<PAGE>

                                                                   EXHIBIT 10.42

When Recorded Please Return to:     Regions Bank
                                    Corporate Trust, 7th Floor
                                    400 West Capitol
                                    Little Rock, AR  72201

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

                       ----------------------------------
                           MORTGAGE AND LOAN AGREEMENT
                       ----------------------------------

                                     Between

                        THE CITY OF SPRINGDALE, ARKANSAS

                                       and

               ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.

                       ----------------------------------
                           Dated as of October 1, 2003
                       ----------------------------------
--------------------------------------------------------------------------------

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                                   <C>
ARTICLE I             DEFINITIONS.................................................................................     3

ARTICLE II            REPRESENTATIONS, WARRANTIES AND COVENANTS...................................................     4
                      Section 2.1       Representations, Warranties and Covenants by the City.....................     4
                      Section 2.2       Representations, Warranties and Covenants by the Company..................     5
                      Section 2.3       Environmental Representations and Covenants...............................     6

ARTICLE III           SECURITY PROVISIONS: TERM OF THE LOAN AGREEMENT.............................................     7
                      Section 3.1       Security Provisions.......................................................     7
                      Section 3.2       Term......................................................................     7
                      Section 3.2       Patent Security...........................................................     7

ARTICLE IV            FINANCING THE COST OF THE FACILITIES:ISSUANCE OF THE SERIES 2003 BONDS......................     9
                      Section 4.1       Agreement to Complete the Facilities......................................     9
                      Section 4.2       Agreement to Issue the Series 2003 Bonds; Application of
                                        Bond Proceeds.............................................................     9
                      Section 4.3       Disbursements From the Project Fund.......................................     9
                      Section 4.4       Obligation of the Parties to Cooperate in Furnishing
                                        Documents to Trustee......................................................     9
                      Section 4.5       Investment of Moneys.....................................................     10
                      Section 4.6       Arbitrage and Tax Matters................................................     10
                      Section 4.7       Establishment of Completion Date.........................................     10
                      Section 4.8       Completion of the Facilities if Project Fund Insufficient................     10
                      Section 4.9       Plans and Specifications.................................................     10
                      Section 4.10      Surety Bonds; Company to Pursue Remedies Against
                                        Contractors and Subcontractors and Their Sureties........................     11

ARTICLE V             OBLIGATIONS; PROVISIONS FOR PAYMENT........................................................     12
                      Section 5.1       Loan Payments and Other Amounts Payable..................................     12
                      Section 5.2       Payees of Payments.......................................................     13
                      Section 5.3       Obligations of Company Hereunder Unconditional...........................     13

ARTICLE VI            MAINTENANCE AND INSURANCE..................................................................     15
                      Section 6.1       Maintenance and Modifications............................................     15
                      Section 6.2       Insurance................................................................     15

ARTICLE VII           CASUALTY LOSS AND CONDEMNATION.............................................................     18
                      Section 7.1       Insurance and Condemnation Proceeds......................................     18

ARTICLE VIII          SPECIAL COVENANTS..........................................................................     19
                      Section 8.1       No Warranty of Condition or Suitability by the City......................     19
</TABLE>

                                       i

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<TABLE>
<S>                                                                                                                   <C>
                      Section 8.2       Further Assurances.......................................................     19
                      Section 8.3       Annual Audit.............................................................     19
                      Section 8.4       Financial Statements; Annual Budgets; Financial Covenants................     19
                      Section 8.5       Release and Indemnification Covenants....................................     19
                      Section 8.6       Company Representative...................................................     20
                      Section 8.7       Leases and Operating Contracts...........................................     21
                      Section 8.8       No Default Certificate...................................................     21
                      Section 8.9       [Intentionally Omitted]..................................................     21
                      Section 8.10      Limitations on Creation of Liens.........................................     21
                      Section 8.11      Limitations on Indebtedness..............................................     23
                      Section 8.12      Subordinated Debt........................................................     23
                      Section 8.13      Parity Indebtedness......................................................     23
                      Section 8.14      Transfer of Assets.......................................................     24
                      Section 8.15      Consolidation, Merger, Sale or Conveyance................................     24
                      Section 8.16      Financial Covenants......................................................     24
                      Section 8.17      Extensions of Time.......................................................     24

ARTICLE IX            ASSIGNMENT AND PLEDGING OF LOAN AGREEMENT; ................................................
                      REDEMPTION OF BONDS........................................................................     26
                      Section 9.1       Assignment by Company....................................................     26
                      Section 9.2       Assignment and Pledge by City............................................     26
                      Section 9.3       Redemption of Bonds......................................................     26

ARTICLE X             EVENTS OF DEFAULT AND REMEDIES.............................................................     27
                      Section 10.1      Events of Default Defined................................................     27
                      Section 10.2      Remedies on Default......................................................     28
                      Section 10.3      No Remedy Exclusive......................................................     30
                      Section 10.4      Agreement to Pay Attorney's Fees and Expenses............................     30
                      Section 10.5      Waiver...................................................................     30
                      Section 10.6      Appointment of Receiver..................................................     31
                      Section 10.7      Remedies Subject to Provisions of Law....................................     31
                      Section 10.8      Waiver of Appraisement, Valuation, Stay, and Execution
                                        Laws.....................................................................     31
                      Section 10.9      Purchase of Property by Bondholder or Holder of Parity
                                        Indebtedness.............................................................     31

ARTICLE XI            PREPAYMENT OF THE LOAN.....................................................................     33
                      Section 11.1      General Option to Prepay the Loan........................................     33
                      Section 11.2      Prepayment Credits.......................................................     33
                      Section 11.3      Notice of Prepayment.....................................................     33
                      Section 11.4      Use of Prepayment Moneys.................................................     33

ARTICLE XII           MISCELLANEOUS..............................................................................     34
                      Section 12.1      Notices..................................................................     34
                      Section 12.2      Binding Effect...........................................................     34
                      Section 12.3      Severability.............................................................     34
                      Section 12.4      Amounts Remaining in Funds...............................................     34
</TABLE>

                                       ii

<PAGE>

<TABLE>
<S>                                                                                                                   <C>
                      Section 12.5      Amendments, Changes and Modifications....................................     35
                      Section 12.6      Execution in Counterparts................................................     35
                      Section 12.7      Governing Law............................................................     35
                      Section 12.8      Cancellation at Expiration of Term of Agreement..........................     35
                      Section 12.9      Recording................................................................     35
                      Section 12.10     No Pecuniary Liability of City...........................................     35
                      Section 12.11     Partial Release..........................................................     35
                      Section 12.12     General Release..........................................................     36
                      Section 12.13     Captions.................................................................     36
                      Section 12.14     Payments Due on Non-Business Day.........................................     36
                      Section 12.15     Provision of General Application.........................................     36

EXHIBIT A SITE ..................................................................................................     A-1

EXHIBIT B COSTS OF THE PROJECT...................................................................................     B-1

EXHIBIT C PERMITTED EXCEPTIONS...................................................................................     C-1
</TABLE>

                                      iii

<PAGE>

                           MORTGAGE AND LOAN AGREEMENT

         This MORTGAGE AND LOAN AGREEMENT (this "Loan Agreement"), dated as of
October 1, 2003, between the CITY OF SPRINGDALE, ARKANSAS (the "City"), a body
corporate and politic, and ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
(the "Company"), a corporation duly organized and existing under the laws of the
State of Delaware.

                                   WITNESSETH:

         WHEREAS, the Company requested that the City finance the cost of
certain solid waste disposal facilities located within the City, in accordance
with that certain Mortgage and Loan Agreement, dated as of October 1, 1999 (as
amended, the "Original Loan Agreement") between the City and the Company; and

         WHEREAS, Title 14, Chapter 267 of the Arkansas Code of 1987, Annotated,
and Title 14, Chapter 164, Subchapter 2 of the Arkansas Code of 1987, Annotated
(the "Act"), authorizes the City to finance such costs; and

         WHEREAS, in order to finance such costs, the City issued its City of
Springdale, Arkansas Industrial Development Revenue Bonds (Advanced
Environmental Recycling Technologies, Inc. Project) Series 1999A (the "Series
1999 Bonds") pursuant to and secured by an Indenture of Trust, dated as of
October 1, 1999 (as amended, the "Original Indenture"), between the City and
First National Bank of Springdale, as trustee, which trustee has been succeeded
to in interest by Regions Bank (as trustee under the Original Indenture, the
"Original Trustee"); and

         WHEREAS, the rights of the City in the Loan Agreement were assigned by
the City to the Original Trustee pursuant to an Assignment of Mortgage, dated as
of October 1, 1999; and

         WHEREAS, in order to provide funds to refund, redeem and discharge the
Series 1999 Bonds, the City shall issue its City of Springdale, Arkansas
Industrial Development Refunding Revenue Bonds (Advanced Environmental Recycling
Technologies, Inc. Project) Series 2003 (the "Bonds" or the "Series 2003 Bonds")
pursuant to and secured by an Indenture of Trust, dated as of the date hereof
(the "Indenture"), between the City and Regions Bank, as trustee (the
"Trustee"); and

         WHEREAS, the City proposes to loan to the Company and the Company
desires to borrow from the City the proceeds of the Bonds upon the terms and
conditions hereinafter in this Loan Agreement set forth; and

         WHEREAS, the Company has determined that it is in the best interests of
the Company to grant and create the mortgage and security interests with respect
to the real property described in Exhibit A hereto (the "Site"), for the benefit
of the holder of the Bonds, all as defined and more fully set forth herein.

                                       1

<PAGE>

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

                                       2

<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

         All terms not defined herein shall have the meanings assigned to such
terms in Article I of the Indenture.

