Bonds the consent of the Holders of which is required to
effect any such modification or amendment, or permit the creation of any lien on
the Revenues  and other assets  pledged  under this  Indenture  prior to or on a
parity with the lien  created by this  Indenture,  or deprive the Holders of the
Bonds of the lien created by this  Indenture  on such  Revenues and other assets
(except as  expressly  provided in this  Indenture),  without the consent of the
Holders  of all of the Bonds  then  Outstanding,  or (3)  adversely  affect  the
interests of the Tender Agent without its prior written consent. It shall not be
necessary for the consent of the  Bondholders to approve the particular  form of
any  Supplemental  Indenture,  but it shall be  sufficient if such consent shall
approve the substance thereof. Promptly after the execution by the Authority and
the Trustee of any Supplemental  Indenture  pursuant to this subsection (A), the
Trustee shall mail a copy of the Supplemental  Indenture to the Tender Agent and
mail a notice, setting forth in general terms the substance of such Supplemental
Indenture,  to each  rating  agency then rating the Bonds and the Holders of the
Bonds at the address shown on the registration books of the Trustee. Any failure
to give such  notice,  or any defect  therein,  shall not,  however,  in any way
impair or affect the validity of any such Supplemental Indenture.

     (B) This Indenture and the rights and obligations of the Authority,  of the
Trustee and of the  Holders of the Bonds may also be  modified  or amended  from
time to time and at any time by an indenture or indentures  supplemental hereto,
which the  Authority  and the Trustee may enter into  without the consent of any
Bondholders  but with the written consent of the Borrower and the Bank, but only
to the extent  permitted by law including,  without  limitation,  for any one or
more of the following purposes:

          (1) to add to the covenants and agreements of the Authority  contained
in this Indenture other covenants and agreements  thereafter to be observed,  to
pledge or assign additional security for the Bonds, or to surrender any right or
power herein reserved to or conferred upon the Authority;

          (2) to make such  provisions  for the purpose of curing any ambiguity,
inconsistency or omission,  or of curing or correcting any defective  provision,
contained in this Indenture,  or in regard to matters or questions arising under
this  Indenture,  as the Authority may deem necessary or desirable  which do not
adversely affect the rights of the Bondholders hereunder;


                                       49

<PAGE>




          (3) to modify, amend or supplement this Indenture in such manner as to
permit  the  qualification  hereof  under the Trust  Indenture  Act of 1939,  as
amended,  or any similar  federal statute  hereafter in effect,  and to add such
other  terms,  conditions  and  provisions  as may be  permitted  by said act or
similar federal statute;

          (4) to make such provisions for the purpose of conforming to the terms
and provisions of any Alternate Letter of Credit or Alternate Credit Facility or
to obtain a rating on the Bonds which do not adversely  affect the rights of the
Bondholders hereunder; and

          (5) to modify, amend or supplement this Indenture in any other respect
which does not adversely  affect the rights of the  Bondholders  hereunder.  The
Trustee shall give notice of any such  modification  or amendment to each rating
agency then rating the Bonds.

     (C) The Trustee may in its discretion, but shall not be obligated to, enter
into any such  Supplemental  Indenture  authorized by subsections  (A) or (B) of
this Section which materially adversely affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise.

     SECTION 9.02. Effect of Supplemental  Indenture.  Upon the execution of any
Supplemental  Indenture pursuant to this Article, this Indenture shall be deemed
to be modified and amended in accordance  therewith,  and the respective rights,
duties and  obligations  under this Indenture of the Authority,  the Trustee and
all Holders of Bonds Outstanding  shall thereafter be determined,  exercised and
enforced  hereunder  subject in all respects to such modification and amendment,
and all the terms and  conditions of any such  Supplemental  Indenture  shall be
deemed to be part of the terms and  conditions of this Indenture for any and all
purposes.

     SECTION  9.03.  Endorsement  of  Bonds;  Preparation  of New  Bonds.  Bonds
delivered  after the execution of any  Supplemental  Indenture  pursuant to this
Article  may,  and if the  Authority  so  determines  shall,  bear a notation by
endorsement   or  otherwise  in  form  approved  by  the  Authority  as  to  any
modification or amendment provided for in such Supplemental  Indenture,  and, in
that case, upon demand of the Holder of any Bond Outstanding at the time of such
execution and presentation of his Bond for the purpose at the office of the Bond
Registrar or at such  additional  offices as the Bond  Registrar  may select and
designate for that purpose,  a suitable  notation shall be made on such Bond. If
the  Supplemental  Indenture  shall so  provide,  new  Bonds so  modified  as to
conform,  in the opinion of the  Authority,  to any  modification  or  amendment
contained in such Supplemental Indenture,  shall be prepared and executed by the
Authority  and  authenticated  by the Bond  Registrar,  and upon  demand  of the
Holders of any Bonds then Outstanding shall be exchanged at the principal office
of  the  Bond  Registrar,  without  cost  to  any  Bondholder,  for  Bonds  then
Outstanding,  upon surrender for  cancellation of such Bonds, in equal aggregate
principal amounts of the same Series and maturity.

     SECTION 9.04. Amendment of Particular Bonds. The provisions of this Article
shall  not  prevent  any  Bondholder  from  accepting  any  amendment  as to the
particular Bonds held by such Bondholder,  provided that due notation thereof is
made on such Bonds.




                                       50

<PAGE>



                                    ARTICLE X

                                   DEFEASANCE

     SECTION  10.01.  Discharge  of  Indenture.  The  Bonds  may be  paid by the
Authority in any of the following ways, provided that the Authority also pays or
causes to be paid any other sums payable hereunder by the Authority:

     (A) by paying or causing to be paid with Available Moneys the principal of,
interest and premium,  if any, on the Bonds, as and when the same become due and
payable;

     (B) by depositing with the Trustee, in trust, at or before maturity,  money
or securities in the necessary  amount (as provided in Section  10.03) to pay or
redeem with Available Moneys all Bonds then Outstanding; or

     (C) by delivering to the Trustee,  for  cancellation  by it, the Bonds then
Outstanding.

