<PAGE>
 
                                                                    EXHIBIT 10.2

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                                LOAN AGREEMENT


                                    Between


               CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY


                                      And


                             WEST VALLEY MRF, LLC



                           Dated as of June 1, 1997



                                  relating to
                                  $9,500,000
               California Pollution Control Financing Authority
                             Variable Rate Demand
                      Solid Waste Disposal Revenue Bonds
                        (West Valley MRF, LLC Project)
                                 Series 1997A


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<PAGE>
 
                                LOAN AGREEMENT
 
                               TABLE OF CONTENTS
                               -----------------
<TABLE> 
<CAPTION>                                                                  Page
                                                                           ----
<S>                                                                        <C> 
PARTIES..................................................................... 1
PREAMBLES................................................................... 1
                                                                            
                                    ARTICLE I                               
                                   DEFINITIONS                              
                                                                            
     SECTION 1.1.     DEFINITION OF TERMS................................... 2
     SECTION 1.2.     NUMBER AND GENDER..................................... 2
     SECTION 1.3.     ARTICLES, SECTIONS, ETC............................... 2
                                                                            
                                     ARTICLE II                             
                                  REPRESENTATIONS                           
                                                                            
     SECTION 2.1.     REPRESENTATIONS OF THE AUTHORITY...................... 2
     SECTION 2.2.     REPRESENTATIONS OF THE BORROWER....................... 3
                                                                            
                                      ARTICLE III                           
                CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE 1997A BONDS    
                                                                            
     SECTION 3.1.     AGREEMENT TO CONSTRUCT THE PROJECT.................... 5
     SECTION 3.2.     DISBURSEMENTS FROM THE 1997A CONSTRUCTION ACCOUNT;    
                      DISBURSEMENTS FROM THE 1997A COSTS OF ISSUANCE        
                      ACCOUNT............................................... 5
     SECTION 3.3.     ESTABLISHMENT OF COMPLETION DATE; OBLIGATION OF       
                      BORROWER TO COMPLETE                                   6
     SECTION 3.4.     INVESTMENT OF MONEYS IN FUND.......................... 7
     SECTION 3.5.     ISSUANCE OF ADDITIONAL BONDS.......................... 7
                                                                            
                                       ARTICLE IV                           
                         LOANS OF PROCEEDS; REPAYMENT PROVISIONS            
                                                                            
     SECTION 4.1.     LOAN OF BOND PROCEEDS; ISSUANCE OF BONDS.............. 8
     SECTION 4.2.     REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE........ 8
     SECTION 4.3.     UNCONDITIONAL OBLIGATION..............................10
     SECTION 4.4.     ASSIGNMENT OF AUTHORITY'S RIGHTS......................10
     SECTION 4.5.     AMOUNTS REMAINING IN FUNDS............................11 
</TABLE> 
                                        i
<PAGE>
 
<TABLE> 
<S>                                                                                 <C> 
                                       ARTICLE V                                    
                           SPECIAL COVENANTS AND AGREEMENTS                         
                                                                                    
     SECTION 5.1.     RIGHT OF ACCESS TO THE PROJECT................................ 11
     SECTION 5.2.     THE BORROWER'S MAINTENANCE OF ITS EXISTENCE; ASSIGNMENTS...... 11
     SECTION 5.3.     RECORDS AND FINANCIAL STATEMENTS OF BORROWER.................. 13
     SECTION 5.4.     INSURANCE..................................................... 13
     SECTION 5.5.     MAINTENANCE AND REPAIR; TAXES; UTILITY AND OTHER CHARGES...... 13
     SECTION 5.6.     QUALIFICATION IN CALIFORNIA................................... 14
     SECTION 5.7.     ALTERNATE CREDIT FACILITY..................................... 14
     SECTION 5.8.     LETTER OF CREDIT.............................................. 15
     SECTION 5.9.     GENERAL TAX COVENANTS......................................... 16
     SECTION 5.10.    SPECIAL ARBITRAGE CERTIFICATIONS.............................. 16
     SECTION 5.11.    NOTICE AND CERTIFICATES TO TRUSTEE............................ 16
     SECTION 5.12.    FINANCING AND CONTINUATION STATEMENTS......................... 17
     SECTION 5.13.    CHANGE IN INTEREST RATES...................................... 17
     SECTION 5.14.    CONTINUING DISCLOSURE......................................... 17
                                                                                    
                                       ARTICLE VI                                   
                   DAMAGE, DESTRUCTION AND CONDEMNATION; USE OF PROCEEDS            
                                                                                    
     SECTION 6.1.     OBLIGATION TO CONTINUE PAYMENTS............................... 17
     SECTION 6.2.     APPLICATION OF NET PROCEEDS................................... 18
     SECTION 6.3.     INSUFFICIENCY OF NET PROCEEDS................................. 18
     SECTION 6.4.     DAMAGE TO OR CONDEMNATION OF OTHER PROPERTY................... 19 
                                                                                    
                                        ARTICLE VII                                 
                             LOAN DEFAULT EVENTS AND REMEDIES                       
                                                                                    
     SECTION 7.1.     LOAN DEFAULT EVENTS........................................... 19
     SECTION 7.2.     REMEDIES ON DEFAULT........................................... 20
     SECTION 7.3.     AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES................. 21
     SECTION 7.4.     NO REMEDY EXCLUSIVE........................................... 21
     SECTION 7.5.     NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER.................... 22 
</TABLE> 

                                         ii
<PAGE>
 
<TABLE> 
<S>                                                                           <C> 
                                         ARTICLE VIII                         
                                          PREPAYMENT                          
                                                                              
     SECTION 8.1.     REDEMPTION OF BONDS WITH PREPAYMENT MONEYS..............22
     SECTION 8.2.     OPTIONS TO PREPAY INSTALLMENTS..........................22
     SECTION 8.3.     MANDATORY PREPAYMENT....................................22
     SECTION 8.4.     AMOUNT OF PREPAYMENT....................................23
     SECTION 8.5.     NOTICE OF PREPAYMENT....................................23 
                                                                              
                                           ARTICLE IX                         
                     NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION    
                                                                              
     SECTION 9.1.     NON-LIABILITY OF AUTHORITY..............................24
     SECTION 9.2.     EXPENSES................................................24
     SECTION 9.3.     INDEMNIFICATION.........................................24 
                                                                              
                                            ARTICLE X                         
                                          MISCELLANEOUS                       
                                                                              
     SECTION 10.1.    NOTICES.................................................25 
     SECTION 10.2.    SEVERABILITY............................................26 
     SECTION 10.3.    EXECUTION OF COUNTERPARTS...............................26 
     SECTION 10.4.    AMENDMENTS, CHANGES AND MODIFICATIONS...................27 
     SECTION 10.5.    GOVERNING LAW; VENUE....................................27 
     SECTION 10.6.    AUTHORIZED REPRESENTATIVE...............................27 
     SECTION 10.7.    TERM OF THE AGREEMENT...................................27 
     SECTION 10.8.    BINDING EFFECT..........................................27 
     SECTION 10.9.    SURVIVAL OF FEE OBLIGATION..............................27 
     SECTION 10.10.   PURCHASE OF BONDS.......................................27 
     SECTION 10.11.   COMPLETE AGREEMENT......................................28 
                                                                              
EXECUTION.....................................................................29
                                                                              
EXHIBIT A  DESCRIPTION AND COST OF THE PROJECT................................A-1
</TABLE>

                                       iii
<PAGE>
 
                                 LOAN AGREEMENT


          THIS LOAN AGREEMENT, dated as of June 1, 1997, between CALIFORNIA
POLLUTION CONTROL FINANCING AUTHORITY, a public instrumentality and political
subdivision of the State of California (the "Authority"), and WEST VALLEY MRF,
LLC (the "Borrower")

                                 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 now in effect and as it may from time
to time hereafter be amended or supplemented) (the "Act") and authorized to
finance certain capital projects consisting of solid waste pollution control
facilities;

          WHEREAS, the Authority is further authorized to issue its bonds for
the purpose of paying all or any part of the costs of a project, and for any
other authorized purpose; to acquire and hold property, including funds, project
agreements and other obligations of any kind, and pledge, encumber or assign the
same, or the revenues therefrom or any portion of such revenues, or other
rights, whether then owned or possessed, or thereafter acquired, for the benefit
of the owners, and as security or additional security for any bonds or the
performance of obligations under an indenture; to provide for the advance of
bond proceeds and other funds pursuant to Project agreements as necessary to pay
or reimburse for project costs; and to enter into loan agreements; and

          WHEREAS, the Borrower has duly caused an application to be filed with
the Authority for financial assistance to construct certain solid waste disposal
facilities to be located in the County of San Bernardino, California, as more
particularly described in Exhibit A hereto (the "Project"), which qualify as a
"project" under the Act; and

          WHEREAS, the Authority after due investigation and deliberation has
adopted its resolutions approving said application and authorizing the making of
a loan to the Borrower for the acquisition, construction and installation of the
Project at such location or locations; and

          WHEREAS, the Authority proposes to issue its California Pollution
Control Financing Authority Pollution Control Variable Rate Demand Solid Waste
Disposal Revenue Bonds (West Valley MRF, LLC Project) Series 1997A (the "1997A
Bonds"), in the aggregate principal amount of $9,500,000, to finance a portion
of the cost of acquiring, constructing and installing the Project upon the terms
and conditions set forth herein; and

          WHEREAS, the Authority will enter into an Indenture, dated as of June
1, 1997 (the "Indenture"), with BNY Western Trust Company, as trustee (the
"Trustee"), pursuant to which the 1997A Bonds will be issued; and

                                       1
<PAGE>
 
          WHEREAS, payment of the 1997A Bonds is initially enhanced by a direct-
pay irrevocable Letter of Credit issued to the Trustee by Union Bank of
California, N.A. (the "Bank");

          NOW, THEREFORE, for and in consideration of the premises and the
material covenants hereinafter contained, the parties hereto hereby formally
covenant, agree and bind themselves as follows:


                                   ARTICLE I
                                  DEFINITIONS

          SECTION 1.1.      DEFINITION OF TERMS.  Unless the context otherwise
requires, the terms used in this Agreement shall have the meanings specified in
Section 1.01 of the Indenture, as originally executed or as it may from time to
time be supplemented or amended as provided therein.