                                       3

<PAGE>

                                   ARTICLE II

                    REPRESENTATIONS, WARRANTIES AND COVENANTS

         Section 2.1       Representations, Warranties and Covenants by the
City. The City represents, covenants and warrants for the benefit of the
Company, the Trustee and the Bondholders that:

                  (1)      the City is an independent public body politic and
corporate constituting a political subdivision, is duly organized and existing
under the laws of the State of Arkansas, is authorized pursuant to the Act to
enter into the transactions contemplated by this Loan Agreement and the
Indenture and to carry out its obligations hereunder and thereunder, and has
duly authorized the execution and delivery of this Loan Agreement and the
Indenture;

                  (2)      consistent with the understanding between the City
and the Company, the City will loan the Company the proceeds of the Series 2003
Bonds to provide for the financing of the Refunding Project;

                  (3)      the City hereby finds that the financing of the
Refunding Project is in the public interest;

                  (4)      to finance the Refunding Project, the City will issue
the Series 2003 Bonds in the aggregate principal amount of $14,400,000. The
Series 2003 Bonds shall mature, bear interest, be subject to redemption prior to
maturity, be secured and have such other terms and conditions as are set forth
in the Indenture;

                  (5)      neither the execution and delivery of this Loan
Agreement or the Indenture, the consummation of the transactions contemplated
hereby or thereby nor the fulfillment of or compliance with the terms and
conditions of this Loan Agreement or the Indenture conflicts with or results in
a breach of any of the terms, conditions or provisions of any restriction or any
agreement or instrument to which the City is now a party or by which it is bound
or constitutes a default under any of the foregoing or results in the creation
or imposition of any prohibited lien, charge or encumbrance of any nature
whatsoever upon any of the property or assets of the City under the terms of any
instrument or agreement;

                  (6)      the City hereby approves the Company's estimate of
the total Cost of the Project set forth in Exhibit B hereto;

                  (7)      the Series 2003 Bonds are to be issued under and
secured by the Indenture pursuant to which certain of the City's interest in
this Loan Agreement will be pledged and assigned to the Trustee as security for
payment of the principal of, premium, if any, and interest on the Series 2003
Bonds; and

                  (8)      the issuance of the Series 1999 Bonds was approved by
the governmental unit on behalf of which the Series 1999 Bonds were issued by
the applicable elected representative thereof after a public hearing following
reasonable public notice.

                                       4

<PAGE>

         Section 2.2       Representations, Warranties and Covenants by the
Company. The Company represents, warrants and covenants for the benefit of the
City, the Trustee and the Bondholders, that:

                  (1)      the Company is a corporation duly organized and in
good standing under the laws of the State of Delaware, is authorized by the laws
of the State applicable as of the date hereof to provide and operate the Pledged
Springdale Property, is authorized by the laws of the State applicable as of the
date hereof to provide and operate the Lowell Property, is authorized by the
laws of the State of Texas applicable as of the date hereof to provide and
operate the Junction Property, has power to enter into and to perform and
observe the covenants and agreements on its part contained in this Loan
Agreement and the Tax Certificates and by proper action has duly authorized the
execution and delivery of this Loan Agreement, the Lowell Deed of Trust, the
Junction Deed of Trust and the Tax Certificates;

                  (2)      neither the execution and delivery of this Loan
Agreement and the Tax Certificates, the consummation of the transactions
contemplated hereby or thereby nor the fulfillment of or compliance with the
terms and conditions of this Loan Agreement and the Tax Certificates violates
any law or conflicts with or results in a breach of any of the terms, conditions
or provisions of any restriction or any agreement or instrument to which the
Company is now a party or by which it is bound or constitutes a default under
any of the foregoing or results in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the property or
assets of the Company under the terms of any instrument or agreement except for
the Indenture and other Permitted Liens;

                  (3)      the total Cost of the Project is hereby determined to
be not less than $14,400,000, and the financing of such cost by the City will
assist the Company in providing recycling and manufacturing facilities;

                  (4)      the Company intends to operate or to cause its
facilities to be operated and to use the Improvements in connection therewith to
the expiration of the term of this Loan Agreement pursuant to the Act;

                  (5)      as of the date of this Loan Agreement, there is no
litigation or legal or governmental action, proceeding, inquiry or investigation
pending or threatened by governmental authority or to which the Company is a
party or of which any property of the Company is subject, which would, if
determined adversely to the Company, materially adversely affect the
transactions contemplated hereby;

                  (6)      the Company has or shall have good and marketable
title to the Site, free from all encumbrances except Permitted Liens and such
title shall remain in the Company so long as the Series 2003 Bonds remain
Outstanding, except as otherwise provided herein;

                  (7)      the Company has obtained, or will obtain on or before
the date required therefor, all licenses, authorizations, permits and approvals
from applicable local, state and federal governmental agencies necessary to
construct the Improvements and to operate the Improvements as recycling and
manufacturing facilities contemplated by this Loan Agreement. The Company knows

                                       5

<PAGE>

of no reasons that such licenses, authorizations, permits and approvals will not
be issued or issued in a timely manner;

                  (8)      the Company is in possession of a Phase One
Environmental Assessment which was performed on the Site, and such assessment
has not revealed any contamination of the Site or any violation of any rules or
regulations of the Environmental Protection Agency or any other environmental
protection rule or regulation of any federal, state or local agency;

                  (9)      the Company is in possession of Phase One
Environmental Assessments which were performed on the Lowell Property and the
Junction Property, and such assessments have not revealed any contamination of
the Lowell Property or the Junction Property or any violation of any rules or
regulations of the Environmental Protection Agency or any other environmental
protection rule or regulation of any federal, state or local agency; and

                  10)      no improvements located or to be located in the
building set-back shown on the ALTA/ATSM Land Title Survey prepared with respect
to the Site are used or shall be used in the business operations of the Company.

         Section 2.3       Environmental Representations and Covenants. Except
as may be described in (i) the Phase I Environmental Site Assessment dated
September 2003, prepared by ENVIRON International Corporation with respect to
the Site, or (ii) the Phase I Environmental Site Assessment dated September
2003, prepared by ENVIRON International Corporation with respect to the Junction
Property , or (iii) the limited environmental review dated September 12, 2003,
prepared by ENVIRON International Corporation with respect to the Lowell
Property, or (iv) the Phase I Environmental Site Assessment Report, dated
October 1, 2002, prepared by B&F Engineering, Inc., with respect to the Lowell
Property, neither the Company nor, to the Company's knowledge, any other Person
has ever caused or permitted any Hazardous Material to be placed, held, located
or disposed of on, under or at the Property, the Junction Property or the Lowell
Property or any part thereof except in compliance with Environmental Laws. The
Company hereby warrants and represents that, to the best of its knowledge, it
has complied and, in the future, will comply in all material respects with all
applicable Environmental Laws. None of the Property, the Junction Property or
the Lowell Property has previously contained, and none of such properties now
contain, any underground storage tanks (other than in compliance with all
applicable Environmental Laws) and none has ever been used by the Company or by
any other Person as a temporary or permanent storage or disposal site for any
Hazardous Material. The Company has delivered to the Trustee all environmental
reports, studies, audits and other data and information in the possession or
control of the Company relating to the Property, the Junction Property and the
Lowell Property.

         If the City or the Trustee reasonably suspects that any violation of
the Environmental Laws is occurring involving the Property the Junction Property
or the Lowell Property, or if an Event of Default shall have occurred and be
continuing which, with the passage of time or the giving of notice, or both,
would constitute an Event of Default, the City and the Trustee shall have the
right, but no obligation, to conduct any tests or inspections of the Property,
the Junction Property and the Lowell Property at the Company's expense
(including, without limitation, soil and other tests, borings, sampling and
monitoring) in order to determine compliance with Environmental Laws or

                                       6

<PAGE>

the presence thereon or therein of Hazardous Material and to have access to the
Property, the Junction Property and the Lowell Property for such purposes.

                                       7

<PAGE>

                                   ARTICLE III
                 SECURITY PROVISIONS: TERM OF THE LOAN AGREEMENT

         Section 3.1       Security Provisions. In order to secure the payment
of the Bonds and Parity Indebtedness and payment of all sums advanced under this
Loan Agreement, including advances which may be made in the future and to secure
the performance by the Company of all the covenants expressed or implied by this
Loan Agreement (a) the Company does hereby grant, bargain, sell, convey and
mortgage unto the City its interest in the real property described in Exhibit A
hereto (the "Site") and the improvements located or to be constructed thereon
(the "Improvements," and together with the Site, the "Property"), and any
fixtures or appurtenances now or hereafter erected thereon; together with all
rents and leases, profits, royalties, minerals, geothermal resources, oil and
gas rights and profits, easements and access rights, now owned or hereafter
acquired by the Company, used, belonging to, or in any way connected with the
Property, all of which are declared to be a part of said Property, and all the
rights, privileges, benefits, hereditaments and appurtenances in any way
belonging, incidental or appertaining to the Property (other than equipment
hereafter acquired), subject to Permitted Liens as described in Section 8.10
hereof, and (b) the Company hereby pledges to and grants to the City a present
security interest, within the meaning of the Arkansas Uniform Commercial Code
and to the extent permitted by law, in (i) the Pledged Revenues, (ii) all of its
right, title and interest, if any, in the Funds (other than the Rebate Fund),
(iii) any trust accounts referred to in this Loan Agreement or in the Indenture,
(iv) all tangible personal property, furniture, machinery and equipment of the
Company, now owned by the Company and located on the Site (the "Equipment"), and
(v) inventory of the Company located on the Site, in each case subject to
Permitted Liens and subject to liens and security interests of record as of the
date of execution hereof, excluding from such pledge and security interest all
patents, trademarks, copyrights, licenses and similar proprietary rights of the
Company now owned or hereafter acquired, to the extent the same constitute
"collateral" within the meaning of Section 3.3 hereof . The Site, the
Improvements and the Equipment are referred to herein as the "Pledged Springdale
Property."