     If the Bonds are paid by the  Authority  pursuant to this Section  10.01(B)
prior to the Fixed Rate Date,  the Authority  and the Borrower  shall provide to
the  Trustee  written  evidence  from  Moody's,  if the Bonds are then  rated by
Moody's,  and S&P,  if the Bonds are then rated by S&P,  to the effect that such
payment  will  not  result  in a  withdrawal  of its  rating  on the  Bonds or a
reduction  from the rating which then exists as to the Bonds.  If the  Authority
shall  also pay or cause to be paid all  other  sums  payable  hereunder  by the
Authority, then and in that case, at the election of the Authority (evidenced by
a Certificate of the Authority, filed with the Trustee, signifying the intention
of the Authority to discharge all such  indebtedness  and this  Indenture),  and
notwithstanding that any Bonds shall not have been surrendered for payment, this
Indenture and the pledge of Revenues and other assets made under this  Indenture
and all covenants,  agreements and other obligations of the Authority under this
Indenture shall cease,  terminate,  become void and be completely discharged and
satisfied except only as provided in Section 10.02. In such event,  upon Request
of the  Authority,  the  Trustee  shall cause an  accounting  for such period or
periods as may be requested  by the  Authority to be prepared and filed with the
Authority and shall execute and deliver to the Authority all such instruments as
may be necessary or desirable to evidence such discharge and  satisfaction,  and
the Trustee shall pay over, transfer, assign or deliver all moneys or securities
or other property held by it pursuant to this  Indenture  which are not required
for the payment of  obligations to be paid from  Additional  Payments or for the
payment or redemption of Bonds not  theretofore  surrendered for such payment or
redemption  in the following  order (1) first,  to the Bank to the extent of any
amounts  due to the  Bank  pursuant  to the  Reimbursement  Agreement,  and  (2)
otherwise,  to the  Borrower,  provided  that  moneys  in the  Letter  of Credit
Account,  the Liquidity Account and the Remarketing Account shall be returned to
the Bank.

     SECTION 10.02.  Discharge of Liability on Bonds.  Upon the deposit with the
Trustee,  in  trust,  at or  before  maturity,  of  money or  securities  in the
necessary amount (as provided in Section 10.03) to pay or redeem all Outstanding
Bonds  (whether  upon or prior to the  maturity or the  redemption  date of such
Bonds),  provided  that,  if any of  such  Bonds  are to be  redeemed  prior  to
maturity, notice of such redemption shall have been given as provided in Article
IV or provision  satisfactory to the Trustee shall have been made for the giving
of such notice,  then all  liability  of the  Authority in respect of such Bonds
shall  cease,  terminate  and be  completely  discharged,  except  only that the
Holders  thereof  shall  thereafter  be entitled to payment of the  principal or
redemption price, as applicable, of and interest on such Bonds by the Authority,
and the Authority  shall remain  liable for such  payment,  but only out of such
money or securities  deposited  with the Trustee as aforesaid for their payment,
provided further,  however,  that the provisions of Section 10.04 shall apply in
all events. In the event any of said Bonds are not to


                                       51

<PAGE>



be redeemed within the next succeeding sixty (60) days, the Authority shall have
given the Trustee in form satisfactory to it irrevocable  instructions for it to
mail,  as soon as  practicable  in the same manner as a notice of  redemption is
mailed pursuant to Article IV hereof,  a notice to the Holders of such Bonds and
to the  Securities  Depositories  and an  Information  Service  that the deposit
required  above has been made with the Trustee and that said Bonds are deemed to
have been paid in  accordance  with this Section 10.02 and stating such maturity
or redemption dates upon which moneys are to be available for the payment of the
principal or redemption price, as applicable, of said Bonds.

     SECTION  10.03.  Deposit of Money or Securities  with Trustee.  Whenever in
this  Indenture it is provided or permitted that there be deposited with or held
in trust by the Trustee money or  securities  in the necessary  amount to pay or
redeem any Bonds, the money or securities so to be deposited or held may include
money or  securities  held by the Trustee in the funds and accounts  established
pursuant to this  Indenture  (exclusive of the Project Fund,  the Purchase Fund,
the Letter of Credit Account and the Rebate Fund) and shall be--

     (A)  Available  Moneys in an amount equal to the  principal  amount of such
Bonds, all unpaid interest  thereon to maturity,  and the purchase price of such
Bonds  except  that,  in the case of Bonds  which  are to be  redeemed  prior to
maturity and in respect of which notice of such redemption shall have been given
as in Article IV provided or provision  satisfactory  to the Trustee  shall have
been made for the  giving of such  notice,  the amount to be  deposited  or held
shall be the redemption  price of such Bonds and all unpaid interest  thereon to
the redemption date; or

     (B) Government  Obligations  purchased with Available Moneys which when due
will provide  money  sufficient to pay the  principal or  redemption  price,  as
applicable,  of, all unpaid interest to maturity,  or to the redemption date, as
the case may be,  on the Bonds to be paid or  redeemed,  as such  principal  and
interest become due, and the purchase price of such Bonds; provided that, in the
case of Bonds which are to be redeemed prior to the maturity thereof,  notice of
such  redemption  shall have been given as provided  in Article IV or  provision
satisfactory  to the Trustee shall have been made for the giving of such notice;
and  provided  further that  investment  securities  purchased  pursuant to this
paragraph shall not be subject to redemption  prior to their maturity other than
at the option of the holder  thereof  unless the moneys to be available from the
redemption of such  securities on the earliest date on which such securities are
subject to redemption,  other than at the option of the holder thereof, shall be
at least equal to the amount of money expected to be derived in connection  with
such  securities in determining  that the provisions of this paragraph have been
satisfied;

provided, in each case, that the Trustee shall have been irrevocably  instructed
(by the terms of this  Indenture or by Request of the  Authority)  to apply such
money to the payment of such principal or redemption  price, as applicable,  and
interest with respect to such Bonds.

     SECTION  10.04.  Payments After  Discharge of Indenture.  When there are no
longer any Bonds Outstanding, and all fees, charges and expenses of the Trustee,
the Tender Agent and any Paying  Agents have been paid or provided  for, and all
expenses of the Authority  relating to the Project and this  Indenture have been
paid or provided  for, and all other  amounts  payable  hereunder  and under the
Agreement have been paid, and this Indenture has been  discharged and satisfied,
and subject to the escheat laws of the State,  the Trustee  shall pay any moneys
remaining in any fund  established and held hereunder (other than moneys held in
the Rebate Fund which shall  continue to be applied as provided in Section 5.07)
in the following  order (1) first,  to the Bank to the extent of any amounts due
to the Bank pursuant to the  Reimbursement  Agreement,  and (2) otherwise to the
Borrower, provided that moneys in


                                       52

<PAGE>



the Letter of Credit Account,  the Liquidity Account and the Remarketing Account
shall be returned to the Bank.


                                   ARTICLE XI

                                  MISCELLANEOUS

     SECTION 11.01. Liability of Authority Limited to Revenues.  Notwithstanding
anything in this Indenture or in the Bonds contained, the Authority shall not be
required to advance any moneys  derived  from any source other than the Revenues
and other assets  pledged  under this  Indenture for any of the purposes in this
Indenture mentioned,  whether for the payment of the principal of or interest on
the  Bonds  or for any  other  purpose  of  this  Indenture.  Nevertheless,  the
Authority  may,  but shall not be required  to,  advance for any of the purposes
hereof any funds of the  Authority  which may be made  available  to it for such
purposes.

     SECTION  11.02.   Successor  Is  Deemed   Included  in  All  References  to
Predecessor.  Whenever in this Indenture  either the Authority or the Trustee is
named or referred to, such  reference  shall be deemed to include the successors
or assigns  thereof,  and all the  covenants and  agreements  in this  Indenture
contained by or on behalf of the  Authority or the Trustee  shall bind and inure
to the  benefit of the  respective  successors  and assigns  thereof  whether so
expressed or not.