          SECTION 1.2.  NUMBER AND GENDER.  The singular form of any word used
herein, including the terms defined in Section 1.01 of the Indenture, shall
include the plural, and vice versa. The use herein of a word of any gender shall
include all genders.

          SECTION 1.3.  ARTICLES, SECTIONS, ETC.  Unless otherwise specified,
references to Articles, Sections and other subdivisions of this Agreement are to
the designated Articles, Sections and other subdivisions of this Agreement as
amended from time to time.  The words "hereof," "herein," "hereunder" and words
of similar import refer to this Agreement as a whole.  The headings or titles of
the several articles and sections, and the table of contents appended to copies
hereof, shall be solely for convenience of reference and shall not affect the
meaning, construction or effect of the provisions hereof.


                                  ARTICLE II
                                REPRESENTATIONS

          SECTION 2.1.  REPRESENTATIONS OF THE AUTHORITY.  The Authority makes
the following representations as the basis for its undertakings herein
contained:

          (a) The Authority is a public instrumentality and political
subdivision of the State of California.  Under the provisions of the Act, the
Authority has the power to enter into the transactions contemplated by this
Agreement and the Indenture and to carry out its obligations hereunder.  The
Project constitutes a "project" as that term is defined in the Act.  By proper
action, the Authority has been duly authorized to execute, deliver and duly
perform its obligations under this Agreement and the Indenture.

          (b) On April 17, 1991 the Authority gave its preliminary approval for
the financing of the Project and on July 31, 1996 extended such preliminary
approval for the financing of the Project.  On May 28, 1997, the Authority
adopted its resolution approving financing of the Project.  On October 30, 1996,
a public hearing with respect to the 1997A Bonds and the Project 

                                       2
<PAGE>
 
was held in accordance with the provisions of the Code.

          (c) The Authority has taken proper action to allocate to the 1997A
Bonds a share of the State ceiling on private activity bonds (as defined in
Section 141 of the Code), which was available to the Authority pursuant to
Section 146 of the Code, in an aggregate amount at least equal to the $9,500,000
aggregate principal amount of the 1997A Bonds.  Issuance of the 1997A Bonds will
not violate any provisions of said Section 146.

          (d) The Authority will issue the Bonds under and the Bonds will be
secured by the Indenture, pursuant to which the Authority's interest in this
Agreement (except certain rights of the Authority to payment for expenses and
indemnification and to inspection and consent) will be pledged to the Trustee as
security for payment of the principal of, premium, if any, and interest on the
Bonds and then to the Bank as security for the payment of the obligations of the
Borrower under the Reimbursement Agreement.

          (e) The Authority has not pledged and will not pledge its interest in
this Agreement for any purpose other than to secure the Bonds under the
Indenture and the obligations of the Borrower under the Reimbursement Agreement.

          (f) The Authority is not in default under any of the provisions of the
laws of the State of California which default would affect its existence or its
powers referred to in subsection (a) of this Section 2.1.

          (g) The Authority has found and determined and hereby finds and
determines that (i) the Borrower is a "participating party" as such term is
defined in the Act; (ii) the loan to be made hereunder with the proceeds of the
1997A Bonds will promote the purposes of the Act by providing funds to finance
the acquisition, rehabilitation and equipping of the Project; (iii) said loan is
in the public interest, serves the public purposes and meets the requirements of
the Act; and (iv) the portion of such loan allocable to the Costs of the Project
does not exceed the total cost thereof as determined by the Borrower and
approved by the Authority.

          (h) No member, officer or other official of the Authority has any
financial interest whatsoever in the Borrower or in the transactions
contemplated by this Agreement and the Indenture.

          SECTION 2.2.  REPRESENTATIONS OF THE BORROWER.  The Borrower makes the
following representations as the basis for its undertakings herein contained:

          (a) The Borrower is a limited liability company duly formed under the
laws of the State of California, is in good standing in the State of California
and has the power to enter into and has duly authorized, by proper action, the
execution and delivery of this Agreement, the Remarketing Agreement, the
Reimbursement Agreement and all other documents contemplated hereby to be
executed by the Borrower.

          (b) Neither the execution and delivery of this Agreement, the
Remarketing Agreement or the Reimbursement Agreement, the consummation of the
transactions 

                                       3
<PAGE>
 
contemplated hereby and thereby, nor the fulfillment of or compliance with the
terms and conditions hereof and thereof, conflicts with or results in a breach
of any of the terms, conditions or provisions of the Borrower's Articles of
Organizations or Operating Agreement or of any material corporate actions or of
any material agreement or instrument to which the Borrower is now a party or by
which it is bound, or constitutes a default (with due notice or the passage of
time or both) under any of the foregoing, or results in the creation or
imposition of any prohibited lien, charge or encumbrance whatsoever upon any of
the property or assets of the Borrower under the terms of any material
instrument or agreement to which the Borrower is now a party or by which it is
bound.

          (c) The Costs of the Project are as set forth in the Tax Certificate
dated the Date of Delivery and have been determined in accordance with standard
engineering/construction and accounting principles.  All the information and
representations in the Tax Certificate are true and correct as of the date
thereof.

          (d) The Project consists of various equipment and facilities described
in Exhibit A and the Borrower shall not make any changes to the Project or to
the operation thereof which would affect the qualification of the Project under
the Act or impair the exemption from federal income taxation of the interest on
the 1997A Bonds.  In particular, the Borrower shall comply with all requirements
set forth in the Tax Certificate.  The Borrower intends to own and operate the
Project as solid waste disposal facilities described by the Act until the
principal of, the premium, if any, and the interest on the 1997A Bonds shall
have been paid in full.

          (e) The Borrower has title to the property comprising the Project
sufficient to carry out the purposes of this Agreement.

          (f) All certificates, approvals, permits and authorizations of
applicable local governmental agencies, the State of California and the federal
government which are necessary prior to the commencement of any portion of the
Project have been obtained and continue in force.

          (g) No event has occurred and no condition exists which would
constitute an Event of Default (as defined in the Indenture) or which, with the
passing of time or with the giving of notice or both would become such an Event
of Default.

          (h) To the best of the knowledge of the Borrower, no member, officer,
or other official of the Authority has any interest whatsoever in the Borrower
or in the transactions contemplated by this Agreement.

          (i) The Borrower is a "Small Business" as classified pursuant to Title
13 Code of Federal Regulations, Part 121 (1990 edition) or has 500 employees or
less, and is otherwise eligible for assistance from the Small Business
Assistance Fund.

                                       4
<PAGE>
 
                                  ARTICLE III
           CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE 1997A BONDS

          SECTION 3.1.  AGREEMENT TO CONSTRUCT THE PROJECT.  The Borrower agrees
that it will acquire, equip, construct, rehabilitate and install, or complete
the acquisition, construction, equipping, rehabilitation and installation of,
the Project, and will acquire, equip, construct, rehabilitate and install all
other facilities and real and personal property deemed necessary for the
operation of the Project, substantially in accordance with the description of
the Project prepared by the Borrower and approved by the Authority, including
any and all supplements, amendments and additions or deletions thereto or
therefrom, it being understood that the approval of the Authority shall not be
required for changes in such description which do not substantially alter the
purpose and description of the Project as set forth in Exhibit A hereto. The
Borrower further agrees to proceed with due diligence to complete the Project
within three years from the date hereof.

          In the event that the Borrower desires to alter or change the Project,
and such alteration or change substantially alters the purpose and description
of the Project as described in Exhibit A hereto, the Authority will enter into,
and will instruct the Trustee to consent to, such amendment or supplement to
Exhibit A as shall be required to reflect such alteration or change to the
Project upon receipt of:

          (i)   a certificate of the Authorized Representative of the Borrower
     describing in detail the proposed changes and stating that they will not
     have the effect of disqualifying the Project as facilities that may be
     financed pursuant to the Act;

          (ii)  a copy of the proposed form of amended or supplemented Exhibit A
     hereto;

          (iii) an opinion of Bond Counsel that such proposed changes will not
     adversely affect the Tax-exempt status of interest on the Bonds; and

          (iv)  the written approval of the Bank.

          SECTION 3.2.  DISBURSEMENTS FROM THE 1997A CONSTRUCTION ACCOUNT;
DISBURSEMENTS FROM THE 1997A COSTS OF ISSUANCE ACCOUNT.  (a) The Borrower will
authorize and direct the Trustee, upon compliance with Section 3.03 of the
Indenture, to disburse the moneys in the 1997A Construction Account to or on
behalf of the Borrower only for the following purposes (and not for Costs of
Issuance), subject to the provisions of Section 3.3 hereof:

          (i)   Payment to the Borrower of such amounts, if any, as shall be
necessary to reimburse the Borrower in full for all advances and payments made
by it, at any time prior to or after the delivery of the 1997A Bonds, in
connection with (A) the preparation of plans and specifications for the Project
(including any preliminary study or planning of the Project or any aspect
thereof) and (B) subject to any limitation imposed by subsection (vi) hereof,
the acquisition, 

                                       5
<PAGE>
 
equipping, construction, rehabilitation and installation of the Project.

          (ii)  Payment for labor, services, materials and supplies used by or
furnished to the Borrower to improve the site and to acquire, equip, construct
and install the Project, as provided in the plans, specifications and work
orders therefor; payment of the costs of acquiring, equipping, constructing, and
installing utility services or other related facilities; payment of the costs of
acquiring all real and personal property deemed necessary to construct the
Project; insurance during the construction period as required by the
Reimbursement Agreement; and payment of the miscellaneous expenses incidental to
any of the foregoing items.