                  This pledge shall be valid and binding from and after the date
of the first delivery of any of the Bonds. To the extent any assets pledged
pursuant to this Loan Agreement consist of rights of action or personal
property, this Loan Agreement constitutes a security agreement and financing
statement and is intended when recorded to create a perfected security interest
in such assets in favor of the City. The Company shall file financing statements
from time to time relating to this Loan Agreement in such manner and at such
places as may be required by law fully to protect the security of the
Bondholders and the right, title and interest of the Trustee in and to the Trust
Estate or any part thereof.

         Notwithstanding the foregoing, the Company shall be entitled to pledge
any accounts receivable and inventory, on a basis senior to the pledge herein
provided, to secure the payment of Indebtedness in the form of a revolving
credit or similar agreement in a maximum principal amount equal to 85% of such
accounts receivable plus 50% of inventory value.

         In addition, the Company shall be entitled to pledge purchase order
receipts from Approved Purchasers and to pledge inventory with respect thereto
on a basis senior to the pledge herein provided, to secure the payment of
Indebtedness in a maximum principal amount equal to 95% of the principal amount
of such purchase orders. The terms of such Indebtedness shall require that the

                                       8

<PAGE>

principal balance of such indebtedness be reduced to $0 for a period of not less
than three consecutive business days annually.

         The Trustee, as assignee of the City pursuant to the Assignment, will
execute such subordination or similar agreements as reasonably requested by the
Company with respect to any such accounts receivable, purchase order and
inventory pledge. In the event the Company is unable, following a reasonable
good faith effort, as certified to the Trustee, to obtain a commitment from a
lending institution to provide either such credit arrangements, the Company may
submit revised proposed lending terms to the holders of the Bonds requesting a
consent to such terms, which consent shall not be unreasonably withheld.

         Section 3.2       Term. This Loan Agreement shall remain in full force
and effect from the date of delivery hereof until such time as all of the Bonds
and Parity Indebtedness shall have been fully paid or provision is made for such
payment pursuant to the Indenture and all reasonable and necessary fees and
expenses of the Trustee accrued and to accrue through final payment of the Bonds
and Parity Indebtedness, all fees and expenses of the City accrued and to accrue
through final payment of the Bonds and Parity Indebtedness and all other
liabilities of the Company accrued and to accrue through final payment of the
Bonds and Parity Indebtedness under this Loan Agreement and the Indenture have
been paid or provision is made for such payments pursuant to the Indenture.

         Section 3.3       Patent Security. Simultaneously with the execution
hereof, the Company shall execute and deliver a Patent and Trademark Security
Agreement for the benefit of the Trustee, the provisions of which shall control
all security and other interests of the Trustee in "collateral," as therein
defined, to the extent the same shall be inconsistent with the terms hereof or
of the Lowell Mortgage or the Junction Deed of Trust.

                                       9

<PAGE>

                                   ARTICLE IV
                      FINANCING THE COST OF THE FACILITIES:
                        ISSUANCE OF THE SERIES 2003 BONDS

         Section 4.1       Agreement to Complete the Facilities. The Company
agrees that it will acquire, construct, improve and equip the Facilities
described in Exhibit B.

         Section 4.2       Agreement to Issue the Series 2003 Bonds; Application
of Bond Proceeds. In order to provide funds to make the Loan for payment of the
Refunding Project, the City will sell and cause to be delivered to the initial
purchaser thereof the Series 2003 Bonds and will apply the proceeds thereof to
the payment of the Series 1999 Bonds on October 16, 2003. Proceeds of the Series
1999 Bonds on deposit with the Original Trustee shall be deposited in the
Project Fund or the Reserve Fund or applied to the redemption of Series 1999
Bonds, as provided in Article III of the Indenture, and invested as provided in
Section 6.1 of the Indenture.

         Section 4.3       Disbursements From the Project Fund. The City has, in
the Indenture, authorized and directed the Trustee to make payments from the
Project Fund to pay (or to reimburse the Company for the payment of) the Cost of
the Project, including costs related to the design, planning, acquisition,
construction, improvement, equipment and operation of the Facilities. Each such
payment of the Cost of the Project related thereto shall be made only upon
receipt by the Trustee of a requisition signed by the Company Representative
showing the payment to be necessary and reasonable and stating (i) the
requisition number, (ii) the name and address of the person, firm or corporation
to whom payment is due or was made, (iii) the amount to be paid or for which
reimbursement is sought, (iv) that none of the items for which the payment or
reimbursement is proposed to be made has been the subject of any payment or
reimbursement theretofore made from the Project Fund, (v) the nature of each
item for which the payment or reimbursement is proposed to be made and in
connection with the Facilities described in Exhibit B, if applicable, that such
item is or was reasonable and necessary in connection with the design, planning,
acquisition, construction, improvement and equipping of the Facilities described
in Exhibit B, and in all cases is a proper Cost of the Project and a proper
charge against the Project Fund, and (vi) that upon payment or reimbursement of
the amount requested in such requisition, the amount remaining in the Project
Fund, together with other legally available moneys of the Company will be
sufficient to pay the portion of the Cost of the Project relating to the design,
planning, acquisition, construction, improving and equipping of the Facilities
then unpaid. No disbursement requested in any requisition (other than with
respect to equipment or working capital) shall be made by the Trustee unless
there is attached to the requisition (a) lien waivers covering all work done
and/or materials furnished in connection with the Improvements relating to any
prior disbursement from the Project Fund for payment to contractors or
materialmen and (b) endorsements reflecting any title insurance increases. The
Trustee may, but shall be under no obligation, to review such lien waivers.

         Section 4.4       Obligation of the Parties to Cooperate in Furnishing
Documents to Trustee. The Company and the City agree to cooperate with each
other in furnishing to the Trustee the requisitions referred to in Sections 4.3
hereof. Such obligation of the City shall not extend beyond the moneys in the
Project Fund available for payment under the terms of the Indenture.

                                       10

<PAGE>

         Section 4.5       Investment of Moneys. Any moneys held as a part of
the Funds shall be invested, reinvested and transferred to other Funds by the
Trustee as provided in Article VI of the Indenture.

         Section 4.6       Arbitrage and Tax Matters. The Company hereby
covenants and represents for the benefit of each owner of the Bonds and the City
that it will not make or permit any use of the proceeds of the Bonds or the
moneys in the Funds or take any other action which will cause the Bonds to be
"arbitrage bonds" within the meaning of Section 148 of the Code. The Company
covenants that it will comply with the applicable requirements of Section 148 of
the Code so long as any Bonds are Outstanding. The Company shall deliver to the
City certificates in such reasonable form as the City shall specify upon which
the City may rely in furnishing the certificates required by Section 6.2 of the
Indenture. The Company covenants and agrees to comply with the provisions of the
Tax Certificates.

         Section 4.7       Establishment of Completion Date. The Company agrees
to provide to the Trustee the certificate with respect to completion of the
Facilities on the Completion Date. The Company covenants that the acquisition,
construction, improvement and equipping of the Facilities described in Exhibit B
will be completed no later than September 15, 2004.

         Section 4.8       Completion of the Facilities if Project Fund
Insufficient. The Company acknowledges that the moneys in the Project Fund
available for payment of the Cost of the Project may not be sufficient to pay
the cost thereof in full, and agrees to complete the Facilities and to pay that
portion of the cost of the Facilities in excess of the moneys available therefor
in the Project Fund from any moneys legally available for such purpose. The City
does not make any warranty, either express or implied, that the moneys which
will be paid into the Project Fund will be sufficient to pay all the cost of the
Facilities. The Company shall not be entitled as a result of paying a portion of
the Cost of the Project pursuant to this Section to any reimbursement therefor
from the City, the Trustee or from the owners of any Bonds, nor shall it be
entitled to any diminution in or postponement of the payments required to be
paid under this Loan Agreement.

         Section 4.9       Plans and Specifications. Any Improvements which have
not yet been completed shall be acquired, constructed, improved and equipped
substantially in accordance with the plans and specifications therefor and any
amendments thereto. A copy of all such plans and specifications for Improvements
not yet constructed shall be filed by the Company with the Trustee for
safekeeping but the Trustee shall be under no affirmative obligation to review
such plans and specifications. The Company may revise the plans and
specifications at any time prior to completion of the acquisition, construction,
improvement and equipping of the Facilities described in Exhibit B, provided
that (i) a Company Representative shall certify to the Trustee that the
Facilities described in Exhibit B in accordance with the revised plans and
specifications will constitute a project permitted pursuant to the Act, (ii)
such Facilities when completed in accordance with the revised plans and
specifications will not be materially inconsistent with the description attached
as Exhibit B hereto, (iii) the Company shall comply with the requirements of
subparagraphs (a) and (b) of the following paragraph, and (iv) if applicable,
evidence that the Company has sufficient funds to construct such Facilities.

         In addition, the Company may make revisions to the plans and
specifications which will cause the Facilities to be materially inconsistent
with the description attached hereto as Exhibit B so

                                       11

<PAGE>

long as the Company has obtained the prior written consent of a majority of the
holders or Beneficial Owners of the Bonds and has provided the following to the
Trustee and the City:

                  (a)      a certificate of an Independent Architect stating the
Facilities, after completion in accordance with the revised plans and
specifications, will constitute a project permitted pursuant to the Act;

                  (b)      a construction budget and construction schedule for
the completion of the Improvements;

                  (c)      an Opinion of Bond Counsel acceptable to the City to
the effect that such revisions will not adversely affect the validity of the
Series 2003 Bonds or the exclusion of interest on the Series 2003 Bonds from
gross income for federal income tax purposes;

                  (d)      a revised Exhibit B hereto; and

                  (e)      if applicable, evidence that the Company has
                           sufficient funds to complete such Facilities (from
                           any source).

