<PAGE>
 
                                                                  EXHIBIT 10.2.1
                      ---------------------------------



                         CALIFORNIA POLLUTION CONTROL
                              FINANCING AUTHORITY


                                      and


                          BNY WESTERN TRUST COMPANY,
                                    Trustee



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


                                 INDENTURE


                           Dated as of June 1, 1997

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

                                 including
                                 $9,500,000

               CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY
                             VARIABLE RATE DEMAND
                      SOLID WASTE DISPOSAL REVENUE BONDS
                        (WEST VALLEY MRF, LLC PROJECT)
                                 SERIES 1997A

                      ---------------------------------
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
 
 
Section                                                                                              Page
<S>                                           <C>                                                    <C>
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......................................     17
 
SECTION 1.03.          Interpretation............................................................     17
 
                                                            ARTICLE II
                                                             THE BONDS
 
 
SECTION 2.01.          Authorization of Bonds....................................................     18
               
SECTION 2.02.          1997A Bonds...............................................................     18
               
SECTION 2.03.          Interest Rates............................................................     19
               
SECTION 2.04.          Demand Purchase of Bonds..................................................     22
               
SECTION 2.05.          Execution of Bonds........................................................     23
               
SECTION 2.06.          Transfer of Bonds.........................................................     24
               
SECTION 2.07.          Exchange of Bonds.........................................................     24
               
SECTION 2.08.          Bond Register.............................................................     24
               
SECTION 2.09.          Temporary Bonds...........................................................     24
               
SECTION 2.10.          Bonds Mutilated, Lost, Destroyed or Stolen................................     25
               
SECTION 2.11.          Book-Entry Only System....................................................     25
               
SECTION 2.12.          Conditions for the Issuance of Additional Bonds...........................     27
</TABLE> 
                                       i
<PAGE>
 
<TABLE> 
<C>                    <S>                                                                            <C>  
SECTION 2.13.          Procedure for the Issuance of Additional Bonds............................     29
                              
                                                            ARTICLE III
                                         ISSUANCE OF 1997A BONDS; APPLICATION OF PROCEEDS
 
 
SECTION 3.01.         Issuance of the 1997A Bonds...............................................     30
                      
SECTION 3.02.         Application of Proceeds of 1997A Bonds....................................     30
                      
SECTION 3.03.         Construction Fund.........................................................     30
                      
SECTION 3.04.         Costs of Issuance Fund....................................................     32
                      
SECTION 3.05.         Validity of Bonds.........................................................     32
                      
                                                      ARTICLE IV
                                           REDEMPTION AND PURCHASE OF BONDS
                      
                      
SECTION 4.01.         Terms of Redemption of 1997A Bonds........................................     32
                      
SECTION 4.02.         Selection of Bonds for Redemption.........................................     35
                      
SECTION 4.03.         Notice of Redemption......................................................     36
                      
SECTION 4.04.         Partial Redemption of Bonds...............................................     36
                      
SECTION 4.05.         Effect of Redemption......................................................     36
                      
SECTION 4.06.         Mandatory Tender for Purchase of 1997A Bonds..............................     37
                      
SECTION 4.07.         Purchase and Remarketing of 1997A Bonds...................................     37
                      
SECTION 4.08.         Redemption, Mandatory Tender, Purchase and Remarketing of Additional Bonds     42
                      
                                                      ARTICLE V
                                            REVENUES; FUNDS AND ACCOUNTS;
                                          PAYMENT OF PRINCIPAL AND INTEREST
                      
                      
SECTION 5.01.         Pledge and Assignment; Revenue Fund.......................................     43
                      
SECTION 5.02.         Allocation of Revenues....................................................     44
</TABLE> 
                                      ii
<PAGE>
 
<TABLE> 
<C>                   <S>                                                                            <C>  
SECTION 5.03.         Priority of Moneys in Revenue Fund; Letter of Credit Amount...............     44
                      
SECTION 5.04.         Letter of Credit..........................................................     46
                      
SECTION 5.05.         Investment of Moneys......................................................     46
                      
SECTION 5.06.         Rebate Fund...............................................................     48
                      
                                                            ARTICLE VI
                                                       PARTICULAR COVENANTS
 
 
SECTION 6.01.         Punctual Payment..........................................................     49
                      
SECTION 6.02.         Extension of Payment of Bonds.............................................     49
                      
SECTION 6.03.         Against Encumbrances......................................................     49
                      
SECTION 6.04.         Power to Issue Bonds and Make Pledge and Assignment.......................     50
                      
SECTION 6.05.         Accounting Records and Reports............................................     50
                      
SECTION 6.06.         Arbitrage Covenants.......................................................     50
                      
SECTION 6.07.         Other Covenants...........................................................     51
                      
SECTION 6.08.         Waiver of Laws............................................................     51
                      
SECTION 6.09.         Further Assurances........................................................     51
                      
SECTION 6.10.         Continuing Disclosure.....................................................     52
                      
                                                            ARTICLE VII
                                           EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS
 
 
SECTION 7.01.         Events of Default; Acceleration; Waiver of Default........................     52
                      
SECTION 7.02.         Institution of Legal Proceedings by Trustee...............................     54
                      
SECTION 7.03.         Application of Revenues and Other Funds After Default.....................     54
                      
SECTION 7.04.         Trustee to Represent Bondholders..........................................     55
                      
SECTION 7.05.         Bondholders' Direction of Proceedings.....................................     56
</TABLE> 

                                      iii
<PAGE>
 
<TABLE> 
<C>                   <S>                                                                           <C>    
SECTION 7.06.         Limitation on Bondholders' Right to Sue...................................     56
                      
SECTION 7.07.         Absolute Obligation of Authority..........................................     57
                      
SECTION 7.08.         Termination of Proceedings................................................     57
                      
SECTION 7.09.         Remedies Not Exclusive....................................................     57
                      
SECTION 7.10.         No Waiver of Default......................................................     57
                      
SECTION 7.11.         Consent to Defaults.......................................................     57
 
                                                           ARTICLE VIII
                                        THE TRUSTEE, THE PAYING AGENT, THE BOND REGISTRAR,
                                            THE TENDER AGENT, AND THE REMARKETING AGENT
 
 
SECTION 8.01.         Duties, Immunities and Liabilities of Trustee.............................     58
                      
SECTION 8.02.         Merger or Consolidation...................................................     61
                      
SECTION 8.03.         Liability of Trustee......................................................     61
                      
SECTION 8.04.         Right of Trustee to Rely on Documents.....................................     62
                      
SECTION 8.05.         Preservation and Inspection of Documents..................................     63
                      
SECTION 8.06.         Compensation and Indemnification..........................................     63
                      
SECTION 8.07.         Paying Agent..............................................................     63
                      
SECTION 8.08.         Notices to the Authority..................................................     63
                      
SECTION 8.09.         Notices to Rating Agency and Bank.........................................     64
                      
SECTION 8.10.         Duties of Remarketing Agent...............................................     64
                      
SECTION 8.11.         Eligibility of Remarketing Agent; Replacement.............................     65
                      
SECTION 8.12.         Compensation of Remarketing Agent.........................................     65
                      
SECTION 8.13.         Appointment and Duties of Tender Agent....................................     65
                      
SECTION 8.14.         Eligibility of Tender Agent; Replacement..................................     66
                      
SECTION 8.15.         Compensation of Tender Agent..............................................     66
</TABLE> 
                      
                                      iv
<PAGE>
 
<TABLE> 
<C>                   <S>                                                                           <C> 
SECTION 8.16.         Appointment and Duties of Bond Registrar..................................     66
                      
SECTION 8.17.         Eligibility of Bond Registrar.............................................     66
                      
SECTION 8.18.         Bond Registrar's Performance of Duties....................................     67
                      
SECTION 8.19.         Replacement of Bond Registrar.............................................     67
 
                                                            ARTICLE IX
                                            MODIFICATION OR AMENDMENT OF THE INDENTURE
 
 
SECTION 9.01.         Amendments Permitted......................................................     67
                      
SECTION 9.02.         Effect of Supplemental Indenture..........................................     69
                      
SECTION 9.03.         Endorsement of Bonds; Preparation of New Bonds............................     69
                      
SECTION 9.04.         Amendment of Particular Bonds.............................................     69
 
                                                             ARTICLE X
                                                            DEFEASANCE
 
 
SECTION 10.01.        Discharge of Indenture....................................................     69
                      
SECTION 10.02.        Discharge of Liability on Bonds...........................................     70
                      
SECTION 10.03.        Deposit of Money or Securities with Trustee...............................     71
                      
SECTION 10.04.        Payment of Bonds After Discharge of Indenture Obligation..................     71
 
                                                            ARTICLE XI
                                                           MISCELLANEOUS
 
 
SECTION 11.01.        Liability of Authority Limited to Revenues................................     72
                      
SECTION 11.02.        Successor Is Deemed Included in All References to Predecessor.............     72
                      
SECTION 11.03.        Limitation of Rights to Parties and Bondholders...........................     72
                      
SECTION 11.04.        Waiver of Notice..........................................................     72
                      
SECTION 11.05.        Destruction of Bonds......................................................     73
</TABLE> 
                                       v
                      
<PAGE>
 
<TABLE> 
<C>                   <S>                                                                            <C> 
SECTION 11.06.        Severability of Invalid Provisions........................................     73
                      
SECTION 11.07.        Governing Law; Venue......................................................     73
                      
SECTION 11.08.        Notices...................................................................     73
                      
SECTION 11.09.        Evidence of Rights of Bondholders.........................................     75
                      
SECTION 11.10.        Disqualified Bonds........................................................     75
                      
SECTION 11.11.        Money Held for Particular Bonds...........................................     76
                      
SECTION 11.12.        Funds and Accounts........................................................     76
                      
SECTION 11.13.        Waiver of Personal Liability..............................................     76
                      
SECTION 11.14.        Opinions of Bond Counsel..................................................     76
                      
SECTION 11.15.        Complete Agreement........................................................     76
                      
SECTION 11.16.        Execution in Several Counterparts.........................................     76
 
EXHIBIT A - Form of Bond.......................................................................     A-1
EXHIBIT B - Trustee's Certificate..............................................................     B-1
EXHIBIT C - Form of Construction Fund Requisition..............................................     C-1
EXHIBIT D - Form of Costs of Issuance Fund Requisition.........................................     D-1
 
</TABLE>

                                      vi
<PAGE>
 
        THIS INDENTURE, made and entered into as of the first day of June, 1997,
by and between the California Pollution Control Financing Authority, a public
instrumentality and political subdivision of the State of California (the
"Authority"), and BNY Western Trust Company, a banking corporation organized and
existing under and by virtue of the laws of the State of California, having
Corporate Trust Offices in San Francisco and Los Angeles, California, and being
qualified to accept and administer the trusts hereby created (the "Trustee");


                                 W I T N E S S E T H:

        WHEREAS, the Authority is a public instrumentality and political
subdivision of the State of California, created by the California Pollution
Control Financing Authority Act (constituting Division 27 of the Health and
Safety Code of the State of California), as supplemented and amended (the
"Act"), and authorized to finance the acquisition, rehabilitation and equipping
of solid waste pollution control facilities constituting a "project" within the
meaning of the Act; and

        WHEREAS, West Valley MRF, LLC, a California limited liability company
(herein called the "Borrower"), has duly caused an application to be filed with
the Authority for financial assistance to construct certain solid waste disposal
facilities in the County of San Bernardino, California; and

        WHEREAS, the Authority, after due investigation and deliberation, has
adopted a resolution approving the issuance of bonds to finance the acquisition,
construction and/or equipping of certain solid waste disposal facilities to be
located in the County of San Bernardino, California (herein called the
"Project"), for the Borrower, which Project constitutes a "project" as defined
in the Act; and

        WHEREAS, pursuant to and in accordance with the Act, the Authority has
authorized and undertaken to issue its Variable Rate Demand Solid Waste Disposal
Revenue Bonds (West Valley MRF, LLC Project) Series 1997A (the "1997A Bonds"
and, together with any Additional Bonds (as defined herein), the "Bonds")
pursuant to this Indenture in order to provide funds to finance the cost of
financing the Project; 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 thereof
and interest thereon, the Authority has authorized the execution and delivery of
this Indenture; and

        WHEREAS, the Authority has undertaken to finance the cost of
acquisition, rehabilitation and construction of the Project by loaning the
proceeds derived from the sale of the Bonds to the Borrower pursuant to the Loan
Agreement (as defined herein) between the Authority and the Borrower, under
which the Borrower is required to make loan payments sufficient to pay when due
the principal of, premium, if any, and interest on, the Bonds and related
expenses; and

                                       1
<PAGE>
 
        WHEREAS, it has been determined that the estimated amount necessary to
finance the cost of financing the Project will require the issuance, sale and
delivery of the 1997A Bonds in the aggregate amount of $9,500,000, as
hereinafter provided; and

        WHEREAS, in order to further enhance the payments of principal of, and
interest on, the 1997A Bonds the Borrower has obtained an irrevocable letter of
credit from Union Bank of California, N.A., as the letter of credit bank; and

        WHEREAS, all acts and proceedings required by law necessary to make the
Bonds, when executed by the Authority, authenticated and delivered by the
Trustee and duly issued, the valid, binding and legal limited obligations of the
Authority, and to constitute this Indenture a valid and binding 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 have been in
all respects duly authorized; and

        WHEREAS, all Bonds issued under this Indenture will be secured by a
pledge and assignment of the Agreement;

        NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the
payment of the principal of, premium, if any, and the interest on, all Bonds at
any time issued and outstanding under this Indenture, according to their tenor,
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 (as defined herein) thereof, and for
other valuable considerations, the receipt whereof is hereby acknowledged, the
Authority does hereby covenant and agree with the Trustee, for the equal and
proportionate 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
of any indenture supplemental hereto and of any certificate, opinion or other
document herein mentioned, have the meanings herein specified, to be equally
applicable to both the singular and plural forms of any of the terms herein
defined. Unless otherwise defined in this Indenture, all terms used herein shall
have the meanings assigned to such terms in the Act.

Accountant
----------

          "Accountant" means any firm of nationally recognized independent
certified public accountants selected by the Borrower.

                                       2
<PAGE>
 
Act
---

          "Act" means the California Pollution Control Financing Authority Act,
constituting Division 27 of the Health and Safety Code of the State of
California, as now in effect and as it may from time to time hereafter be
amended or supplemented.

Act of Bankruptcy
-----------------

          "Act of Bankruptcy" means with respect to any entity (i) the entry of
an order or decree, by a court having jurisdiction in the premises, for relief
against such entity in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect which remains not
discharged, bonded or stayed for at least 90 days, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) for a substantial part of such entity's property which remains not
discharged, bonded or stayed for at least 90 days, or ordering the winding up or
liquidation of its affairs; or (ii) the institution or commencement by such
entity of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect; or (iii) 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) for a substantial part of such entity's
property; or (iv) the making by it of a general assignment of substantially all
of its assets for the benefit of creditors; or (v) the failure of it generally
to pay its debts as they become due, or the admission by it in writing of such
failure, within the meaning of the Bankruptcy Code of 1978, as amended, and
judicial interpretations thereof.

Additional Payments
-------------------

          "Additional Payments" means the payments required to be made by the
Borrower pursuant to Section 4.2(b), (c) and (d), 7.3, 9.2 and 9.3 of the
Agreement.

Administrative Fees and Expenses
--------------------------------

          "Administrative Fees and Expenses" means the reasonable and necessary
expenses incurred by the Authority pursuant to the Loan Agreement or this
Indenture and the compensation and expenses paid to or incurred by the Trustee,
the Tender Agent, the Bond Registrar, the Remarketing Agent and/or any Paying
Agent under the Loan Agreement or this Indenture, which include but are not
limited to printing of Bonds, accomplishing transfers or new registration of
Bonds, or other charges and other disbursements including those of their
respective officers, directors, members, attorneys, agents and employees
incurred in and about the administration and execution of the Loan Agreement and
this Indenture.

                                       3
<PAGE>
 
Agreement or Loan Agreement
---------------------------

          "Agreement" or "Loan Agreement" means that certain loan agreement by
and between the Authority and the Borrower, dated as of June 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 meeting the requirements of Section 5.7 of the Agreement.

Alternate Letter of Credit
--------------------------

          "Alternate Letter of Credit" means an alternate irrevocable letter of
credit, including, if applicable, a confirming letter of credit, or similar
credit facility issued by a commercial bank, savings institution or other
financial institution, the terms of which 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.

Approving Opinion
-----------------

          "Approving Opinion" means an opinion of Bond Counsel that an action
being taken (i) is authorized by the Act and this Indenture, and (ii) will not
adversely affect the Tax-exempt status of the Bonds.

Authority
---------

          "Authority" means the California Pollution Control Financing Authority
created pursuant to, and as defined in, the Act.

Authorized Denomination
-----------------------

          "Authorized Denomination" means (i) during any Weekly Interest Rate
Period or Term Interest Rate Period of less than one year, $100,000 or any
integral multiple of $5,000 in excess thereof and (ii) during any Term Interest
Rate Period of one year or more, $5,000 or any integral multiple thereof.

                                       4
<PAGE>
 
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, the Bank
and the Authority, containing the specimen signature of each such person and
with respect to the Bank, the person or persons at the time designated to act on
behalf of the Bank by a written certificate signed by the Bank, furnished to the
Trustee, the Borrower and the Authority, containing the specimen signature of
each such person.

Available Moneys
----------------

          "Available Moneys" means (1) moneys derived from drawings under a
Letter of Credit that are not commingled with any other moneys, (2) moneys held
by the Trustee (other than in the Rebate Fund or the account described in
Section 4.07(g) hereof) and subject to a first-priority perfected lien under the
Indenture for a period of at least one hundred twenty-three (123) days and not
commingled with any moneys so held for less than said period and during and
prior to which period no petition in bankruptcy was filed by or against, and no
receivership, insolvency, assignment for the benefit of creditors or other
similar proceeding has been commenced by or against the Borrower or the
Authority or any Guarantor; provided, however, if a Guarantor exists, such
period shall be at least three hundred and seventy (370) days, or (3) investment
income derived from the investment of moneys described in clause (2) so long as
(A) investments of such moneys are in Investment Securities rated by the Rating
Agency in (i) any of the two-highest long-term rating categories; or (ii) if
applicable, the highest short-term rating category; and (B) with respect to such
investment earnings there has been delivered to the Trustee an opinion of
nationally recognized bankruptcy counsel to the effect that the payment of such
moneys to the holders of the Bonds would not constitute transfers avoidable
under 11 U.S.C. Section 547(b) and recoverable from the holders of the Bonds
under 11 U.S.C. Section 550(a) should the Authority, the Borrower, or the
Guarantor be the debtor in a case under the United States Bankruptcy Code.

Bank
----

          "Bank" means Union Bank of California, N.A., as the Letter of Credit
Bank, and any other commercial bank, savings association or other financial
institution issuing a Letter of Credit then in effect and party to a
Reimbursement Agreement.

Bank Bonds
----------

          "Bank Bonds" shall have the meaning ascribed thereto in Section
4.07(c)(2) hereof.

Beneficial Owners
-----------------

          "Beneficial Owners" means those individuals, partnerships,
corporations or other entities for whom the Direct Participants have caused DTC
to hold Book-Entry Bonds.

                                       5
<PAGE>
 
Bond Counsel
------------

          "Bond Counsel" means any attorney at law or firm of attorneys of
nationally recognized standing in matters pertaining to the federal tax
exemption of interest 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.

Bondholder
----------

          See "Holder."

Bond Registrar or Registrar
---------------------------

          "Bond Registrar" or "Registrar" means the entity or entities
performing the duties of the bond registrar pursuant to Section 2.08 hereof.

Bonds, Bond, 1997A Bonds or Additional Bonds
--------------------------------------------

          "Bonds" or "Bond" means the 1997A Bonds and all Additional Bonds.
"1997A Bonds" means all revenue bonds of the Authority authorized by and at any
time Outstanding pursuant hereto and executed, issued and delivered in
accordance with Section 2.02 hereof.  The term "Additional Bonds" means all
revenue bonds of the Authority authorized by and at any time Outstanding
pursuant hereto and executed, issued and delivered in accordance with Sections
2.12 and 2.13 hereof.