          (iii) Payment of the fees, if any, of architects, engineers, legal
counsel and supervisors expended in connection with the acquisition, equipping,
construction, rehabilitation and installation of the Project.

          (iv)  Payment of taxes including property taxes, assessments and other
charges, if any, that may become payable during the construction period with
respect to the Project, or reimbursement thereof, if paid by the Borrower.

          (v)   Payment of expenses incurred in seeking to enforce any remedy
against any contractor or subcontractor in respect of any default under a
contract relating to the acquisition, equipping, construction, rehabilitation or
installation of the Project.

          (vi)  Payment of any other Costs of the Project permitted by the Tax
Certificate (including, without limitation, interest accruing on the 1997A Bonds
during the construction period of the Project and reimbursing the Borrower for
financing the Costs of the Project, but not including any Costs of Issuance).

          All moneys remaining in the 1997A Construction Account after the
Completion Date and after payment or provision for payment of all other items
provided for in the preceding subsections (i) to (vi), inclusive, of this
Section, shall be used in accordance with Section 3.03 of the Indenture.

          Each of the payments referred to in this Section 3.2(a) shall be made
upon receipt by the Trustee of a written requisition in the form prescribed by
Section 3.03 of the Indenture, signed by the Authorized Representative of the
Borrower and the Authorized Representative of the Bank.

          (b) The Borrower will authorize and direct the Trustee, upon
compliance with Section 3.04 of the Indenture, to disburse the moneys in the
1997A Costs of Issuance Account to or on behalf of the Borrower only for Costs
of Issuance, subject to the provisions of Section 3.5 hereof.  Each of the
payments referred to in this Section 3.2(b) shall be made upon receipt by the
Trustee of a written requisition in the form prescribed by Section 3.04 of the
Indenture, signed by the Authorized Representative of the Borrower, the
Authorized Representative of the Bank and, in the case of withdrawals from the
Authority Subaccount, the Executive Director of the Authority.

                                       6
<PAGE>
 
          SECTION 3.3.  ESTABLISHMENT OF COMPLETION DATE; OBLIGATION OF
BORROWER TO COMPLETE.  As soon as the Project is completed, the Authorized
Representative of the Borrower, on behalf of the Borrower, shall evidence the
Completion Date by providing a certificate, which shall be approved by the Bank,
to the Trustee and the Authority stating the Costs of the Project and further
stating that (i) the acquisition, equipping, rehabilitation and construction of
the Project has been completed substantially in accordance with the plans,
specifications and work orders therefor, and all labor, services, materials and
supplies used in the acquisition, equipping, rehabilitation and construction
have been paid or provided for, and (ii) all other facilities necessary in
connection with the Project have been acquired, constructed and installed in
accordance with the plans and specifications and work orders therefor and all
costs and expenses incurred in connection therewith have been paid or provided
for. Notwithstanding the foregoing, such certificate may state that it is given
without prejudice to any rights of the Borrower against third parties for any
claims or for the payment of any amount not then due and payable which exists at
the date of such certificate or which may subsequently exist.

          At the time such certificate is delivered to the Trustee, moneys
remaining in the 1997A Construction Account (other than moneys relating to
provisional payments permitted by Section 3.2), including any earnings resulting
from the investment of such moneys, shall be used as provided in Section 3.03 of
the Indenture.

          In the event the moneys in the 1997A Construction Account available
for payment of the Costs of the Project should be insufficient to pay the costs
thereof in full, the Borrower agrees to pay directly, or to deposit in the 1997A
Construction Account moneys sufficient to pay, any costs of completing the
Project in excess of the moneys available for such purpose in the 1997A
Construction Account. The Authority makes no express or implied warranty that
the moneys deposited in the 1997A Construction Account and available for payment
of the Costs of the Project, under the provisions of this Agreement, will be
sufficient to pay all the amounts which may be incurred for such Cost. The
Borrower agrees that if, after exhaustion of the moneys in the 1997A
Construction Account, the Borrower should pay, or deposit moneys in the 1997A
Construction Account for the payment of, any portion of the Costs of the Project
pursuant to the provisions of this Section, it shall not be entitled to any
reimbursement therefor from the Authority, from the Trustee or from the holders
of any of the Bonds, nor shall it be entitled to any diminution of the amounts
payable under Section 4.2 hereof.

          SECTION 3.4.  INVESTMENT OF MONEYS IN FUND.  Any moneys in any fund or
account held by the Trustee shall, at the written request of the Authorized
Representative of the Borrower, be invested or reinvested by the Trustee as
provided in the Indenture. Such investments shall be held by the Trustee and
shall be deemed at all times a part of the fund or account from which such
investments were made, and the interest accruing thereon, and any profit or loss
realized therefrom, shall be credited or charged to such fund or account.

          SECTION 3.5.  ISSUANCE OF ADDITIONAL BONDS.  If the Borrower is not in
default hereunder, the Authority may by the adoption of an appropriate
resolution or resolutions, at the request of the Borrower, authorize the
issuance of Additional Bonds upon the terms and conditions provided herein and
in Sections 2.12 and 2.13 of the Indenture, but in no event shall the Authority
be liable for not issuing such Additional Bonds. Additional Bonds may 

                                       7
<PAGE>
 
only be issued to provide funds to pay any one or more of the following: (i) the
costs of completing the Project; (ii) the costs of making at any time or from
time to time such substitutions, additions, modifications and improvements to
the Project or any portion thereof, or financing other facilities within the
State which qualify as a "project" under the Act, all as authorized by the Act,
as the Borrower may deem necessary or desirable; (iii) the costs of refunding,
to the extent permitted, any Bonds then Outstanding; and (iv) the costs of the
issuance and sale of the Additional Bonds, interest expenses during the
construction period and other costs reasonably related to the financing as shall
be agreed upon by the Borrower and the Authority. Prior to the issuance of such
Additional Bonds, the terms thereof, the purchase price to be paid therefor and
the manner in which the proceeds therefrom are to be disbursed shall have been
approved in writing by the Borrower; the Authority shall have entered into an
amendment to this Agreement to provide that, for all purposes of this Agreement,
the Project shall include any facilities and/or equipment being financed by the
Additional Bonds, which facilities and/or equipment shall be described in
amendments to Exhibit A hereto, and to provide for an increase in the amount
payable under Section 4.2 hereof as shall be necessary to pay the principal of,
premium, if any, and interest on the Additional Bonds as provided in the
supplemental indenture required by Sections 2.12 and 2.13 of the Indenture, and
to extend the term of this Agreement if the maturity of any of the Additional
Bonds would otherwise occur after the expiration of the term of this Agreement;
and the Authority shall have otherwise complied with the provisions of Sections
2.12 and 2.13 of the Indenture with respect to the issuance of such Additional
Bonds.


                                  ARTICLE IV
                    LOANS OF PROCEEDS; REPAYMENT PROVISIONS

          SECTION 4.1.  LOAN OF BOND PROCEEDS; ISSUANCE OF BONDS.  The Authority
covenants and agrees, upon the terms and conditions in this Agreement, to make a
loan to the Borrower for the purpose of financing the Costs of the Project and
the Costs of Issuance. The Authority further covenants and agrees that it shall
take all actions within its authority to keep this Agreement in effect in
accordance with its terms. Pursuant to said covenants and agreements, the
Authority will issue the Bonds upon the terms and conditions contained in this
Agreement and the Indenture and will cause the Bond proceeds to be applied as
provided in Article III of the Indenture.

          SECTION 4.2.  REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE.  (a) On
or before each Bond Payment Date (as hereinafter defined), until the principal
of, premium, if any, and interest on, the Bonds shall have been fully paid or
provision for such payment shall have been made as provided in the Indenture,
the Borrower covenants and agrees to pay to the Trustee as a repayment on the
loan made to the Borrower from Bond proceeds pursuant to Section 4.1 hereof, a
sum equal to the amount payable on the next Bond Payment Date as principal of
and premium, if any, and interest on, the Bonds as provided in the Indenture.
Such Loan Repayments shall be made in federal funds or other funds immediately
available at the Corporate Trust Office of the Trustee. The term "Bond Payment
Date" as used in this Section shall mean any date upon which any amounts payable
with respect to the Bonds shall become due, whether upon redemption (including
without limitation sinking fund redemption), acceleration, maturity or
otherwise.

                                       8
<PAGE>
 
          Each payment made pursuant to this Section 4.2(a) shall at all times
be sufficient to pay the total amount of interest and principal (whether at
maturity or upon redemption or acceleration) and premium, if any, becoming due
and payable on the Bonds on each Bond Payment Date; provided that once per year,
in June, any amount held by the Trustee in the Revenue Fund on the due date for
a Loan Repayment hereunder shall be credited against the installment due on such
date to the extent available for such purpose under the terms of the Indenture;
and provided further that, subject to the provisions of this paragraph, if at
any time the amounts held by the Trustee in the Revenue Fund are sufficient to
pay all of the principal of and interest and premium, if any, on, the Bonds as
such payments become due, the Borrower shall be relieved of any obligation to
make any further payments under the provisions of this Section.  Notwithstanding
the foregoing, if on any date the amount held by the Trustee in the Revenue Fund
is insufficient to make any required payments of principal of (whether at
maturity or upon redemption (including without limitation sinking fund
redemption) or acceleration) and interest and premium, if any, on, the Bonds as
such payments become due, the Borrower shall forthwith pay such deficiency as a
Loan Repayment hereunder.

          The obligation of the Borrower to make any payment under this Section
4.2(a) shall be deemed to have been satisfied to the extent of any corresponding
payment made by the Bank to the Trustee under the Letter of Credit.