         Section 4.10      Surety Bonds; Company to Pursue Remedies Against
Contractors and Subcontractors and Their Sureties. The Company shall secure from
each contractor directly employed by the Company or from any subcontractor to
such contractor in connection with the acquisition, construction, improvement
and equipping of the Improvements under a contract or contracts totaling over
$50,000 payment and performance bonds executed by a responsible surety company
authorized to do business in the State of Arkansas in a penal sum equal to the
entire amount to become payable. Each bond shall be conditioned on the
completion of the work under the contract with such general contractor in
accordance with the plans and specifications and upon the payment of all claims
of subcontractors and suppliers. A dual obligee rider in favor of the City and
the Trustee shall be obtained by the Company for each such bond obtained prior
to and after the date of the delivery of the Series 2003 Bonds. Each such bond
shall be delivered by the Company to the Trustee and the City, promptly upon
receipt thereof by the Company.

         In the event of a material default of any contractor or subcontractor
under any contract in connection with the acquisition, construction, improvement
and equipping of the Improvements or in the event of a material breach of
warranty with respect to any material, workmanship or performance guaranty, the
Company will promptly proceed to exhaust the remedies of the Company, the City
and the Trustee against the contractor, subcontractor or supplier in default and
against any surety for the performance of such contract. The Company shall
advise the City and the Trustee of the steps it intends to take in connection
with any such default. Any amounts recovered by way of damages, refunds,
adjustments or otherwise in connection with the foregoing shall be paid into the
Project Fund, net of legal fees and other reasonable collection costs, unless
recovered after the Completion Date and full disposition of the Project Fund in
accordance with the Indenture, in which case such amounts shall first be used to
correct defects created by such default or breach of warranty or to reimburse
the Company for amounts paid by the Company to correct such defects and, second,
any excess shall be deposited in to the Bond Principal Fund.

                                       12

<PAGE>

                                    ARTICLE V
                       OBLIGATIONS; PROVISIONS FOR PAYMENT

         Section 5.1       Loan Payments and Other Amounts Payable.

                  (a)     As repayment of the Loan, the Company shall deposit
with the Trustee, on the date of issuance of the Bonds, and thereafter not later
than the 15th day of each month, the Monthly Payment with respect to the
following calendar month, in accordance with the Indenture, which amounts shall
be applied to the payment of the Bonds at the times and in the manner provided
in the Indenture. The Company shall be entitled to credit with respect to such
Monthly Payments for any transfers to the Bond Principal Fund and Bond Interest
Fund pursuant to Section 3.7(b) of the Indenture.

                  (b)      Upon any acceleration of amounts due under the Loan
Agreement, the Company shall immediately pay as repayment of the Loan, for
deposit in the Bond Principal Fund, the Bond Interest Fund and the Reserve Fund,
an amount which, together with other moneys available under the Loan Agreement,
is sufficient to pay the entire principal of and interest on the Series 2003
Bonds.

                  (c)      On or before any redemption date (other than a
sinking fund redemption date) for which a notice of redemption has been given
pursuant to the Indenture, the Company shall pay as repayment of the Loan, for
deposit in the Bond Principal Fund, an amount which, together with other moneys
available therefor in the Bond Principal Fund (and, if all Bonds are called for
redemption, the Reserve Fund), is sufficient to pay the principal of and
premium, if any, on the Series 2003 Bonds called for optional or mandatory
redemption and for deposit into the Bond Interest Fund an amount of money which,
together with other moneys available therefor in the Bond Interest Fund, is
sufficient to pay the interest accrued to the redemption date on the Series 2003
Bonds called for optional or mandatory redemption. If on any principal or
interest payment date on the Bonds or the date any other amounts are payable on
the Bonds the amount held by the Trustee in the Bond Principal Fund and the Bond
Interest Fund is insufficient to make the required payments of principal of,
premium, if any, and interest on the Bonds, the Company shall forthwith pay such
deficiency as repayment of the Loan for deposit in the Bond Principal Fund or
the Bond Interest Fund, as the case may be.

                  (d)      At the option of the Company Representative, so long
as no Event of Default has occurred or is occurring, to be exercised by delivery
of a written certificate to the Trustee and the City not less than 45 days next
preceding the applicable sinking fund redemption date, it may (i) deliver to the
Trustee for cancellation Bonds in an aggregate principal amount desired by the
Company Representative or (ii) specify a principal amount of such Bonds which
prior to said date have been redeemed (otherwise than through the operation of
the applicable sinking fund) and canceled by the Trustee and not theretofore
applied as a credit against the respective sinking fund redemption obligation.
Each such Bond so delivered or previously redeemed shall be credited by the
Trustee at 100 percent of the principal amount thereof against the obligation of
the Company on such respective sinking fund redemption date for Bonds and any
excess over such amounts shall be credited against future sinking fund
redemption obligations for such Bonds as directed by the Company Representative.
In the event the Company Representative shall avail itself of the

                                       13

<PAGE>

provisions of clause (i) of the first sentence of this paragraph, the
certificate required by the first sentence of this paragraph shall be
accompanied by the Bonds to be canceled.

                  (e)      The Company shall deposit the following amounts to
the Reserve Fund:

                           (i)      on the date of issuance of the Bonds (A)
$1,440,000 from proceeds of the Series 1999 Bonds, and (B) $410,000 from funds
of the Company;

                           (ii)     on the fifteenth day of each month,
commencing October 15, 2003, through March 15, 2004, the amount of $31,667; and

                           (iii)    after March 15, 2004, in the event any
moneys in the Reserve Fund are transferred to the Bond Principal Fund or the
Bond Interest Fund pursuant to the Indenture, or to the Rebate Fund pursuant to
the Indenture, or in the event the valuation of the amounts in the Reserve Fund
required by the Indenture reveals there is an amount less than the Reserve
Requirement on deposit in the Reserve Fund, the Company shall deposit, on the
first day of each month following such transfer or valuation, substantially
equal monthly payments into the Reserve Fund to cause the total amount in the
Reserve Fund to equal the Reserve Requirement not later than the next succeeding
Interest Payment Date.

                  (f)      The Company agrees to pay to the Trustee and the
City, respectively, as an Operating Expense, the reasonable and necessary fees
and expenses of the Trustee and the City, respectively, including the reasonable
fees and other costs incurred for the services of any paying agent or engineers,
architects, attorneys, management consultants, accountants and other consultants
employed by the Trustee or the City to make examinations and reports, provide
services and render opinions required under the Loan Agreement or the Indenture,
plus the Company agrees to pay to the appropriate party the fees and expenses of
any rebate analyst selected by the Trustee as provided in the Indenture, as and
when the same become due, upon submission of a statement therefor.

                  (g)      The Company agrees to pay to the Trustee as an
Operating Expense all amounts to be deposited to the Rebate Fund, as and when
the same become due as determined pursuant to the Indenture, to the extent there
are no other amounts available to make such deposits, and to cause the Trustee
to apply such funds in compliance with the terms of the Indenture.

                  (h)      The Company agrees to pay as an Operating Expense all
costs and expenses which may be incurred in connection with any removal or
substitution of the Trustee and the appointment of any successor trustee.

         Section 5.2       Payees of Payments. The Payments provided for in
Section 5.1(a), (b) and (c) hereof shall be paid in funds immediately available
in the city in which the designated office of the Trustee is located directly to
the Trustee for the account of the City and shall be deposited as therein
provided. The Payments provided for in Section 5.1(e) hereof shall be paid in
funds immediately available in the city in which the designated office of the
Trustee is located directly to the Trustee for the benefit of the Bondholders
and shall be deposited in the Reserve Fund. The payments to be made under
Section 5.1(d), (g) and (h) hereof shall be paid directly to the payee for its
own use.

                                       14

<PAGE>

         Section 5.3       Obligations of Company Hereunder Unconditional. The
obligations of the Company to make the payments required in Section 5.1 hereof
and to perform and observe the other agreements on its part contained herein
shall be absolute and unconditional. The Company (i) will not suspend or
discontinue, or permit the suspension or discontinuance of, any payments
provided for in Section 5.1 hereof, (ii) will perform and observe all of its
other agreements contained in this Loan Agreement, and (iii) except as provided
in Article XI hereof, will not terminate this Loan Agreement for any cause
including, without limiting the generality of the foregoing, failure to acquire,
construct, improve and equip the Improvements, any acts or circumstances that
may constitute failure of consideration, eviction or constructive eviction,
destruction of or damage to its solid waste disposal or manufacturing
facilities, commercial frustration of purpose, or change in the tax or other
laws or administrative rulings of or administrative actions by the United States
of America or the State of Arkansas or any political subdivision of either, any
failure of the City to perform and observe any agreement, whether express or
implied, or any duty, liability, or obligation arising out of or connected with
this Loan Agreement, whether express or implied, or any failure of the Trustee
to perform and observe any agreement, whether express or implied, or any duty,
liability or obligation arising out of or connected with the Indenture, whether
express or implied. Nothing contained in this Section shall be construed to
release the City from the performance of any agreements on its part herein
contained, and if the City shall fail to perform any such agreement, the Company
may institute such action against the City as the Company may deem necessary to
compel performance, provided that no such action shall violate the agreements on
the part of the Company contained herein. The Company may, however, at its own
cost and expense and in its own name or in the name of the City, prosecute or
defend any action or proceeding or take any other action involving third persons
which the Company deems reasonably necessary in order to secure or protect its
right of possession, occupancy and use of its solid waste disposal or
manufacturing facilities, and in such event the City hereby agrees to cooperate
fully with the Company (without expense to the City).