Book-Entry Bonds
----------------

          "Book-Entry Bonds" means the Bonds of any Series registered in the
name of the nominee of DTC, or any successor securities depository for such
Bonds, as the registered owner thereof pursuant to the terms and provisions of
Section 2.11 hereof.

Borrower
--------

          "Borrower" means West Valley MRF, LLC, a limited liability company
duly organized and existing under the laws of the State of California, 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
and also means, unless the context otherwise requires, an assignee of the
Agreement as permitted by Section 5.2 of the Agreement, but does not mean any
affiliate of the Borrower.

                                       6
<PAGE>
 
Business Day
------------

          "Business Day" shall mean any day other than (i) a Saturday or Sunday,
(ii) a day on which commercial banks in New York, New York, or the city or
cities in which the Corporate Trust Office of the Trustee or the Tender Agent or
the office of the Bank at which demands for payment under the Letter of Credit
are to be presented are authorized or required by law to close or (iii) 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" or "Order" of the
Authority or the Borrower mean, respectively, a written certificate, statement,
request, requisition or order signed in the name of the Authority by its
Chairman, Executive Director or such other person as may be designated and
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 hereof, each such instrument shall include
the statements provided for in Section 1.02 hereof.

Code
----

          "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

Completion Date
---------------

          "Completion Date" means the date of completion of the Project as that
date shall be certified as provided in Section 3.3 of the Agreement.

Construction Fund
-----------------

          "Construction Fund" means the fund by that name established pursuant
to Section 3.03 hereof.

Corporate Trust Office
----------------------

          "Corporate Trust Office" means the corporate trust office of the
Trustee at 700 South Flower Street, Suite 500, Los Angeles, California 90017, or
such other office designated by the Trustee from time to time, except that with
respect to presentation of Bonds for payment or for registration of transfer and
exchange, such term shall mean the office or agency of the Trustee at which at
any particular time, its corporate trust agency shall be conducted.

                                       7
<PAGE>
 
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, filing and recording fees, initial fees and charges of the Trustee,
legal fees and charges, 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 by that name established
pursuant to Section 3.04 hereof.

Costs of the Project
--------------------

          "Costs of the Project" means the sum of the items, or any such item,
authorized to be paid from the Construction Fund pursuant to the provisions of
Section 3.2 of the Agreement, but shall not include any Costs of Issuance.

Date of Delivery
----------------

          "Date of Delivery" means the date of initial issuance and delivery of
a Series of the Bonds.

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(b) of the Loan
Agreement.

Direct Participants
-------------------

          "Direct Participants" means those broker-dealers, banks and other
financial institutions from time to time for which DTC holds the Bonds as
securities depository.

DTC
---

          "DTC" means The Depository Trust Company, New York, New York, a
limited purpose trust company organized under the New York Banking Law, or any
successor securities depository for the Bonds.

                                       8
<PAGE>
 
Event of Default
----------------

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

Fiscal Year
-----------

          "Fiscal Year" means the period beginning on January 1 of each year and
ending on the next succeeding December 31, or any other twelve-month, or fifty-
two week, period hereafter selected and designated as the official fiscal year
period of the Borrower.

Fitch
-----

          "Fitch" means Fitch Investors Service, L.P., a limited partnership
organized and existing under the laws of the State of Delaware, its successors
and their assigns, or, if such entity shall be dissolved or liquidated or shall
no longer perform the functions of a securities rating agency, "Fitch" shall be
deemed to refer to any other nationally recognized securities rating agency
(other than S&P or Moody's) designated by the Authority, with the approval of
the Borrower, by notice to the Bank, the Trustee, the Remarketing Agent and the
Tender Agent.

Guarantor
---------

          "Guarantor" means any person or entity that has guaranteed the
obligations of the Borrower under the Reimbursement Agreement or the Agreement.

Holder or Bondholder or Owner
-----------------------------

          "Holder" or "Bondholder," or "Owner," 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 Services "Called Bond Service," 65
Broadway, 16th Floor, New York, New York 10006; Moody's "Municipal and
Government," 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28271,
Attention:  Called Bonds 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 services providing information with respect to called bonds, or no such
services, as the Authority may indicate in a certificate of the Authority
delivered to the Trustee.

                                       9
<PAGE>
 
Interest Account
----------------

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

Interest Payment Date
---------------------

          "Interest Payment Date" means June 1, 2012 and (i) the first Wednesday
of each month of each year (or the next succeeding Business Day if such
Wednesday is not a Business Day) during a Weekly Interest Rate Period or the
last Business Day of a Term Interest Rate Period of less than one year or (ii)
June 1 and December 1 during a Term Interest Rate Period of one year or more.

Interest Period
---------------

          "Interest Period" shall mean the period from and including any
Interest Payment Date to and including the day immediately preceding the next
following Interest Payment Date, except that the first Interest Period shall be
the period from and including the date of the first authentication and delivery
of a Series of Bonds to and including the day immediately preceding the first
Interest Payment Date relating to such Series of Bonds.

Interest Rate Period
--------------------

          "Interest Rate Period" shall mean either a Weekly Interest Rate Period
or a Term Interest Rate Period.

Investment Securities
---------------------

          "Investment Securities" shall mean any of the following securities
(other than those issued by the Authority, the Borrower or any Guarantor):

          (i) Commercial paper issued by corporations that are organized and
operating within the United States and that are rated by Moody's or S & P (a)
"A-2" or "P-2" or higher if such commercial paper has a maturity of seven days
or less, and (b) "A-1" or "P-1" if such commercial paper has a maturity of
greater than seven days;

          (ii) United States Treasury notes, bonds, bills or certificates of
indebtedness or those for which the faith and credit of the United States are
pledged for the full and timely payment of principal and interest, not subject
to prepayment or call;

          (iii)  Negotiable certificates of deposit issued by or deposit
accounts with a nationally or state-chartered bank, including the Trustee and
its affiliates, or by a state or federally licensed branch of a foreign bank,
provided that the senior debt issued by such bank and/or its holding company
shall be rated "A" by Moody's and S&P, respectively, and the commercial paper
issued by such holding company or branch of a foreign bank shall be rated "P-1"
and "A-1" by 

                                       10
<PAGE>
 
Moody's and S&P, respectively;

          (iv) Bonds, notes or other obligations of any state, municipality or
political subdivision the interest on which is excluded from gross income for
federal income tax purposes, which are rated "A" or higher by Moody's or S&P;

          (v) Investments in or shares of any "regulated investment company"
within the meaning of Section 851(a) of the Code, the assets of which are
securities or investments described in (i) - (iv) above, including funds for
which the Trustee, its parent holding company, if any, or any affiliates or
subsidiaries of the Trustee or such holding company provide investment advisory
or other management services.

          (vi) Repurchase agreements with any bank, trust company or national
banking association insured by the Federal Deposit Insurance Corporation, or
with any government bond dealer recognized as a primary dealer by the Federal
Reserve Bank of New York, which agreements are fully and continuously secured by
a valid and perfected security interest in obligations described in paragraph
(ii) of this definition or obligations which are rated "Aaa" by Moody's or "AAA"
by S&P; and

          (vii)  Money market funds invested solely in U.S. Treasury securities
described in paragraph (ii) of this definition, including funds for which the
Trustee, its parent holding company, if any, or any affiliates or subsidiaries
of the Trustee or such holding company provide investment advisory or other
management services.

Issuance Date
-------------

          "Issuance Date" means June 25, 1997.

Letter of Credit
----------------

          "Letter of Credit" means, as applicable, (i) that certain Letter of
Credit issued by the Bank, naming the Trustee as beneficiary and delivered on
the date of issuance and delivery of a Series of the Bonds, pursuant to a
Reimbursement Agreement and (ii) in the event of delivery of an Alternate Letter
of Credit, such Alternate Letter of Credit.

Letter of Credit Account
------------------------

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

Loan Default Event
------------------

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

                                       11
<PAGE>
 
Loan Repayments
---------------

          "Loan Repayments" means the payments so designated and required to be
made by the Borrower pursuant to Section 4.2 of the Agreement.

Maximum Rate
------------

          "Maximum Rate" shall mean twelve percent (12%) per annum.

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, "Moody's" shall be
deemed to refer to any other nationally recognized securities rating agency
(other than S&P or Fitch) designated by the Authority, with the approval of the
Borrower, by notice to the Bank, the Trustee, the Remarketing Agent and the
Tender Agent.

Net Proceeds
------------

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

Opinion of Counsel
------------------

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

Outstanding
-----------

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

                                       12
<PAGE>
 
Owner
-----

          See "Holder."

Paying Agent
------------

          "Paying Agent" means the Paying Agent described in Section 8.07
hereof.

Person
------

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

Principal Account
-----------------

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

Principal Payment Date
----------------------

          "Principal Payment Date" means June 1, 2012.

Project
-------

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

Purchase Date
-------------

          "Purchase Date" shall mean the date on which any Bond is required to
be purchased pursuant to Section 2.04(A) hereof or Section 4.06 hereof.

Purchase Price
--------------

          "Purchase Price" shall mean (i) that amount equal to 100% of the
principal amount of any Bond purchased pursuant to Sections 2.04 or 4.06 of this
Indenture, plus accrued and unpaid interest thereon to but not including the
Purchase Date or the date on which such Bond is deemed purchased in accordance
with Section 2.04 hereof and (ii) with respect to any other Series of Bonds
shall mean the Purchase Price specified in the Supplemental Indenture pursuant
to which such Bonds are issued.

                                       13
<PAGE>
 
Qualified Newspaper
-------------------

          "Qualified Newspaper" means The Wall Street Journal or The Bond Buyer
                                      -----------------------    --------------
or any other newspaper or journal containing financial news, printed in the
English language and customarily published on each Business Day, of general
circulation in New York, New York, and selected by the Trustee, whose decision
shall be final and conclusive.

Rating Agency
-------------

          "Rating Agency" means Moody's, if Moody's is then rating the Bonds,
S&P, if S&P is then rating the Bonds and/or Fitch, if Fitch is then rating the
Bonds.

Rebate Fund
-----------

          "Rebate Fund" means the fund by that name created pursuant to Section
5.06 hereof.

Rebate Instructions
-------------------

          "Rebate Instructions" means those calculations and directions required
to be delivered to the Trustee by the Borrower under Section 5.2 of the Tax
Certificate.

Rebate Requirement
------------------

          "Rebate Requirement" means the Rebate Requirement defined in the Tax
Certificate.

Record Date
-----------

          "Record Date" shall mean (i) the Business Day immediately preceding
the applicable Interest Payment Date during a Weekly Interest Rate Period or any
Term Interest Rate Period of less than one year, and (ii) whether or not a
Business Day, the fifteenth day of the month prior to an Interest Payment Date
during any Term Interest Rate Period of one year or greater.

Redemption Account
------------------

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

Reimbursement Agreement
-----------------------

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

                                       14
<PAGE>
 
Remarketing Agent
-----------------

          "Remarketing Agent" shall mean with respect to the Bonds, Westhoff,
Cone & Holmstedt and its successors in such office under this Indenture.

Remarketing Agreement
---------------------

          "Remarketing Agreement" shall mean the Remarketing Agreement, dated as
of June 1, 1997, between the Borrower and the Remarketing Agent or the agreement
or instrument pursuant to which a successor to the Remarketing Agent shall
perform its services.

Revenue Fund
------------

          "Revenue Fund" means the fund by 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 (other than payments of Purchase Price), including, without
limiting the generality of the foregoing, Loan Repayments (including both timely
and delinquent payments, any late charges, and 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 payments to
the Authority, the Trustee or other parties pursuant to Sections 4.2(c) and (d),
7.3, 9.2 and 9.3 of the Agreement, including without limitation any
Administrative Fees and Expenses, or any moneys paid for deposit into the Rebate
Fund or the Authority Subaccount of the Costs of Issuance Fund.

S&P
---

          "S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc., its successors and their assigns, and, if such entity shall be
dissolved or liquidated or shall no longer perform the functions of a securities
rating agency, "S&P" shall be deemed to refer to any other nationally recognized
securities rating agency (other than Moody's or Fitch) designated by the
Authority, with the approval of the Borrower, by notice to the Bank, the
Trustee, the Remarketing Agent and the Tender Agent.

                                       15
<PAGE>
 
Securities Depositories
-----------------------

          "Securities Depositories" means the following registered securities
depositories:  The Depository Trust Company, 711 Stewart Avenue, Garden City,
New York 11530, Fax-(516) 227-4039 or 4190; (ii) Midwest Securities Trust
Company, Capital Structures-Call Notification, 440 South LaSalle Street,
Chicago, Illinois 60605, Fax-(312) 663-2343; and (iii) 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, such other securities depositories, or no such depositories, as the
Authority may indicate in a certificate of the Authority delivered to the
Trustee.

Series
------

          "Series," whenever used herein with respect to Bonds, means all of the
Bonds designated as being of the same series, authenticated and delivered in a
simultaneous transaction, regardless of variations in maturity, interest rate,
redemption and other provisions, and any Bonds thereafter authenticated and
delivered upon transfer or exchange of or in lieu of or in substitution for (but
not to refund) such Bonds as herein provided.

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.

Surplus Account
---------------

          "Surplus Account" means the account established within the Revenue
Fund pursuant to Section 3.03 hereof.

Tax Certificate
---------------

          "Tax Certificate" means the Tax Certificate and Agreement of the
Borrower and the Authority dated the Date of Delivery.

                                       16
<PAGE>
 
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) whether or not such interest
is 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" shall mean initially the Trustee and any successor
tender agent appointed pursuant to Section 8.13 hereof.

Term Interest Rate
------------------

          "Term Interest Rate" shall mean a non-variable interest rate on a
Series of the Bonds established in accordance with Section 2.03(D) hereof.

Term Interest Rate Period
-------------------------

          "Term Interest Rate Period" shall mean each period during which a Term
Interest Rate is in effect.

Trustee
-------

          "Trustee" means BNY Western Trust Company, a banking corporation
organized and existing under and by virtue of the laws of the State of
California, having a Corporate Trust Office in San Francisco and Los Angeles,
California, or its successor as Trustee hereunder as provided in Section 8.01.

Variable Index
--------------

          "Variable Index" shall mean the current average rate for survey, as
shown on the most recent VERIFACT Weekly Mode Variable Rate Fact Sheet and
Newsletter, or any successor publication, published weekly by Ponder & Company,
or any successor entity.  If for any reason the Variable Index for any rate
determination date cannot be established as provided above or is held to be
invalid or unenforceable by a court of law, the Variable Index for such rate
determination date shall be an index computed by the Remarketing Agent and shall
be equal to 95% of the yield applicable to 91-day United States Treasury bills,
such yield to be computed on the basis of the coupon equivalent of the average
per annum discount rate at which such Treasury bills shall have been sold at the
most recent Treasury auction conducted prior to such rate determination date.

                                       17
<PAGE>
 
Weekly Interest Rate
--------------------

          "Weekly Interest Rate" shall mean a variable interest rate on a Series
of the Bonds established weekly in accordance with Section 2.03(C) hereof.

Weekly Interest Rate Period
---------------------------

          "Weekly Interest Rate Period" shall mean each period during which
Weekly Interest Rates are in effect.

          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, such Person has made or caused
to be made such examination or investigation as is necessary to enable such
Person to express an informed opinion with respect to the subject matter
referred to in the instrument to which such Person's 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 duly authorized representative of the Borrower may be
based, insofar as it relates to legal, accounting or business matters 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, 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.

                                       18
<PAGE>
 
          (b) Headings of articles and sections herein and the table of contents
hereof are solely for convenience of reference, do not constitute a part hereof
and shall not affect the meaning, construction or effect hereof.

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

                                 ARTICLE II
                                 THE BONDS

          SECTION 2.01.  Authorization of Bonds. Bonds may be issued hereunder
                         ---------------------- 
from time to time in order to obtain moneys to carry out the purposes of the Act
for the benefit of the Authority and the Borrower. The maximum principal amount
of the Bonds which may be issued hereunder is not limited; subject, however, to
the right of the Authority, which is hereby reserved, to limit the aggregate
principal amount of Bonds which may be issued or outstanding hereunder. The
Bonds are designated generally as "California Pollution Control Financing
Authority Variable Rate Demand Solid Waste Disposal Revenue Bonds (West Valley
MRF, LLC Project);" each Series thereof to bear such additional designation as
may be necessary or appropriate to distinguish such Series from every other
Series of Bonds. The Bonds may be issued in such Series as from time to time
shall be established and authorized by the Authority, subject to the covenants,
provisions and conditions herein contained. This Indenture constitutes a
continuing agreement with the Holders from time to time of the Bonds to secure
the full payment of the principal (or redemption price) of and interest on all
such Bonds subject to the covenants, provisions and conditions herein contained.

          SECTION 2.02.  1997A Bonds.  There shall be issued under and secured 
                         -----------  
by this Indenture an initial Series of Bonds to be issued in the form of fully
registered bonds and to be additionally designated "Series 1997A", in the
principal amount of $9,500,000, to be dated the date of initial issuance and
delivery and to mature (subject to prior redemption at the prices and dates and
upon the terms and conditions hereinafter set forth) on June 1, 2012. The 1997A
Bonds shall bear interest on the unpaid principal amount thereof as set forth in
Section 2.03 hereof, provided, however, that in no event shall the rate of
interest on any Bond exceed at any time the Maximum Rate. If an Event of Default
shall have occurred and be continuing, the interest rate on the 1997A Bonds
shall be the rate on the 1997A Bonds on the day prior to the occurrence of such
Event of Default.

The 1997A Bonds shall be issuable in Authorized Denominations.  The 1997A Bonds
shall be issued in substantially the form set forth in Exhibit A of this
Indenture with such variations, insertions or omissions as are appropriate and
not inconsistent therewith and shall conform generally to the rules and
regulations of any governmental authority or usage or requirement of law with
respect thereto.  The 1997A Bonds shall be numbered and lettered from one upward
preceded by the letter "R" prefixed to the number and may bear such additional
letters, numbers, legends or designations as the Bond Registrar determines are
desirable.

                                       19
<PAGE>
 
        SECTION 2.03.   Interest Rates.  (A) Each Series of the Bonds shall 
                        -------------- 
bear interest from and including the date of first authentication and delivery
thereof until payment of the principal or redemption price thereof shall have
been made or provided for in accordance with the provisions hereof, whether at
maturity, upon redemption or otherwise. Interest on each Series of the Bonds
with respect to the immediately preceding Interest Period shall be paid as
provided below, provided that if any Interest Payment Date is not a Business
Day, such interest shall be mailed or wired pursuant to this Section 2.03 on the
next succeeding Business Day, with the same effect as if made on the day such
payment was due. Except during a Term Interest Rate Period of one year or more,
interest on each Series of the Bonds shall be computed upon the basis of a 365-
day or 366 day, as applicable, year for the number of days actually elapsed.
During any Term Interest Rate Period of one year or more, interest on each
Series of the Bonds shall be computed upon the basis of a 360-day year,
consisting of twelve 30-day months.

        Payment of the interest on any 1997A Bond shall be made to the person
appearing on the bond registration books of the Bond Registrar as the Bondholder
thereof on the Record Date, such interest to be paid by the Paying Agent to such
Bondholder (i) by check mailed by first class mail on the Interest Payment Date,
to such Bondholder's address as it appears on the registration books, or (ii)
upon written request at least three Business Days prior to the applicable Record
Date of the Bondholder of 1997A Bonds aggregating not less than $1,000,000 in
principal amount, by wire transfer in immediately available funds at an account
maintained in the United States at such wire address as such Bondholder shall
specify in its written notice (any such written request shall remain in effect
until rescinded in writing by such Bondholder); except, in each case, that, if
and to the extent that there shall be a default in the payment of the interest
due on such Interest Payment Date, such defaulted interest rate shall be the
rate on the Bonds on the day before such default occurred, and such defaulted
interest shall be paid to the Bondholder in whose name any such 1997A Bonds are
registered at the close of business on the fifth Business Day next preceding the
date of payment of such defaulted interest. Both the principal of and premium,
if any, on the 1997A Bonds shall be payable upon surrender thereof in lawful
money of the United States of America at the Corporate Trust Office of the
Trustee.