          (b) The Borrower also agrees to pay (i) the annual fee of the Trustee
and the Tender Agent for its ordinary services rendered as trustee, and its
ordinary expenses incurred under the Indenture, as and when the same become due,
(ii) the reasonable fees, charges and expenses (including reasonable legal fees
and expenses) of the Trustee, as bond registrar and paying agent, and the
reasonable fees of any other paying agent on the Bonds as provided in the
Indenture, as and when the same become due, (iii) the reasonable fees, charges
and expenses of the Trustee for the necessary extraordinary services rendered by
it and extraordinary expenses incurred by it under the Indenture, as and when
the same become due, (iv) the cost of printing any Bonds required to be
furnished by the Authority at the expense of the Authority, and (v) any amounts
required to be deposited in the Rebate Fund to comply with the provisions of
Section 5.10 hereof and Section 6.06 of the Indenture and the payment of any
rebate analyst.  The Trustee's compensation shall not be limited by any
provision of law regarding the compensation of a Trustee of an express trust.

          (c) The Borrower also agrees to pay, within 10 days after receipt of
request for payment thereof, all expenses required to be paid by the Borrower
under the terms of the Purchase Contract, executed by the Borrower and the
Authority in connection with the sale of the Bonds, and all reasonable expenses
of the Authority related to the Bonds which are not otherwise required to be
paid by the Borrower under the terms of this Agreement; including, but not
limited to, all Costs of Issuance, and all the amounts owing to the Bank from
time to time.

          (d) The Borrower also agrees to pay fees and expenses of independent
certified public accountants necessary for the preparation of annual or other
audits, reports or summaries thereof required by the Indenture or by the
Authority, including a report of an independent certified public accountant with
respect to any fund established under the Indenture; and

                                       9
<PAGE>
 
reasonable expenses of the Authority pursuant to Sections 44525 and 44548 of the
California Health and Safety Code, and any agency of the State of California
selected by the Authority to act on its behalf in connection with the Bonds,
including any and all reasonable expenses incurred by the Attorney General of
the State of California in connection with any litigation which may at any time
be instituted involving the Bonds.

          (e) In the event the Borrower should fail to make any of the payments
required by Subsections (a) through (d) of this Section, such payments shall
continue as obligations of the Borrower until such amounts shall have been fully
paid.  The Borrower agrees to pay such amounts, together with interest thereon
until paid, to the extent permitted by law, at the rate of seven percent (7%)
per annum or, if seven percent is greater than the rate then permitted by law,
at the maximum rate so permitted, following a delinquency of 30 days or longer
until such amount has been paid.  Interest on overdue payments required under
subsection (a) above shall be applied as provided in Sections 5.02 and 5.03 of
the Indenture.

          SECTION 4.3.  UNCONDITIONAL OBLIGATION.  The obligations of the
Borrower to make the payments required by Section 4.2 hereof and to perform and
observe the other agreements on its part contained herein shall be absolute and
unconditional, irrespective of any defense or any rights of set-off, recoupment
or counterclaim it might otherwise have against the Authority, and during the
term of this Agreement, the Borrower shall pay all payments required to be made
on account of the loan (which payments shall be net of any other obligations of
the Borrower) as prescribed in Section 4.2 and all other payments required
hereunder, free of any deductions and without abatement, diminution or set-off.
Until such time as the principal of, premium, if any, sinking fund installments,
if any, and interest on, the Bonds shall have been fully paid, or provision for
the payment thereof shall have been made as required by the Indenture, the
Borrower (i) will not suspend or discontinue any payments provided for in
Section 4.2 hereof; (ii) will perform and observe all of its other covenants
contained in this Agreement; and (iii) except as provided in Article VIII
hereof, will not terminate this Agreement for any cause, including, without
limitation, the occurrence of any act or circumstances that may constitute
failure of consideration, destruction of or damage to all or a portion of those
facilities or equipment comprising the Project, commercial frustration of
purpose, any change in the tax or other laws of the United States of America or
of the State of California or any political subdivision of either of these, or
any failure of the Authority or the Trustee to perform and observe any covenant,
whether express or implied, or any duty, liability or obligation arising out of
or connected with this Agreement or the Indenture, except to the extent
permitted by this Agreement.

          SECTION 4.4.  ASSIGNMENT OF AUTHORITY'S RIGHTS.  As security for the
payment of the Bonds, the Authority will assign to the Trustee the Authority's
rights under this Agreement, including the right to receive payments hereunder
(except the right of the Authority to receive certain payments, if any, with
respect to expenses and indemnification, or to enforce its rights under Sections
4.2(c), 4.2(d), 7.3, 9.2 and 9.3 hereof and its rights of indemnification and
consent), and the Authority hereby directs the Borrower to make the payments
required hereunder (except such payments for expenses and indemnification)
directly to the Trustee. The Borrower hereby assents to such assignment and
agrees to make payments directly to the Trustee without defense or set-off by
reason of any dispute between the Borrower and the Authority or the Trustee.

                                       10
<PAGE>
 
          SECTION 4.5.  AMOUNTS REMAINING IN FUNDS.  It is agreed by the parties
hereto that after payment in full of (i) the Bonds, or after provision for such
payment shall have been made as provided in the Indenture, (ii) the fees,
charges and expenses of the Trustee and paying agents in accordance with the
Indenture, (iii) all other amounts required to be paid under this Agreement and
the Indenture, and (iv) payment to the Bank of any amounts owed to the Bank by
the Borrower under the Reimbursement Agreement, any amounts remaining in any
fund held by the Trustee under the Indenture (excepting the Rebate Fund) shall
be paid as provided in Section 10.01 of the Indenture. Notwithstanding any other
provision of this Loan Agreement or the Indenture, under no circumstances shall
proceeds of a draw on a Letter of Credit or remarketing proceeds be paid to the
Authority or the Borrower.


                                   ARTICLE V
                       SPECIAL COVENANTS AND AGREEMENTS

          SECTION 5.1.  RIGHT OF ACCESS TO THE PROJECT.  The Borrower agrees
that during the term of this Agreement the Authority, the Trustee, the Bank and
the duly authorized agents of any of them shall have the right at all reasonable
times during normal business hours to enter upon the site of the Project to
examine and inspect the Project; provided, however, that reasonable notice shall
be given to the Borrower prior to such examination or inspection. The rights of
access hereby reserved to the Authority, the Trustee and the Bank may be
exercised only after such agent shall have executed release of liability and
secrecy agreements if requested by the Borrower in the form then currently used
by the Borrower, and nothing contained in this Section or in any other provision
of this Agreement shall be construed to entitle the Authority, the Trustee or
the Bank to any information or inspection involving the confidential knowledge,
expertise or know-how of the Borrower.

          SECTION 5.2. THE BORROWER'S MAINTENANCE OF ITS EXISTENCE; ASSIGNMENTS.
(a) To the extent permitted by law and its Articles of Organization, the
Borrower covenants and agrees that during the term of this Agreement it will
maintain its existence as a limited liability company, will continue to maintain
its status as a limited liability company in good standing in the State of
California, will not dissolve, sell or otherwise dispose of all or substantially
all of its assets and will not combine or consolidate with or merge into another
entity so that the Borrower is not the resulting or surviving entity (except for
a merger into a wholly-owned subsidiary of the Borrower)(any such sale,
disposition, combination or merger shall be referred to hereafter as a
"transaction"); provided, however, that if the Borrower has obtained the prior
written consent of the Authority and the Bank, the Borrower may enter into such
transaction. The consent of the Authority (which shall not be unreasonably
withheld) shall be given within thirty (30) days after the Authority receives
satisfactory evidence that:

          (i)   the surviving, resulting, transferee person or entity, as the
     case may be, assumes and agrees in writing to pay and perform all of the
     obligations of the Borrower hereunder,

          (ii)  the surviving, resulting, transferee person or entity, as the
     case may be, qualifies to do business in the State of California,

                                       11
<PAGE>
 
          (iii) the existing Letters of Credit will remain in full force and
     effect, and

          (iv)  the credit rating on the Bonds, as determined by any Rating
     Agency then rating the Bonds, shall be no lower than the rating level of
     the Bonds immediately prior to the transaction.

          If the outcome of the transaction would have a result other than the
surviving, resulting or transferee person or entity owning any of the assets
financed with proceeds of the Bonds and assuming all of the obligations of the
Borrower to be performed hereunder, the Borrower shall deliver to the Trustee
and the Authority prior to the consummation of the transaction an Opinion of
Bond Counsel stating to the effect that the resulting change in ownership of the
assets financed with proceeds of the Bonds will not cause interest on the Bonds
to be included in gross income for federal income tax purposes.

          Within 10 days after the consummation of the transaction, the Borrower
shall provide the Authority and the Trustee with counterpart copies of the
merger instruments, or other documents constituting the transaction, including
(A) copies of the instruments of assumption referred to in (i) above, (B)
evidence of qualification as referred to in (ii) above, (C) evidence
demonstrating compliance with the requirement of clauses (iii) and (iv) above,
and (D) a certificate stating that the requirements of Section 5.2(a) have been
met. The Borrower shall give the Authority at least 30 days' written notice
prior to the effective date of any transaction described above, together with
drafts of the documents of assumption and the certificate as required herein.
The Borrower agrees to provide such other information as the Authority may
reasonably request in order to assure compliance with this Section 5.2(a).

          Notwithstanding any other provisions of this Section 5.2(a), the
Borrower need not comply with any of the provisions of Section 5.2(a) above if,
at the time of such merger, combination, sale of assets, dissolution or
reorganization, the Bonds will be defeased as provided in Article X of the
Indenture.

          (b) The rights and obligations of the Borrower under this Agreement
may be assigned by the Borrower to any person in whole or in part, subject,
however, to each of the following conditions:

               (i)   No assignment other than pursuant to subsection (a) of this
     Section shall relieve the Borrower from primary liability for any of its
     obligations hereunder, and in the event of any assignment not pursuant to
     subsection (a) of this Section the Borrower shall continue to remain
     primarily liable for the payments specified in Section 4.2 hereof and for
     performance and observance of the other agreements on its parts herein
     provided to be performed and observed by it.

               (ii)  Any assignment from the Borrower shall retain for the
     Borrower such rights and interests as will permit it to perform its
     obligations under this Agreement, and any assignee from the Borrower shall
     assume in writing the obligations of the Borrower hereunder to the extent
     of the interest assigned.