                                       15
<PAGE>

                                   ARTICLE VI
                            MAINTENANCE AND INSURANCE

         Section 6.1       Maintenance and Modifications . The Company agrees
that during the term of this Loan Agreement its Property, Plant and Equipment
shall be operated and maintained in substantial compliance with all laws,
building codes, ordinances and regulations and zoning laws as shall be
applicable to the Property, Plant and Equipment. The Company agrees that during
the term of this Loan Agreement it will at its own expense (i) keep the
Property, Plant and Equipment in as reasonably safe condition as its operations
permit and (ii) keep the Property, Plant and Equipment in good repair and in
good operating condition, making from time to time all necessary repairs thereto
(including external and structural repairs) and renewals and replacements
thereof. The Company may also at its own expense, make from time to time any
additions, modifications or improvements to the Property, Plant and Equipment it
may deem desirable for its purposes that do not adversely affect the structural
integrity of any building or substantially reduce its value or impair the
character of its use permitted pursuant to the Act, provided that all such
additions, modifications, renovations, repairs and improvements made by the
Company shall become a part of the Property, Plant and Equipment; provided,
however, that nothing in this subsection shall prevent the Company from ceasing
to operate any immaterial portion of the Property, Plant and Equipment. The
Company hereby covenants and agrees that it shall not construct any improvements
or install any equipment on any portion of the Property, the Lowell Property or
the Junction Property located within a federally designated flood hazard zone
unless and until such property shall be insured against loss or damage by flood
in accordance with Section 6.2(a) hereof.

         Section 6.2       Insurance.

         (a)      Throughout the term of this Loan Agreement, the Company will
keep the Property, the Lowell Property and the Junction Property (or cause the
Property, the Lowell Property and the Junction Property to be kept) continuously
insured against such risks as are customarily insured against with respect to
property similar to the Property, the Lowell Property and the Junction Property
by businesses of like size and type, paying as the same becomes due all premiums
in respect thereto, including but not necessarily limited to:

                  (i)      Insurance to the full insurable value of the
                  Property, Plant and Equipment of the Company as determined by
                  the Company sufficient to prevent the Company from being a
                  co-issuer (and in no event less than the principal amount of
                  the Bonds Outstanding from time to time), against loss or
                  damage by fire, lightning and flood (if the Property, the
                  Lowell Property or the Junction Property is located within a
                  federally designated flood hazard zone) and such other risks
                  and matters, including without limitation, rental loss, public
                  liability and boiler insurance, with uniform standard extended
                  coverage endorsement limited only as may be provided in the
                  standard form of extended coverage endorsement at that time
                  customarily used in the State where such property is located,
                  provided that the insurance required by this subsection may
                  contain a deductible provision and be in amounts which in the
                  opinion of an Insurance Consultant is normal and reasonable.

                                       16

<PAGE>

                  (ii)     General public liability insurance against claims for
                  bodily injury, death or property damage occurring on, in or
                  about the Property, the Lowell Property and the Junction
                  Property and the adjoining streets, sidewalks and passageways,
                  such insurance to afford protection of the type and in an
                  amount which in the opinion of an Insurance Consultant is
                  normal and reasonable with respect to bodily injury and
                  property damage.

                  (iii)    Rental or business interruption insurance against
                  abatement of rent resulting from fire or other casualty in an
                  amount not less than $1,000,000, with the proceeds from such
                  rental or business interruption insurance being payable to the
                  Company and the Trustee, as their respective interest may
                  appear.

                  (iv)     Worker's compensation insurance as required by law.

                  (v)      Key-man insurance with respect to Joe Brooks, the
                  Co-Chairman of the Board of Directors of the Company, in the
                  amount of $4 million and Douglas Brooks, as the Vice
                  President, in the amount of $2.5 million.

         (b)      Anything herein to the contrary, notwithstanding, a
Significant Bondholder may, by notice thereof in writing to the Company and the
Trustee, require additional insurance to be carried by the Company with respect
to the Property, the Lowell Property or the Junction Property beyond that
expressly identified herein, with respect to such risks and in such coverage
amounts and other terms as in each case are reasonable and customary with
respect to property similar to the Property, the Lowell Property or the Junction
Property, and the Company will obtain such insurance and furnish to the Trustee
and Significant Bondholder evidence thereof satisfactory to the Trustee and
Significant Bondholder. All policies of insurance shall be issued by an insurer
authorized to do business in the State where the respective property is located
having a rating of at least A:6 in Best's Key Rating Guide. Not later than 30
days prior to the expiration date of each of the insurance policies, the Company
will deliver to the Trustee satisfactory evidence of the renewal of each of the
policies. If at any time the Issuer is not in receipt of written evidence that
all insurance required hereunder is in full force and effect, the Issuer will
have the right without notice to the Company to take such action as the Issuer
deems necessary to protect its interest in the Property, the Lowell Property and
the Junction Property, including without limitation the obtaining of such
insurance coverage as the Trustee in its sole discretion deems appropriate, and
all expenses incurred by the Trustee in connection with such action or in
obtaining such insurance and keeping it in effect will be paid by the Company to
the Trustee upon demand; provided, however, that if that the Trustee takes any
such action, the Issuer shall give the Company notice of such action within five
Business Days thereof.

         (c)      All of the insurance policies required pursuant to this
Section 6.2 will (i) contain a standard noncontributory form of mortgage clause
(in favor of the Trustee and entitling the Trustee to collect any and all
proceeds payable under such insurance), as well as a standard waiver of
subrogation endorsement, and in the case of such liability policy, name the
Trustee as an additional insured, all to be in form and substance satisfactory
to the Trustee; (ii) provide, to the extent obtainable, that such policies may
not be canceled or amended to diminish the coverage thereunder without at least
30 days prior written notice to the Trustee; and (iii) provide that no act,
omission or

                                       17

<PAGE>

negligence of the Company, or its agents, servants or employees, or of any
tenant under any lease, which might otherwise result in a forfeiture of such
insurance or any part thereof, shall in any way affect the validity or
enforceability of such insurance insofar as the Issuer is concerned. The Company
will not carry separate insurance, concurrent in kind or form or contributing in
the event of loss, with any insurance required under this Section 6.2.

         The Company shall retain an Insurance Consultant to review the
insurance requirements of the Company at the date of issuance of the Series 2003
Bonds and from time to time thereafter (but not less frequently than every two
years) and to cause a certificate to be delivered to the Trustee and to the
Bondholders as to whether the insurance being maintained is in compliance with
the requirements of this Section. If the Insurance Consultant makes
recommendations for the increase of any coverage, the Company shall increase or
cause to be increased such coverage in accordance with such recommendations, to
the extent that the Governing Body of the Company determines in good faith that
such recommendations are in the best interests of the Company. If the Insurance
Consultant makes recommendations for the decrease or elimination of any
coverage, the Company may decrease or eliminate such coverage in accordance with
such recommendations, to the extent that the Governing Body of the Company
determines in good faith that such recommendations are in the best interest of
the Company.

         Notwithstanding anything in this Section to the contrary, the Company
shall have the right, without giving rise to an Event of Default solely on such
account, (i) to maintain insurance coverage below that most recently recommended
by the Insurance Consultant, if the Company furnishes to the Trustee a report of
the Insurance Consultant to the effect that the insurance so provided affords
either the greatest amount of coverage available for the risk being insured
against at rates which in the judgment of the Insurance Consultant are
reasonable in connection with reasonable and appropriate risk management, or the
greatest amount of coverage necessary by reason of state or federal laws now or
hereafter in existence; or (ii) to adopt alternative risk management programs
which the Insurance Consultant determines to be reasonable, including, without
limitation, to self-insure in whole or in part individually or in connection
with other institutions, to participate in programs of captive insurance
companies, to participate with other solid waste disposal and manufacturing
companies in mutual or other cooperative insurance or other risk management
programs, to participate in state or federal insurance programs, or to establish
or participate in other alternative risk management programs; all as may be
approved by the Insurance Consultant as reasonable and appropriate risk
management by the Company. If the Company shall be self-insured for any
coverage, the report of the Insurance Consultant mentioned above shall state
whether the anticipated funding of any self-insurance fund is actuarially sound,
and if not, the required funding to produce such result and such coverage shall
be reviewed by the Insurance Consultant not less frequently than annually.
Notwithstanding the other provisions of this Section, the Company shall not
self-insure (other than with respect to reasonable deductibles certified as such
in an Officer's Certificate of the Company Representative) or otherwise
participate in programs described in (ii) above with respect to any insurance
against loss or damage to the Property, Plant and Equipment by fire, lightning,
vandalism, malicious mischief or other casualty or with respect to boiler
insurance and provided further that, the Company shall not self-insure if such
self-insurance has a material adverse effect on reimbursement from any third
party payor unless its Governing Body shall have determined in good faith,
evidenced by a resolution of the Governing Body, that such self-insurance is in
the best

                                       18

<PAGE>

interests of the Company and the Company has given prior notice of such
self-insurance to the Trustee and the Bondholders.

         The Company Representative shall deliver to the Trustee (i) upon
execution and delivery of this Loan Agreement, the originals or certified copies
thereof of all insurance policies (or certificates thereof) which the Company is
required to maintain pursuant to this Section, together with a Certificate of
the Company Representative that payment of all premiums then due thereon has
been made, (ii) at least 30 days prior to the expiration of any such policies
evidence as to the renewal thereof, if then required by this Section or the
terms of such policies, and an Officer's Certificate of the Company
Representative that payment of all premiums then due with respect thereto has
been made, and (iii) promptly upon request by the Trustee, but in any case
within 90 days after the end of each calendar year, a certificate of the Company
Representative setting forth the particulars as to all insurance policies
maintained by the Company pursuant to this Section and certifying that such
insurance policies are in full force and effect, that such policies comply with
the provisions of this Section and that all premiums then due thereon have been
paid.