        (B)  In the manner hereinafter provided, the term of each Series of the
Bonds will be divided into consecutive Interest Rate Periods, during each of
which such Series of Bonds shall bear interest at a Weekly Interest Rate or a
Term Interest Rate. The first Interest Rate Period for the 1997A Bonds shall be
a Weekly Interest Rate Period. The first Interest Payment Date for the 1997A
Bonds shall be August 6, 1997. The first Interest Rate Period and the first
Interest Payment Date for any other Series of Bonds shall be specified in the
Supplemental Indenture relating to such Series of Bonds.

        (C)(I) Determination of Weekly Interest Rate.  During each Weekly 
               -------------------------------------
Interest Rate Period, such Series of Bonds shall bear interest at the Weekly
Interest Rate, which shall be determined by the Remarketing Agent not later than
5:00 p.m. (New York City time) on Tuesday of each week (or by 12:00 noon (New
York City time) on the next succeeding Business Day if such Tuesday is not a
Business Day) during such Weekly Interest Rate Period for the week commencing on
that next succeeding Wednesday (unless such Weekly Interest Rate is determined
on a Wednesday in which case it shall be effective on such day); provided,
however, that if the then current Interest Rate Period is a Term Interest Rate
Period, the Weekly Interest Rate for the 

                                       20
<PAGE>
 
Weekly Interest Rate Period succeeding such Term Interest Rate Period shall be
determined not later than the Business Day next preceding the effective date of
such Weekly Interest Rate Period. The Weekly Interest Rate shall be the rate
determined by the Remarketing Agent (on the basis of examination of obligations
comparable to such Series of 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 such Series of Bonds, would enable the
Remarketing Agent to sell such Series of Bonds on such day at a price equal to
the principal amount thereof plus accrued interest; provided, however, that if
for any reason the Weekly Interest Rate cannot be determined, the Weekly
Interest Rate for the next succeeding week shall remain at the then-existing
rate, and thereafter the Weekly Interest Rate shall be a percentage per annum
equal to the Variable Index. The first Weekly Interest Rate determined for each
Weekly Interest Rate Period shall apply to the period commencing on the first
day of such Weekly Interest Rate Period and ending on the next succeeding
Tuesday. Thereafter, each Weekly Interest Rate shall apply to the period
commencing on Wednesday and ending on the next succeeding Tuesday, unless such
Weekly Interest Rate Period shall end on a day other than Tuesday, in which
event the last Weekly Interest Rate for such Weekly Interest Rate Period shall
apply to the period commencing on the Wednesday preceding the last day of such
Weekly Interest Rate Period and ending on such last day.

        (II) Adjustment to Weekly Interest Rate Period. The Borrower, by written
             ----------------------------------------- 
direction to the Trustee and the Remarketing Agent, and with the written consent
of the Bank and accompanied by an Approving Opinion, may elect to adjust the
Interest Rate Period for any Series of Bonds to a Weekly Interest Rate Period.
Such direction shall specify the effective date of such adjustment to a Weekly
Interest Rate Period, which shall be (a) the Interest Payment Date which is the
day next succeeding the last day of the then current Term Interest Rate Period
(or the Business Day next succeeding such Interest Payment Date if the
adjustment is from a Term Interest Rate Period of one year or more and such
Interest Payment Date is not a Business Day) not less than 40 days following the
date of receipt by the Trustee of such direction, or (b) any date on which such
Series of Bonds may be optionally redeemed pursuant to Section 4.03 not less
than 40 days following the date of receipt by the Trustee of such direction.

        (III)  Notice of Adjustment to Weekly Interest Rate Period. The Trustee
               ---------------------------------------------------
shall give notice by first class mail of an adjustment to a Weekly Interest Rate
Period to the Bondholders of such Series of Bonds, the Bank, the Remarketing
Agent and the Borrower not less than 35 days prior to the effective date of such
Weekly Interest Rate Period. Such notice shall state (1) that the interest rate
on such Series of Bonds will be adjusted to a Weekly Interest Rate, (2) the
effective date of such Weekly Interest Rate Period, (3) the day by which the
Weekly Interest Rate shall be determined and the manner by which such Weekly
Interest Rate may be obtained, (4) the Interest Payment Dates after such
effective date, (5) that such Series of Bonds will be purchased on such
effective date pursuant to Section 4.06 hereof, (6) the procedures for such
purchase as provided in (5) above, (7) that, subsequent to such effective date,
the Bondholders of such Series of Bonds or the Direct Participants will have the
right to demand purchase of such Series of Bonds upon not less than seven days'
notice, (8) the procedures for a demand for purchase as provided in (7) above,
(9) the redemption provisions that will pertain to such Series of Bonds during
such Weekly Interest Rate Period, and (10) the ratings which are expected to be
assigned to such Series of Bonds on such date and whether ratings will be
reduced or withdrawn. If at the time of such notice, the Interest Rate Period
for such Series of Bonds shall
                                       21
<PAGE>
 
be a Term Interest Rate Period of one year or more, such notice also shall state
that all or that portion of such Series of Bonds not in Authorized Denominations
on the effective date of such Weekly Interest Rate Period will be purchased as
provided in Section 4.06 hereof.

        (D)(I) Determination of Term Interest Rate.  During each Term Interest
               -----------------------------------
Rate Period, such Series of Bonds shall bear interest at the Term Interest Rate,
which shall be determined by the Remarketing Agent not later than 4:00 p.m. (New
York City time) on the Business Day preceding the first day of such Term
Interest Rate Period. The Term Interest Rate shall be the rate determined by the
Remarketing Agent (on the basis of examination of obligations comparable to such
Series of Bonds known to the Remarketing Agent to have been priced or traded
under then prevailing market conditions) to be the minimum interest rate which,
if borne by such Series of Bonds, would enable the Remarketing Agent to sell
such Series of Bonds on such Business Day at a price equal to the principal
amount thereof; provided, however, that if for any reason the Term Interest Rate
cannot be determined for any Term Interest Rate Period, the interest rate on
such Series of Bonds shall convert to a Weekly Interest Rate.

        (II) Adjustment to Term Interest Rate Period.  The Borrower, by written
             ---------------------------------------
direction to the Trustee and the Remarketing Agent, and with the written consent
of the Authority and the Bank and accompanied by an Approving Opinion, may elect
that the Interest Rate Period for any Series of Bonds shall be a Term Interest
Rate Period, and shall determine the duration the Term Interest Rate Period
(which may be any period of one month, three months, six months, nine months,
one year, or any multiple of six months above one year, up to and including the
period of time remaining to the maturity of such Series of Bonds). Such
direction (a) shall specify the effective date of such Term Interest Rate Period
which shall be (1) an Interest Payment Date not less than 40 days following the
date of receipt by the Trustee of such direction, (2) the Interest Payment Date
which is the day next succeeding the last day of the then-current Term Interest
Rate Period (or the Business Day next succeeding such Interest Payment Date if
the adjustment is from a Term Interest Rate Period of one year or more and such
Interest Payment Date is not a Business Day) not less than 40 days following the
date of receipt by the Trustee of such direction, or (3) any date on which such
Series of Bonds may be optionally redeemed pursuant to Section 4.01 not less
than 40 days following the date of receipt by the Trustee of such direction; (b)
shall specify the last day thereof; and (c) shall specify, if the then current
Interest Rate Period is a Weekly Interest Rate Period or a Term Interest Rate
Period of a different duration than the succeeding Term Interest Rate Period,
the effective date pursuant to Section 4.06 hereof by which such Series of Bonds
shall be purchased. If, at least 40 days prior to the last day of any Term
Interest Rate Period, the Borrower shall not have elected that such Series of
Bonds bear interest at a Weekly Interest Rate or a Term Interest Rate during the
next succeeding Interest Rate Period, the next succeeding Interest Rate Period
shall be a Term Interest Rate Period of the same duration as the immediately
preceding Term Interest Rate Period. Notwithstanding anything else provided in
this Section 2.03(D)(II), the Borrower shall not adjust to a Term Interest Rate
Period unless (a) the Letter of Credit has been modified to provide interest
coverage sufficient to maintain the rating on such Series of Bonds; provided,
however, that no Letter of Credit shall be required if the Borrower furnishes to
the Trustee not less than 40 days prior to the last day of any Term Interest
Rate Period either (1) written evidence from each rating agency then rating such
Series of Bonds that effective upon the commencement of the immediately
succeeding Term Interest Rate Period that, if such Series of Bonds then have a
long-term rating, that such Bonds 

                                       22
<PAGE>
 
will be rated Fitch "A+" (or equivalent) or higher or if such Bonds only have a
short-term rating, will be in the highest short-term rating category (without
regard to "+"'s or "-"'s); or (2) written consent of the Authority, and (b)
receipt by the Trustee and the Authority prior to the effective date of the Term
Interest Rate Period of a continuing disclosure agreement imposing obligations
upon the Borrower or any other responsible party to comply with the requirements
of S.E.C. Rule 15c2-12 as it may from time to time be amended or supplemented,
with respect to the Bonds; provided, however, that no continuing disclosure
agreement shall be required if (1) the duration of the Term Interest Rate Period
is less than one year and (2) such series of Bonds bearing interest at the Term
Interest Rate are in denominations of $100,000 or any integral multiple of
$5,000 in excess thereof.
 
        (III)  Notice of Adjustment to Term Interest Rate Period.  The
               -------------------------------------------------
Trustee shall give notice by first class mail of each Term Interest Rate Period
to the Bondholders of such Series of Bonds, the Bank and the Borrower not less
than 30 days prior to the effective date of such Term Interest Rate Period.
Such notice shall state (1) that the interest rate on such Series of Bonds will
be adjusted to or continue to be a Term Interest Rate, (2) the effective date of
such Term Interest Rate Period, (3) the day by which the Term Interest Rate for
such Term Interest Rate Period shall be determined, (4) the manner by which such
Term Interest Rate may be obtained, (5) the Interest Payment Dates after such
effective date, (6) if the then current Interest Rate Period is a Weekly
Interest Rate Period or a Term Interest Rate Period of a different duration than
the succeeding Term Interest Rate Period, that such Series of Bonds shall be
purchased on such effective date pursuant to Section 4.06 hereof, (7) the
procedures of such purchase, (8) the redemption provisions that will pertain to
such Series of Bonds during such Term Interest Rate Period, and (9) the ratings
which are expected to be assigned to such Series of Bonds on such date, whether
a Letter of Credit will be in effect and whether ratings will be reduced or
withdrawn.

        (E)  The determination of the interest rate on each Series of the Bonds
by the Remarketing Agent shall be conclusive and binding upon the Bondholders of
such Bonds, the Authority, the Tender Agent, the Bank, and the Trustee.

        The 1997A Bonds shall be subject to redemption and purchase as provided
in Sections 4.01 and 4.06 hereof.

        SECTION 2.04. Demand Purchase of Bonds. (A) Purchase of any Series 
                      ------------------------      ----------------------
of Bonds During Weekly Interest Rate Period. During any Weekly Interest Rate
-------------------------------------------
Period, any Series of Bonds or portions thereof in Authorized Denominations
shall be purchased at the option of the Bondholder thereof, or with respect to
Book-Entry Bonds, at the option of the Direct Participant with an ownership
interest in Book-Entry Bonds, on any Business Day, at a price of 100% of the
principal amount thereof, plus accrued interest to the Purchase Date, upon (i)
delivery to the Trustee, if such Series of Bonds are Book-Entry Bonds, or
otherwise to the Tender Agent, at its Corporate Trust Office of an irrevocable
notice in writing (a "Tender Notice") by 5:00 p.m. (New York City time) on any
Business Day, which states the name of the Bondholder of such Bond or the Direct
Participant for such Bond, as applicable, such Direct Participant's account
number, payment instructions with respect to the Purchase Price of such Bond,
the principal amount, CUSIP number and Series of such Bond and the date on which
the same shall be purchased, which date shall be a Business Day not prior to the
seventh day next succeeding the date of the 

                                       23
<PAGE>
 
delivery of such notice to the Tender Agent, and (ii) (a) if such Series of
Bonds are not Book-Entry Bonds, delivery of such Bond to the Tender Agent at its
Corporate Trust Office, accompanied by an instrument of transfer thereof, in
form satisfactory to the Tender Agent, executed in blank by the Bondholder
thereof with the signature guaranteed in accordance with the guidelines set
forth by one of the nationally recognized medallion signature programs at or
prior to 12:30 p.m. (New York City time), on the date specified in such notice,
or (b) if such Series of Bonds are Book-Entry Bonds, upon confirmation by DTC
that a Direct Participant with respect to Book-Entry Bonds being purchased
pursuant to this Section 2.04 has an ownership interest in such Book-Entry Bond
at least equal to the amount specified in such Tender Notice, the transfer, on
the registration books of DTC, of the beneficial ownership interest in such 
Book-Entry Bond tendered for purchase to the account of the Trustee, or to the
account of a Direct Participant acting on behalf of the Trustee.

        (B)  If moneys sufficient to pay the Purchase Price of any Series of
Bonds to be purchased pursuant to Section 2.04(A) hereof shall be held by the
Trustee on the date such Bonds are to be purchased, any such Bonds to be so
purchased which are not delivered by the Bondholders thereof to the Tender Agent
or transferred on the registration books of DTC, as applicable, on the date
specified for purchase thereof will be deemed to have been delivered for
purchase, or transferred on the registration books of DTC, as applicable, on
such date and to have been purchased. The former Bondholders of such Bonds, or
Direct Participants with respect to Book-Entry Bonds, will thereafter have no
rights with respect to such Bonds except to receive payment of the Purchase
Price therefor upon surrender of such Bonds to the Tender Agent or the transfer,
on the registration books of DTC, of the beneficial interest in such Book-Entry
Bonds.

        SECTION 2.05. Execution of Bonds.  The Bonds shall be executed in 
                      ------------------  
the name and on behalf of the Authority with the manual or facsimile signature
of its Chairman, under its seal attested by the manual or facsimile signature of
its Executive Director or Deputy Executive Secretary. Such seal may be in the
form of a facsimile of the Authority's seal and may be reproduced, imprinted or
impressed on the Bonds. The Bonds shall then be delivered to the Trustee for
authentication by it. In case any of the officers who shall have 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 Trustee or issued by the Authority, such Bonds may
nevertheless be authenticated, delivered and issued and, upon such
authentication, delivery and issue, shall be as binding upon the Authority as
though those who 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
or facsimile signature of the Trustee or the Tender Agent as authenticating
agent, shall be valid or obligatory for any purpose or entitled to the benefits
of this Indenture, and such certificate of the Trustee or Tender Agent 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.

                                       24
<PAGE>
 
        SECTION 2.06. 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 2.08 hereof, by the person in whose name it is registered,
in person or by its 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 acceptable to the Trustee. Transfer of a Bond
shall not be permitted by the Trustee during the period Bonds are selected for
redemption or 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 Trustee shall authenticate and deliver a new
Bond or Bonds for a like aggregate principal amount and Series in Authorized
Denominations. The Trustee shall require the Bondholder requesting such transfer
to pay any tax or other governmental charge required to be paid with respect to
such transfer. The cost of printing Bonds and any services rendered or expenses
incurred by the Trustee in connection with any such transfer shall be paid by
the Borrower.

        SECTION 2.07. Exchange of Bonds.  Bonds may be exchanged at the 
                      -----------------  
Corporate Trust Office of the Trustee for a like aggregate principal amount and
Series of Bonds of other Authorized Denominations. The Trustee shall require the
Bondholder requesting such exchange to pay any tax or other governmental charge
required to be paid with respect to such exchange. The cost of printing Bonds
and any services rendered or expenses incurred by the Authority or the Trustee
in connection with any such exchange shall be paid by the Borrower.

        SECTION 2.08. Bond Register.  The Trustee will keep or cause to be kept 
                      -------------  
at its Corporate Trust Office sufficient books for the registration and transfer
of the Bonds, which shall at all times be open to inspection during regular
business hours by the Authority upon reasonable notice; and, upon presentation
for such purpose, the Trustee 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 2.09. Temporary Bonds.  The Bonds may be issued in temporary 
                      ---------------  
form exchangeable for definitive Bonds when ready for delivery. Any temporary
Bond may be printed, lithographed or typewritten, shall be 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.
Every temporary Bond shall be executed by the Authority and be authenticated by
the Trustee 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 Corporate Trust Office of the Trustee and the Trustee shall authenticate
and deliver in exchange for such temporary Bonds an equal aggregate principal
amount of definitive Bonds of like Series 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 2.10.  Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond
                       ------------------------------------------
shall become mutilated, the Authority, at the expense of the Holder of said
Bond, shall execute, 

                                       25
<PAGE>
 
and the Trustee shall thereupon authenticate and deliver, a new Bond of like
tenor and Series in exchange and substitution for the Bond so mutilated, but
only upon surrender to the Trustee of the Bond so mutilated. Every mutilated
Bond so surrendered to the Trustee shall be canceled by it and upon request
delivered to the Authority. If any Bond shall be lost, destroyed or stolen,
evidence of such loss, destruction or theft may be submitted to the Authority
and the Trustee and, if such evidence be satisfactory to both and indemnity
satisfactory to them shall be given, the Authority, at the expense of the
Holder, shall execute, and the Trustee shall thereupon authenticate and deliver,
a new Bond of like tenor and Series in lieu of and in substitution for the Bond
so lost, destroyed or stolen (or if any such Bond shall have matured, instead of
issuing a substitute Bond, the Trustee may pay the same without surrender
thereof upon receipt of indemnity satisfactory to the Trustee). The Authority
may require payment by the Holder of a sum not exceeding the actual cost of
preparing each new Bond issued under this Section and of the expenses which may
be incurred by the Authority and the Trustee in 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 2.11. Book-Entry Only System.  (A)  Except as otherwise 
                      ----------------------
provided in subsections (B) and (C) of this Section 2.11 or as otherwise
provided in a Supplemental Indenture, the Bonds initially authenticated and
delivered hereunder shall be registered in the name of Cede & Co., as nominee of
DTC, New York, New York or such other nominee as DTC shall request. Payments of
interest on, principal of and any premium on, and the purchase price of, the
Bonds shall be made to the account of Cede & Co. on each payment date for
principal or interest or purchase price on the Bonds 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
the Direct Participants and the ownership interests of Beneficial Owners 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 and Series. 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 (with the exception of
the right of Direct Participants to demand purchase of Bonds pursuant to Section
2.04 hereof) 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
(with the 

                                       26
<PAGE>
 
exception of the right of Direct Participants to demand purchase of Bonds
pursuant to Section 2.04 hereof) 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 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.

             (3)  The Authority 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)(3)(ii) hereof, or upon the discontinuance or
termination of the services of DTC with respect to the Bonds pursuant to
subsection (C)(1), (C)(2) or subsection (C)(3)(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 Trustee 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, 

                                       27
<PAGE>
 
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 as provided in the letter of
representations of the Authority and the Trustee, addressed to DTC with respect
to the Bonds (the "DTC Letter of Representations").

        (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.

        (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 4.06 hereof 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 Trustee, or a Direct Participant acting on behalf of such
Trustee.

        SECTION 2.12. Conditions for the Issuance of Additional Bonds. The 
                      -----------------------------------------------
Authority may at any time issue Additional Bonds payable from the Revenues as
provided herein and secured by a pledge of and charge and lien upon the Revenues
as provided herein equal to the pledge, charge and lien securing the Outstanding
Bonds theretofore issued hereunder, but only subject to the following specific
conditions, which are hereby made conditions precedent to the issuance of any
such Additional Bonds:

        (A) The Authority shall be in compliance with all agreements and
covenants contained herein.