     SECTION 11.03. Limitation of Rights to Parties and Bondholders.  Nothing in
this  Indenture  or in the Bonds  expressed  or implied is  intended or shall be
construed to give to any Person other than the Authority, the Trustee, the Bank,
the Borrower and the Holders of the Bonds, any legal or equitable right,  remedy
or claim under or in respect of this  Indenture  or any  covenant,  condition or
provision  therein or herein contained;  and all such covenants,  conditions and
provisions are and shall be held to be for the sole and exclusive benefit of the
Authority, the Trustee, the Bank, the Borrower and the Holders of the Bonds.

     SECTION 11.04.  Waiver of Notice.  Whenever in this Indenture the giving of
notice by mail or otherwise is required, the giving of such notice may be waived
in writing by the person  entitled  to receive  such notice and in any such case
the giving or receipt of such notice  shall not be a condition  precedent to the
validity of any action taken in reliance upon such waiver.

     SECTION 11.05.  Destruction of Bonds.  Whenever in this Indenture provision
is made for the cancellation by the Trustee and the delivery to the Authority of
any Bonds,  the Trustee  may,  upon  Request of the  Authority,  in lieu of such
cancellation and delivery,  destroy such Bonds (in the presence of an officer of
the Authority,  if the Authority shall so require), and deliver a certificate of
such destruction to the Authority.

     SECTION 11.06.  Severability of Invalid  Provisions.  If any one or more of
the provisions  contained in this Indenture or in the Bonds shall for any reason
be held to be  invalid,  illegal  or  unenforceable  in any  respect,  then such
provision or provisions shall be deemed severable from the remaining  provisions
contained in this Indenture and such invalidity,  illegality or unenforceability
shall not affect any other provision of this Indenture, and this Indenture shall
be construed as if such invalid or illegal or unenforceable  provision had never
been contained herein.  The Authority hereby declares that it would have entered
into this  Indenture  and each and every  other  Section,  paragraph,  sentence,
clause or phrase  hereof  and  authorized  the  issuance  of the Bonds  pursuant
thereto irrespective of the fact


                                       53

<PAGE>



that any one or more Sections, paragraphs, sentences, clauses or phrases of this
Indenture may be held illegal, invalid or unenforceable.

     SECTION 11.07.  Governing Law. This Indenture shall be governed exclusively
by and  construed  in  accordance  with the  applicable  laws of the  State  for
contracts executed and delivered,  and to be completely performed,  in the State
without giving effect to conflicts of law provisions.

     SECTION 11.08.  Notices.  If a Bondholder delivers a written request to the
Trustee  setting  forth the  appropriate  telex or  telecopier  number and other
necessary  information  to enable  the  Trustee  to  deliver  notices  by telex,
telegram,   telecopier  or  other  telecommunication  device  notices  shall  be
delivered to such Bondholder in the manner requested  unless otherwise  provided
herein and  confirmed in writing as soon as  practicable.  In all other  events,
notices  shall be delivered to each  Bondholder  by  first-class  mail,  postage
prepaid,  at the address set forth for such Bondholder on the registration books
required to be maintained by the Bond Registrar pursuant to Section 2.07 hereof.
Any notice to or demand upon the Trustee  may be served or  presented,  and such
demand may be made,  at the principal  corporate  trust office of the Trustee in
San  Francisco,  California,  which at the date of adoption of this Indenture is
located at the address set forth below or at such other address as may have been
filed in writing by the Trustee with the Authority. Any notice to or demand upon
the Authority, the Borrower, the Remarketing Agent, the Tender Agent or the Bank
shall be deemed to have been  sufficiently  given or served for all  purposes by
being delivered or sent by telex or by being deposited,  postage  prepaid,  in a
post office letter box, addressed,  as the case may be, as set forth below or at
such other addresses as may have been filed in writing with the Trustee.

           If to the Authority:

                    California Economic Development Financing Authority
                    c/o California Trade and Commerce Agency
                    801 K Street, Suite 1700
                    Sacramento, California 95814
                    Attention: Chair
                    (916) 323-8022  Fax: (916) 322-7214

           If to the Borrower:

                    Advanced Aerodynamics and Structures, Inc.
                    3501 Lakewood Boulevard
                    Long Beach, California 90808
                    Attention: President
                    (562) 938-8618  Fax:  (562) 938-8620

           If to the Trustee:

                    First Trust of California, National Association
                    One California Street
                    4th Floor
                    San Francisco, California  94111
                    Attention:  Municipal Trusts and Agency
                    (415) 273-4500  Fax: (415) 273-4590




                                       54

<PAGE>



           If to the Tender Agent:

                    First Trust of California, National Association
                    One California Street
                    4th Floor
                    San Francisco, California  94111
                    Attention:  Municipal Trusts and Agency
                    (415) 273-4500  Fax: (415) 273-4590

           If to the Bank:

                    The Sumitomo Bank, Limited
                    777 South Figueroa Street, Suite 2600
                    Los Angeles, California  90017
                    Attention: Structured Finance & Financial Institutions Group
                    (213) 955-0800  Fax:  (213) 623-6832

           If to the Remarketing Agent:

                    Rauscher Pierce Refsnes, Inc.
                    2711 North Haskell Avenue, Suite 2400
                    Dallas, Texas 75204
                    Attention:  Fixed Income Banking
                    (214) 989-1000  Fax: (214) 989-1842

           If to DTC:

                    Notices  required to be given under this Indenture to DTC by
                    facsimile   transmission   shall  be  sent  to  DTC's   Call
                    Notification   Department   at  (516)  227-  4039  or  (516)
                    227-4190. Notices to DTC by mail or any other means shall be
                    sent to:

                    The Depository Trust Company
                    711 Stewart Avenue
                    Garden City, NY  11530
                    Attention:   Call Notification Department
                                 Muni Reorganization Manager

     SECTION 11.09. Evidence of Rights of Bondholders.  Any request,  consent or
other  instrument  required  or  permitted  by this  Indenture  to be signed and
executed  by  Bondholders  may be in any  number of  concurrent  instruments  of
substantially  similar tenor and shall be signed or executed by such Bondholders
in person or by an agent or  agents  duly  appointed  in  writing.  Proof of the
execution  of any such  request,  consent  or other  instrument  or of a writing
appointing any such agent, or of the holding by any person of Bonds transferable
by delivery,  shall be sufficient for any purpose of this Indenture and shall be
conclusive  in favor of the Trustee and of the  Authority  if made in the manner
provided in this Section.

     The fact and  date of the  execution  by any  person  of any such  request,
consent or other  instrument or writing may be proved by the  certificate of any
notary  public or other  officer  of any  jurisdiction,  authorized  by the laws
thereof to take acknowledgments of deeds, certifying that the person


                                       55

<PAGE>



signing such request,  consent or other  instrument  acknowledged to such notary
public or other officer the execution  thereof,  or by an affidavit of a witness
of such execution duly sworn to before such notary public or other officer.