                                       19

<PAGE>

                                   ARTICLE VII

                         CASUALTY LOSS AND CONDEMNATION

         Section 7.1       Insurance and Condemnation Proceeds. In the event
that damage or destruction to the Property, the Lowell Property or the Junction
Property or any portion thereof occurs such that claims for loss do not exceed
$100,000 or in the event title to or the temporary use of the Property, the
Lowell Property or the Junction Property, or any portion thereof, will be taken
under the exercise of the power of eminent domain and the Net Proceeds from any
condemnation award are less than $100,000, the Net Proceeds of insurance
resulting from such claims or from any such condemnation award will be paid to
the Company and will be used for such purposes as the Company, in its
discretion, may deem appropriate. In the event that any damage or destruction is
such that claims for loss are between $100,000 and $1,000,000, both inclusive,
or the Net Proceeds from any condemnation award are between $100,000 and
$1,000,000, both inclusive, the Net Proceeds of insurance resulting from such
claims or from any such condemnation award will be paid to the Company and used
by the Company with the consent of a Significant Bondholder either to redeem
Bonds or to repair, rebuild, restore or replace the property. In the event that
any damage or destruction is such that claims for loss exceed $1,000,000, or the
Net Proceeds from any condemnation award exceed $1,000,000, the Net Proceeds of
insurance resulting from such claims or from any such condemnation award will be
held by the Trustee, and the Company will elect to have the Net Proceeds
received applied to either the redemption of the Bonds or to repair, rebuild,
restore or replace the property. If the Company elects the latter option, then
the Net Proceeds will be paid by the Trustee from a separate account, from time
to time, upon evidence of the expenditures therefor, upon receipt of a
certificate of an Independent Architect. The Company may elect to redeem less
than all of the Bonds only if (a) the property damaged, destroyed or condemned
is not essential to the Company's use or occupancy of the Property, the Lowell
Property or the Junction Property; (b) the Property, the Lowell Property or the
Junction Property has been restored to a condition substantially equivalent to
their condition prior to such damage, destruction or condemnation; or (c)
suitable replacement property has been acquired for the Company's operations.

                                       20

<PAGE>

                                  ARTICLE VIII

                                SPECIAL COVENANTS

         Section 8.1       No Warranty of Condition or Suitability by the City.
The City makes no warranty, either express or implied, as to the condition of
the Facilities, or that they will be suitable for the purposes or needs of the
Company.

         Section 8.2       Further Assurances. The City and the Company agree
that they will, from time to time, execute, acknowledge and deliver, or cause to
be executed, acknowledge and delivered, such supplements hereto and such further
instruments as may reasonably be required for carrying out the intention of or
facilitating the performance of this Loan Agreement.

         Section 8.3       Annual Audit. The Company will have the books and
records of the Company audited annually, and shall furnish within 120 days after
the end of each Fiscal Year to the City, the Notice Beneficial Owners, the
Underwriter and the Trustee a copy of the audit report certified by independent
public accountants.

         Section 8.4       Financial Statements; Annual Budgets. The Company
agrees that it will maintain proper books of records and accounts of its
Property, Plant and Equipment with full, true and correct entries of all of its
dealings in accordance with generally accepted accounting principles, and that
it will furnish to the Trustee, the Underwriter and Notice Beneficial Owners
quarterly financial statements within 45 days after the close of each such
quarter, including a statement of income in comparative form, to the extent
practicable, with the financial figures from the corresponding period in the
preceding Fiscal Year and a balance sheet as of the end of each such period and
of the preceding fiscal year.

         Section 8.5       Release and Indemnification Covenants. The Company
agrees to protect and defend the City, former, present and future council
members, officers, employees and other agents of the City and each person, if
any, who has the power, directly or indirectly, to direct or cause the direction
of the management or policies, now or hereafter, of the City and to protect and
defend the Trustee, its officers, employees and agents (collectively, the
"Indemnified Parties" and individually, the "Indemnified Party") and further
agrees to indemnify and hold harmless the Indemnified Parties from and against
any and all liabilities, losses, damages, costs, expenses (including reasonable
attorneys' fees and court costs, including those for post-judgment and appellate
proceedings), judgments, claims, demands, suits, actions or other proceedings of
whatsoever kind or nature (including, without limitation, those in any manner
directly or indirectly arising or resulting from, out of or in connection with
any injury to, or death of any person or and damage to property but excluding
those arising or resulting from any intentional misrepresentation or any willful
and wanton misconduct of the Indemnified Party or Indemnified Parties) in any
manner directly or indirectly (in any case, whether or not by the Company, or
its successors and assigns, or directly or indirectly through the agents,
contractors, employees, licensees or otherwise of the Company, or its successors
and assigns) by any person or entity whatsoever except the City or the Trustee,
arising or purportedly arising from this Loan Agreement, the Indenture, the
Bonds, Parity Indebtedness, the initial and any

                                       21

<PAGE>

subsequent offers and sales of the Bonds, the Tax Certificates or the
transactions contemplated hereby and thereby, the Project and the ownership or
the operation by the Company of the Property, Plant and Equipment the breach or
violation of its or any material inaccuracy or material omission in any
agreement, covenant, representation or warranty of the Company set forth herein
or in any document delivered pursuant hereto, the presence of any Hazardous
Material or underground storage tanks on or under the Property, Plant and
Equipment or any escape, seepage, leakage, spillage, discharge, emission or
release of any Hazardous Material from the Property, Plant and Equipment, any
liens against the Property permitted under or imposed by any Environmental Laws,
or any violation or actual or asserted liability or obligations of the Company
under any Environmental Laws, regardless of whether or not caused by, or within
the control of, the Company, any actual or asserted liability or obligations of
the aforesaid persons under any Environmental Law relating to the Property,
Plant and Equipment, regardless of whether or not caused by, or within the
control of, the Company or any action or failure to act by an Indemnified Party
or Indemnified Parties with respect to any of the foregoing.

         The Company releases the City and all former, present and future
council members, servants, officers, employees and other agents of the City, and
the Trustee from, agrees that the City and the Trustee and all former, present
and future directors, members, servants, officers, employees and other agents of
the City and the Trustee shall not be liable for, and agrees to hold the City
and all former, present and future directors, members, servants, officers,
employees and other agents of the City and the Trustee harmless against, any
expense or damages incurred because of any lawsuit commenced as a result of
action taken by the City, and the Trustee or their former, present and future
directors, members, servants, officers, employees or other agents (except for
any intentional misrepresentation or willful and wanton misconduct of the
aforesaid) with respect to this Loan Agreement, the Indenture, the Bonds, Parity
Indebtedness, the Tax Certificates, the Project or the Property, Plant and
Equipment and the City and the Trustee shall promptly give written notice to the
Company with respect thereto. All covenants, stipulations, promises, agreements
and obligations of the City contained herein shall be deemed to be the
covenants, stipulations, promises, agreements and obligations of the City and
not of any former, present or future director, member, servant, officer,
employee or other agent of the City in his or her individual capacity, and no
recourse shall be had for the payment of the principal of, premium, if any, or
interest on the Bonds or Parity Indebtedness or for any claim based thereon or
hereunder against any former, present or future director, member, servant,
officer, employee or other agent of the City or any natural person executing the
Bonds.

         The indemnification arising under this Section shall continue in full
force and effect notwithstanding the full payment of all obligations under this
Loan Agreement or the termination of this Loan Agreement for any reason.

         Section 8.6       Company Representative. Whenever, under the
provisions of this Loan Agreement, the Tax Certificates or the Indenture, the
approval or direction of the Company is required, or the City or the Trustee is
required to take some action at the request of the Company, such approval or
such request shall be made by the Company Representative unless otherwise
specified in this Loan Agreement, the Tax Certificates or the Indenture. The
City or the Trustee shall be authorized to act on any such approval or request
and the Company shall have no complaint against the City or the Trustee as a
result of any such action taken in accordance with such approval

                                       22

<PAGE>

or request. The execution of any document or certificate required under the
provisions of this Loan Agreement, the Tax Certificates or the Indenture by the
Company Representative shall be on behalf of the Company and shall not result in
any personal liability of such Company Representative.

         Section 8.7       Leases and Operating Contracts. The Company may lease
(as lessor) any part of the Property from which it derives revenues or contract
for the performance by others of operations or services on or in connection with
the Property from which it derives revenues, or any part thereof, for any lawful
purpose, provided that (i) the Trustee shall receive written notice of such
lease or contract if such lease or contract has a value in excess of $250,000 or
a duration longer than six months, (ii) each such lease or contract shall not be
inconsistent with the provisions of the Indenture or this Loan Agreement, (iii)
the Company shall remain fully obligated and responsible under this Loan
Agreement to the same extent as if such lease or contract had not been executed,
and (iv) no such lease or operating contract shall adversely affect the validity
of the Bonds or Parity Indebtedness or the exclusion of interest on the Bonds
from gross income for federal and state income tax purposes. The Trustee shall
request the Company to deliver an opinion of Bond Counsel addressed to the
Trustee relating to the matters set forth in (iv) if the Company enters into a
lease or operating contract covered by this Section 8.7.

         Section 8.8       No Default Certificate. Within 150 days after the end
of each Fiscal Year, the Company shall furnish to the Trustee a certificate of
the Company Representative stating that no Event of Default under Section 10.1
hereof has occurred and is continuing and that he has no knowledge of an event
which, with the passage of time or the giving of notice, or both, would
constitute an Event of Default under Section 10.1 hereof, respectively, or
describing any such Event of Default or event known to the Company.

         Section 8.9       [Intentionally Omitted]

         Section 8.10      Limitations on Creation of Liens.

                  (a)      The Company agrees that it will not create or suffer
to be created or permit the existence of any Lien on any tangible or intangible
assets of the Company mortgaged or pledged pursuant hereto or pursuant to the
Lowell Mortgage or the Junction Deed of Trust other than Permitted Liens, as
described in clause (b) of this Section.