        (B) The issuance of such Additional Bonds shall have been authorized
pursuant to the Act and shall have been provided for by Supplemental Indenture
which shall specify the following:

             (1)  The purpose for which such Additional Bonds are to be issued;
        provided that such Additional Bonds shall be applied solely for the
        purpose of (i) financing the substitutions, additions, modifications or
        improvements to the

                                       28
<PAGE>
 
        Project, including payment of all costs incidental to or connected with
        such financing, (ii) financing other facilities within the State which
        qualify as a "project" under the Act and/or (iii) refunding any Bonds
        then Outstanding, including payment of all costs incidental to or
        connected with such refunding;

             (2)  The authorized principal amount and designation of such
        Additional Bonds;

             (3)  The date and the maturity dates of and the sinking installment
        payment dates, if any, for such Additional Bonds; provided that (i) for
        any Additional Bonds bearing interest at a Term Interest Rate of one
        year or more, each maturity date shall fall upon June 1 or December 1,
        (ii) all such Additional Bonds of like maturity shall be identical in
        all respects, except as to number and denomination, and (iii) serial
        maturities for serial bonds or sinking installment payments for term
        bonds, or any combination thereof, shall be established to provide for
        the retirement of such Additional Bonds on or before their respective
        maturity dates;

             (4)  The interest payment date for such Additional Bonds; provided
        that the interest payment dates for any Additional Bonds bearing
        interest at a Term Interest Rate of one year or more shall be on June 1
        or December 1 in each year;

             (5)  The denomination or denominations of and method of numbering
        such Additional Bonds;

             (6)  The redemption premiums, if any, and the redemption terms, if
        any, for such Additional Bonds;

             (7)  The amount, if any, to be deposited from the proceeds of sale
        of such Additional Bonds in the Interest Account hereinafter referred
        to;

             (8)  The amount, if any, to be deposited from the proceeds of sale
        of such Additional Bonds in the Construction Fund;

             (9)  The forms of such Additional Bonds; and

             (10) Such other provisions as are necessary or appropriate and not
        inconsistent herewith.

        (C)  The Loan Agreement shall have been amended so as to increase the
Loan Repayments by an amount at least sufficient to pay the interest on,
principal and premium, if any, of such Additional Bonds as the same become due.

        (D)  The issuance by a Bank of a Letter of Credit or the delivery of an
Alternate Credit Facility enhancing such Additional Bonds.

                                       29
<PAGE>
 
        SECTION 2.13. Procedure for the Issuance of Additional Bonds.  At any 
                      ----------------------------------------------
time after the sale of any Additional Bonds in accordance with the Act, the
Authority shall execute such Additional Bonds for issuance hereunder and shall
deliver them to the Trustee, and thereupon such Additional Bonds shall be
authenticated and delivered by the Trustee to the purchaser thereof upon the
written request of the Authority, but only upon receipt by the Trustee of the
following documents or money or securities, all of such documents dated or
certified, as the case may be, as of the Date of Delivery of such Additional
Bonds by the Trustee (unless the Authority shall direct the Trustee to accept
any of such documents bearing a prior date):

        (A)  A certified copy of the Supplemental Indenture authorizing the
issuance of such Additional Bonds;

        (B)  A written request of the Authority as to the delivery of such
Additional Bonds;

        (C)  An Opinion of Bond Counsel to the effect that (1) the Authority has
the right and power under the Act to execute and deliver the Supplemental
Indenture and the Supplemental Indenture has been duly and lawfully executed and
delivered by the Authority, is in full force and effect and is valid and binding
upon the Authority (except as enforcement may be limited by bankruptcy,
insolvency, reorganization and other similar laws relating to the enforcement of
creditors' rights and by equitable principles), (2) the Supplemental Indenture
creates the valid pledge of and charge and lien upon the Revenues which it
purports to create as provided therein, subject to the application thereof to
the purposes and on the conditions permitted hereby, (3) such Additional Bonds
are valid and binding special obligations of the Authority (except as
enforcement may be limited by bankruptcy, insolvency, reorganization and other
similar laws relating to the enforcement of creditors' rights and by equitable
principles) and entitled to the benefits of the Act and hereof, and such
Additional Bonds have been duly and validly authorized, executed, issued and
delivered in accordance with the Act and herewith, (4) the amendments to the
Loan Agreement, required by Section 2.12(C) hereof have been duly authorized,
executed and delivered, and (5) the delivery of such Additional Bonds will not
have an adverse effect on the exclusion from gross income for federal income tax
purposes of the interest on the Bonds;

        (D)  A Certificate of the Authority containing such statements as may be
reasonably necessary, as determined by Bond Counsel, to show compliance with the
conditions for the issuance of such Additional Bonds contained herein;

        (E)  The issuance by a Bank of a Letter of Credit or the delivery of an
Alternate Credit Facility enhancing such Additional Bonds; and

        (F)  Such further documents, money or securities as are required by the
provisions of the Supplemental Indenture providing for the issuance of such
Additional Bonds.

                                       30
<PAGE>
 
                                  ARTICLE III
               ISSUANCE OF 1997A BONDS; APPLICATION OF PROCEEDS
                                   

        SECTION 3.01.   Issuance of the 1997A Bonds.  At any time after the 
                        ---------------------------  
execution and delivery of this Indenture or from time to time thereafter, upon
the execution of the 1997A Bonds by the Authority and delivery thereof to the
Trustee, as hereinabove provided, and without any further action on the part of
the Authority, the Trustee shall authenticate upon request of the Authority, and
deliver the 1997A Bonds in an aggregate principal amount not exceeding
$9,500,000.

        SECTION 3.02.  Application of Proceeds of 1997A Bonds.  Application of 
                       --------------------------------------
Proceeds of 1997A Bonds. The proceeds received by the Authority from the sale of
the 1997A Bonds shall be deposited with the Trustee, who shall forthwith deposit
$190,000 of such proceeds into the Proceeds Subaccount of the 1997A Costs of
Issuance Account of the Costs of Issuance Fund, which Costs of Issuance Fund the
Trustee shall establish and maintain as further provided in Section 3.04 hereof.
The balance of such proceeds ($9,310,000) shall be deposited by the Trustee into
the 1997A Construction Account of the Construction Fund which Construction Fund
the Trustee shall establish and maintain as further provided in Section 3.03
hereof.

        SECTION 3.03.  Construction Fund.  The Trustee shall establish the 
                       -----------------  
Construction Fund (the "Construction Fund") and an account within such fund to
be designated the "1997A Construction Account" (the "1997A Construction
Account"). The Trustee shall also create a separate account in the Construction
Fund for each Series of Bonds for which proceeds of such Bonds will be applied
to the payment of the Costs of the Project. The moneys in the Construction Fund
shall be held by the Trustee in trust and applied to the payment of the Costs of
the Project.

        Before each payment is made from the Construction Fund (including any
account established therein) by the Trustee, there shall be filed with the
Trustee a requisition conforming with the requirements of this Section and
Section 3.2 of the Agreement, and in the form attached hereto as Exhibit C,
stating with respect to each payment to be made:

              (1)  the requisition number;

              (2)  the name and address of the person to whom payment is due;

              (3)  the purpose for which such payment is to be made;

              (4)  the amount to be paid;

              (5)  that each obligation mentioned therein has been properly
        incurred and is a proper charge against the Construction Fund;

              (6)  that none of the items for which payment is requested has 
        been previously reimbursed from the Construction Fund;

                                       31
<PAGE>
 
              (7)  that each item for which payment is requested is or was
        necessary in connection with the acquisition, construction,
        installation, rehabilitation or financing of the Project; and

              (8)  that at least 97.0% of the amount requisitioned, together
        with all amounts requisitioned to date, have in the aggregate been used
        to pay for or to reimburse the Borrower for expenditures properly
        allocable to Costs of the Project pursuant to the Tax Certificate
        (excluding Costs of Issuance).

        Each such requisition shall be sufficient evidence to the Trustee of the
facts stated therein and the Trustee shall have no duty to confirm the accuracy
of such facts. Upon receipt of each such requisition, signed by an Authorized
Representative of the Borrower and an Authorized Representative of the Bank, the
Trustee shall pay the amount set forth therein as directed by the terms thereof.

        Upon the receipt by the Trustee of a certificate conforming with the
requirements of Section 3.3 of the Agreement, and after payment of costs payable
from the Construction Fund or provision having been made for payment of such
costs not yet due by retaining such costs in the Construction Fund or otherwise
as directed in such certificate, the Trustee shall transfer any remaining
balance in the Construction Fund into a separate account within the Revenue
Fund, which the Trustee shall establish and hold in trust, and which shall be
entitled the "Surplus Account."  A separate Surplus Account shall be established
for each Series of Bonds.  The moneys in any Surplus Account shall be used and
applied (subject to Section 5.03) at the written direction of the Borrower
(unless some other application of such moneys is requested by the Borrower and
would not, in the opinion of Bond Counsel, cause interest on the Bonds to become
no longer Tax-exempt) for the following purposes in the following order:  (1)
for transfer to the Bank to pay the redemption price of any Bank Bonds of the
same Series then outstanding; (2) to reimburse the Bank with respect to any draw
on the Letter of Credit made for the redemption of Bonds of the same Series in
Authorized Denominations, to the maximum degree permissible, and at the earliest
possible dates at which the Bonds can be redeemed pursuant to Section 4.01 of
this Indenture; or (3) to redeem Bonds of the same Series in Authorized
Denominations, to the maximum degree permissible, and at the earliest possible
dates at which the Bonds can be redeemed pursuant to Section 4.01 of this
Indenture.  Notwithstanding Section 5.05 hereof, the moneys in such Surplus
Account shall be invested at the written instruction of the Borrower 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 cause interest on the Bonds to
become no longer Tax-exempt), and all such investment income shall be deposited
in the Surplus Account and expended or reinvested as provided above.

        In the event of redemption of all the Bonds of a Series pursuant to
Section 4.01 hereof or an Event of Default which causes acceleration of the
Bonds, any moneys then remaining in the account within the Construction Fund
relating to such Series of Bonds shall be transferred to the related Surplus
Account within the Revenue Fund, and all moneys in the Revenue Fund relating to
such Series of Bonds shall be used to reimburse the Bank for draws on the Letter
of Credit used to redeem Bonds of the same Series or used to redeem Bonds of the
same Series if 

                                       32
<PAGE>
 
there is no Letter of Credit or there is a default under the Letter of Credit.

        SECTION 3.04. Costs of Issuance Fund.  The Trustee shall establish 
                      ----------------------  
the Costs of Issuance Fund (the "Costs of Issuance Fund") and an account within
such fund to be designated the "1997A Costs of Issuance Account" (the "1997A
Costs of Issuance Account"). The Trustee shall also create a separate account in
the Costs of Issuance Fund for each Series of the Bonds. The Trustee shall
create separate subaccounts in the 1997A Costs of Issuance Account designated
the "Proceeds Subaccount" and the "Authority Subaccount". The Trustee shall
receive and deposit into the Authority Subaccount such moneys as the Authority
shall transfer to the Trustee for such deposit. The moneys in each account and
subaccount of the Costs of Issuance Fund shall be held by the Trustee in trust
and applied to the payment of Costs of Issuance for the related Series of Bonds,
upon a requisition filed with the Trustee, in the form attached hereto as
Exhibit D, signed by an Authorized Representative of the Borrower and an
Authorized Representative of the Bank, and, in the case of any payments from the
Authority Subaccount, also signed by the Executive Director of the Authority.
All payments from the Costs of Issuance Fund shall be reflected in the Trustee's
regular accounting statements. The Trustee shall send a copy of each requisition
from the Proceeds Subaccount to the Authority. Any amounts remaining in the
related Proceeds Subaccount within the Costs of Issuance Fund six months
following the Date of Delivery of a Series of Bonds shall be transferred to the
related Construction Account for such Series of Bonds, and any amounts remaining
in the Authority Subaccount within the Costs of Issuance Fund six months
following the Date of Delivery of a Series of Bonds shall be transferred to the
Authority.

        SECTION 3.05.  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
of California 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 of 1997A Bonds.  The 1997A Bonds 
                       ----------------------------------  
are subject to redemption if and to the extent the Borrower is entitled to make
and makes, or is required to make, a prepayment pursuant to Articles IV or VIII
of the Agreement. All such prepayments shall be deposited in the related
Redemption Account. The Authority shall not call the 1997A Bonds for optional
redemption, and the Trustee shall not give notice of any such redemption, unless
the Borrower has so directed and the Trustee has received the Bank's written
consent to such optional redemption in accordance with the Agreement and payment
has been made (or provided for through the Letter of Credit or an Alternate
Credit Facility) of all required installments of the Borrower's obligations
under the Agreement, including without limitation amounts sufficient to pay all
principal of, premium, if any, and interest due on such 1997A Bonds on the
redemption date; provided that the Authority may require such payment under
Section 8.3 of the Agreement.

                                       33
<PAGE>
 
          The 1997A Bonds shall be redeemed in Authorized Denominations (with
Available Moneys if the Letter of Credit enhancing the 1997A Bonds is in effect)
upon the following terms:

          (1) Sinking Fund Redemption. Redemption.  The 1997A Bonds shall 
              -----------------------                         
not be subject to mandatory sinking fund redemptions.

          (2) Mandatory Redemption Upon Invalidity or a Determination of
              ----------------------------------------------------------
Taxability.  In the event of a prepayment pursuant to Section 8.3(a) or (b) of
----------
the Agreement as a result of invalidity or a Determination of Taxability, 1997A
Bonds Outstanding on the date of the occurrence of the invalidity or
Determination of Taxability shall be redeemed in whole at any time within 30
days thereafter, at a redemption price of 100% of the principal amount thereof,
without premium, plus accrued interest to the date of redemption.  No redemption
of 1997A Bonds shall be made pursuant to any of the other provisions of this
Section 4.01 following invalidity or a Determination of Taxability.

          (3) Mandatory Redemption Upon Failure to Renew Letter of Credit.
               -----------------------------------------------------------
The 1997A Bonds shall be redeemed in whole, at a redemption price equal to 100%
of the principal amount thereof, without premium, plus accrued interest to the
redemption date, in the event that the Letter of Credit enhancing the 1997A
Bonds then in effect is not renewed or a commitment for an Alternate Letter of
Credit or Alternate Credit Facility enhancing the 1997A Bonds is not delivered
to the Trustee at least 60 days prior to the scheduled expiration of the then
current Letter of Credit enhancing the 1997A Bonds, on a redemption date
selected by the Trustee not less than five (5) calendar days preceding the
expiration date of the then current Letter of Credit enhancing the 1997A Bonds.

          (4) Optional Redemption Upon Occurrence of Extraordinary Events.
              -----------------------------------------------------------
The 1997A Bonds may be redeemed in whole on any date or in part, as described
below, at the option of the Authority on any Interest Payment Date at a
redemption price equal to the principal amount thereof, without premium, plus
accrued interest to the date of redemption, upon receipt by the Trustee of a
written notice from the Borrower or the Bank stating that any of the following
events has occurred:

              (i) all of the Project or a portion thereof is damaged, destroyed,
condemned or taken by eminent domain to such extent that, in the opinion of an
independent engineer evidenced by a certificate provided to the Authority and
the Trustee, which opinion may be conclusively relied upon by the Trustee and
the Authority, (1) it is not practicable or desirable to rebuild, repair or
restore the Project or such portion thereof within a period of six consecutive
months following such damage, destruction or condemnation, and the Borrower is
or will be thereby prevented from carrying on its normal operations at the
Project or such portion thereof for a period of at least six consecutive months,
or (2) the cost of restoration of the Project or such portion thereof would
substantially exceed the Net Proceeds of insurance carried thereon; or

              (ii) the continued operation of such Project is enjoined or
prevented or is otherwise prohibited by, or conflicts with, any order, decree,
rule or regulation of any court or federal, state or local regulatory body,
administrative agency or other 

                                       34
<PAGE>
 
governmental body.

          (5) Optional Redemption during Weekly Interest Rate Period.
              ------------------------------------------------------  
On any Interest Payment Date during a Weekly Interest Rate Period and on the
effective date of any Term Interest Rate Period, the 1997A Bonds may be redeemed
by the Trustee, at the option of the Authority upon direction of the Borrower as
provided in Section 8.5 of the Loan Agreement, in whole or in part, at a
redemption price of 100% of the principal amount thereof, without premium, plus
accrued interest to the date of redemption.

          (6) Optional Redemption during Term Interest Rate Period. During any 
              ---------------------------------------------------- 
Term Interest Rate Period, the 1997A Bonds also shall be subject to redemption
in whole or from time to time in part, at the option of the Authority upon
direction of the Borrower as provided in Section 8.5 of the Loan Agreement, at
the times (measured from the first day of the applicable Term Interest Rate
Period), and at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued interest, if any, to the redemption date:

<TABLE>
<CAPTION>
 
(Lesser of Length of Term
Interest Rate Period or
Length of Time to Maturity      Redemption Dates and Prices
-----------------------------   ---------------------------
<C>                            <S> 
Greater than 10 and             At any time on or after the 5th anniversary of
less than or equal              the effective date commencing such Interest Rate
to 15 years                     Period at 102% declining 1/2% annually to 100%
 
Greater than 8 and              At any time on or after the 5th anniversary of
less than or equal              the effective date commencing such Interest Rate
to 10 years                     Period at 101 1/2% declining 1/2% annually to
                                100%
 
Greater than 6 and              At any time on or after the 3rd anniversary of
less than or equal              the effective date commencing such Interest Rate
to 8 years                      Period at 101 1/2% declining 1/2% annually to
                                100%
 
Greater than 4 and              At any time on or after the 2nd anniversary of
less than or equal              the effective date commencing such Interest Rate
to 6 years                      Period at 101% declining 1/2% annually to 100%
 
Greater than 3 and              At any time on or after the 2nd anniversary of
less than or equal              the effective date commencing such Interest Rate
to 4 years                      Period at 100 1/2% declining 1/2% annually to
                                100%
 
Greater than 2 and              At any time on or after the 1st anniversary of
less than or equal              the effective date commencing such Interest Rate
                                Period at 100 1/2% declining
</TABLE> 

                                       35
<PAGE>
 
<TABLE>
<CAPTION>
 
(Lesser of Length of Term
Interest Rate Period or
Length of Time to Maturity      Redemption Dates and Prices
-----------------------------   ---------------------------
<C>                            <S> 
to 3 years                      1/2% annually to 100%
 
Greater than 1 and              At any time on or after the 1st anniversary of
less than or equal              the effective date commencing such Interest Rate
to 2 years                      Period at 100%
 
Less than or equal              On the Interest Payment Date which is six months
to 1 year                       after the effective date of such Interest Rate
                                Period at 100%
 
</TABLE>

          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 of a Series, the Trustee shall select the Bonds to be redeemed from
all Bonds of a Series 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; provided, however, that Bank Bonds shall be the first Bonds
selected for redemption.

        SECTION 4.03. Notice of Redemption. (A) Notice of redemption shall 
                      --------------------  
be mailed by first class mail not less than thirty (30) days nor more than sixty
(60) days before such redemption date, 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 number(s) and Series 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. Neither failure to receive
such notice nor any defect therein shall affect the sufficiency of such
redemption.

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

        (C)  At the same time that it sends notice of redemption to Owners of
such Series of Bonds, the Trustee shall also send a copy of the notice by first
class mail, by telecopy or by overnight delivery to the Tender Agent, the Bank,
the Securities Depositories and an Information Service. Failure to provide
notice to the Tender Agent, the Bank, the Securities Depositories or an
Information Service shall not affect the validity of proceedings for the
redemption of such Series of Bonds.

        SECTION 4.04.  Partial Redemption of Bonds.  Upon surrender of any 
                       ---------------------------  
Bond redeemed in part only, the Authority shall execute and the Trustee shall
authenticate and deliver 

                                       36
<PAGE>
 
to the Owner thereof, at the expense of the Borrower, a new Bond or Bonds of
Authorized Denominations and of like Series 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 moneys for payment of the redemption price of,
together with interest accrued to the date fixed for redemption on, the Bonds
(or portions thereof) so called for redemption being held by the Trustee, on the
redemption date designated in such notice, the Bonds (or portions thereof) so
called for redemption shall become due and payable, interest on the Bonds 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,
except for payment of particular Bonds for which moneys are being held by the
Trustee which moneys shall be pledged to such payment, and the Holders of said
Bonds shall have no rights in respect thereof except to receive payment of said
principal and interest accrued to the date fixed for redemption.