                                       12
<PAGE>
 
               (iii) The Borrower shall give the Authority and the Bank thirty
     days' prior written notice of any assignment other than pursuant to
     subsection(a), and shall, within thirty days after delivery thereof,
     furnish or cause to be furnished to the Authority, the Trustee and the Bank
     a true and complete copy of each such assignment together with an
     instrument of assumption and an Opinion of Counsel satisfactory to the
     Authority that provisions of this Section 5.2(b) have been complied with.

          If a merger, consolidation, sale or other transfer is effected, as
provided in this Section, all provisions of this Section shall continue in full
force and effect and no further merger, consolidation, sale or transfer shall be
effected except in accordance with the provisions of this Section.

          SECTION 5.3.  RECORDS AND FINANCIAL STATEMENTS OF BORROWER.  (a)
The Borrower covenants and agrees at all times to keep, or cause to be kept,
proper books of record and account, prepared in accordance with generally
accepted accounting principles, in which complete and accurate entries shall be
made of all transactions of or in relation to the business, properties and
operations of the Borrower.  Such books of record and account shall be available
for inspection by the Authority, the Bank or the Trustee at reasonable hours,
upon reasonable notice and under reasonable circumstances.

          (b) The Borrower further covenants and agrees to furnish to the
Authority, the Remarketing Agent and the Trustee, within one hundred twenty
(120) days after the end of each Fiscal Year, with a Certificate of an
Authorized Representative of the Borrower stating that no event which
constitutes a Loan Default Event or which with the giving of notice or the
passage of time or both would constitute a Loan Default Event has occurred and
is continuing as of the end of such Fiscal Year, or specifying the nature of
such event and the actions taken and proposed to be taken by the Borrower to
cure such default, and upon written request copies of its compiled financial
statements in such form as are required to be provided to the Bank; provided,
however, that such financial statements filed by the Borrower with the Authority
are hereby determined to be an integral part of the issuance of the Bonds, which
facilitated the construction of the Project in California and therefore shall
not be construed as public records open to inspection to the extent provided
under Section 6254.15 of the Government Code of the State of California.

          SECTION 5.4.  INSURANCE.  The Borrower agrees to insure the Project
or cause the Project to be insured during the term of this Agreement for such
amounts and for such occurrences as are customary for similar facilities within
the State of California, or as may be required by the Bank pursuant to the
Reimbursement Agreement, by means of policies issued by reputable insurance
companies qualified to do business in the State of California.  The Borrower
agrees to deliver, upon request, to the Authority, the Bank and the Trustee
memorandum copies of the insurance policies or certificates of insurance, and
the certification by an insurance consultant that the insurance on the project
meets the above requirements.

          SECTION 5.5.  MAINTENANCE AND REPAIR; TAXES; UTILITY AND OTHER
CHARGES. The Borrower agrees to maintain the Project, or cause the Project to be
maintained, during the term of this Agreement (i) in as reasonably safe
condition as its operations 

                                       13
<PAGE>
 
shall permit and (ii) in good repair and in good operating condition, ordinary
wear and tear excepted, making from time to time all necessary repairs thereto
and renewals and replacements thereof.

          The Borrower agrees to pay or cause to be paid during the term of this
Agreement all taxes, governmental charges of any kind lawfully assessed or
levied upon the Project or any part thereof, including any taxes levied against
any portion of the Project which, if not paid, will become a charge on the
receipts from the Project prior to or on a parity with the charge thereon and
the pledge or assignment thereof to be created therefrom or under this
Agreement, all utility and other charges incurred in the operation, maintenance,
use, occupancy and upkeep of any portion of the Project and all assessments and
charges lawfully made by any governmental body for public improvements that may
be secured by a lien on the Project, provided that with respect to special
assessments or other governmental charges that may lawfully be paid in
installments over a period of years, the Borrower shall be obligated to pay only
such installments as are required to be paid during the term of this Agreement.
The Borrower may, at the Borrower's expense and in the Borrower's name, in good
faith, contest any such taxes, assessments and other charges and, in the event
of any such contest, may permit the taxes, assessments or other charges so
contested to remain unpaid during that period of such contest and any appeal
therefrom unless by such nonpayment the Project or any part thereof will be
subject to loss or forfeiture.

          SECTION 5.6.  QUALIFICATION IN CALIFORNIA.  The Borrower agrees
that throughout the term of this Agreement it, or any successor or assignee as
permitted by Section 5.2, will be qualified to do business in the State of
California.

          SECTION 5.7.  ALTERNATE CREDIT FACILITY.  The Borrower may deposit
with the Trustee an Alternate Credit Facility, in lieu of keeping each Letter of
Credit in place as required by Section 5.8 hereof, at least 60 days before the
expiration date of any existing Letter of Credit.

          Upon deposit with the Trustee, an Alternate Credit Facility must meet
the following conditions:

          (a) the Alternate Credit Facility must be approved by the Authority or
     any successors and assigns;

          (b) provisions of the Alternate Credit Facility must be acceptable to
     the Trustee;

          (c) the term of the Alternate Credit Facility must extend at least one
     year or to at least the first date on which the related Series of Bonds is
     subject to redemption, pursuant to the Indenture, whichever is longer; and

          (d) the Alternate Credit Facility must be in an amount sufficient to
     pay principal of, interest, Purchase Price and any redemption premium
     payable upon optional redemption of the related Series of Bonds.

                                       14
<PAGE>
 
          Not less than thirty (30) days prior to the delivery of an Alternate
Credit Facility, the Borrower shall (i) deliver to the Trustee a written
commitment for the delivery of such Alternate Credit Facility, (ii) inform the
Trustee of the date on which the Alternate Credit Facility 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 and (iii) inform the
Trustee of the rating expected to apply to the applicable Series of Bonds after
the related Alternate Credit Facility is delivered.  On or prior to the date of
the delivery of an Alternate Credit Facility to the Trustee, the Borrower shall
cause to be furnished to the Trustee (i) an opinion of Bond Counsel to the
effect that the delivery of such Alternate Credit Facility to the Trustee is
authorized under the Indenture and complies with the terms hereof and will not
adversely affect the Tax-exempt status of the Bonds, (ii) an opinion to the
effect that the Alternate Credit Facility is enforceable in accordance with its
terms, except to the extent that enforceability thereof may be limited by
bankruptcy, reorganization or similar laws limiting the enforceability of
creditors' rights generally and except that no opinion need be expressed as to
the availability of any discretionary equitable rights; and (iii) written
evidence from Moody's, if the Bonds are rated by Moody's, and S&P, if the Bonds
are rated by S&P, and/or Fitch, if the Bonds are rated by Fitch that the related
Series of Bonds shall have a long-term rating of Fitch "A+" (or equivalent) or
higher or, if the related Series of Bonds only has a short-term rating, such
short-term rating shall be in the highest short-term rating category (without
regard to "+"'s or "-"'s).

          SECTION 5.8.  LETTER OF CREDIT.  (a) Subject to Section 5.7 hereof
and except as may be permitted under the Indenture, the Borrower agrees that
throughout the term of this Agreement it, or any successor or assignee as
permitted by Section 5.2 hereof, will maintain or cause to be maintained a
Letter of Credit for each Series of Bonds or an Alternate Letter of Credit for
each Series of Bonds.  At any time the Borrower may, at its option, provide for
the delivery to the Trustee of an Alternate Letter of Credit and the Borrower
shall, in any event, cause to be delivered an Alternate Letter of Credit at
least 60 days before the expiration date of any existing Letter of Credit,
unless otherwise permitted by the Indenture, or any existing Alternate Credit
Facility.  An Alternate Letter of Credit shall be an irrevocable letter of
credit or other irrevocable credit facility (including, if applicable, a
confirming letter of credit), issued by a commercial bank or other financial
institution, the terms of which shall in all material respects be the same as
the applicable Letter of Credit; provided, that the expiration date of such
                                 --------
Alternate Letter of Credit shall be a date not earlier than one year from its
date of issuance, subject to earlier termination upon payment of the related
Series of Bonds in full or provision for such payment in accordance with Article
X of the Indenture.  Not less than thirty  (30) days prior to the delivery of an
Alternate Letter of Credit, the Borrower shall (i) deliver to the Trustee a
written commitment for the delivery of such Alternate Letter of Credit, (ii)
inform the Trustee of the date on which the Alternate Letter of Credit 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 and (iii) inform
the Trustee of the rating expected to apply to the related Series of Bonds after
the Alternate Letter of Credit is delivered.  On or prior to the date of the
delivery of an Alternate Letter of Credit to the Trustee, the Borrower shall
cause to be furnished to the Trustee (i) an opinion of Bond Counsel stating to
the effect that the delivery of such Alternate Letter of Credit to the Trustee
is authorized under the Indenture and complies with the terms hereof and will
not adversely affect the Tax-exempt status of the Bonds, (ii) an opinion stating
to the effect that such Alternate Letter of Credit is enforceable in accordance
with its terms (except to the extent that the enforceability thereof may

                                       15
<PAGE>
 
be limited by bankruptcy, reorganization or similar laws limiting the
enforceability of creditors' rights generally and except that no opinion need be
expressed as to the availability of any discretionary equitable remedies), and
(iii) written evidence from Moody's, if the Bonds are rated by Moody's, and S&P,
if the Bonds are rated by S&P, and/or Fitch, if the Bonds are rated by Fitch
that the related Series of Bonds shall have a long-term rating of Fitch "A+" (or
equivalent) or higher or, if the related Series of Bonds only has a short-term
rating, such short-term rating shall be in the highest short-term rating
category (without regard to "+"'s or "-"'s).