     The ownership of registered Bonds shall be proved by the bond  registration
books held by the Bond Registrar.

     Any request,  consent,  or other instrument or writing of the Holder of any
Bond  shall bind  every  future  Holder of the same Bond and the Holder of every
Bond issued in exchange therefor or in lieu thereof, in respect of anything done
or suffered to be done by the Trustee or the Authority in  accordance  therewith
or reliance thereon.

     SECTION 11.10.  Disqualified  Bonds. In determining  whether the Holders of
the requisite  aggregate principal amount of Bonds have concurred in any demand,
request,  direction,  consent or waiver  under this  Indenture,  Bonds which are
owned or held by or for the account of the Authority or the Borrower,  or by any
other obligor on the Bonds, or by any person directly or indirectly  controlling
or controlled by, or under direct or indirect common control with, the Authority
or the  Borrower or any other  obligor on the Bonds,  shall be  disregarded  and
deemed not to be Outstanding for the purpose of any such determination. Bonds so
owned which have been pledged in good faith may be regarded as  Outstanding  for
the purposes of this Section if the pledgee shall establish to the  satisfaction
of the  Trustee the  pledgee's  right to vote such Bonds and that the pledgee is
not a person  directly or  indirectly  controlling  or  controlled  by, or under
direct or indirect  common  control  with,  the Authority or the Borrower or any
other obligor on the Bonds. In case of a dispute as to such right,  any decision
by the Trustee taken upon the advice of counsel shall be full  protection to the
Trustee.

     SECTION 11.11. Money Held for Particular Bonds.

     (A)  The  money  held  by the  Trustee  for the  payment  of the  interest,
principal,  or  premium  due on any date with  respect to  particular  Bonds (or
portions  of Bonds in the case of Bonds  redeemed  in part only)  shall,  on and
after such date and pending such payment,  be set aside on its books and held in
trust by it for the Holders of the Bonds entitled thereto, (subject, however, to
the  provisions  of  Section  10.04) for a period of two years but  without  any
liability for interest thereon.

     (B) Upon the  expiration of the period  specified in subsection  (A) above,
except as provided in subsection (C) below,  funds held by the Trustee  pursuant
to this Indenture shall be paid,  subject to any prior payments  pursuant to the
provisions of Section 10.04, to the Borrower, and funds held by the Tender Agent
shall be paid to the Trustee and thereafter  paid,  subject to the provisions of
Section 10.04, to the Borrower,  upon direction of an Authorized  Representative
of the Borrower,  and thereafter  Bondholders  shall be entitled to look only to
the Borrower for payment, and then only to the extent of the amount so deposited
with the  Borrower,  and all  liability  of the  Authority  or the Trustee  with
respect to such money  shall  thereupon  cease,  and the  Borrower  shall not be
liable for any  interest  thereon and shall not be regarded as a trustee of such
money.

     (C) Any moneys held by the Trustee or the Tender Agent, as the case may be,
in the Letter of Credit Account or the Liquidity  Account for the payment of the
principal, premium, or purchase price of any Bonds not so applied to the payment
of the Bonds within two years after the date on which the same shall have become
due  shall be  transferred  to the  Bank.  Upon  the  expiration  of the  period
specified  in  subsection  (A)  above,  any  moneys  held  by the  Tender  Agent
representing  the proceeds of the remarketing of the Bonds but which were not so
applied  to the  payment of Bonds  shall be  transferred  to the Bank.  All such
moneys  shall be subject to  escheat  to the State in  accordance  with the laws
thereof.


                                       56

<PAGE>



Bondholders  shall be entitled  to look only to the Bank for  payment  from such
moneys, and all liability of the Authority, the Trustee or the Tender Agent with
respect to such money shall thereupon cease, and the Trustee,  the Tender Agent,
the  Authority,  the Bank, or the Borrower  shall not be liable for any interest
thereon and such parties shall not be regarded as a trustee of such money.

     SECTION  11.12.  Funds and Accounts.  Any fund or account  required by this
Indenture to be established and maintained by the Trustee may be established and
maintained  in the  accounting  records of the  Trustee,  either as a fund or an
account,  and may, for the purposes of such records,  any audits thereof and any
reports or statements with respect thereto, be treated either as a fund or as an
account;  but all such records with respect to all such funds and accounts shall
at all times be maintained in accordance with generally accepted corporate trust
industry  standards,  to the  extent  practicable,  and with due  regard for the
requirements of Section 6.05 and for the protection of the security of the Bonds
and the rights of every Holder thereof and the Bank's interest created herein.

     SECTION 11.13. Waiver of Personal Liability.  No member,  officer, agent or
employee of the Authority  shall be  individually  or personally  liable for the
payment of the principal of or premium or interest on the Bonds or be subject to
any personal liability or accountability by reason of the issuance thereof;  but
nothing  herein  contained  shall  relieve any such  member,  officer,  agent or
employee  from the  performance  of any official duty provided by law or by this
Indenture.

     SECTION  11.14.  Execution in Several  Counterparts.  This Indenture may be
executed in any number of counterparts and each of such  counterparts  shall for
all purposes be deemed to be an original; and all such counterparts,  or as many
of them as the  Authority  and the Trustee  shall  preserve  undestroyed,  shall
together constitute but one and the same instrument.

     SECTION 11.15. Actions Due on Saturdays,  Sundays and Holidays. If any date
on which a payment,  notice or other action  required by this Indenture falls on
other than a Business Day, then that action or payment need not be taken or made
on such date, but may be taken or made on the next succeeding  Business Day with
the same force and effect as if made on such date.

     SECTION 11.16. References to Bank. Notwithstanding any provisions contained
herein to the  contrary,  the Bank shall be  entitled  to take all  actions  and
exercise  all rights  hereunder  for its own account so long as the Bank has not
wrongfully  dishonored  any drawings  under the Letter of Credit and the Bank is
not in liquidation, bankruptcy or receivership proceedings. After the expiration
or  termination  of the Letter of Credit and after all  obligations  owed to the
Bank  pursuant  to the  Reimbursement  Agreement  have  been  paid  in  full  or
discharged,  all references to the Bank contained  herein (other than in Section
10.04) shall be null and void and of no further force and effect.

                         [End of the Indenture of Trust]



                                       57

<PAGE>



     IN WITNESS WHEREOF, the CALIFORNIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY
has caused this Indenture to be signed in its name by the Chair of the Authority
and  attested  by  its  Secretary  and  FIRST  TRUST  OF  CALIFORNIA,   NATIONAL
ASSOCIATION,  in token of its  acceptance of the trusts created  hereunder,  has
caused  this  Indenture  to be  signed  in its  corporate  name by its  officers
thereunto duly authorized, all as of the day and year first above written.