        All Bonds redeemed pursuant to the provisions of this Article shall be
canceled upon surrender thereof and shall be destroyed by the Trustee, which
shall thereupon deliver to the Authority a certificate evidencing such
destruction.

        SECTION 4.06. Mandatory Tender for Purchase of 1997A Bonds.
                      --------------------------------------------

        (a)   (i)  On the first day of any change in each Interest Rate
                   Period, or

              (ii) during a Weekly Interest Rate Period, on the effective date
              of an Alternate Credit Facility or Alternate Letter of Credit
              complying with the requirements of Section 5.7 or 5.8, as
              applicable, of the Agreement (each a "Purchase Date"),

the Bondholder or Direct Participant of such 1997A Bond shall tender such 1997A
Bond for purchase as provided below and such 1997A Bond shall be purchased or
deemed purchased as provided in Section 4.07(a)(3) hereof at a Purchase Price
equal to the principal amount thereof plus accrued and unpaid interest thereon.
Subject to Section 4.07(g) hereof, payment of the Purchase Price of such Bond
shall be made by 4:30 p.m. (New York City time) (1:30 p.m. Los Angeles time), in
the same manner as payment of interest on the 1997A Bonds, to the Owner of
record, or Direct Participant with respect to Book-Entry Bonds, on the Record
Date.  If the 1997A Bonds are not Book-Entry Bonds, the Holder shall deliver
such Bonds by no later than 12:30 p.m. (New York City time) (9:30 a.m. Los
Angeles time) on the Purchase Date to the Tender Agent at its Corporate Trust
Office, accompanied by an instrument of transfer thereof, in form satisfactory
to the Tender Agent, with the signature guaranteed in accordance with the
guidelines set forth by one of the nationally recognized medallion signature
programs.  If the 1997A Bonds are Book-Entry Bonds, the tendering Direct
Participant shall transfer, on the registration books of DTC, the beneficial
ownership interests in such Bonds tendered for purchase to the account of the
Trustee or a Direct Participant acting on behalf of the Trustee.

        (b)  Any instrument delivered to the Trustee or Tender Agent in
accordance with this Section shall be irrevocable with respect to the mandatory
purchase for which such

                                       37
<PAGE>
 
instrument was delivered and shall be binding upon any subsequent Bondholder or
Direct Participant of the 1997A Bond to which it relates, including any 1997A
Bond issued in exchange therefor or upon the registration of transfer thereof
and as of the date of such instrument, the Bondholder or Direct Participant of
the 1997A Bonds specified therein shall not have any right to tender for
purchase such 1997A Bonds prior to such Purchase Date.

        SECTION 4.07.  Purchase and Remarketing of 1997A Bonds.
                       ---------------------------------------

        (a)   Purchase of 1997A Bonds.
              -----------------------  

        Whenever the 1997A Bonds are Book-Entry Bonds, all references in this
Section 4.07 to the Tender Agent shall instead mean the Trustee, as the context
may require.

        (1)  As soon as practicable but in any event no later than 12:00 noon
(New York City time) (9:00 a.m. Los Angeles time) on the Business Day after a
tender is received during a Weekly Interest Rate Period, the Tender Agent shall
give telephonic, telegraphic or telecopier notice, promptly confirmed in
writing, to the Trustee and the Remarketing Agent, specifying the principal
amount of 1997A Bonds required to be tendered for purchase in accordance with
Section 4.06 hereof or tendered pursuant to Section 2.04(A) hereof. The Trustee
shall promptly supply the same notice to the Bank.

        (2)  The Tender Agent shall purchase, but only from the sources listed
below, 1997A Bonds required to be purchased in accordance with Section 4.06
hereof or tendered pursuant to Section 2.04(A) hereof from the Holders thereof
by 4:30 p.m. (New York City time) (1:30 p.m. Los Angeles time) on the date such
Bonds are required to be purchased at the Purchase Price provided in Section
4.06 or Section 2.04(A). Funds for the payment of such Purchase Price shall be
derived from the following sources, at the following times and in the order of
priority indicated below:

             (A)  from the proceeds of the remarketing of the 1997A Bonds (but
        only such remarketing proceeds as are received from purchasers of the
        1997A Bonds pursuant to Section 4.07(b) hereof) which have been
        furnished to the Tender Agent by no later than 12:00 noon New York City
        time on the Purchase Date by the Remarketing Agent; provided, however
        that such proceeds shall not have been derived from the Authority or the
        Borrower, any Guarantor or any shareholder of the Borrower; and

             (B)  from moneys which have been furnished to the Tender Agent by
        no later than 4:30 p.m. New York City time on the Purchase Date,
        representing the proceeds of a draw under the Letter of Credit enhancing
        the 1997A Bonds.

        (3)  The provisions of this Section 4.07(a)(3) shall not apply at any
time the 1997A Bonds are Book-Entry Bonds. With respect to any 1997A Bonds
tendered for purchase or required to be tendered for purchase as to which
sufficient funds to accomplish such purchase are available to the Tender Agent
at the respective times at which payment of the Purchase Price is to be made as
provided herein:

                                       38
<PAGE>
 
             (A)  Such 1997A Bonds shall be deemed purchased for all purposes of
        this Indenture, irrespective of whether or not such Bonds shall have
        been presented to the Tender Agent, and the former Holder or Holders of
        such Bonds shall have no claim thereon, under this Indenture or
        otherwise for any amount other than the Purchase Price thereof and such
        Bonds shall no longer be deemed to be Outstanding for purposes of this
        Indenture and the Bond Registrar shall so note on the Bond Register for
        the Bonds.

             (B)  Subject to Section 4.07(g) hereof, in the event that any 1997A
        Bonds shall not be presented to the Tender Agent, the Tender Agent shall
        segregate and hold the moneys for the Purchase Price of such Bonds in
        trust, uninvested, for the benefit of the former Holders of such Bonds,
        who shall, except as provided in the following sentences, thereafter be
        restricted exclusively to such moneys for the satisfaction of any claim
        for the Purchase Price of such Bonds.

             (C)  In the event that any 1997A Bonds shall not be presented to
        the Tender Agent at the time specified in Section 4.06 hereof or Section
        2.04(A) hereof (each "Undelivered Bond"), then the Authority shall
        execute and deliver to the Tender Agent for authentication a new 1997A
        Bond or 1997A Bonds, as the case may be, in an aggregate principal
        amount equal to the principal amount of the Undelivered Bonds bearing a
        number or numbers not contemporaneously outstanding. Every 1997A Bond
        authenticated and delivered as provided in the preceding sentence shall
        be entitled to all the benefits of this Indenture equally and
        proportionately with any and all other 1997A Bonds duly issued
        hereunder. The Tender Agent shall maintain a record of any Undelivered
        Bonds, together with the names and addresses of the former Holders
        thereof.

             (D)  In case any 1997A Bonds which have been deemed purchased as
        provided in Section 4.07(a)(3)(A) hereof are delivered to the Tender
        Agent subsequent to the date and time specified for such delivery for
        payment of the Purchase Price thereof at its Corporate Trust Office,
        accompanied by an instrument of transfer thereof, in form satisfactory
        to the Tender Agent, executed in blank by the Holder thereof with the
        signature guaranteed in accordance with the guidelines set forth by one
        of the nationally recognized medallion signature programs on any
        Business Day, the Tender Agent shall (subject to Section 4.07(g) hereof)
        pay the Purchase Price of such 1997A Bond to the Holder no later than
        12:00 noon (New York City time) on the next succeeding Business Day. Any
        such 1997A Bond so delivered to the Tender Agent shall be canceled and
        delivered to the Trustee.

                                       39
<PAGE>
 
        (b)  Remarketing of 1997A Bonds; Notice of Interest Rates.
             ----------------------------------------------------

        (1)  The Remarketing Agent shall determine the rate of interest to be
borne by the 1997A Bonds as provided in Section 2.03 hereof and shall furnish to
the Trustee, the Bank and the Tender Agent in a timely manner all information
necessary for the Tender Agent and the Trustee to carry out their respective
duties hereunder, including, but not limited to, the interest rates applicable
to all 1997A Bonds.

        (2)  The Remarketing Agent shall periodically inform the Trustee, the
Bank, and DTC pursuant to the DTC Letter of Representations described in Section
2.11(E) hereof, if so requested, of the rate of interest borne by the 1997A
Bonds from time to time.

        (3)  The Remarketing Agent shall, pursuant to the Remarketing Agreement,
use its best efforts to sell any 1997A Bonds tendered for purchase to new
purchasers. Not later than 4:00 p.m. (New York City time) (1:00 p.m. Los Angeles
time) on the Business Day before the Purchase Date, the Remarketing Agent shall
notify the Tender Agent, the Trustee and the Bank of (i) the amount of 1997A
Bonds to be purchased on the next day which have been remarketed and the name,
address and taxpayer identification number of the new purchasers and the
denominations with respect to which such remarketed 1997A Bonds are to be
registered and (ii) the amount required to be drawn under the Letter of Credit
to provide sufficient funds to purchase the 1997A Bonds actually tendered or
deemed tendered for which no remarketing proceeds are expected to be available
on the Purchase Date.

        (c)  Delivery of Remarketed 1997A Bonds.
             ----------------------------------

        (1)  The Tender Agent, or the Trustee for Book-Entry Bonds, shall hold
all 1997A Bonds delivered to it in trust for the benefit of the respective
Holders which shall have so delivered such Bonds or for the Direct Participants
who have transferred their interests in the Book-Entry Bonds until moneys
representing the Purchase Price of such Bonds shall have been delivered to or
for the account of or to the order of such Holders or Direct Participants. The
Trustee, for Book-Entry Bonds, or the Tender Agent (or after five days, as
provided in Section 4.07(g), the Trustee) for non-Book-Entry Bonds shall hold
all moneys for the purchase of Bonds in trust and in non-commingled funds 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 the
account of such person or entity. Neither the Authority, the Borrower or any
Guarantor shall have any right, title, or interest in or to any moneys held by
the Trustee, the Tender Agent or the Remarketing Agent or pursuant to Section
4.07(g) hereof. 1997A Bonds purchased with moneys described in Section
4.07(a)(2)(A) or 4.07(a)(2)(B) hereof, including without limitation 1997A Bonds
issued in place of such Bonds pursuant to Section 4.07(a)(3)(C) hereof, shall be
registered as directed by the Trustee (from instructions received from the
Remarketing Agent) and made available to the Remarketing Agent by 12:00 noon
(New York City time) (9 a.m. Los Angeles time) on the date of such purchase or
transferred on the registration books of DTC on the date of such purchase or the
date the ownership interest shall be transferred to the new Direct Participants
on the books of DTC, against payment in immediately available funds or evidence
of immediately available funds in the form of a federal reserve wire number.

                                       40
<PAGE>
 
        (2)  1997A Bonds purchased with moneys obtained by a drawing on the
Letter of Credit (the "Bank Bonds"), including without limitation 1997A Bonds
issued in place of such Bonds pursuant to Section 4.07(a)(3)(C) hereof, shall be
held by the Tender Agent (upon written directions from the Bank) or registered
in the name of the Bank on the registration books of DTC, with respect to Book-
Entry Bonds. The Remarketing Agent shall seek to remarket any Bank Bonds prior
to remarketing any other 1997A Bonds tendered for purchase. The proceeds of any
remarketing of Bank Bonds shall be transferred by the Trustee to the Bank. Upon
receipt by the Trustee of funds representing the proceeds of the remarketing of
Bank Bonds, Bonds in place of such Bank Bonds so purchased shall be made
available for pick-up by the Remarketing Agent for subsequent delivery to the
purchasers thereof, or the ownership interest shall be transferred to the new
Direct Participants on the books of DTC. Prior to or simultaneously with such
delivery, the proceeds of such remarketing shall have been or shall be
transferred to the Bank, and the Trustee and the Tender Agent shall have
received written confirmation from the Bank of the reinstatement of the Letter
of Credit.

        (3)  In the event that the Remarketing Agent is able to remarket any
1997A Bonds required to be purchased pursuant to Section 4.06 hereof after the
time on which the Remarketing Agent is required to provide notice to the Trustee
as specified in this Section 4.07, the Remarketing Agent shall give notice in
the manner and containing the details set forth in this Section 4.07, as soon as
practicable after such remarketing, but in no event later than 2:00 p.m. (New
York City time) (11:00 a.m. Los Angeles time) on the Purchase Date and the 1997A
Bonds shall be registered in the names of the purchasers thereof and made
available to the Remarketing Agent as soon as practicable thereafter on such
date or the next succeeding Business Day or transferred on the registration
books of DTC to the account of Direct Participants furnished to the Trustee or
Tender Agent, as applicable, by the Remarketing Agent.

        (4)  If any 1997A Bond is tendered after a notice of redemption for such
Bond has been given, the Remarketing Agent will give the redemption notice to
any purchaser of such 1997A Bond or to DTC if a Book-Entry Bond and the
purchaser (including a Direct Participant) shall acknowledge receipt of such
redemption notice.

        (d)  Draws Upon the Letter of Credit. The Trustee shall draw on 
             -------------------------------  
the Letter of Credit enhancing the 1997A Bonds in an amount necessary and in
sufficient time (as set forth by the terms of such Letter of Credit) so as to
provide to the Trustee or Tender Agent, as applicable, the balance of the funds
needed to purchase tendered 1997A Bonds, taking into account the remarketing
proceeds received by the Trustee, or Tender Agent, as applicable, in the
Remarketing Agent's notice pursuant to Section 4.07(b)(3) hereof not later than
4:00 p.m. (New York City time) (1:00 p.m. Los Angeles time) on the Business Day
before the Purchase Date. If the Remarketing Agent remarkets 1997A Bonds after
4:00 p.m. (New York City time) (1:00 p.m. Los Angeles time) on the Business Day
before the Purchase Date, the Trustee shall still draw on the Letter of Credit
enhancing the 1997A Bonds in an amount necessary and in sufficient time (as set
forth by the terms of such Letter of Credit) so as to provide the balance of the
funds needed to purchase tendered 1997A Bonds, without taking into account any
remarketing proceeds other than those specified in the Remarketing Agent's
notice pursuant to Section 4.07(b)(3) hereof. The Trustee shall transfer to the
Bank any excess moneys received from a draw on the Letter of Credit 

                                       41
<PAGE>
 
enhancing the 1997A Bonds that are not needed to pay the Purchase Price of the
1997A Bonds on the Purchase Date.

        (e)  Delivery of Proceeds of Sale. Upon receipt, the proceeds of the 
             ----------------------------  
remarketing by the Remarketing Agent of any 1997A Bonds shall be transferred by
the Remarketing Agent to the Trustee or the Tender Agent, as applicable, by
12:00 noon New York City time and such proceeds shall be immediately applied by
the Trustee or Tender Agent, as applicable, to the payment of the Purchase Price
of 1997A Bonds to the Holders or Beneficial Owners thereof pursuant to Section
4.07(a)(2)(A) hereof. The Trustee or the Tender Agent, as applicable, shall make
1997A Bonds available for delivery to the Remarketing Agent which are registered
pursuant to the instructions of the Remarketing Agent or shall direct the
transfer on the registration books of DTC pursuant to the instructions of the
Remarketing Agent or in the case of the remarketing of 1997A Bonds which
constitute Bank Bonds as provided in Section 4.07(c)(2) hereof. In making
payments to the Bank, the Trustee may conclusively assume that the Bank has not
been repaid from any other sources. To the extent that the Bank is repaid with
proceeds of the sale of Bank Bonds by the Remarketing Agent, new 1997A Bonds
shall be registered and delivered (or ownership interests transferred) as
provided in Section 4.07(c)(1) hereof.

        (f)  No Remarketing After Default. Notwithstanding any other provision
             ------------------------------
of this Indenture, there shall be no remarketing of 1997A Bonds under Section
4.07(b)(3) after an Event of Default under Article VII hereof.

        (g)  Unclaimed Moneys.  The Tender Agent shall, at the end of 
             ----------------  
the fifth Business Day after the Purchase Date, transfer
all funds then held on hand by virtue of the fact that 1997A Bonds deemed
tendered on such date were not presented for purchase to the Tender Agent in
accordance with the provisions of 4.07(a) hereof to the Trustee to be held in a
segregated account for the 1997A Bonds and to hold the same in trust for the
payment of the Purchase Price thereof to the former Holders of such 1997A Bonds
as required by the provisions of Section 4.07(a) hereof.  The Trustee shall pay
such Purchase Price from such amounts by check or draft of the Trustee made
payable to the party entitled to such payment as soon as practicable after such
party surrenders the 1997A Bond or Bonds so deemed purchased to the Trustee.
Any such moneys so held in trust by the Trustee shall be held uninvested until
paid to the person entitled thereto or disposed of as provided by law.

        (h)  Conditions to Remarketing upon Expiration of Letter of Credit.  
             -------------------------------------------------------------
If a commitment to renew the Letter of Credit enhancing the 1997A Bonds or to
provide an Alternate Letter of Credit or Alternate Credit Facility enhancing the
1997A Bonds shall not be provided prior to the 60th day before the scheduled
expiration date of such Letter of Credit, then the 1997A Bonds shall not be
remarketed after the 15th day prior to such expiration.

                                       42
<PAGE>
 
        (i)  Notices Upon Delivery of Alternate Letter of Credit or Alternate 
             ----------------------------------------------------------------
Credit Facility.
---------------

        (1)  Whenever the Borrower has delivered to the Trustee a commitment for
the delivery of an Alternate Letter of Credit enhancing the 1997A Bonds pursuant
to Section 5.8 of the Agreement or a commitment for delivery of an Alternate
Credit Facility enhancing the 1997A Bonds pursuant to Section 5.7 of the
Agreement (either such instrument referred to hereafter as the "Alternate
Instrument"), the Trustee shall mail by first class mail a notice to all Holders
of the 1997A Bonds stating: (i) the name of the issuer of the Alternate
Instrument, (ii) the date on which the Alternate Instrument will become
effective, which date shall not be less than five (5) calendar days prior to the
stated expiration date of the existing Letter of Credit enhancing the 1997A
Bonds, (iii) the rating expected to apply to the 1997A Bonds after the Alternate
Instrument is delivered, and (iv) notice that the 1997A Bonds will be subject to
mandatory tender for purchase on the date of delivery of the Alternate
Instrument, and information on where such Bonds are to be delivered. Such notice
shall be mailed at least ten (10) days prior to the effective date of the
Alternate Instrument.

        (2)  The Trustee shall provide notice to the Authority, each rating
agency then rating the Bonds and the Borrower upon the receipt of any Alternate
Instrument.

        (j)  Limitations On Purchase of Bonds.  
             --------------------------------- 

The Remarketing Agent shall not sell any Bonds to the Authority, the Borrower,
any Guarantor or any shareholder of the Borrower.

        SECTION 4.08.  Redemption, Mandatory Tender, Purchase and Remarketing 
                       ------------------------------------------------------
of Additional Bonds. Additional Bonds shall be subject to redemption, mandatory 
--------------------
tender, purchase and remarketing as provided in a related Supplemental
Indenture.

         ARTICLE V

                                       43
<PAGE>
 
                         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 the Rebate Fund and
the Authority Subaccount of the Costs of Issuance Fund) are hereby pledged to
secure the full payment of the principal of, premium, if any, and interest on
the Bonds in accordance with their terms and the provisions of this Indenture
and thereafter to secure the Bank to the extent of its interest in such Revenues
and certain other funds or accounts established under this Indenture.
Notwithstanding any other provision of this Indenture, the benefits under any
Letter of Credit or Alternate Credit Facility shall apply only to the Series of
Bonds for which such Letter of Credit or Alternate Credit Facility was issued
and moneys in the account created by Section 4.07(g) hereof shall be held solely
for the benefit of the former holders of 1997A Bonds as provided in Section
4.07(g). 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 from time to time 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 Loan Agreement (except for the right to receive
any Additional Payments to the extent payable to the Authority or the Trustee
under Sections 4.2(b), (c) and (d), 7.3, 9.2 and 9.3 of the Agreement (hereafter
referred to as "Excluded Moneys"), any rights of the Authority or the Trustee to
indemnification and rights of inspection and consent). Such assignment to the
Trustee is solely in its capacity as Trustee under the Indenture, subject to the
protections, immunities and limitations from liability afforded the Trustee
hereunder. The Trustee shall be entitled to and shall collect and receive all of
the Revenues (except Excluded Moneys), 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,
subject to the provisions of the Indenture, 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 Loan Agreement.