          (b) The Borrower shall provide a written statement to the Trustee
(with copies to the Authority) on or before June 1 of each year indicating the
status of the extension of the term of each Letter of Credit.  If a Letter of
Credit provides for automatic annual extensions, the Borrower shall notify the
Trustee either (i) that the term of such Letter of Credit has been automatically
extended pursuant to its terms, or (ii) that such Letter of Credit Bank has
given written notice of a decision not to extend the term of such Letter of
Credit.  If a Letter of Credit does not provide for automatic extensions, the
Borrower shall notify the Trustee whether or not the Bank has given written
approval for an extension of the term of such Letter of Credit.

          SECTION 5.9.  GENERAL TAX COVENANTS.  It is the intention of the
parties hereto that interest on the Bonds shall be and remain Tax-exempt, and to
that end the Borrower covenants to comply with all requirements in the Tax
Certificate, in this Section and in Section 5.10 which are for the benefit of
the Trustee and each and every holder of the Bonds.

          SECTION 5.10.  SPECIAL ARBITRAGE CERTIFICATIONS.  The Authority
hereby certifies to the Borrower that the issuance of the Bonds, in and of
itself, will not violate any provisions of Section 103, or of Section 148 of the
Code or Treasury Regulations issued under those Sections of the Code, such that
the Bonds are not Tax-exempt.  To that end, the Borrower acknowledges that it
has read Sections 5.06 and 6.06 of the Indenture and that it will comply with
the requirements of those sections as if they were set forth in full in this
Agreement.

          SECTION 5.11.  NOTICE AND CERTIFICATES TO TRUSTEE.  The Borrower
hereby agrees to provide the Trustee and the Bank with the following:

               (a) On or before June 15 and December 15 of each year any of the
     Bonds are Outstanding a certificate of an Authorized Representative of the
     Borrower that:  (i) all payments required under this Agreement have been
     made and (ii) any applicable third party credit support will continue in
     full force during the succeeding twelve months, or explaining why not;

               (b) Within one hundred twenty (120) days of the end of the fiscal
     year of the Borrower, (i) a certificate of the Borrower to the effect that
     all payments have been made under this Agreement and that, to the best of
     its knowledge, there exists no event of default or unmatured default and
     (ii) the compiled annual financial report of the Borrower;

               (c) Promptly upon knowledge of an Event of Default, notice of
     such Event of Default, such notice to include a description of the nature
     of such event and what steps are being taken to remedy such Event of
     Default; and

                                       16
<PAGE>
 
               (d) On or before December 20 of each year during which any of the
     Bonds are Outstanding, a written disclosure of any significant change known
     to the Borrower that occurs which would adversely impact the Trustee's
     ability to perform its duties under the Indenture, or of any conflicts
     which may result because of other business dealings between the Trustee and
     the Borrower.

          SECTION 5.12.  FINANCING AND CONTINUATION STATEMENTS.  The Borrower
hereby agrees to file all financing and continuation statements required to be
filed, if any, relating to the Bonds and their security.

          SECTION 5.13.  CHANGE IN INTEREST RATES.  The Authority acknowledges
the right of the Borrower to adjust the Interest Rate Period for any Series of
the Bonds from time to time under the terms and conditions of the Indenture.

          SECTION 5.14.  CONTINUING DISCLOSURE.  The Borrower hereby covenants
and agrees, upon the adjustment to a Term Interest Rate Period for a duration of
one year or greater with respect to a Series of Bonds pursuant to Section
2.03D(II) of the Indenture and the remarketing of such Bonds pursuant to Section
4.07 of the Indenture, to comply with the continuing disclosure requirements
promulgated under S.E.C. Rule 15c2-12, as it may from time to time hereafter be
amended or supplemented. Notwithstanding any other provision of this Loan
Agreement, 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 a Loan Default Event; 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, fees and expenses of its
attorneys and advisors and additional fees and expenses of the Trustee or any
Bondholder or beneficial owner of the 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 pursuant to
this Section 5.14.


                                  ARTICLE VI
                     DAMAGE, DESTRUCTION AND CONDEMNATION;
                                 USE OF PROCEEDS

          SECTION 6.1.  OBLIGATION TO CONTINUE PAYMENTS.  If prior to full
payment of the Bonds (or provision for payment thereof in accordance with the
provisions of the Indenture) (i) the Project or any portion thereof is destroyed
(in whole or in part) or is damaged by fire or other casualty, or (ii) title to,
or the temporary use of, the Project or any portion thereof shall be taken under
the exercise of the power of eminent domain by any governmental body or by any
person, firm or corporation acting under governmental authority, the Borrower
shall nevertheless be obligated to continue to pay the amounts specified in
Article IV hereof, to the extent not prepaid in accordance with Article VIII
hereof.

          SECTION 6.2.  APPLICATION OF NET PROCEEDS.  The Borrower shall be

                                       17
<PAGE>
 
entitled to the Net Proceeds, if any, of any insurance or condemnation awards
resulting from the damage, destruction or condemnation of the Project or any
portion thereof. All Net Proceeds shall be deposited by the Borrower in an
escrow account and shall be applied, with the consent of the Bank and by written
notice to the Authority and the Trustee, in one or more of the following ways at
the election of the Borrower:

               (a) The prompt repair, restoration, relocation, modification or
     improvement of the stage of completion of construction of the damaged,
     destroyed or condemned portion of the Project to enable such portion of the
     Project to accomplish at least the same function as such portion of the
     Project was designed to accomplish prior to such damage or destruction or
     exercise of such power of eminent domain.  Any balance of the Net Proceeds
     remaining after such work has been completed shall be deposited in the
     Revenue Fund to be applied to the payment of principal of and premium, if
     any, and interest on the Bonds, or, if the Bonds have been fully paid (or
     provision for payment thereof has been made in accordance with the
     provisions of the Indenture), any balance remaining in the Revenue Fund
     shall be paid as provided in Section 10.01 of the Indenture.

               (b) Prepayment of all or a portion of the amounts payable
     hereunder, in accordance with Article VIII hereof, and redemption of Bonds;
     provided that no part of the Net Proceeds may be applied for such purpose
     unless (1) all of the amounts payable under this Agreement are so prepaid
     and all Outstanding Bonds are to be redeemed in accordance with the
     Indenture, or (2) in the event that less than all of the amounts payable
     hereunder are so prepaid, the Borrower shall furnish to the Authority and
     the Trustee a certificate of the Authorized Representative acceptable to
     the Authority and the Trustee stating (i) that the property forming part of
     the portion of the Project that was damaged or destroyed by such casualty
     or was taken by such condemnation proceedings is not essential to the
     Borrower's use or possession of such portion of the Project or (ii) that
     such part of the portion of the Project theretofore completed has been
     repaired, replaced, restored, relocated, modified or improved to enable
     such portion of the Project to accomplish at least the same function as
     such portion of the Project was designed to accomplish prior to such damage
     or destruction or the taking by such condemnation proceedings.

          SECTION 6.3.  INSUFFICIENCY OF NET PROCEEDS.  If the Project or a
portion thereof is to be repaired, restored, relocated, modified or improved
pursuant to Section 6.2 hereof, and if the Net Proceeds are insufficient to pay
in full the cost of such repair, restoration, relocation, modification or
improvement, the Borrower will nonetheless complete the work or cause the work
to be completed and will pay or cause to be paid any cost in excess of the
amount of the Net Proceeds held in escrow.

          SECTION 6.4.  DAMAGE TO OR CONDEMNATION OF OTHER PROPERTY.  The
Borrower shall be entitled to the Net Proceeds of any insurance or condemnation
award or portion thereof made for damages to or takings of its property not
included in the Project.

                                       18
<PAGE>
 
                                  ARTICLE VII
                       LOAN DEFAULT EVENTS AND REMEDIES

          SECTION 7.1.  LOAN DEFAULT EVENTS.  Any one of the following which
occurs and continues shall constitute a Loan Default Event:

               (a) failure of the Borrower to make any payment required by
     Section 4.2(a) hereof when due; or

               (b) failure of the Borrower to observe and perform any covenant,
     condition or agreement on its part required to be observed or performed by
     this Agreement other than as provided in (a), which continues for a period
     of 30 days after written notice delivered to the Borrower and the Bank,
     which notice shall specify such failure and request that it be remedied,
     given to the Borrower and the Bank by the Authority or the Trustee, unless
     the Authority and the Trustee shall agree in writing to an extension of
     such time; provided, however, that if the failure stated in the notice
     cannot be corrected within such period, the Authority and the Trustee will
     not unreasonably withhold their consent to an extension of such time if
     corrective action is instituted within such period and diligently pursued
     until the default is corrected; or

               (c) existence of an Event of Default under and as defined in
     Section 7.01(a) or (b) of the Indenture; or

               (d) existence of an Event of Default under and as defined in
     Section 7.01(c) of the Indenture; or

               (e) existence of an Event of Default under and as defined in
     Section 7.01(e) of the Indenture.

     The provisions of subsection (b) of this Section are subject to the
limitation that the Borrower shall not be deemed in default if and so long as
the Borrower is unable to carry out its agreements hereunder by reason of
strikes, lockouts or other industrial disturbances; acts of public enemies;
orders of any kind of the government of the United States or of the State of
California or any of their departments, agencies, or officials, or any civil or
military authority; insurrections, riots, epidemics, landslides; lightning;
earthquake; fire; hurricanes; storms; floods; washouts; droughts; arrests;
restraint of government and people; civil disturbances; explosions; breakage or
accident to machinery, transmission pipes or canals; partial or entire failure
of utilities; or any other cause or event not reasonably within the control of
the Borrower; it being agreed that the settlement of strikes, lockouts and other
industrial disturbances shall be entirely within the discretion of the Borrower,
and the Borrower shall not be required to make settlement of strikes, lockouts
and other industrial disturbances by acceding to the demands of the opposing
party or parties when such course is, in the judgment of the Borrower,
unfavorable to the Borrower.  This limitation shall not apply to any default
under subsections (a), (c), (d) or (e) of this Section.  Notwithstanding any
other provision of this Agreement to the contrary, so long as the Bank is not in
default under the Letter of Credit, the Trustee shall not without the prior
written consent or

                                       19
<PAGE>
 
direction of the Bank exercise any remedies under the Agreement in the case of
any Loan Default Event described in subsections (a), (b) or (c) above; provided,
however, that no consent of the Bank shall be required with respect to the
enforcement of Section 4.2(c), 4.2(d), 7.3, 9.2 or 9.3 hereof. 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 7.2.  REMEDIES ON DEFAULT.  Subject to Section 7.1 hereof,
whenever any Loan Default Event shall have occurred and shall be continuing,

               (a) The Trustee, by written notice to the Authority, the Borrower
     and the Bank, shall declare the unpaid balance of the loan payable under
     Section 4.2(a) of this Agreement to be due and payable immediately,
     provided that concurrently with or prior to such notice the unpaid
     principal amount of the Bonds shall have been declared to be due and
     payable under the Indenture.  Upon any such declaration such amount shall
     become and shall be immediately due and payable as determined in accordance
     with Section 7.01 of the Indenture.