                                     CALIFORNIA ECONOMIC DEVELOPMENT
                                     FINANCING AUTHORITY


                                     By
                                           Chair


Attest


By
     Secretary



APPROVED AS TO FORM


By
      Counsel


                                       FIRST TRUST OF CALIFORNIA,
                                       NATIONAL ASSOCIATION,
                                       as Trustee


                                        By
                                            Authorized Officer



Attest


By
   Assistant Secretary



<PAGE>



                                    EXHIBIT A

                                  FORM OF BOND

     NEITHER THE STATE OF CALIFORNIA NOR ANY POLITICAL  SUBDIVISION OR AGENCY OF
     THE STATE OF CALIFORNIA SHALL BE OBLIGATED TO PAY THIS BOND OR THE INTEREST
     HEREON.  NEITHER THE FAITH AND CREDIT NOR THE TAXING  POWER OF THE STATE OF
     CALIFORNIA OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO THE
     PAYMENT  OF THE  PRINCIPAL  OF,  PREMIUM,  IF ANY,  PURCHASE  PRICE  OF, OR
     INTEREST ON, THIS BOND.  NEITHER THE STATE OF CALIFORNIA  NOR ANY POLITICAL
     SUBDIVISION OR AGENCY OF THE STATE OF CALIFORNIA IS IN ANY MANNER OBLIGATED
     TO MAKE ANY  APPROPRIATION  FOR SUCH PAYMENTS.  THE AUTHORITY HAS NO TAXING
     POWER.  THIS BOND,  TOGETHER  WITH THE INTEREST AND PREMIUM (IF ANY) HEREON
     AND THE PURCHASE PRICE HEREOF,  SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR
     LIABILITY OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION OR AGENCY
     OF THE STATE OF CALIFORNIA.


No.  R-1                                                             $8,500,000

               CALIFORNIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY
                              VARIABLE RATE DEMAND
                INDUSTRIAL DEVELOPMENT REVENUE BOND, SERIES 1997
              (ADVANCED AERODYNAMICS AND STRUCTURES, INC. PROJECT)


MATURITY DATE            ORIGINAL ISSUE DATE              CUSIP

August 1, 2027           August 5, 1997                  13066P AM0

Registered Owner:        CEDE & CO.

Principal Sum:  EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS

     The CALIFORNIA ECONOMIC DEVELOPMENT  FINANCING AUTHORITY (the "Authority"),
a body  public  and  corporate,  and a public  instrumentality  of the  State of
California  (the  "State"),  duly  organized and existing  under the laws of the
State,  particularly  Part  10.2 of  Division  3 of  Title  2 of the  California
Government  Code  (commencing  with Section 15710 of the  California  Government
Code), as amended (the "Act"), for value received, hereby promises to pay to the
registered  owner specified above, or registered  assigns,  on the maturity date
set  forth  above  (subject  to  any  right  of  prior  redemption   hereinafter
mentioned),  the  principal  sum set forth above,  in lawful money of the United
States of America,  and to pay  interest  thereon in like lawful  money from and
including the Interest  Payment Date (as defined herein) next preceding the date
of registration of this Bond (unless this Bond is registered after a Record Date
(as hereinafter  defined) and on or before the next succeeding  Interest Payment
Date or on an Interest  Payment Date, in which event it shall bear interest from
and including


                                       A-1

<PAGE>



such  Interest  Payment  Date,  or unless this Bond is registered on or prior to
September 1, 1997,  in which event it shall bear interest from and including the
date of initial  issuance and delivery (the "Date of Delivery")),  until payment
of such  principal  sum shall be  discharged  as provided in the  Indenture  (as
hereinafter  defined), at the rates per annum determined as set forth below. The
interest on this Bond will be payable on September 2, 1997,  and  thereafter  on
the first  Business Day of each month on or prior to the date on which this Bond
is converted to bear a fixed rate of interest as provided in the Indenture  (the
"Fixed Rate Date"), and thereafter on August 1 and February 1 in each year (each
such date being referred to herein as an "Interest Payment Date"). The principal
(or  redemption  price)  hereof  is  payable  upon  presentation  hereof  at the
principal  corporate  trust  office  of  First  Trust  of  California,  National
Association  (together  with any successor as trustee under the  Indenture,  the
"Trustee"), in San Francisco, California, or at such other office as the Trustee
may designate.  Interest  hereon is payable by check or draft mailed,  except as
provided  in the  Indenture,  to the  person  whose  name  appears  on the  bond
registration books of the Trustee as the registered owner hereof as of the close
of business on the Record Date,  in each case,  at such  person's  address as it
appears on such registration  books. The term "Record Date" means,  prior to the
Fixed Rate Date, the Business Day preceding any Interest Payment Date, and after
the Fixed Rate Date, the fifteenth  (15th) day of the calendar  month  preceding
any Interest Payment Date.

     The Authority, First Trust of California,  National Association,  as tender
agent (the "Tender Agent"),  the Trustee, any paying agent, and any agent of the
Authority,  the Tender  Agent or the  Trustee may treat the person in whose name
this Bond is registered as the owner hereof for the purpose of receiving payment
as herein  provided and for all other  purposes,  and the Authority,  the Tender
Agent, the Trustee,  any paying agent or any such agent shall not be affected by
notice to the contrary.

     This Bond, together with the interest and premium (if any) hereon shall not
be deemed  to  constitute  a debt or  liability  of the  State or any  political
subdivision  or agency  of the State or a pledge of the faith and  credit of the
State or any political  subdivision or agency of the State, but shall be payable
solely from the funds provided therefor pursuant to the Indenture.  This Bond is
only a special,  limited  obligation of the Authority as provided by the Act and
the Authority shall under no circumstances be obligated to pay the principal of,
premium,  if any,  purchase  price of, or interest on this Bond,  or other costs
incident hereto except from the revenues and funds pledged therefor  pursuant to
the Indenture.  Neither the State nor any political subdivision or agency of the
State is in any manner  obligated to make any  appropriation  for such payments.
The Authority has no taxing power.

     No member or officer of the Authority,  nor any person  executing this Bond
shall in any event be subject to any  personal  liability or  accountability  by
reason of the issuance of this Bond.

     This  Bond is one of a duly  authorized  issue of  bonds  of the  Authority
designated as captioned  above (the "Bonds")  pursuant to the  provisions of the
Act, and pursuant to an indenture of trust,  dated as of August 1, 1997, between
the  Authority and the Trustee (the  "Indenture").  The Bonds are issued for the
purpose  of making a loan to  Advanced  Aerodynamics  and  Structures,  Inc.,  a
corporation  duly organized and existing under the laws of the State of Delaware
(the  "Borrower"),  to assist  in the  financing  of a Project  (as such term is
defined in the Indenture)  owned by the Borrower,  pursuant to a loan agreement,
dated as of  August  1,  1997,  between  the  Authority  and the  Borrower  (the
"Agreement"),  for the  purposes  and on the  terms  and  conditions  set  forth
therein.  The payment of principal of and interest on the Bonds is secured by an
irrevocable  Letter  of Credit  issued by The  Sumitomo  Bank,  Limited,  acting
through its Los Angeles Branch, (the "Letter of Credit" and the "Bank",


                                       A-2

<PAGE>



respectively).  Such Letter of Credit may be renewed or  substituted by a letter
of credit of another  financial  institution or an alternate  credit facility as
provided in the Agreement and the Indenture.