        (C)  All Revenues (except Excluded Moneys) 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 hereof, all moneys received by the Trustee
and required to be deposited in the Redemption Account, including without
limitation, sinking installment payments made by the Borrower pursuant to
Section 4.01 hereof, shall be promptly deposited in the Redemption Account,
which the Trustee shall establish, maintain and hold in trust as provided in
Section 5.02 hereof. All Revenues deposited with the Trustee shall be held,
disbursed, allocated and applied by the Trustee only as provided in this
Indenture.

                                       44
<PAGE>
 
        (D)  On the third Business Day of each June, any amount held by the
Trustee in the Revenue Fund on the due date for a Loan Repayment under the Loan
Agreement shall be credited against the installment due on such date to the
extent available for such purpose under the terms of this Indenture.

        SECTION 5.02. Allocation of Revenues. On or before any date on which 
                      ----------------------  
interest or principal (whether at maturity, or by redemption or acceleration) is
due, the Trustee shall transfer funds from the Revenue Fund and deposit into the
following respective accounts for each Series of Bonds (each of which the
Trustee is hereby directed and agrees to establish and maintain within the
Revenue Fund), the following amounts, in the following order of priority, 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 to be satisfied before any
transfer is made to any account subsequent in priority;

        First: to the Interest Account, the aggregate amount of interest
        -----
becoming due and payable on the next succeeding Interest Payment Date or date of
redemption of all Bonds then Outstanding, until the balance in said account is
equal to said aggregate amount of interest.

        Second:  to the Principal Account, the amount paid by the Borrower and
        ------
designated as or attributable to principal on the Bonds in the most recent Loan
Repayment equal to the aggregate amount of principal due on the Principal
Payment Date, plus the aggregate amount of sinking fund payments, if any,
required to be made pursuant to Section 2.02 hereof.

        Third: to the Redemption Account, the aggregate amount of principal and
        -----
premium next coming due by acceleration or by redemption permitted 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
                        ----------------------------------------------------
Amount. (a) Funds for the payment of the principal or redemption price of and
------
interest on a Series of 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 in the Revenue Fund
shall be used to pay when due (whether upon redemption, acceleration, interest
payment date, maturity or otherwise) 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:

        (i)  moneys paid into the Letter of Credit Account of the Revenue Fund
   for such Series of Bonds from a draw by the Trustee under the Letter of
   Credit enhancing such Series of Bonds;

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

                                       45
<PAGE>
 
        (iii)  moneys paid into the Revenue Fund pursuant to Section 10.01(b)
   hereof and proceeds from the investment thereof, which constitute Available
   Moneys;

        (iv) any other moneys (other than from draws on the Letter of Credit
   enhancing such Series of Bonds) paid into the Revenue Fund and deposited in
   the Revenue Fund and proceeds from the investment thereof, which constitute
   Available Moneys; and

        (v)  any other moneys paid into the Revenue Fund and deposited in 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 for
each Series of Bonds called the "Letter of Credit Account," into which all
moneys drawn under the Letter of Credit to pay principal, interest, or
redemption price of the Bonds for such Series of Bonds shall be deposited and
disbursed. Neither the Borrower, the Authority or any Guarantor shall have any
rights to or interest in any Letter of Credit Account. Each Letter of Credit
Account shall be established and maintained by the Trustee and held in trust
apart from all other moneys and securities held under this Indenture or
otherwise, and over which the Trustee shall have the exclusive and sole right of
withdrawal for the exclusive benefit of the Holders of the Bonds with respect to
which such drawing was made. No moneys from any Letter of Credit Account may in
any circumstance be used to pay principal or interest on any Bank Bonds.

        The Trustee may establish within any Interest Account, Principal Account
or Redemption Account one or more subaccounts to facilitate the calculation of
the aging of moneys deposited with the Trustee until they become Available
Moneys.

        (b)    (i)  The Trustee shall draw moneys under each Letter of Credit in
accordance with the terms thereof in an amount necessary to make timely payments
of principal of, premium, if any, and interest on the Bonds enhanced by such
Letter of Credit, other than Bonds owned by or for the account of the Borrower
or the Bank, when due whether at maturity, interest payment date, redemption,
acceleration or otherwise. In addition, the Trustee shall draw moneys under each
Letter of Credit in accordance with the terms thereof to the extent necessary to
make timely payments required to be made pursuant to, and in accordance with
Sections 4.06 and 4.07 hereof.

               (ii) Immediately after making a drawing under the Letter of
Credit for a Series of Bonds which has been honored, the Trustee shall reimburse
the Bank for the amount of the drawing using moneys, if any, contained in:

               (A)  the Interest Account for such Series of Bonds, if the
        drawing was to pay interest on the Bonds enhanced by such Letter of
        Credit;

               (B)  the Principal Account for such Series of Bonds, if the
        drawing was to pay principal on the Bonds enhanced by such Letter of
        Credit; and

                                       46
<PAGE>
 
               (C)  the Redemption Account for such Series of Bonds, if the
        drawing was to redeem Bonds enhanced by such Letter of Credit.

        (c)  If at any time there shall have been delivered to the Trustee an
Alternate Letter of Credit or Alternate Credit Facility pursuant to Section 5.7
or 5.8 of the Agreement, then the Trustee shall accept such Alternate Letter of
Credit or Alternate Credit Facility and promptly surrender the related
previously held Letter of Credit to the Bank, in accordance with the terms of
such Letter of Credit, for cancellation. If at any time there shall cease to be
any Bonds Outstanding hereunder, the Trustee shall promptly surrender all
Letters of Credit to the Bank, in accordance with the terms of such Letters of
Credit, for cancellation. The Trustee shall comply with the procedures set forth
in each Letter of Credit relating to the termination thereof.

        SECTION 5.04.  Letter of Credit.  The Trustee shall hold and maintain 
                       ----------------  
each Letter of Credit for the benefit of the Bondholders whose Bonds are
enhanced by such Letter of Credit until such Letter of Credit expires in
accordance with its terms. Subject to the provisions of this Indenture, the
Trustee shall diligently enforce all terms, covenants and conditions of the
Letter of Credit, including payment when due of any draws on such Letter of
Credit, and the provisions relating to the payment of draws on, and
reinstatement of amounts that may be drawn under, such Letter of Credit, and
will not consent to, agree to or permit any amendment or modification of such
Letter of Credit which would materially adversely affect the rights or security
of the Holders of the Bonds enhanced by such Letter of Credit. If at any time
during the term of any 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 such Letter of Credit to the successor Trustee.
If the resigning or removed Trustee fails to make this request, the successor
Trustee shall do so before accepting appointment. When a Letter of Credit
expires in accordance with its terms or is replaced by an Alternate Letter of
Credit, the Trustee shall immediately surrender such Letter of Credit to the
Bank.

        SECTION 5.05. Investment of Moneys. 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 the Borrower or its agent, solely in Investment
Securities. Notwithstanding any other provision herein, in the absence of
written investment instructions directing the Trustee by noon of the second
Business Day preceding the day when investments are to be made, the Trustee is
directed to invest available funds in Investment Securities described in
paragraph (vii) of the definition thereof. The Trustee shall not be liable for
any losses resulting from any investments made pursuant to the preceding
sentence. The Trustee shall be entitled to rely conclusively upon the Borrower's
investment directions as to the fact that each such investment meets the
criteria of the Indenture.

        Investment Securities 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 Investment Securities shall be acquired subject to the limitations set forth
in Section 6.05 hereof, the limitations as to maturities hereinafter in this
Section set forth and such additional limitations or requirements consistent
with the foregoing as may be established by Request of the Borrower.

        Moneys in all funds and accounts shall be invested in Investment
Securities

                                       47
<PAGE>
 
maturing not later than the date on which such moneys will be required for the
purposes specified in this Indenture.  Notwithstanding anything else in this
Section 5.05, any moneys in an Interest Account, a Principal Account or a
Redemption Account held for the payment of particular Bonds of any Series shall
be invested at the written direction of the Borrower 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 full and timely payment of principal and interest thereof (or
mutual funds consisting solely of such investments which are rated Moody's "Aaa"
or equivalent), 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 to pay such Bonds (but in any event maturing in not
more than thirty days), but not including any obligations issued by the
Authority or the Borrower.  Moneys in a Letter of Credit Account created in
Section 5.03, remarketing proceeds and moneys held for non-presented Bonds, and
moneys described in Section 4.07(g) shall be held uninvested.

        All interest, profits and other income received from the investment of
moneys in any fund established pursuant to this Indenture shall be deposited in
the fund or account which gave rise to the investment earnings. Notwithstanding
anything to the contrary contained in this paragraph, an amount of interest
received with respect to any Investment Security equal to the amount of accrued
interest, if any, paid as part of the purchase price of such Investment Security
shall be credited to the fund from which such accrued interest was paid. To the
extent that any Investment Securities are registrable, such Securities shall be
registered in the name of the Trustee or its nominee.

        For the purpose of determining the amount in any fund, all Investment
Securities credited to such fund shall be valued at the lesser of cost or par
value plus, prior to the first payment of interest following purchase, the
amount of accrued interest, if any, paid as a part of the purchase price.

        Subject to Section 6.06 hereof, investments in any and all funds and
accounts (other than moneys representing the proceeds of a draw on a Letter of
Credit or held in a Letter of Credit Account, remarketing proceeds, Available
Moneys, moneys being aged to become Available Moneys, or moneys held for the
payment of particular Bonds (including moneys held for non-presented Bonds or
held under Section 4.07(g) or 10.03 hereof)) may be commingled for purposes of
making, holding and disposing of investments, notwithstanding provisions herein
for transfer to or holding in particular funds and accounts, the amounts
received or held by the Trustee hereunder, provided that the Trustee shall at
all times account for such investments strictly in accordance with the funds and
accounts to which they are credited and otherwise as provided in this Indenture.
Subject to Section 6.05 hereof, any moneys invested in accordance with this
Section may be invested in a pooled investment account consisting solely of
funds held by the Trustee as a fiduciary. The Trustee may act as principal or
agent in the making or disposing of any investment. The Trustee may sell or
present for redemption any Investment Securities whenever it shall be necessary
to provide moneys to meet any required payment, transfer, withdrawal or
disbursement from the fund to which such Investment Security is credited, and
the Trustee shall not be liable or responsible for any loss resulting from such
investment.

        The Authority (and the Borrower by its execution of the Loan Agreement)

                                       48
<PAGE>
 
acknowledges that to the extent regulations of the Comptroller of the Currency
or other applicable regulatory entity grant the Authority or the Borrower the
right to receive brokerage confirmations of security transactions as they occur,
the Authority and the Borrower specifically waive receipt of such confirmations
to the extent permitted by law.  The Trustee will furnish the Authority and the
Borrower periodic cash transaction statements which include detail for all
investment transactions made by the Trustee hereunder.  The Trustee or any of
its affiliates may act as sponsor, advisor or manager in connection with any
investments made by the Trustee hereunder.

        SECTION 5.06. Rebate Fund.  (a) The Trustee shall establish and 
                      -----------  
maintain a fund separate from any other fund established and maintained
hereunder designated as the "Rebate Fund" (the "Rebate Fund") and an account
within such fund to be designated the "1997A Rebate Account" (the "1997A Rebate
Account"). Within the Rebate Fund, the Trustee shall maintain such other
accounts as it is instructed by the Borrower as shall be necessary in order to
comply with the terms and requirements of the Tax Certificate. Subject to the
transfer provisions provided in paragraph (e) below, 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 Requirement (as defined in the Tax
Certificate), for payment to the federal government of the United States of
America, and no other person shall have any rights in or claim to such money.
All amounts deposited into or on deposit in the Rebate Fund shall be governed by
this Section 5.06, by Section 6.06 hereof and by the Tax Certificate (which is
incorporated herein by reference). The Trustee shall be deemed conclusively to
have complied with such provisions if it follows the directions of the Borrower
including supplying all necessary information in the manner provided in the Tax
Certificate, shall not be required to take any actions thereunder, in the
absence of written directions by the Borrower, and shall have no liability or
responsibility to enforce compliance by the Borrower or the Authority with the
terms of the Tax Certificate.

        (b)  Upon the Borrower's written direction, an amount shall be deposited
to the Rebate Fund by the Trustee from deposits by the Borrower, or from
available investment earnings on amounts (other than moneys representing the
proceeds of a draw on a Letter of Credit or held in a Letter of Credit Account,
remarketing proceeds, Available Moneys, moneys being aged to become Available
Moneys, or moneys held for the payment of particular Bonds (including moneys
held for non-presented Bonds or held under Section 4.07(g) or 10.03 hereof))
held in the Revenue Fund, if and to the extent required, so that the balance of
the amount on deposit thereto shall be equal to the Rebate Amount. Computations
of the Rebate Amount shall be furnished by or on behalf of the Borrower in
accordance with the Tax Certificate. The Trustee may rely conclusively upon the
Borrower's determinations, calculations and certifications required by this
Section 5.06(b). The Trustee shall have no responsibility to make any
independent calculations or determinations or to review the Borrower's
calculations hereunder r.

        (c)  The Trustee shall have no obligation to rebate any amounts required
to be rebated pursuant to this Section 5.06 other than from moneys held in the
funds and accounts created under this Indenture (other than moneys representing
the proceeds of a draw on a Letter of Credit or held in a Letter of Credit
Account or the Authority Subaccount of the Costs of Issuance Fund, remarketing
proceeds, Available Moneys, moneys being aged to become Available Moneys, or
moneys held for the payment of particular Bonds (including moneys held for non-
presented Bonds or held under Section 10.03)) or from other moneys provided to
it by or on 

                                       49
<PAGE>
 
behalf of the Borrower.

        (d)  The Trustee shall invest all amounts held in the Rebate Fund in
Investment Securities as instructed in writing by the Borrower, and the Borrower
shall be responsible for such instructions complying with the Tax Certificate.
Money shall not be transferred from the Rebate Fund except as provided in
paragraph (e) below.

        (e)  Upon receipt of the Borrower's written directions, the Trustee
shall remit part or all of the balances in the Rebate Fund to the United States,
as so directed. In addition, if the Borrower so directs, the Trustee will
deposit moneys into or transfer moneys out of the Rebate Fund from or into such
accounts or funds (other than moneys representing the proceeds of a draw on a
Letter of Credit or held in a Letter of Credit Account, remarketing proceeds,
Available Moneys, moneys being aged to become Available Moneys, or moneys held
for the payment of particular Bonds (including moneys held for non-presented
Bonds or held under Section 4.07(g) or 10.03 hereof)) as directed by the
Borrower's written directions. Any funds remaining in the Rebate Fund after
redemption and payment of all of the Bonds and payment and satisfaction of any
Rebate Amount, or provision made therefor shall be withdrawn and remitted to the
Borrower upon the Borrower's written request.

        (f)  Notwithstanding any other provision of this Indenture, including in
particular Article X hereof, the obligation to remit the Rebate Amounts to the
United States and to comply with all other requirements of this Section 5.06
hereof, Section 6.06 hereof and the Tax Certificate shall survive the defeasance
or payment in full of the Bonds.


                                  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. When and as paid in full, all Bonds, if any, shall be delivered
to the Trustee, shall forthwith be canceled and destroyed, and a certificate of
such destruction shall thereafter be delivered to the Authority.

        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.

                                       50
<PAGE>
 
        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 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 and Trustee shall at all times, to the extent permitted by law,
defend, preserve and protect said pledge and assignment of Revenues and other
assets and all the rights of the Bondholders under this Indenture against all
claims and demands of all persons whomsoever, subject to the limitations set
forth in Article VIII relating to the Trustee.

        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 made by it relating to the
receipt, investment, disbursement, allocation and application of the Revenues
and the proceeds of the Bonds. 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) such documentation required to be retained by the Trustee to
establish that any requirements set forth in the Tax Certificate or with respect
to establishing market price. 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.  (a) The Authority and the Borrower 
                       -------------------  
covenant and agree that neither will take any action, or fail to take any
action, if such action or failure to take such action would adversely affect the
exclusion from gross income of the interest payable on the Bonds under Section
103 of the Code. Without limiting the generality of the foregoing, the Authority
and the Borrower each covenants and agrees that it will each comply with the
requirements of the Tax Certificate.

        (b)  The Borrower will pay, or cause to be paid, from time to time all
amounts required to be rebated to the United States pursuant to Section 148(f)
of the Code and any temporary, proposed or final Regulations as may be
applicable to the Bonds from time to time. This covenant shall survive payment
in full or defeasance of the Bonds. The Authority and the Borrower specifically
covenant to pay or cause to be paid to the United States at the times and in the
amounts determined under Section 5.06 hereof the Rebate Requirement, as
described in the 

                                       51
<PAGE>
 
Tax Certificate. The Trustee agrees to comply with all written instructions of
the Borrower given pursuant to the Tax Certificate; provided, however, that the
Borrower shall be responsible for such instructions complying with the Tax
Certificate.

        The Trustee conclusively shall be deemed to have complied with the
provisions of this Section 6.06(b) if it follows the instructions and directions
of the Borrower and shall not be required to take any action under this Section
6.06(b) in the absence of such directions from the Borrower. The Trustee shall
not be liable for any consequences resulting from its failure to act if no
instructions from the Borrower (or in the absence of Borrower instructions,
instructions from the Authority) are delivered to it.

        (c)  Notwithstanding any provision of this Section, if the Borrower
shall provide to the Trustee, the Bank and the Authority an opinion of Bond
Counsel that any action required under Section 5.06 or this Section 6.06 is no
longer required, or that some further action is required to maintain the Tax-
exempt status of interest on any Series of the Bonds, the Trustee and the
Authority may rely conclusively on such opinion in complying with the
requirements of this Section, and the covenants contained herein shall be deemed
to be modified to that extent.

        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, subject to the
provisions of this Indenture, 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 pursuant to
the Agreement.

        (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 prior written consent of the Trustee and the Bank. The Trustee shall
give such written consent only if (1) in the Opinion 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 Trustee 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 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.

        (C) The Authority shall not purchase Bonds from the Remarketing Agent or
otherwise.

        SECTION 6.08. Waiver of Laws.  The Authority shall not at any time 
                      --------------  
insist upon or plead in any manner whatsoever, or claim or take the benefit or
advantage of, any stay or extension law now or at any time hereafter in force
that may affect the covenants and agreements contained in this Indenture or in
the Bonds, and all benefit or advantage of any such law or laws is hereby
expressly waived by the Authority to the extent permitted by law.

                                       52
<PAGE>
 
        SECTION 6.09. Further Assurances.  The Authority will make, execute 
                      ------------------  
and deliver any and all such further indentures, instruments and assurances as
may be reasonably necessary or proper to carry out the intention or to
facilitate the performance of this Indenture and for the better assuring and
confirming unto the Holders of the Bonds of the rights and benefits provided in
this Indenture.