               (b) The Trustee may have access to and may inspect, examine and
     make copies of the books and records and any and all accounts, data and
     federal income tax and other tax returns of the Borrower.

               (c) The Authority or the Trustee may take whatever action at law
     or in equity as may be necessary or desirable to collect the payments and
     other amounts then due and thereafter to become due or to enforce
     performance and observance of any obligation, agreement or covenant of the
     Borrower under this Agreement.

               (d) The Trustee shall immediately draw upon each Letter of
     Credit, if permitted by its terms and required by the terms of the
     Indenture, and apply the amount so drawn in accordance with the Indenture
     and may exercise any remedy available to it thereunder.

          In case the Trustee or the Authority shall have proceeded to enforce
its rights under this Agreement and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Trustee or the Authority, then, and in every such case, the Borrower, the
Trustee and the Authority shall be restored respectively to their several
positions and rights hereunder, and all rights, remedies and powers of the
Borrower, the Trustee and the Authority shall continue as though no such action
had been taken.

          The Borrower covenants that, in case a Loan Default Event shall occur
with respect to the payment of any Loan Repayment payable under Section 4.2(a)
hereof, then, upon demand of the Trustee, the Borrower will pay to the Trustee
the whole amount that then shall have become due and payable under said Section,
with interest on the amount then overdue at the rate of seven percent (7%) per
annum, following a delinquency of 30 days or longer until such amount has been
paid or, if seven percent is greater than the rate then permitted by law, at the
greatest rate then permitted.

                                       20
<PAGE>
 
          In case the Borrower shall fail forthwith to pay such amounts upon
such demand, the Trustee shall be entitled and empowered to institute any action
or proceeding at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Borrower
and collect in the manner provided by law the moneys adjudged or decreed to be
payable.

          In case proceedings shall be pending for the bankruptcy or for the
reorganization of the Borrower under the federal bankruptcy laws or any other
applicable law, or in case a receiver or trustee shall have been appointed for
the property of the Borrower or in the case of any other similar judicial
proceedings relative to the Borrower, or the creditors or property of the
Borrower, then the Trustee shall be entitled and empowered, by intervention in
such proceedings or otherwise, to file and prove a claim or claims for the whole
amount owing and unpaid pursuant to this Agreement and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee allowed in
such judicial proceedings relative to the Borrower, its creditors or its
property, and to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute such amounts as provided in
the Indenture after the deduction of its reasonable charges and expenses to the
extent permitted by the Indenture. Any receiver, assignee or trustee in
bankruptcy or reorganization is hereby authorized to make such payments to the
Trustee, and to pay to the Trustee any amount due it for reasonable compensation
and expenses, including reasonable expenses and fees of counsel incurred by it
up to the date of such distribution.

          SECTION 7.3.  AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES.  In the
event the Borrower should default under any of the provisions of this Agreement
and the Authority or the Trustee should employ attorneys or incur other expenses
for the collection of the payments due under this Agreement or the enforcement
of performance or observance of any obligation or agreement on the part of the
Borrower herein contained, the Borrower agrees to pay to the Authority or the
Trustee the reasonable fees of such attorneys and such other reasonable expenses
so incurred by the Authority or the Trustee.

          SECTION 7.4.  NO REMEDY EXCLUSIVE.  No remedy herein conferred upon or
reserved to the Authority or the Trustee is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No
delay or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle the Authority or the Trustee to
exercise any remedy reserved to it in this Article, it shall not be necessary to
give any notice, other than such notice as may be herein expressly required.
Such rights and remedies as are given the Authority hereunder shall also extend
to the Trustee, and the Trustee and the Holders of the Bonds shall be deemed
third party beneficiaries of all covenants and agreements herein contained.

          SECTION 7.5.  NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER.  In 

                                       21
<PAGE>
 
the event any agreement or covenant contained in this Agreement should be
breached by the Borrower and thereafter waived by the Authority or the Trustee,
such waiver shall be limited to the particular breach so waived and shall not be
deemed to waive any other breach hereunder.

                                 ARTICLE VIII
                                  PREPAYMENT

          SECTION 8.1.  REDEMPTION OF BONDS WITH PREPAYMENT MONEYS.  By virtue
of the assignment of the rights of the Authority under this Agreement to the
Trustee as is provided in Section 4.4 hereof, the Borrower agrees to and shall
pay directly to the Trustee any amount permitted or required to be paid by it
under this Article VIII. The Trustee shall use the moneys so paid to it by the
Borrower to redeem the Bonds on the date set for such redemption pursuant to
Section 8.5 hereof. The Authority shall call Bonds for redemption as required by
Article IV of the Indenture or as requested by the Borrower pursuant to the
Indenture or this Agreement.

          SECTION 8.2.  OPTIONS TO PREPAY INSTALLMENTS.  The Borrower shall have
the option to prepay the amounts payable under Section 4.2(a) hereof by paying
to the Trustee, for deposit in the Revenue Fund, the amount set forth in Section
8.4 hereof, under the following circumstances:

               (a) The Borrower may prepay all or any part of the Loan
     Repayments under the circumstances described in Section 6.2 hereof, and
     cause all or any part of the Bonds to be redeemed at the price and time and
     under the conditions set forth in Section 4.01(4)(i) of the Indenture and
     in any Supplemental Indenture.

               (b) The Borrower may prepay such amounts in whole, or in part,
     and cause all of the Bonds to be redeemed at the price and time and under
     the conditions set forth in Section 4.01(4)(ii) of the Indenture.

               (c) The Borrower shall also have the option to prepay all or any
     part of the Loan Repayments and to cause all or any part of the Bonds to be
     redeemed at the times and at the prices set forth in Section 4.01(5) or (6)
     of the Indenture and in any Supplemental Indenture and subject to any
     additional requirements of the Reimbursement Agreement.

          SECTION 8.3.  MANDATORY PREPAYMENT.  The Borrower shall have and
hereby accepts the obligation to prepay in whole the Loan Repayments required by
Section 4.2(a) of this Agreement, together with interest accrued, but unpaid,
thereon, to be used to redeem all or a part of the Outstanding Bonds under the
following circumstances:

               (a) if and when as a result of any changes in the Constitution of
     the United States of America or the California Constitution or as a result
     of any legislative, judicial or administrative action, this Agreement shall
     have become void or unenforceable or impossible of performance in
     accordance with the intention and purposes of the parties hereto, or shall
     have been declared unlawful;

                                       22
<PAGE>
 
               (b) if, due to the untruth or inaccuracy of any representation or
     warranty made by the Borrower herein or in connection with the offer and
     sale of the Bonds, or the breach of any covenant or warranty of the
     Borrower contained in this Agreement or in the Tax Certificate, interest on
     the Bonds, or any of them, is determined not to be Tax-exempt to the
     Holders thereof (other than a Holder who is a "substantial user" of the
     Project or a "related person" within the meaning of Section 147(a) of the
     Code) by a final administrative determination of the Internal Revenue
     Service or judicial decision of a court of competent jurisdiction in a
     proceeding of which the Borrower received notice and was afforded an
     opportunity to participate in to the full extent permitted by law.  A
     determination or decision will be considered final for this purpose when
     all periods for administrative and judicial review have expired; or

               (c) if mandatory redemption is required by Section 4.01(2) or
     4.01(3) of the Indenture or by any Supplemental Indenture.

The amount payable by the Borrower in the event of a prepayment required by this
Section shall be determined as set forth in Section 8.4 and shall be deposited
in the Revenue Fund.

          SECTION 8.4.  AMOUNT OF PREPAYMENT.  In the case of a prepayment of
the entire amount due hereunder pursuant to Section 8.2 or 8.3 hereof, the
amount to be paid shall be a sum sufficient, together with other funds and the
yield on any securities deposited with the Trustee and available for such
purpose, to pay (1) the principal of all Bonds Outstanding on the redemption
date specified in the notice of redemption, plus interest accrued and to accrue
to the payment or redemption date of the Bonds, plus premium, if any, pursuant
to the Indenture, (2) all reasonable and necessary fees and expenses of the
Authority, the Trustee and any paying agent accrued and to accrue through final
payment of the Bonds and (3) all other liabilities of the Borrower accrued and
to accrue under this Agreement.

          In the case of partial prepayment of the Loan Repayments, the amount
payable shall be a sum sufficient, together with other funds deposited with the
Trustee and available for such purpose, to pay the principal amount of and
premium, if any, and accrued interest on the Bonds to be redeemed, as provided
in the Indenture, and to pay expenses of redemption of such Bonds. All partial
prepayments of the Loan Repayments shall be applied in inverse order of the due
dates thereof.