     Reference  is hereby made to the  Indenture  (a copy of which is on file at
said office of the Trustee) and all indentures  supplemental  thereto and to the
Act for a description of the rights  thereunder of the registered  owners of the
Bonds,  of the nature  and extent of the  security,  of the  rights,  duties and
immunities of the Trustee and the Tender Agent and of the rights and obligations
of the  Authority  thereunder,  to all the  provisions  of which  Indenture  the
registered owner of this Bond, by acceptance hereof, assents and agrees.

     The Bonds and the  interest  thereon are payable  solely from  Revenues (as
defined in the  Indenture)  and are secured by a pledge of said  Revenues and of
amounts  held in the funds  (except as provided in the  Indenture)  and accounts
established  pursuant to the  Indenture  (including  proceeds of the sale of the
Bonds),  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.  The Bonds are further  secured by an assignment of the right,
title and interest of the  Authority in the Agreement (to the extent and as more
particularly described in the Indenture) and by the Letter of Credit.

     The Bonds shall bear  interest  from and  including the Date of Delivery of
the  Bonds  to and  including  a date  specified  in the  Indenture  at the rate
specified in the  Indenture.  Thereafter,  prior to the Fixed Rate Date or final
maturity date, whichever is earlier,  the Bonds shall bear interest,  calculated
on the basis of a year of 365 or 366 days, as  appropriate,  at a rate per annum
equal to the Weekly Interest Rate (as hereinafter defined). Each period from and
including  the  Date  of  Delivery  to and  including  September  1,  1997  and,
thereafter,  the period  from and  including  an  Interest  Payment  Date to and
including the day next preceding the  immediately  succeeding  Interest  Payment
Date is herein called an "Interest Period."

     The Weekly  Interest Rate shall be the rate  determined by Rauscher  Pierce
Refsnes,  Inc.  (together  with any  successor  as  Remarketing  Agent under the
Indenture,  the  "Remarketing  Agent"),  on  the  basis  of the  examination  of
Tax-exempt  (as defined in the  Indenture)  obligations  comparable to the Bonds
known  by the  Remarketing  Agent to have  been  priced  or  traded  under  then
prevailing market conditions, to be the minimum interest rate which, if borne by
the Bonds, would enable the Remarketing Agent to sell the Bonds on the date such
interest rate becomes effective at a price equal to the principal amount thereof
plus accrued  interest,  if any, but in no event exceeding twelve percent (12%);
provided,  however,  that if for any reason a Weekly Interest Rate so determined
shall be held to be  invalid  or  unenforceable  by a court of law,  the  Weekly
Interest Rate shall be the rate established in accordance with the Indenture.

     The  Remarketing  Agent shall  determine the Weekly Interest Rate as of the
close of  business  on Tuesday in each  calendar  week until the  earlier of the
Fixed Rate Date,  or payment in full of the Bonds;  provided  that if Tuesday in
any calendar week shall not be a Business Day then such  determination  shall be
made on the next preceding  Business Day, and  communicate by telephonic  notice
such rate to the Trustee  (with  prompt  confirmation  in  writing).  The Weekly
Interest  Rate so  determined  shall become  effective  Wednesday in the week of
determination  thereof,  to and including the following Tuesday  irrespective of
when the rate was determined by the Remarketing  Agent. If the Remarketing Agent
shall fail to determine a new Weekly  Interest Rate in any week,  the previously
effective  Weekly  Interest Rate shall remain in effect for the next  succeeding
week and shall thereafter be determined in accordance with the Indenture.



                                       A-3

<PAGE>



     Each  determination  of the Weekly Interest Rate by the  Remarketing  Agent
shall be conclusive and binding on the owners of the Bonds.

     Anything  herein  to the  contrary  notwithstanding,  in no  event  may the
interest  rate borne by the Bonds exceed  twelve  percent (12%) per annum or, if
lower,  the maximum rate of interest which may be charged or collected  pursuant
to applicable provisions of federal or state law.

     On any  Interest  Payment  Date,  the  interest  rate on the  Bonds  may be
converted to a fixed annual rate of interest  (the "Fixed  Interest  Rate") upon
receipt  by the  Authority,  the  Trustee,  the Tender  Agent,  the Bank and the
Remarketing  Agent  not less  than 45 days in  advance  of the date on which the
Bonds begin to bear interest at the Fixed  Interest Rate (the "Fixed Rate Date")
of (i) notice from the Borrower  electing to have the interest rate on the Bonds
converted  to a Fixed  Interest  Rate,  (ii) an opinion  of Bond  Counsel to the
effect that  conversion  to a Fixed  Interest Rate is permitted by the Indenture
and the Act and that  conversion to the Fixed  Interest Rate in accordance  with
the  provisions of the Indenture  will not cause interest on the Bonds to not be
Tax-exempt and (iii)  satisfaction of certain other  conditions set forth in the
Indenture.

     After the Fixed Rate Date,  interest  on the Bonds shall be computed on the
basis of a year of 360 days and 12 months of 30 days each.  The interest rate on
all Bonds from the Fixed Rate Date until the  maturity  or prior  redemption  or
acceleration thereof shall be a rate per annum equal to the Fixed Interest Rate,
which shall be  determined  as follows on or prior to, but not more than 15 days
prior to, the  Business  Day  immediately  preceding  the Fixed  Rate Date.  The
Remarketing Agent shall specify the Fixed Interest Rate to be borne by the Bonds
on and after the Fixed Rate Date.

     The Fixed  Interest  Rate shall be the rate,  but not  exceeding  the rate,
which at the time of  determination  thereof in the judgment of the  Remarketing
Agent,  having due regard for prevailing  financial market conditions,  would be
necessary to remarket the Bonds at a price equal to 100% of the principal amount
thereof  on  the  Fixed  Rate  Date.  If on the  date  of  determination  by the
Remarketing  Agent of the  Fixed  Interest  Rate,  the  Fixed  Interest  Rate so
determined  is held by a court to be  invalid or  unenforceable,  then the Fixed
Interest Rate shall be a rate determined by the Remarketing Agent, not less than
90% or more than 130% of the  "Alternate  Fixed  Rate," which in the judgment of
the Remarketing Agent, having due regard for prevailing market conditions, would
be the minimum rate at which owners of the Bonds would be able to sell the Bonds
at a price equal to the  principal  amount  thereof on the Fixed Rate Date.  The
Alternate Fixed Rate shall be determined by the Remarketing Agent and shall be a
rate per annum  based upon yield  evaluations  at par of  Tax-exempt  securities
having a remaining term equal, as nearly as  practicable,  to the time remaining
until the  maturity  of the Bonds of not less than  five  Component  Issues  (as
defined in the Indenture)  selected by the Remarketing Agent each of which would
be rated by either Moody's Investors Service,  Inc. or Standard & Poor's Ratings
Group  in a  long-term  debt  rating  category  which  is  the  same  as,  or is
immediately  proximate  to, the  long-term  debt rating  category  which will be
assigned to the Bonds after the Fixed Rate Date. Anything to the contrary herein
notwithstanding,  the Fixed  Interest Rate shall not exceed twelve percent (12%)
per annum. If, after the Fixed Rate Date the Bonds shall fail to be converted to
a Fixed  Interest  Rate,  the Bonds will continue to earn interest at the Weekly
Interest Rate as provided in the Indenture  and the  registered  owners shall be
notified thereof.