        SECTION 6.10. Continuing Disclosure. Pursuant to Section 5.14 of the
                      ---------------------  
Loan Agreement, the Borrower shall, upon the adjustment to a Term Interest Rate
Period for a duration of one year or greater with respect to the Bonds pursuant
to Section 2.03D(II) hereof and the remarketing of the Bonds pursuant to Section
4.07 hereof, undertake the continuing disclosure requirements promulgated under
S.E.C. Rule 15c2-12, as it may from time to time hereafter be amended or
supplemented, and the Authority shall have no liability to the Holders of the
Bonds or any other person with respect to such disclosure matters.
Notwithstanding any other provision of this Indenture, failure of the Borrower
to comply with the requirements of S.E.C. Rule 15c2-12, as it may from time to
time hereafter be amended or supplemented, shall not be considered an Event of
Default; however, the Trustee at the written request of the Remarketing Agent or
the Holders of at least 25% aggregate principal amount of Outstanding Bonds,
shall, but only to the extent indemnified to its satisfaction from and against
any cost, liability or expense related thereto, including, without limitation,
reasonable fees and expenses of its attorneys and advisors and additional fees
and expenses of the Trustee, or any Bondholder or beneficial owner of any Bonds
may take such actions 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 5.14 of the Loan 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 which has occurred and is continuing 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, or the Purchase Price of, any Bond, when and as the same shall
   become due and payable;

        (c)  failure by the Authority to perform or observe any other of the
   covenants, agreements or conditions on its part in this Indenture or in the
   Bonds contained, and the 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 sixty-six and two-thirds
   percent (66-2/3%) in aggregate principal amount of the Bonds at the time
   Outstanding;

                                       53
<PAGE>
 
        (d)  the occurrence and continuance of a Loan Default Event described in
   Section 7.1 of the Agreement; or

        (e)  receipt by the Trustee of notice from the Bank that either (i) an
   Event of Default (as defined in the Reimbursement Agreement) has occurred
   under a Reimbursement Agreement and directing the Trustee to accelerate the
   Bonds or (ii) the Bank will not reinstate the interest portion of a Letter of
   Credit after a drawing, as provided in such Letter of Credit.

        No default specified in (c) 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 (or the Bank on its behalf) within the applicable period and diligently
pursued in the sole determination of the Bank. 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 (or the Bank on its
behalf) full authority for the 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 described in (a), (b), (c)
or (d) above, 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 sixty-six and two-thirds percent (66-2/3%) in aggregate principal
amount of the Bonds at the time Outstanding, or upon the occurrence of an Event
of Default described in (e) above, the Trustee shall, promptly upon such
occurrence, by notice in writing to the Authority, 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 promptly 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
enhanced by such Letter of Credit so declared to be due and payable. Interest on
the Bonds shall cease to accrue as of the date of acceleration. The Trustee
shall promptly 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 any
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 (with
Available Moneys if a Letter of Credit is in effect) 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

                                       54
<PAGE>
 
on such overdue installments of principal as provided in the Agreement, and the
reasonable fees and expenses of the Trustee, including reasonable fees and
expenses of its attorneys, 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 consequent thereon. Notwithstanding any other
provision of this Indenture except as provided in the following sentence, the
Trustee may not exercise any remedy in the event of a default under Section
7.01(a), (b), (c) or (d) hereof without the written consent of the Bank, so long
as each Letter of Credit is in effect and the Bank has not wrongfully failed to
make a payment thereunder. The Trustee may exercise any and all remedies under
the Indenture and the Agreement (except acceleration) to collect any fees,
expenses and indemnification from the Borrower without obtaining the consent of
the Bank.

        SECTION 7.02. Institution of Legal Proceedings by Trustee. Subject to 
                      -------------------------------------------
Section 7.01 hereof, if one or more of the Events of Default shall happen and be
continuing, the Trustee in its discretion may, and upon the written request of
the Holders of two-thirds in principal amount of the Bonds then Outstanding and
upon being indemnified to its satisfaction therefor pursuant to Section 8.03(G)
hereof 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 3.04, 4.07(g), 5.06, 6.06 and
11.11 hereof) shall be promptly applied by the Trustee as follows and in the
following order:

        (1)  To the payment of reasonable charges 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;

        (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 hereof), as
   follows:

             (i)  Unless the principal of all of the Bonds shall have become
        or have

                                       55
<PAGE>
 
        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 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 in no event shall moneys derived from drawings under a
Letter of Credit, moneys set aside to pay principal or interest on any
particular Bonds (including moneys held for non-presented Bonds or held under
Section 4.07(g) or 10.03 hereof), or the proceeds from remarketing of the Bonds
be used to pay any of the items listed in clause (1) of this Section and
Available Moneys and moneys being aged to become Available Moneys shall not be
used to pay any of the items listed in clause (1) of this Section until all
amounts have been paid under clause (2) of this Section; provided further that
proceeds of a draw on a Letter of Credit and remarketing proceeds shall be used
solely to pay principal, interest, premium, or purchase price of the applicable
Series of Bonds as otherwise provided herein.

        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. Subject to Section 7.01 hereof, upon the occurrence and
continuance of an Event of Default or

                                       56
<PAGE>
 
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 sixty-six and two-thirds percent (66-2/3%) in
aggregate 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 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 hereof).

        SECTION 7.05. Bondholders' Direction of Proceedings. Anything in this
                      -------------------------------------
 Indenture to the contrary notwithstanding, but subject to Section 8.03(G), the
Holders of sixty-six and two-thirds percent (66-2/3%) 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.

        SECTION 7.06. Limitation on Bondholders' Right to Sue. Subject to 
                      ---------------------------------------
Section 7.01 hereof, 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 sixty-six and two-thirds percent (66-
2/3%) 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 own name; (3)
subject to Section 8.03(G) hereof, 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 such Holders' action to affect, disturb or

                                       57
<PAGE>
 
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 hereof).

        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
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.

        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.  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, and subject to Section 8.03(G) hereof, so long
as the Bank is not continuing wrongfully to dishonor drawings under any Letter
of Credit, no Event of Default shall be declared pursuant to Section 7.01(a),
(b), or (d) hereof (except in a case resulting from the failure of the Borrower
to pay the Trustee's fees and expenses or to indemnify the Trustee), nor any
remedies exercised with respect to any Event of Default other than an Event of
Default declared pursuant to Section 7.01(e) hereof by the Trustee or by the
Bondholders (except in a case resulting from the failure of the Borrower to pay
the Trustee's fees and expenses or to indemnify the Trustee) and no Event of
Default under this Indenture shall be waived by the Trustee or the Bondholders
to the 

                                       58
<PAGE>
 
extent they may otherwise be permitted hereunder, without, in any case, the
prior written consent of the Bank. No Event of Default can be waived, in any
circumstance, unless the Trustee has received written notice that each Letter of
Credit, if any, has been fully reinstated and is in full force and effect.

                                 ARTICLE VIII 
              THE TRUSTEE, THE PAYING AGENT, THE BOND REGISTRAR, 
                  THE TENDER AGENT, AND THE REMARKETING AGENT

        SECTION 8.01. Duties, Immunities and Liabilities of Trustee. (A)  The 
                      ---------------------------------------------
Trustee and the Registrar 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 their exercise, as prudent persons would
exercise or use under the circumstances in the conduct of their own affairs.
Notwithstanding any other provision of this Indenture, the Trustee shall perform
all duties required of it hereunder.

        No provision of this Indenture shall be construed to relieve the Trustee
or the Registrar from liability for its own negligent action or its own
negligent failure to act, except that:

        (a)  Prior to such an Event of Default hereunder and after the curing of
   all Events of Default which may have occurred,

             (1)  the duties and obligations of the Trustee and the Registrar,
        as the case may be, shall be determined solely by the express provisions
        of this Indenture, the Trustee and Registrar, as the case may be, shall
        not be liable except for the performance of such duties and obligations
        as are specifically set forth in this Indenture, and no implied
        covenants or obligations shall be read into this Indenture against the
        Trustee and the Registrar, as the case may be; and

             (2)  in the absence of bad faith on the part of the Trustee or the
        Registrar, as the case may be, the Trustee or Registrar, as the case may
        be, may conclusively rely, as to the truth of the statements and the
        correctness of the opinions expressed therein, upon any certificate or
        opinion furnished to the Trustee or the Registrar, as the case may be,
        conforming to the requirements of this Indenture; but in the case of any
        such certificate or opinion which by any provision hereof is
        specifically required to be furnished to the Trustee or the Registrar,
        as the case may be, the Trustee or Registrar, as the case may be, shall
        be under a duty to examine the same to determine whether or not it
        conforms to the requirements of this Indenture; and

        (b)  At all times, regardless of whether or not any Event of Default
        shall exist,

             (1)  the Trustee and the Registrar shall not be liable for any
        error of judgment made in good faith by a responsible officer, director
        or employee of the 

                                       59
<PAGE>
 
        Trustee or the Registrar unless it shall be proved that the Trustee or
        the Registrar, as the case may be, was negligent in ascertaining the
        pertinent facts;

             (2)  neither the Trustee nor the Registrar shall 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, or such larger percentage as may be required hereunder, 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 Registrar, or exercising any trust or
        power conferred upon the Trustee or the Registrar under this Indenture.

        None of the provisions contained in this Indenture shall require the
Trustee or Registrar to expend or risk their own funds or otherwise incur
individual financial liability in the performance of any of their duties or in
the exercise of any of their rights or powers other than to notify the Authority
that they intend to take no particular action or to notify the Bondholders that
they will take no action, if adequate indemnity against such risk or liability
is not assured to them. All indemnifications and releases from liability granted
herein to the Trustee shall extend to the directors, officers, employees and
agents of the Trustee.

        (B)  The Authority may remove the Trustee at any time upon its own
decision or upon request of the Borrower, and shall remove the Trustee if at any
time requested to do so by an instrument or concurrent instruments in writing
signed by the Holders of not less than a majority in aggregate principal amount
of the Bonds then Outstanding (or their attorneys duly authorized in writing) or
if at any time the Trustee shall cease to be eligible in accordance with
subsection (E) of this Section, or shall become incapable of acting, or shall be
adjudged bankrupt or insolvent, or a receiver of the Trustee or its property
shall be appointed, or any public officer shall take control or charge of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, in each case by giving written notice of such
removal to the Trustee, and thereupon shall appoint, with the consent of the
Bank, a successor Trustee by an instrument in writing.

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

        (D)  Any removal or resignation of the Trustee pursuant to (B) or (C)
above and appointment of a successor Trustee shall become effective upon
acceptance of appointment by the successor Trustee. If no successor Trustee
shall have been appointed and have accepted appointment within forty-five (45)
days of giving notice of removal or notice of resignation as aforesaid, the
resigning Trustee or any Bondholder (on behalf of itself and all other
Bondholders) may petition any court of competent jurisdiction for the
appointment of a successor Trustee, and such court may thereupon, after such
notice (if any) as it may deem proper, appoint such successor Trustee. Any
successor Trustee appointed under this Indenture shall signify its 

                                       60
<PAGE>
 
acceptance of such appointment by executing and delivering to the Authority and
to its predecessor Trustee a written acceptance thereof, and thereupon such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the moneys, estates, properties, rights, powers, trusts, duties
and obligations of such predecessor Trustee, with like effect as if originally
named Trustee herein; but, nevertheless at the Request of the Authority or the
request of the successor Trustee, such predecessor Trustee shall execute and
deliver any and all instruments of conveyance or further assurance and do such
other things as may reasonably be required for more fully and certainly vesting
in and confirming to such successor Trustee all the right, title and interest of
such predecessor Trustee in and to any property held by it under this Indenture
and shall pay over, transfer, assign and deliver to the successor Trustee any
money or other property subject to the trusts and conditions herein set forth.
Upon request of the successor Trustee, the Authority shall execute and deliver
any and all instruments as may be reasonably required for more fully and
certainly vesting in and confirming to such successor Trustee all such moneys,
estates, properties, rights, powers, trusts, duties and obligations. Upon
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
Trustee, 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 which either (i) has a combined capital and surplus of at least
fifty million dollars ($50,000,000), and is subject to supervision or
examination by federal or state authority or (ii) is a wholly-owned subsidiary
of a bank, trust company or bank holding company meeting, on an aggregate basis,
the tests set out in clause (i). 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.

        (F)  The Trustee is not responsible for effecting, maintaining or
renewing any policies of insurance of the Borrower or for any representations
regarding the sufficiency of any policy of insurance of the Borrower and shall
not be responsible for monitoring or reviewing any policy of insurance of the
Borrower or be obligated to file claims or proofs of loss in the case of
insurance or to pay taxes or assessments.

        (G) The Trustee is not responsible for filing financing or continuation
statements.

        (H)  Subject to the provisions of Sections 5.06 and 10.03 hereof, all
moneys received by the Trustee and the Tender Agent shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from

                                       61
<PAGE>
 
other funds except draws on a Letter of Credit, all Available Moneys, all
remarketing proceeds, all moneys being aged to become Available Moneys, and
otherwise except to the extent required by law or by this Indenture. The Trustee
and the Tender Agent shall be under no liability for interest on any moneys
received by them hereunder except such as it may agree with the Authority to pay
thereon. Any interest allowed on any such moneys shall be deposited in the fund
or account to which such moneys are credited. Any moneys held by the Trustee or
the Tender Agent may be deposited by it in its banking department and invested
as provided herein.

        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 the 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 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 default. The Trustee may become the Holder 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.

        (B)  The Trustee shall not be liable for any error of judgment made in
good faith by a responsible officer, director or employee 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

                                       62
<PAGE>
 
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 reasonable 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.

        (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, other than to notify the Authority that it intends to take no particular
action or to notify the Bondholders that it will take no action, if repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. The Trustee shall, however, in any case, make drawings
under each Letter of Credit, pay principal and Purchase Price of and premium, if
any, or interest on the Bonds as it becomes due and accelerate the Bonds as
required by the Indenture, notwithstanding anything to the contrary herein.

        (H)  The Trustee shall have no responsibility, opinion or liability with
respect to any information statement or recital found in any Official Statement
or other disclosure material, prepared or distributed with respect to the
issuance of such bonds, except for information provided by the Trustee.

        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 proper party or parties;
in particular, the Trustee shall be entitled to rely upon a Certificate of the
Borrower to the effect that no Act of Bankruptcy has occurred. The Trustee may
consult with counsel, who may be counsel of or to the Authority or the Borrower,
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
its title thereto is satisfactorily established, if disputed.

                                       63
<PAGE>
 
        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 the Bank, 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
                      --------------------------------  
to and Indemnification. the Trustee, the Tender Agent, the Paying Agent and the
Registrar (solely from Additional Payments) from time to time reasonable
compensation for all services rendered under this Indenture, and also all
reasonable expenses, charges, legal and consulting fees and other disbursements
and those of its attorneys, agents and employees, incurred in and about the
performance of its powers and duties under this Indenture, and the Trustee shall
have a lien therefor on any and all funds (except the Rebate Fund, the moneys
held for particular Bonds (including non-presented Bonds), any moneys derived
from a Letter of Credit, remarketing proceeds, Available Moneys, moneys being
aged to become Available Moneys, and moneys held pursuant to Sections 4.07(g) or
10.03) 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. The Authority further
covenants and agrees to indemnify and save the Trustee, the Tender Agent, the
Paying Agent and the Registrar, harmless against any losses, expenses and
liabilities which they may incur arising out of or in the exercise and
performance of its powers and duties hereunder, including the costs and expenses
of defending against any claim of liability, but excluding liabilities which are
due to the negligence or willful default of the indemnified party. The
obligations of the Authority under this Section shall survive resignation or
removal of the Trustee, the Tender Agent, the Paying Agent and the Registrar
under this Indenture and payment of the Bonds and discharge of this Indenture.


        SECTION 8.07. Paying Agent.  The Authority, with the written approval 
                      ------------  
of the Trustee and 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. It shall be the duty
of the Trustee to make such credit arrangements with such Paying Agent as may be
necessary to assure, to the extent of the moneys held by the Trustee for such
payment, the prompt payment of the principal of, and interest (and premium, if
any) on, the Bonds presented at either place of payment. The Trustee will not be
responsible for the failure of the Bank or any other party to make funds
available to the Trustee or Paying Agent. The Trustee is the initial Paying
Agent. If the Paying Agent is any entity other than the Trustee, (i) the Paying
Agent may not hold any such funds and (ii) the Paying Agent shall be subject to
the same standards applicable to the Trustee as set forth in this Indenture.

                                       64
<PAGE>
 
        SECTION 8.08. Notices to the Authority. The Trustee shall provide the  
                      ------------------------  
Authority and the Bank with the following:


        (a)  On or before September 15 of each year, commencing September 15,
1997, during which any of the Bonds are outstanding, or upon any significant
change that occurs which would adversely impact the Trustee's ability to perform
its duties under the Indenture, a written disclosure of any such change, or if
applicable, of any conflicts that the Trustee may have as a result of other
business dealings between the Trustee and the Borrower. The Trustee may rely on
a Certificate of the Borrower delivered pursuant to Section 5.11(d) of the
Agreement to the extent of the information required in such certificate for
purposes of this subparagraph (a). If there are not such instances of a
significant change, or of a conflict existing, then a statement to that effect
shall be provided on such date;

        (b)  If there is a failure to pay any amount of principal or, Purchase
Price of, premium, if any, or interest on any Bond when due; or if there is a
failure of the Borrower to provide any notice, certification or report specified
in Section 5.11 of the Agreement; or if there is an occurrence of an Event of
Default hereunder, of which the Trustee has knowledge, the Trustee shall provide
written notice to the Authority within five Business Days of such occurrence and
such notice shall include a statement setting forth the steps the Trustee is
taking to remedy such failure or Event of Default, as applicable; and

        (c)  As of June 30 and December 31 of each year, a Trustee's
certificate, in the form of Exhibit B attached hereto, which shall be received
no later than July 15 or January 15 next following each such June 30 or December
31, as the case may be.

        SECTION 8.09. Notices to Rating Agency and Bank. The Trustee shall 
                      --------------------------------- 
provide Rating Agency and Bank. any Rating Agency and the Bank with written
notice upon the occurrence of: (i) the expiration, termination or extension of
any Letter of Credit; (ii) the discharge of liability on any Series of the Bonds
pursuant to Section 10.02 hereof; (iii) the resignation or removal of the
Trustee, Tender Agent, or Remarketing Agent; (iv) acceptance of appointment as
successor Trustee, Tender Agent, or Remarketing Agent hereunder; (v) the
redemption of all Bonds; (vi) conversion to a new Interest Rate Period or to an
Interest Rate Period not enhanced by a Letter of Credit; (vii) a material change
in the Indenture, the Loan Agreement, or a Letter of Credit; and (viii) when a
Series of Bonds is no longer Outstanding. The Trustee shall also notify any
Rating Agency of any changes to any of the documents to which the Trustee is a
party, upon its receipt of notification of any such changes.

        SECTION 8.10. Duties of Remarketing Agent. The Authority, with the 
                      --------------------------- 
advice of the Borrower, shall appoint the Remarketing Agent for the Bonds,
subject to the conditions set forth in Section 8.11 hereof. 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 under which
the Remarketing Agent will agree to perform the obligations of the Remarketing
Agent set forth herein and under which the Remarketing Agent will agree to keep
such books and records as shall be consistent with prudent industry practice and
to make such books and records available for 

                                       65
<PAGE>
 
inspection by the Authority, the Trustee, the Bank and the Borrower at all
reasonable times. The Remarketing Agent shall set the interest rates on the
1997A Bonds and perform the other duties provided for in Section 2.03 and shall
remarket 1997A Bonds as provided in Section 4.07 hereof. There may be separate
Remarketing Agents for these two functions. The Remarketing Agent shall hold all
moneys delivered to it in trust in non-commingled funds for the benefit of the
person or entity which shall have so delivered such moneys until such moneys are
paid to the Trustee or the Tender Agent as provided herein. The Remarketing
Agent may for its own account or as broker or agent for others deal in Bonds and
may do anything any other Holder may do to the same extent as if the Remarketing
Agent were not serving as such.

        SECTION 8.11. Eligibility of Remarketing Agent; Replacement. (A)  Any 
                      ---------------------------------------------
successor Remarketing Agent shall be a bank, trust company or member of the
National Association of Securities Dealers, Inc. organized and doing business
under the laws of the United States or any state or the District of Columbia and
shall have a capitalization of at least $150,000,000 as shown in its most recent
published annual report. The Remarketing Agent shall have a rating of at least
Moody's "Baa3/P-3" or an equivalent rating from another Rating Agency, or be
approved by the Rating Agency. The initial Remarketing Agent shall be Westhoff,
Cone & Holmstedt.