                  (b)      Permitted Liens shall consist of the following:

                           (1)      Liens arising by reason of good faith
                  deposits with the Company in connection with leases of real
                  estate, bids or contracts (other than contracts for the
                  payment of money), deposits by the Company to secure public or
                  statutory obligations, or to secure or in lieu of surety, stay
                  or appeal bonds. and deposits as security for the payment of
                  taxes or assessments or other similar charges;

                           (2)      any Lien arising by reason of deposits with,
                  or the giving of any form of security to, any governmental
                  agency or any body created or approved by law or governmental
                  regulation for any purpose at any time as required by law or
                  governmental regulation as a condition to the transaction of
                  any business or the exercise of any privilege or license, or
                  to enable the Company to maintain self-

                                       23

<PAGE>
                  insurance or to participate in any funds established to cover
                  any insurance losses or in connection with workers'
                  compensation, unemployment insurance, pension or profit
                  sharing plans or other social security, or to share in the
                  privileges or benefits required for companies participating in
                  such arrangements;

                           (3)      any judgment lien against the Company so
                  long as such judgment is being contested in good faith and
                  execution thereon is stayed and it will not materially
                  interfere with or materially impair the operations conducted
                  on the Property, Plant and Equipment;

                           (4)      (A) rights reserved to or vested in any
                  municipality or public authority by the terms of any right,
                  power, franchise, grant, license, permit or provision of law,
                  affecting its Property, Plant and Equipment, (B) any liens on
                  the Property, Plant and Equipment for taxes, assessments,
                  levies, fees, water and sewer rents, and other governmental
                  and similar charges and any liens of mechanics, materialmen,
                  laborers, suppliers or vendors for work or services performed
                  or materials furnished in connection with the Property, Plant
                  and Equipment which are not due and payable or which are not
                  delinquent or which, or the amount or validity of which, are
                  being contested and execution thereon is stayed or, with
                  respect to liens of mechanics, materialmen, laborers,
                  suppliers or vendors, have been due for less than 90 days; (C)
                  easements, rights-of-way servitude, restrictions, oil, gas or
                  other mineral reservations and other minor defects,
                  encumbrances and irregularities in the title to the Property
                  which in the opinion of the Company Representative do not
                  materially impair the use of the Property, Plant and Equipment
                  for its intended purpose or materially and adversely affect
                  the value thereof provided that the Company Representative
                  shall have given the Trustee written notice thereof at least
                  120 days before the imposition of such Lien; (D) statutory
                  landlord's liens and (E) all exceptions shown on the policies
                  of title insurance delivered pursuant to the Indenture;

                           (5)      any Lien securing Additional Indebtedness
                  permitted hereby;

                           (6)      any Lien permitted pursuant to Section 3.1
                  hereof;

                           (7)      any Lien created by the Indenture or this
                  Loan Agreement;

                           (8)      any Lien described in Exhibit C hereto; and

                           (9)      any Lien in favor of a creditor or a trustee
                  on the proceeds of Indebtedness and any earnings thereon prior
                  to the application of such proceeds and such earnings, and any
                  Liens on trust funds established and held by a trustee or
                  creditor with respect to Indebtedness properly incurred.

         Section 8.11      Limitations on Indebtedness. The Company may incur
Additional Indebtedness, if the Income Available for Debt Service for the four
immediately preceding fiscal quarters of the Company is not less than 250% of
the Long-Term Debt Service Requirements in such

                                       24

<PAGE>

period, taking into account the Loan and Indebtedness then Outstanding and the
Additional Indebtedness proposed to be incurred. . Notwithstanding the
foregoing, Subordinated Debt, Commitment Indebtedness and Nonrecourse
Indebtedness may be incurred by the Company at any time, without limit. In
addition, the Company may incur Additional Indebtedness secured by accounts
receivable and inventory, and Additional Indebtedness with respect to Approved
Purchaser purchase orders, as provided in Section 3.1 of this Loan Agreement.

         Section 8.12.     Subordinated Debt. Subordinated Debt shall include
only Indebtedness of the Company incurred pursuant to loan agreements, credit
agreements or similar arrangements ("Subordinate Loan Documents") which contain
provisions substantially to the following effect:

                  (1)      Subordinated Debt shall, to the extent and in the
         manner hereinafter set forth, be fully subordinated to the Superior
         Indebtedness as herein defined. For all purposes of this Section the
         term "Superior Indebtedness" shall mean all obligations of the Company
         arising under this Loan Agreement the Lowell Mortgage or the Junction
         Deed of Trust (the "Loan Documents"), as each may be supplemented and
         modified to the date hereof, or as the same may hereafter from time to
         time be further supplemented and modified and any other obligations
         secured by or evidencing, directly or indirectly, obligations evidenced
         by such Loan Documents, including post-petition interest.

                  (2)      No action or proceedings, judicial or otherwise
         (including without limitation the commencement of or joinder in any
         bankruptcy or liquidation), shall be instituted or pursued by the
         holder of any Subordinated Debt (together, the "Subordinate
         Creditors"), nor shall such Subordinate Creditors take steps to enforce
         other judgments or encumbrances on assets of the Company pledged to the
         payment of the obligations of the Company arising under any Subordinate
         Loan Document (an "Enforcement Action"), other than an action to compel
         specific performance, and other than an action with respect to
         collateral pledged to the payment of such Subordinated Debt and not
         pledged to the payment of the Superior Indebtedness, unless all
         Bondholders shall have consented thereto, or the Bondholders shall have
         been paid in full or provision therefor shall have been made in
         accordance with the terms of the Indenture.

                  (3)      No payment on account of principal, premium, if any,
         sinking funds or interest on Subordinated Debt shall be made, nor shall
         any property or assets pledged to the payment of the obligations of the
         Company arising under any Subordinate Loan Document, other than
         collateral pledged to the payment thereof and not pledged to the
         payment of the Superior Indebtedness, be applied to the payment or
         prepayment of Subordinated Debt, unless payment of all amounts then due
         and payable for principal, premium, if any, sinking funds and interest
         on Superior Indebtedness has been made or duly provided for in
         accordance with the terms of the Loan Documents. No payment of
         principal of and interest on and other amounts due under any
         Subordinate Loan Document may be made prior to full payment of Superior
         Indebtedness, (other than payment derived with respect to collateral
         pledged to the payment of Subordinated Debt and not pledged to the
         payment of the Superior Indebtedness) if, at the time of such payment
         or application or immediately after giving effect thereto, (i) there
         shall exist any default in the payment of principal, premium, if any,
         sinking funds or interest with respect to the Bonds or any Superior
         Indebtedness, or (ii) there

                                       25

<PAGE>

         shall have occurred an Event of Default (other than a default in the
         payment of principal, premium, if any, sinking funds or interest) with
         respect to the Bonds or any Superior Indebtedness permitting the
         Trustee to accelerate the maturity thereof, and written notice of such
         occurrence shall have been given to the Subordinate Creditors and such
         event of default shall not have been cured or waived or shall not have
         ceased to exist.

                  (4)      Upon (i) any acceleration of maturity of the
         principal amount due on any Subordinated Debt or (ii) any payment or
         distribution of any kind or character, whether in cash, property or
         securities, upon any dissolution or winding-up or total or partial
         liquidation, reorganization or arrangement of the Company, whether
         voluntary or involuntary or in bankruptcy, insolvency, receivership or
         other proceedings, all principal, premium, if any, and interest due or
         to become due upon the Bonds and all Superior Indebtedness shall first
         be paid in full, or payment thereof provided for in accordance with the
         terms of the Indenture, before any payment is made on account of the
         principal, premium, if any, or interest on the Subordinated Debt (other
         than payment derived with respect to collateral pledged to the payment
         of Subordinated Debt and not pledged to the payment of the Superior
         Indebtedness), and upon any such dissolution or winding-up or
         liquidation, reorganization or arrangement, any payment or distribution
         of any kind or character, whether in cash, property or securities, to
         which the holders of the Subordinated Debt would be entitled, except
         for the provisions hereof, shall be paid by the Company, or by a
         receiver, trustee in bankruptcy, liquidating trustee, agent or other
         person making such payment or distribution, to the Trustee to the
         extent necessary to pay all Superior Indebtedness in full, before any
         payment or distribution is made to the holders of the Subordinate Debt.

                  (5)      In the event that, in violation of any of the
         foregoing provisions, any payment or distribution of any kind or
         character, whether in cash, property or securities, shall be received
         by any Subordinate Creditor before all Bonds and Superior Indebtedness
         is paid in full or provision for such payment in accordance with the
         terms of the Indenture, such payment or distribution shall be held in
         trust for the benefit of, and shall be paid over or delivered to the
         Trustee for application to the payment of all Bonds remaining unpaid to
         the extent necessary to pay all such Bonds in full in accordance with
         its terms.

                  (6)      Neither the Trustee nor any present or future holder
         of any Bonds shall be prejudiced in any right to enforce subordination
         of the indebtedness evidenced by the Subordinate Loan Documents by any
         act or failure to act on the part of the Company or anyone in custody
         of its assets or property.

                  (7)      The foregoing subordination provisions shall be for
         the benefit of the holders of Bonds and may be enforced by the Trustee
         against the holders of Subordinate Indebtedness or any trustee
         therefor.

The foregoing provisions are solely for the purpose of defining the relative
rights of the holders of Superior Indebtedness on the one hand and the holders
of the Subordinated Debt on the other hand, and nothing therein shall impair, as
between the Company and the holders of the Subordinate Indebtedness, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders thereof the principal thereof, premium, if any, and interest thereon in
accordance with its

                                       26

<PAGE>

terms, nor shall anything herein prevent the holders of the Subordinated Debt or
any trustee on their behalf from exercising all remedies otherwise permitted by
applicable law or thereunder upon default thereunder, subject to the rights set
forth above of the holders of Superior Indebtedness to receive cash, property or
securities otherwise payable or deliverable to the holders of the Subordinate
Indebtedness. Upon any payment or distribution of assets of the Company of the
character referred to in the fifth paragraph of the foregoing provisions, the
holders of Subordinate Indebtedness shall be entitled to rely upon any order or
decree of a court of competent jurisdiction in which such dissolution,
winding-up, liquidation, reorganization or arrangement proceedings are pending,
and upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making any such payment or distribution,
delivered to the holders of Subordinate Indebtedness for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of Subordinate Indebtedness and other indebtedness of Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to the foregoing provisions. No
holders of Subordinate Indebtedness shall be charged with knowledge of the
existence of any facts which would prohibit the making of any payment of moneys
to or by such holders of Subordinate Indebtedness, unless and until the holders
of Subordinate Indebtedness, as the case may be, have actual notice or shall
have received notice thereof from the Company, the Trustee or one or more
holders of Superior Indebtedness. The Company hereby covenants and agrees in
each case to provide such notice.