     At least thirty (30) days prior to the Fixed Rate Date,  the Trustee  shall
give an irrevocable  notice to the registered owners of conversion of the Weekly
Interest Rate borne by the Bonds to the Fixed Interest  Rate.  Such notice shall
(i) specify the  proposed  Fixed Rate Date,  (ii)  require  owners of all of the
Outstanding  Bonds to tender their Bonds for purchase on the Fixed Rate Date and
(iii) state


                                       A-4

<PAGE>



that all  Outstanding  Bonds  not  purchased  on or before  the Fixed  Rate Date
pursuant to the Indenture  will be deemed to be purchased on the Fixed Rate Date
at a price equal to the principal amount thereof,  plus unpaid interest, if any,
accrued to such date.

     Any Bond purchased by the Tender Agent from the date notice of the proposed
Fixed Rate Date is given to registered  owners through the Fixed Rate Date shall
be remarketed  at the Weekly  Interest Rate for a period up to and including the
Fixed Rate Date;  provided,  however,  that all Bonds  remarketed  from the date
notice of the  proposed  Fixed Rate Date is given to an owner  through the Fixed
Rate Date shall be tendered by the owner thereof on the Fixed Rate Date pursuant
to the provisions of the Indenture.

     The Bonds are also subject to mandatory  tender for purchase on the date an
alternate  letter of credit is substituted for the Letter of Credit (the "Letter
of Credit  Substitution  Date").  The Fixed  Rate Date and the  Letter of Credit
Substitution Date are also referred to as the "Mandatory Tender Date."

     All Bonds which on the  Mandatory  Tender Date have not been  tendered  for
purchase  ("Non-Tendered  Bonds"), shall be deemed purchased by the Tender Agent
on the  Mandatory  Tender Date at a price of the principal  amount  thereof plus
unpaid  interest,  if any,  accrued  to such  date.  Replacement  bonds  for the
Non-Tendered  Bonds may be remarketed  and delivered to new owners as instructed
by the Borrower or the Remarketing  Agent. The Tender Agent shall hold in escrow
for the owners of the Non-Tendered  Bonds the purchase price thereof,  and after
the  Mandatory  Tender Date such owners will no longer be entitled to any of the
benefits of the Indenture except for the payment of such purchase price.

     The Indenture  provides that prior to the Fixed Rate Date, the Bonds may be
delivered by the owners  thereof to the Tender Agent at its principal  corporate
trust office in San  Francisco,  California or at such other place as the Tender
Agent may  designate  in writing to the owners.  Any Bond so delivered or notice
with  respect to which is received  shall be  purchased  by the Tender  Agent on
demand of the owner thereof on the close of any Business Day at a purchase price
equal to the principal amount thereof plus accrued interest to but not including
the date of purchase  (unless such date is an Interest  Payment  Date,  in which
case the purchase price will be the principal amount of such Bond) upon:

     (A) delivery to the Tender Agent of an  irrevocable  written notice by 4:00
p.m.,  California  time, which states (i) the name and address of the registered
owner,  (ii) the number or numbers of the Bond or Bonds to be  purchased,  (iii)
the aggregate  principal  amount of the Bond or Bonds to be purchased,  and (iv)
the date on which the Bond is or Bonds are to be purchased,  which date shall be
a Business Day not prior to the seventh (7th)  calendar day next  succeeding the
date of delivery of such notice; and

     (B)  delivery  to the Tender  Agent at or prior to 10:00  a.m.,  California
time, on the Purchase Date  specified in the  aforesaid  notice,  of the Bond or
Bonds to be tendered; provided, however, that any Bond for which a notice of the
exercise of the  purchase  option has been given as provided in  subsection  (A)
above and which is not so  delivered  shall be deemed  delivered  on the date of
purchase and shall be purchased in accordance with the Indenture.

The Bonds are subject to redemption by the Authority upon the following terms in
increments of $5,000,  provided that in the event of redemption of less than all
of the Bonds,  the  amount  which  remains  outstanding  shall be in  Authorized
Denominations (as defined in the Indenture):



                                       A-5

<PAGE>



          (i) The Bonds are not subject to sinking fund redemption.

          (ii) On or prior to the Fixed  Rate  Date,  the Bonds are  subject  to
redemption  on any Interest  Payment Date, in whole or in part, to the extent of
prepayments  of  amounts  due  under  the  Agreement  made at the  option of the
Borrower,  with the written  approval of the Bank, at a redemption price of 100%
of the principal amount of the Bonds redeemed,  plus interest accrued thereon to
the redemption date.

          (iii)  The  Bonds  Outstanding  on the  date  of the  occurrence  of a
Determination  of Taxability (as defined in the Indenture)  shall be redeemed in
whole, at a price of 100% of the principal  amount thereof plus interest accrued
thereon  to  the  redemption  date,  at any  time  within  60  days  after  such
occurrence.  IF THE LIEN OF THE INDENTURE IS DISCHARGED  PRIOR TO THE OCCURRENCE
OF A  DETERMINATION  OF TAXABILITY  THE BONDS SHALL NOT BE REDEEMED AS DESCRIBED
HEREIN.

          (iv) The Bonds shall be redeemed in whole, at a redemption price equal
to 100% of the principal  amount  thereof plus interest  accrued  thereon to the
redemption  date, on a redemption date not less than fifteen (15) days preceding
the  expiration  date of the  Letter of Credit  selected  by the  Trustee  if no
Alternate  Letter of Credit has been delivered to the Trustee in accordance with
the Agreement.

          (v) The Bonds are subject to  redemption  in whole or in part,  on any
date,  at a  redemption  price  equal to 100% of the  principal  amount of Bonds
redeemed, plus interest accrued thereon to the redemption date, to the extent of
prepayments  of  amounts  due  under  the  Agreement  made at the  option of the
Borrower  following  the  occurrence  of damage to, or the  destruction  of, the
Project,  the taking  thereof under the power of eminent domain or the Agreement
is void unenforceable, impossible of performance or unlawful.