        (B)  The Remarketing Agent may resign by notifying the Authority, the
Trustee, the Tender Agent, the Borrower and the Bank at least 45 days before the
effective date of such resignation. The Authority may remove the Remarketing
Agent and with the consent of the Borrower and the Bank, appoint a successor by
notifying the Remarketing Agent, the Bank and the Trustee. No resignation or
removal shall be effective until the successor has delivered an acceptance of
its appointment to the Trustee.

        (C)  If the Letter of Credit is terminated for any reason, or an Event
of Default under this Indenture occurs, the Remarketing Agent for the respective
Series of Bonds shall have the right to resign immediately.

        (D)  The appointment of any Remarketing Agent pursuant to this Section
8.11 shall terminate (subject to renewal by the Authority or replacement by a
successor Remarketing Agent as provided in this Section) fifteen days prior to
the commencement of any Term Interest Rate Period of three years' or longer
duration of any Series of Bonds for which such Remarketing Agent was appointed.

        SECTION 8.12. Compensation of Remarketing Agent. The Remarketing Agent 
                      ---------------------------------
shall not be entitled to any compensation from the Authority or the Trustee but,
rather, shall make separate arrangements with the Borrower for its compensation.

        SECTION 8.13. Appointment and Duties of Tender Agent. The Authority 
                      --------------------------------------
hereby appoints the Trustee as initial Tender Agent, provided that if the Bonds
are no longer Book-Entry Bonds, the Authority, with the advice of the Borrower,
shall appoint a successor Tender Agent, subject to the conditions of Section
8.14 hereof. The Tender Agent shall designate its principal office and signify
its acceptance of all of the duties and obligations imposed upon it hereunder by
a written instrument of acceptance delivered to the Authority, the Trustee, the
Bank 

                                       66
<PAGE>
 
and the Remarketing Agent. The Tender Agent shall perform the duties provided
for in this Indenture and in exercising such duties shall be entitled to the
same rights and immunities applicable to the Trustee as set forth in this
Indenture and shall not be liable for any action or omission to act except for
negligence or willful misconduct. Notwithstanding any provision in this
Indenture to the contrary, the Tender Agent shall not be responsible for any
misconduct or negligence on the part of any agent, correspondent, attorney or
receiver appointed with due care by it hereunder.

        SECTION 8.14. Eligibility of Tender Agent; Replacement. The Tender 
                      ----------------------------------------
Agent and any successor to
the Tender Agent shall be a bank or trust company organized and doing business
under the laws of the United States or any state and shall  either (i) have a
combined capital and surplus of at least fifty million dollars ($50,000,000),
and be subject to supervision or examination by federal or state authority or
(ii) be a wholly-owned subsidiary of a bank, trust company or bank holding
company meeting, on an aggregate basis, the tests set out in clause (i).  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.  At all times when the Bonds are not Book-Entry Bonds the Tender
Agent shall have an office or agency for servicing the Bonds in New York, New
York.  The Tender Agent or the bank, trust company or bank holding company of
which the Tender Agent is a wholly-owned subsidiary shall have a rating of at
least Moody's "Baa3/P-3" or an equivalent rating from another Rating Agency, or
be approved by the Rating Agency.

        The Tender Agent may resign by notifying the Authority, the Trustee, the
Bank, the Remarketing Agent and the Bondholders at least 30 days before the
effective date of such resignation. The Trustee, with the consent of the
Borrower and the Bank, may remove the Tender Agent and appoint a successor by
notifying the Tender Agent, the Remarketing Agent, the Bank and the Authority.
No resignation or removal shall be effective until the successor has delivered
an acceptance of its appointment to the Trustee and the predecessor Tender
Agent.

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

        SECTION 8.15. Compensation of Tender Agent. The Tender Agent shall not 
                      ----------------------------  
be entitled to any compensation from the Authority, the Remarketing Agent or the
Trustee but, rather, shall only be entitled to compensation from the Borrower.
The Borrower shall transmit all payment of fees to the Trustee who shall, in
turn, make payment to the Tender Agent.

        SECTION 8.16.  Appointment and Duties of Bond Registrar. The Authority 
                       ----------------------------------------
hereby designates the Trustee as initial Bond Registrar, provided that the
Tender Agent shall act as co-Bond Registrar with respect to Bonds tendered
pursuant to Sections 2.04 or 4.06.

                                       67
<PAGE>
 
        The Bond Registrar shall not be entitled to any compensation from the
Authority, the Remarketing Agent, or the Trustee but, rather, shall only be
entitled to compensation from the Borrower.

        SECTION 8.17. Eligibility of Bond Registrar. A Bond Registrar appointed 
                      -----------------------------  
pursuant to this Indenture shall be a corporation organized and doing business
under the laws of the United States or any state or the District of Columbia,
subject to supervision or examination by federal or state authority and shall
either (i) have a combined capital and surplus of at least fifty million dollars
($50,000,000), and be subject to supervision or examination by federal or state
authority or (ii) be a wholly-owned subsidiary of a bank, trust company or bank
holding company meeting, on an aggregate basis, the tests set out in clause (i).
If such bank or trust company publishes a report of condition at least annually,
pursuant to law or to the requirements of any supervising or examining authority
above referred to, then for the purpose of this subsection the combined capital
and surplus of such bank or trust company shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.

        SECTION 8.18. Bond Registrar's Performance of Duties. The Bond 
                      -------------------------------------- 
Registrar shall perform the duties provided for in this Indenture and in
exercising such duties shall be entitled to the same rights and immunities
applicable to the Trustee as set forth in this Indenture and shall not be liable
for any action or omission to act except for negligence or willful misconduct.

        SECTION 8.19. Replacement of Bond Registrar.  The Bond Registrar may 
                      -----------------------------  
resign by notifying the Authority, the Trustee, the Bank and the Borrower at
least 30 days before the effective date of such resignation. The Authority, with
the consent of the Borrower and the Bank, may remove the Bond Registrar and
appoint a successor by notifying the Bond Registrar, the Remarketing Agent, the
Bank and the Trustee. No resignation or removal shall be effective until the
successor has delivered an acceptance of its appointment to the Trustee and the
predecessor Bond Registrar.

        In the event of the resignation or removal of the Bond Registrar, such
Bond Registrar shall pay over, assign and deliver any moneys held by it as Bond
Registrar to its successor, or if there is no successor, to the Trustee. In the
event that for any reason there shall be a vacancy in the office of Bond
Registrar, the Trustee shall act as such Bond Registrar to the extent it has
operational capacity to perform such tasks.

                                       68
<PAGE>
 
                                  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 hereto, which the Authority and the Trustee
may enter into when the written consent of the Holders of sixty-six and two-
thirds percent (66-2/3%) in aggregate principal amount of all Bonds then
Outstanding, 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. 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 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 only to the extent permitted by law and after receipt of an
opinion of counsel that the provisions of such Supplemental Indenture shall not
materially adversely affect the interests of the Holders of the Bonds,
including, without limitation, for any one or more of the following purposes:

             (1)  to add to the covenants and agreements of the Authority in
     this Indenture contained other covenants and agreements thereafter to be
     observed, to pledge or assign additional security for the Bonds (or any
     portion thereof), 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 and not inconsistent with this Indenture;

                                       69
<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 conform to the terms and provisions of any Alternate Letter
     of Credit or Alternate Credit Facility or to obtain a rating on the Bonds;

             (5) to provide for the issuance of a Series of Bonds, and to
     provide the terms and conditions under which such Bonds may be issued,
     subject to and in accordance with the provisions of Article II (which shall
     not require determination by the Trustee of the effect on the interests of
     Holders of Bonds); or

             (6)  to modify, amend or supplement this Indenture in such a manner
     to permit the Authority, the Trustee, the Borrower or any other responsible
     party to comply with the requirements of S.E.C. Rule 15c2-12, as it may
     from time to time be amended or supplemented, with respect to the Bonds.

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.

        Any such Supplemental Indenture shall comply with the terms of this
Article IX, and the Trustee may conclusively rely on an Opinion of Counsel that
the Supplemental Indenture complies with the provisions therein.

        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 Trustee so determines shall, bear a notation by
endorsement or otherwise in form approved by the Authority and the Trustee 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 such Holder's Bond for the purpose at the
office of the Trustee or at such additional offices as the Trustee may select
and designate for that 

                                       70
<PAGE>
 
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 and the Trustee, to any modification or amendment contained in
such Supplemental Indenture, shall be prepared and executed by the Authority and
authenticated by the Trustee, and upon demand of the Holders of any Bonds then
Outstanding shall be exchanged at the Corporate Trust Office of the Trustee
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 him or her, provided that due notation thereof is made
on such Bonds.

                                 ARTICLE X
                                 DEFEASANCE

        SECTION 10.01. Discharge of Indenture. Bonds of any Series that bear
                       ---------------------- 
interest at a Term Interest Rate to the maturity of such Series of 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
and related to the respective Series:

        (a)  by paying or causing to be paid with Available Moneys the principal
     of, interest and premium, if any, on the Bonds of the Series Outstanding,
     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 of the Series then
     Outstanding; or

        (c)  by delivering to the Trustee, for cancellation by it, the Bonds of
     the Series then Outstanding.

        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 hereof. 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 (other than the Rebate Fund) which are not
required for the payment or redemption of Bonds not theretofore surrendered for
such payment or redemption 

                                       71
<PAGE>
 
and any amounts owed to the Trustee hereunder 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) second, to the Borrower, provided, however, that
notwithstanding any provision of this Indenture or the Loan Agreement, under no
circumstances may the Authority or the Borrower receive any funds derived from a
draw on any Letter of Credit, remarketing proceeds, or moneys held for the
payment of particular Bonds (including moneys held for non-presented Bonds). All
moneys or securities held by the Trustee in the Authority Subaccount of the
Costs of Issuance Fund shall be transferred to the Authority.

        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 hereof) to pay or redeem any
Outstanding Bond (whether upon or prior to its maturity or the redemption date
of such Bond), provided that, if such Bond is to be redeemed prior to maturity,
notice of such redemption shall have been given as in Article IV provided or
provision satisfactory to the Trustee shall have been made for the giving of
such notice, then all liability of the Authority in respect of such Bond shall
cease, terminate and be completely discharged, except only that the Holder
thereof shall thereafter be entitled to payment of the principal of, premium, if
any, and interest on such Bond 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 and such money or securities shall be
pledged to such payment; provided further, however, that the provisions of
Section 10.04 hereof shall apply in all events.

        The Authority may at any time surrender to the Trustee for cancellation
by it any Bonds previously issued and delivered, which the Authority may have
acquired in any manner whatsoever, and such Bonds, upon such surrender and
cancellation, shall be deemed to be paid and retired.

        SECTION 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 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 Rebate Fund, each Letter of Credit
Account, the Authority Subaccount of the Costs of Issuance Fund and the account
described in Section 4.07(g) hereof) and shall be:

        (a)  Available Moneys in an equal amount to the principal amount of such
     Bonds, and all unpaid interest thereon to maturity 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
     principal amount or redemption price of such Bonds and all unpaid interest
     thereon to the redemption date; or

        (b)  Investment Securities of the type described in clause (ii)
     (including funds described in clause (v) rated Moody's "Aaa" or equivalent
     which consist solely of securities 

                                       72
<PAGE>
 
     described in clause (ii)) of the definition of Investment Securities
     purchased with Available Moneys, the principal of and interest on which
     when due and without reinvestment will provide money sufficient to pay the
     principal of, premium, if any, all unpaid interest to maturity, or to the
     redemption date, on the Bonds to be paid or redeemed, as such principal and
     interest become due, with maturities no longer than 30 days or as may be
     necessary to make the required payment on the 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 in Article IV provided
     or provision satisfactory to the Trustee shall have been made for the
     giving of such notice;

provided, in each case, that the Trustee shall have been irrevocably instructed
(by the terms of this Indenture or by Request of the Authority) to apply such
money or Investment Securities to the payment of such principal, premium, if
any, and interest with respect to such Bonds and provided further that each
Rating Agency then rating such Bonds and the Trustee shall have received a
report of an Accountant that the moneys or Investment Securities on deposit are
sufficient to pay the principal, premium, if any, and interest on the Bonds to
maturity or the redemption date, and a legal opinion from a nationally
recognized firm in bankruptcy law that payment of the Bonds from such moneys
would not constitute transfers avoidable under 11 U.S.C. Section 547(b) should
the Borrower, any Guarantor or the Authority become the debtor in a case under
the United States Bankruptcy Code.

        SECTION 10.04. Payment of Bonds After Discharge of Indenture
                       ---------------------------------------------
Obligation. Notwithstanding any provisions of this Indenture, any moneys 
---------- 
deposited with the Trustee in trust for the payment of the principal of, or
interest or premium on, any Bonds remaining unclaimed after the principal of any
Bond has become due and payable (whether at maturity or upon call for redemption
or by declaration as provided in this Indenture), shall be disposed of as
provided by law and the Holders of such Bonds shall thereafter be entitled to
look only to the transferee of such moneys (presently the State Controller) for
payment thereof, and all liability of the Trustee with respect to such moneys
shall thereupon cease; provided, that before the disposition of such moneys as
aforesaid, the Trustee may (at the cost of the Borrower) first publish at least
once in a Qualified Newspaper a notice, in such form as may be deemed
appropriate by the Trustee, in respect of the Bonds so payable and not presented
and in respect of the provisions relating to the disposition of the moneys held
for the payment thereof.

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

                                       73
<PAGE>
 
Predecessor.  Whenever in this Indenture either the Authority, the Bank 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, the Bank or the Trustee
shall bind and inure to the benefit of the respective successors and assigns
thereof whether so expressed or not. All the covenants, stipulations, promises
and agreements in this Indenture contained, by or on behalf of the Authority,
shall bind and inure to the benefit of its successors and assigns, whether so
expressed or not. If any of the powers or duties of the Authority shall
hereafter be transferred by any law of the State of California, and if such
transfer shall relate to any matter or thing permitted or required to be done
under this Indenture by the Authority, then the body or official of the State of
California who shall succeed to such powers or duties shall act and be obligated
in the place and stead of the Authority as in this Indenture provided.

        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, the Direct Participants (as provided in Section 2.04 hereof) 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, the Direct Participants (as provided in Section
2.04 hereof) 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, in lieu of such cancellation and
delivery, destroy such Bonds, 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 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; Venue. This Indenture shall be construed 
                       --------------------  
in accordance with and governed by the Constitution and laws of the State
applicable to contracts made and performed in the State. This Indenture shall be
enforceable in the State, and any action 

                                       74
<PAGE>
 
arising out of this Indenture shall be filed and maintained in the Sacramento
County Superior Court, Sacramento, California, unless the Authority waives this
requirement. In the event of a dispute between the parties under this Indenture,
the losing party in such dispute shall pay all costs and expenses incurred by
the prevailing party in connection therewith, including but not limited to
attorneys' fees.

        SECTION 11.08. Notices.  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 of the Trustee. Any notice to or demand
upon the Trustee may be served or presented, and such demand may be made, at the
Corporate Trust Office of the Trustee, which at the date of adoption of this
Indenture is located at the following address:

  BNY Western Trust Company
  700 South Flower Street, Suite 500
  Los Angeles, California 90017
  Attn:  Corporate Trust Department

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
Bank or Rating Agency 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
follows:

To the Authority:

  California Pollution Control Financing Authority
  915 Capitol Mall, Room 466
  Sacramento, California  95814
  Attn:  Executive Director

                                       75
<PAGE>
 
To the Bank:

  Union Bank of California, N.A.
  530 B Street, 4th Floor
  San Diego, CA  92102
  Attn:  Michael Conboy
         Vice President

To the Borrower:

  West Valley MRF, LLC
  c/o Burrtec Waste Industries, Inc.
  9890 Cherry Avenue
  Fontana, CA  92335
     Attn:  Chief Financial Officer

  and

  Kaiser Ventures Inc.
  3633 E. Inland Empire Blvd.
  Suite 850
  Ontario, CA  91764
     Attn:  Senior Vice President
            & Chief Financial Officer

To the Rating Agency:

  Fitch Investors Service
  One State Street Plaza, 34th Floor
  New York, New York  10004
     Attn:  Public Finance - Municipal
            Structure Group

or such other addresses as may have been filed in writing with the Trustee.

        SECTION 11.09. Evidence of Rights of Bondholders. (a) 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.

        (b)  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 

                                       76
<PAGE>
 
other officer of any jurisdiction, authorized by the laws thereof to take
acknowledgments of deeds, certifying that the person signing such request,
consent or other instrument acknowledged to 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.

        (c)  The ownership of registered Bonds shall be proved by the bond
registration books held by the Trustee. The Trustee and the Authority may
conclusively assume that such ownership continues until written notice to the
contrary is served upon the Trustee. The fact and the date of execution of any
request, consent or other instrument and the amount and distinguishing numbers
of Bonds held by the person so executing such request, consent or other
instrument may also be proved in any other manner which the Trustee may deem
sufficient. The Trustee may nevertheless, in its discretion, require further
proof in cases where it may deem further proof desirable.

        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 Holder
                       ------------------ 
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 provided that, for the purpose of determining whether the Trustee
shall be protected in relying on any such demand, request, direction, consent or
waiver, only Bonds which the Trustee knows to be so owned shall be disregarded.
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. The money held by the 
                       -------------------------------  
Trustee for the payment of the interest, principal or premium due on any date
with respect to particular Bonds (or portions of Bonds in the case of registered
Bonds redeemed in part only) shall, on and after such date and pending such
payment, be set aside on its books and held in trust by it for the Holders of
the Bonds entitled thereto, subject, however, to the provisions of Section 10.04
hereof.

        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 

                                       77
<PAGE>
 
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 industry standards and with due regard for the requirements of
Section 6.05 hereof and for the protection of the security of the Bonds and the
rights of every Holder thereof.

        SECTION 11.13. Waiver of Personal Liability. No member, officer, agent 
                       ----------------------------  
or employee of the Authority, and no officer, official agent or employee of the
State of California or any department, board or agency of the foregoing 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. Opinions of Bond Counsel. Whenever in this Indenture 
                       ------------------------  
it is required that prior to the taking of any action (including but not limited
to any modifications of arbitrage covenants contained in Sections 5.06 and 6.06
hereof) an opinion of Bond Counsel is required to be delivered to the effect
that such action will not adversely affect the Tax-exempt status of the Bonds,
and such opinion is not given by Orrick, Herrington & Sutcliffe LLP, the opinion
of Bond Counsel shall instead affirmatively state, in a manner acceptable to the
Authority and the Trustee, that interest on the Bonds is Tax-exempt and will
remain so after the action in question. This Section shall apply in the same
fashion with respect to the affirmative opinion of any such successor Bond
Counsel.

        SECTION 11.15. Complete Agreement.  The parties agree that the terms 
                       ------------------  
and conditions of this Indenture supersede those of all previous agreements
between the parties, and that this Indenture, together with the documents
referred to in this Indenture, contains the entire agreement between the parties
hereto.

        SECTION 11.16. 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.

        IN WITNESS WHEREOF, the CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY
has caused this Indenture to be signed in its name by its Chairman and its seal
to be hereunto affixed and attested by its Executive Director and BNY WESTERN
TRUST COMPANY, in token of its acceptance of the trusts created hereunder, has
caused this Indenture to be signed in its corporate name by one of the officers
thereunto duly authorized all as of the day and year first above written. 

                                       78
<PAGE>
 
                              CALIFORNIA POLLUTION CONTROL
                              FINANCING AUTHORITY

                              By Chairman


                              By: /s/
                                 -------------------------------------
                                 Deputy
[Seal]

Attest:

/s/
______________________________ 
Executive Director

                              BNY WESTERN TRUST COMPANY,
                              As Trustee


                              By: /s/
                                 -------------------------------------    
                                 Authorized Officer

                                       79
<PAGE>
 
                             EXHIBITS NOT ATTACHED.

                         THEY WILL BE FURNISHED TO THE

 SECURITIES AND EXCHANGE COMMISSION UPON THE WRITTEN REQUEST OF THE SECURITIES

                           AND EXCHANGE COMMISSION.

                                       80