          SECTION 8.5.  NOTICE OF PREPAYMENT.  To exercise an option granted in
or to perform an obligation required by this Article VIII, the Borrower shall
give written notice at least fifteen (15) days prior to the last day by which
the Trustee is permitted to give notice of redemption pursuant to Section 4.03
of the Indenture, to the Authority, the Bank, and the Trustee specifying the
amount to be prepaid and the date upon which any prepayment will be made. If the
Borrower fails to give such notice of a prepayment in connection with a
mandatory redemption under this Agreement, such notice may be given by the
Authority, by the Trustee or by any Holder or Holders of 10% or more in
aggregate principal amount of each Series of the Bonds Outstanding. The
Authority and the Trustee, at the request of the Borrower or any such
Bondholder, shall forthwith take all steps necessary under the applicable
provisions of the 

                                       23
<PAGE>
 
Indenture (except that the Authority shall not be required to make payment of
any money required for such redemption) to effect redemption of all or part of
the then Outstanding Bonds, as the case may be, on the earliest practicable date
thereafter on which such redemption may be made under applicable provisions of
the Indenture.


                                  ARTICLE IX
             NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION

          SECTION 9.1.  NON-LIABILITY OF AUTHORITY.  The Authority shall not be
obligated to pay the principal of, or premium, if any, or interest on the Bonds,
except from Revenues. The Borrower hereby acknowledges that the Authority's sole
source of moneys to repay the Bonds will be provided by the payments made by the
Borrower pursuant to this Agreement, together with other Revenues, including
investment income on certain funds and accounts held by the Trustee under the
Indenture, and hereby agrees that if the payments to be made hereunder shall
ever prove insufficient to pay all principal of, and premium, if any, and
interest on the Bonds as the same shall become due (whether by maturity,
redemption, acceleration or otherwise), then upon notice from the Trustee, the
Borrower shall pay such amounts as are required from time to time to prevent any
deficiency or default in the payment of such principal, premium or interest,
including, but not limited to, any deficiency caused by acts, omissions,
nonfeasance or malfeasance on the part of the Trustee, the Borrower, the
Authority or any third party.

          SECTION 9.2.  EXPENSES.  The Borrower covenants and agrees to pay and
to indemnify the Authority and the Trustee against all costs and charges,
including reasonable fees and disbursements of attorneys, accountants,
consultants and other experts, incurred in good faith in connection with this
Agreement, the Bonds or the Indenture.

          SECTION 9.3.  INDEMNIFICATION.  The Borrower releases the Authority
and the Trustee from, and covenants and agrees that neither the Authority nor
the Trustee shall be liable for, and covenants and agrees, to the extent
permitted by law, to indemnify and hold harmless the Authority and the Trustee
and their officers, employees and agents from and against, any and all losses,
claims, damages, liabilities or expenses, of every conceivable kind, character
and nature whatsoever arising out of, resulting from or in any way connected
with (1) the Project, or the conditions, occupancy, use, possession, conduct or
management of, or work done in or about, or from the planning, design,
acquisition, installation, rehabilitation or construction of the Project or any
part thereof; (2) the issuance of any Bonds or any certifications or
representations made in connection therewith and the carrying out of any of the
transactions contemplated by the Bonds and this Agreement; (3) the Trustee's
acceptance or administration of the trusts under the Indenture, or the exercise
or performance of any of its powers or duties under the Indenture or this
Agreement; (4) any untrue statement or alleged untrue statement of any material
fact or omission or alleged omission to state a material fact necessary to make
the statements made, in light of the circumstances under which they were made,
not misleading, in any official statement or other offering circular utilized by
the Authority or any underwriter or placement agent in connection with the sale
or remarketing of any Bond; or (5) the cleanup of any hazardous materials or
toxic wastes from the Project, or the authorization of payment of costs thereof;
provided that 

                                       24
<PAGE>
 
such indemnity shall not be required for damages that result from negligence or
willful misconduct on the part of the party seeking such indemnity. The
indemnity required by this Section shall be only to the extent that any loss
sustained by the Authority or the Trustee exceeds the Net Proceeds the Authority
or the Trustee receives from any insurance carried by the Borrower with respect
to the loss sustained. The Borrower further covenants and agrees, to the extent
permitted by law, to pay or to reimburse the Authority and the Trustee and their
officers, employees and agents for any and all costs, reasonable attorneys fees
and expenses, liabilities or other expenses incurred in connection with
investigating, defending against or otherwise in connection with any such
losses, claims, damages, liabilities, expenses or actions, except to the extent
that the same arise out of the negligence or willful misconduct of the party
claiming such payment or reimbursement. The provisions of this Section shall
survive any resignation or removal of the Trustee and the retirement of the
Bonds.

                                   ARTICLE X
                                 MISCELLANEOUS

          SECTION 10.1.  NOTICES.  All notices, certificates or other
communications shall be deemed sufficiently given on the second day following
the day on which the same have been mailed by certified mail, postage prepaid,
addressed to the Authority, the Borrower, the Trustee, or the Bank, 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
                       Fax:  (916) 657-4821

     To the Borrower:  West Valley MRF, LLC
                       c/o Burrtec Waste Industries, Inc.
                       9890 Cherry Avenue
                       Fontana, California 92335
                       Attn: Chief Financial Officer
                       Fax:  (909) 355-7158

                       and

                       Kaiser Ventures Inc.
                       3633 E. Inland Empire Blvd.
                       Suite 850
                       Ontario, CA 91764
                       Attn: Senior Vice President &
                             Chief Financial Officer
                       Fax:  (909) 944-6605

                                       25
<PAGE>
 
     To the Trustee:   BNY Western Trust Company
                       700 South Flower Street, Suite 500
                       Los Angeles, California 90017
                       Attn: Corporate Trust Department
                       Fax:  (213) 630-6210

     To the Bank:      Union Bank of California, N.A.
                       530 B Street, 4th Floor
                       San Diego, CA 92102
                       Attn: Michael Conboy
                       Fax:  (619) 230-3766

A duplicate copy of each notice, certificate or other communication given
hereunder by either the Authority or the Borrower to the other shall also be
given to the Trustee and the Bank. The Authority, the Borrower, the Trustee, and
the Bank may, by notice given hereunder, designate any different addresses to
which subsequent notices, certificates or other communications shall be sent.

          SECTION 10.2.  SEVERABILITY.  If any provision of this Agreement shall
be held or deemed to be, or shall in fact be, illegal, inoperative or
unenforceable, the same shall not affect any other provision or provisions
herein contained or render the same invalid, inoperative, or unenforceable to
any extent whatever.

          SECTION 10.3.  EXECUTION OF COUNTERPARTS.  This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument;
provided, however, that for purposes of perfecting a security interest in this
Agreement by the Trustee and the Bank under Article 9 of the California Uniform
Commercial Code, only the counterpart delivered, pledged, and assigned to the
Trustee shall be deemed the original.

          SECTION 10.4.  AMENDMENTS, CHANGES AND MODIFICATIONS.  Except as
otherwise provided in this Agreement or the Indenture, subsequent to the initial
issuance of Bonds and prior to their payment in full, or provision for such
payment having been made as provided in the Indenture, this Agreement may not be
effectively amended, changed, modified, altered or terminated without the
written consent of the Trustee given in accordance with Section 6.07(B) of the
Indenture, and the Bank.

          SECTION 10.5.  GOVERNING LAW; VENUE.  This Agreement 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 Agreement
shall be enforceable in the State, and any action arising out of this Agreement
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 Agreement, 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.

                                       26
<PAGE>
 
          SECTION 10.6.  AUTHORIZED REPRESENTATIVE.  Whenever under the
provisions of this Agreement the approval of the Borrower is required or the
Borrower is required to take some action at the request of the Authority, such
approval or such request shall be given on behalf of the Borrower by the
Authorized Representative, and the Authority and the Trustee shall be authorized
to act on any such approval or request and neither party hereto shall have any
complaint against the other or against the Trustee as a result of any such
action taken.

          SECTION 10.7.  TERM OF THE AGREEMENT.  This Agreement shall be in
full force and effect from the date hereof and shall continue in effect as long
as any of the Bonds or the Letter of Credit is outstanding or the Trustee holds
any moneys under the Indenture, whichever is later.  All representations and
certifications by the Borrower as to all matters affecting the Tax-exempt status
of the Bonds shall survive the termination of this Agreement.

          SECTION 10.8.  BINDING EFFECT.  This Agreement shall inure to the
benefit of and shall be binding upon the Authority, the Borrower and their
respective successors and assigns; subject, however, to the limitations
contained in Section 5.2 hereof.

          SECTION 10.9.  SURVIVAL OF FEE OBLIGATION.  The right of the
Authority, the Trustee, and the Bank to receive any fees or be reimbursed for
any expenses incurred pursuant to this Agreement, and the right of the Trustee
to be protected from any liability as provided in this Agreement shall survive
the retirement of the Bonds.

          SECTION 10.10.  PURCHASE OF BONDS.  The Borrower agrees that it shall
not purchase Bonds from the Remarketing Agent or otherwise, and that it shall
cause any Guarantor and any shareholder of the Borrower not to purchase Bonds
from the Remarketing Agent or otherwise.

          SECTION 10.11.  COMPLETE AGREEMENT.  The parties agree that the terms
and conditions of this Agreement supersede those of all previous agreements
between the parties, and that this Agreement, together with the documents
referred to in this Agreement, contains the entire agreement between the parties
hereto.

          IN WITNESS WHEREOF, the California Pollution Control Financing
Authority has caused this Agreement to be executed in its name and its seal to
be hereunto affixed and attested by its duly authorized officers, and the
Borrower has caused this Agreement to be executed in its name all as of the date
first above written.

                                       27
<PAGE>
 
                              CALIFORNIA POLLUTION CONTROL
                              FINANCING AUTHORITY

                              By: Chairman


                              By: /s/
                                 ----------------------------  
                                           Deputy


[SEAL]


Attest:

/s/
---------------------------- 
Executive Director


                              WEST VALLEY MRF, LLC

                              By: WEST VALLEY RECYCLING & TRANSFER,  
                                  INC., Member



                              By: /s/Cole Burr
                                  ------------------------------
                                  Cole Burr, President

                              By: KAISER RECYCLING CORPORATION,
                                  Member



                              By:  /s/Gerald A. Fawcett
                                  ------------------------------
                                  Gerald A. Fawcett, President

                                       28