          (vi) After the Fixed Rate Date, the Bonds are subject to redemption to
the extent of  prepayments of amounts due under the Agreement made at the option
of the  Borrower,  with the  consent  of the Bank,  in whole or in part,  on any
Interest  Payment Date during the applicable  periods  specified  below,  at the
applicable  redemption price stated below,  plus interest accrued thereon to the
redemption date:

Number of Years From
Fixed Rate Date to            First Optional                   Redemption
Final Maturity                Redemption Date                  Price

greater than 9 years          7 years from                     102%,
                              conversion                       declining
                                                               1% annually
                                                               to 100%

6-9 years                     6 years from                     101%,
                              conversion                       declining
                                                               1% annually
                                                               to 100%

less than 6 years             no optional
                              redemption




                                       A-6

<PAGE>



Notwithstanding the optional redemption schedule set forth above, on or prior to
the Fixed Rate Date,  the  Remarketing  Agent may provide an alternate  optional
redemption schedule if it obtains an opinion of Bond Counsel that such alternate
schedule will not cause interest on the Bonds not to be Tax-exempt.

          (vii) The Bonds  shall be  redeemed in whole,  at a  redemption  price
equal to 100% of the principal amount thereof,  plus interest accrued thereon to
the  redemption  date,  within five (5) calendar  days (and before the following
Saturday  if the fifth  calendar  day is a  Saturday)  from the date the Trustee
receives  written  notice from the Bank that an event of default has taken place
under the Reimbursement Agreement and directing the Trustee to redeem the Bonds.

          (viii) The Bonds are subject to  redemption,  in part on any  Interest
Payment  Date,  at a  redemption  price  equal to 100% of the  principal  amount
thereof,  plus accrued interest to the redemption date, to the extent of amounts
remaining in the Project Fund upon completion of the Project which are deposited
in the Surplus  Account (as such terms are defined in the Indenture) as provided
in the Indenture.

     If an Event of Default  (as  defined in the  Indenture)  shall  occur,  the
principal of all Bonds may be declared due and payable upon the  conditions,  in
the manner and with the effect provided in the Indenture. The Indenture provides
that in certain events such declaration and its consequences may be rescinded.

     The Bonds  are  issuable  as fully  registered  Bonds  without  coupons  in
denominations  of  $100,000  or any  multiple  of $5,000 in excess of  $100,000,
provided   that  after  the  Fixed  Rate  Date  the  Bonds  will  be  issued  in
denominations  of  $5,000  or  any  integral  multiple  thereof.  This  Bond  is
transferable by the registered  owner hereof,  in person or by his attorney duly
authorized in writing,  but only in the manner,  subject to the  limitations and
upon  payment  of the  charges,  if any,  provided  in the  Indenture,  and upon
surrender and  cancellation  of this Bond.  Upon such transfer a new  registered
Bond or  Bonds,  of  authorized  denomination  or  denominations,  for the  same
aggregate  principal  amount,  will be  issued  to the  transferee  in  exchange
therefor.

     The  Indenture and the rights and  obligations  of the Authority and of the
owners of the Bonds  and of the  Trustee  or  Tender  Agent may be  modified  or
amended  from time to time and at any time (and in  certain  cases  without  the
consent of the owners) in the manner, to the extent, and upon the terms provided
in the  Indenture;  provided that no such  modification  or amendment  shall (i)
extend  the fixed  maturity  of this Bond,  or reduce  the  amount of  principal
hereof, or extend the time of payment or change the method of computing the rate
of interest hereon,  or extend the time of payment of interest  hereon,  without
the consent of the owner hereof, (ii) reduce the percentage of Bonds the consent
of the owners of which is required to effect any such modification or amendment,
or permit the creation of any lien on the  Revenues and other assets  pledged as
security  for the Bonds  prior to or on a parity  with the lien  created  by the
Indenture,  or  deprive  the  owners  of the  Bonds of the lien  created  by the
Indenture on such Revenues and other assets (except as expressly provided in the
Indenture),  without the consent of the owners of all Bonds then outstanding, or
(iii)  adversely  affect the  interests  of the Tender  Agent  without its prior
written  consent.  The  Trustee  shall not be  required  to  consent to any such
amendment which materially  adversely affects its rights,  duties and immunities
under the Indenture or otherwise, all as more fully set forth in the Indenture.

     If moneys or securities  shall have been set aside and held for the payment
or redemption of Bonds and the interest installments therefor to the maturity or
redemption date thereof in accordance


                                       A-7

<PAGE>



with the  Indenture,  such Bonds  shall be deemed to be paid  within the meaning
provided in the Indenture and the pledge of Revenues and other assets made under
the  Indenture  and all  covenants,  agreements  and  other  obligations  of the
Authority  under  the  Indenture  shall  cease,  terminate,  become  void and be
completely discharged and satisfied.

     It is hereby certified and recited that any and all conditions,  things and
acts required to exist, to have happened and to have been performed precedent to
and in the issuance of this Bond do exist, have happened and have been performed
in due time, form and manner as required by the Act, and by the Constitution and
laws of the State,  and that the amount of this  Bond,  together  with all other
indebtedness of the Authority,  does not exceed any limit prescribed by the Act,
or by the Constitution and laws of the State, and is not in excess of the amount
of Bonds permitted to be issued under the Indenture.

     This Bond shall not be  entitled  to any benefit  under the  Indenture,  or
become  valid  or  obligatory  for  any  purpose,   until  the   certificate  of
authentication  and  registration  hereon endorsed shall have been signed by the
Trustee.




                                       A-8

<PAGE>



     IN WITNESS WHEREOF, the California Economic Development Financing Authority
has caused  this Bond to be executed in its name and on its behalf by the manual
or facsimile  signature of the Chair of the Authority and attested by the manual
or facsimile signature of its Secretary, all as of the date set forth above.


                                    CALIFORNIA ECONOMIC DEVELOPMENT
                                    FINANCING AUTHORITY


                                    By
                                            Chair



Attest:



Secretary



                                       A-9

<PAGE>



                 CERTIFICATE OF AUTHENTICATION AND REGISTRATION

     This is one of the Bonds described in the within-mentioned Indenture, which
has been registered on August 5, 1997.

                              FIRST TRUST OF CALIFORNIA,
                              NATIONAL ASSOCIATION,
                              as Trustee


                              By
                                 Authorized Signatory




                                      A-10

<PAGE>


                                   ASSIGNMENT

     For value received the undersigned  do(es) hereby sell, assign and transfer
unto (Insert  name,  address,  zip code and Social  Security,  taxpayer or other
identification  numbers of Assignee) the  within-mentioned  registered  Bond and
hereby irrevocably  constitute(s) and appoint(s) attorney,  to transfer the same
on the  books of the Bond  Registrar  with  full  power of  substitution  in the
premises.

Dated:  

                                        Notice: The signature on this Assignment
                                        must  correspond  with  the  name of the
                                        Registered  Owner as it appears upon the
                                        face  of  the   within   Bond  in  every
                                        particular    without    alteration   or
                                        enlargement or any change whatsoever.


                                        Signature guaranteed:



                                        (NOTE:  Signature  must be guaranteed by
                                        an Eligible Guarantor Institution


                                      A-11