         Section 8.13      Parity Indebtedness. The Company covenants not to
incur or assume any Parity Indebtedness unless the Company has received consent
of the holders of 100% of the principal amount of the Bonds Outstanding. Upon
issuance of Parity Indebtedness, such debt will be entitled to share on a parity
in all property and rights securing the Series 2003 Bonds, except the moneys in
the Funds, which shall secure only the Series 2003 Bonds.

         Unless otherwise consented to by the holders of 100% of the principal
amount of the Bonds Outstanding, all instruments creating or securing Parity
Indebtedness shall (i) provide that the Trustee shall have the sole power to
select remedies to be used to enforce rights against common security for the
Bonds and Parity Indebtedness, subject to the right of the owners of a majority
in aggregate principal amount of the sum of the Bonds and Parity Indebtedness
then Outstanding to direct remedies in the manner provided in the Indenture,
(ii) provide that the holders of Parity Indebtedness or the trustee therefor
shall undertake such actions as may be requested by the Trustee that are
reasonably necessary to effectuate the purposes of clause (i), and (iii) contain
cross default provisions with the Loan Agreement, the Indenture and all other
instruments creating Parity Indebtedness.

         All collateral given or to be given to secure Parity Indebtedness
(other than credit enhancement devices such as letters of credit, insurance or
surety bonds and other than reserve funds) shall also secure the obligations of
the Company under the Loan Agreement on a parity basis; and the instruments
under which any Parity Indebtedness is incurred shall contain provisions that
all Parity Indebtedness and the obligations of the Company under the Loan
Agreement shall be secured equally and ratably by all such security provided for
any such Parity Indebtedness. The Property, the Pledged Revenues and any other
collateral at any time given to secure the obligations of the Company under the
Loan Agreement (other than the Funds) shall likewise secure Parity Indebtedness,
and such shall be set forth and so provided in any instrument securing Parity

                                       27

<PAGE>

Indebtedness. No release by or permission from the City and the Trustee under
the Loan Agreement shall be necessary (other than the Company's payment of any
Trustee fees or any fees or expenses of the Trustee) to allow such collateral to
be pledged pursuant to any instrument relating to Parity Indebtedness, so long
as the conditions of the Loan Agreement are complied with.

         Section 8.14      Transfer of Assets. The Company agrees that it will
not Transfer assets without the consent of 100% of the owners of the Bonds,
except for Transfers of assets:

         (a)      to any Person if prior to the sale, lease or other disposition
there is delivered to the Trustee an Officer's Certificate of the Company
Representative stating that such assets have or will within the next 24 months
become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or
unnecessary and the sale, lease, removal or other disposition thereof will not
impair the structural soundness, efficiency, or economic value of the remaining
assets of the Company; or

         (b)      to any Person provided there shall be delivered to the Trustee
prior to such Transfer a report of a Consultant to the effect that the assets
being transferred are not an integral part of the Property, Plant and Equipment;
and either:

                  (i)      an Officer's Certificate (accompanied by the Audited
Financial Statements) certifying the Long-Term Debt Service Coverage Ratio,
adjusted to exclude the revenues and expenses derived from the assets proposed
to be disposed of, for the most recent Fiscal Year for which the Audited
Financial Statements are available and such Long-Term Debt Service Coverage
Ratio is not less than 2.00 and not less than 65 percent of what it would have
been were such Transfer not to take place; or

                  (ii)     the report of a Consultant to the effect that the
forecasted Long-Term Debt Service Coverage Ratio, taking such Transfer into
account, for each of the two Fiscal Years succeeding the date on which such
Transfer is expected to occur, and the Long-Term Debt Service Coverage Ratio for
each such period is not less than 2.00 and not less than 65 percent of what it
would have been were such Transfer not to take place, accompanied by a statement
of the relevant assumptions upon which such forecasts are based; or

         (c)      with respect to any Transfer of non-inventory assets, to any
Person in the ordinary course of business and on terms not less favorable to the
Company than arm's length, but not to exceed $1,000,000 in aggregate proceeds in
any Fiscal Year unless otherwise consented to by a majority of the Bondholders;
or

         (d)      with respect to any Transfer of inventory, to any Person in
the ordinary course of business; or

         (e)      to any Person if the aggregate Net Book Value of the assets
transferred pursuant to this clause in any five consecutive Fiscal Years, does
not exceed 5 percent of the Net Book Value of all assets of the Company as shown
in the Audited Financial Statements for the most recent Fiscal Year; or

                                       28

<PAGE>

         (f)      to any Person, if the Company shall determine to sell all or
substantially all of its assets, and (i) the Company exercises its option to
prepay the Loan, or (ii) the holders of 100% of the Bonds shall consent to such
transfer, all as provided in section 8.15 hereof.

         Section 8.15      Consolidation, Merger, Sale or Conveyance. The
Company covenants that it will not merge or consolidate with, or sell or convey
all or substantially all of its assets to, any Person, unless (a) such merger,
consolidation or sale shall be consented to by the holders of 100% of the Bonds,
or (ii) the Company shall elect to prepay the Loan and redeem the Bonds in
accordance with Section 5.1(b) of the Indenture. In case of any such
consolidation, merger, sale or conveyance and upon any such assumption by the
successor corporation, such successor corporation shall succeed to its
predecessor, with the same effect as if it had been named herein as such
predecessor.

         Section 8.16      Financial Covenants.

         (a)      The Company shall calculate quarterly the Debt Service
Coverage Ratio for the four quarters prior to the date of any such calculation,
and shall provide a copy of such calculation for such period to the Trustee and
Notice Beneficial Owners at the time of delivery of the quarterly financial
statements delivered in accordance with Section 8.4 hereof. If the Debt Service
Coverage Ratio computation delivered at the time of delivery of any such
statement indicates that the Long-Term Debt Service Coverage Ratio of the
Company for such previous four fiscal quarters shall be less than 2.00 to 1.00,
the Company covenants to retain a Consultant at the expense of the Company,
within 30 days, to make recommendations to increase such Long-Term Debt Service
Coverage Ratio in the Fiscal Year following delivery of such recommendations to
such level or, if in the opinion of the Consultant the attainment of such level
is impracticable, to the highest level attainable in such Fiscal Year. Any
Consultant so retained shall be required to submit such recommendations to the
Trustee and the Notice Beneficial Owners within 90 days after being so retained.
The Company agrees that it will, to the extent permitted by law, follow the
recommendations of the Consultant. The Company shall not be obligated to retain
such a Consultant more often than once during any twenty-four month period.

         (b)      The Company covenants and agrees that it shall maintain a
Current Ratio, calculated as of the last day of each calendar quarter, of not
less than 1.00 to 1.00. The Company shall provide a copy of such calculation to
the Trustee and Notice Beneficial Owners at the time of delivery of the
quarterly financial statements delivered in accordance with Section 8.4 hereof.

         (c)      The Company covenants and agrees that it shall maintain a Debt
to Equity Ratio, calculated as of the last day of each Fiscal Year, of not more
than 3.00 to 1.00. The Company shall provide a copy of such calculation to the
Trustee and Notice Beneficial Owners at the time of delivery of the annual audit
delivered in accordance with Section 8.3 hereof.

         (d)      The Company covenants and agrees that not more than 10% of its
accounts payable (for the deferred purchase price of property or services) from
time to time incurred in the ordinary course of operations and activities shall
be in excess of 75 day past the invoice or billing date, or, if greater than 75
days, are being contested in good faith by the Company.

                                       29

<PAGE>

         (e)      The Company covenants and agrees that not more than 20% of its
accounts receivable (for the deferred purchase price of property or services)
from time to time shall be in excess of 90 day past the invoice or billing date,
excluding from such calculation (i) amounts being contested in good faith by the
obligated party, and (ii) amounts which the Company has determined, in good
faith, are not likely to be collected and are to be treated as losses in
accordance with generally accepted accounting principles.

         Section 8.17.     Reporting Extensions. Notwithstanding the foregoing,
in the event the Company receives an extension of time with respect to any
annual or quarterly reports filed with the Securities and Exchange Commission
pursuant to Section 13 and Section 15(d) of the Securities Exchange Act of 1934,
as amended, the Company shall be entitled to the same extension for annual and
quarterly reports required to be filed under this Loan Agreement.

                                       30

<PAGE>

                                   ARTICLE IX

         ASSIGNMENT AND PLEDGING OF LOAN AGREEMENT; REDEMPTION OF BONDS

         Section 9.1       Assignment by Company. This Loan Agreement may be
assigned by the Company with the prior written consent of the Bondholders
subject to each of the following conditions:

                  (1)      no assignment shall relieve the Company from primary
liability for any of its obligations hereunder, and in the event of any such
assignment, the Company shall continue to remain primarily liable for payment of
the Loan Payments, payments on Parity Indebtedness and other payments required
to be made under Section 5.1 hereof and for performance and observance of the
other covenants and agreements on its part herein provided;

                  (2)      no assignment shall impair the exclusion of interest
on the Bonds from gross income for federal income tax purposes;

                  (3)      the assignee shall assume in writing the obligations
of the Company hereunder to the extent of the interest assigned, and

                  (4)      the Company shall, within 30 days after the delivery
thereof, furnish or cause to be furnished to the City and the Trustee a true and
complete copy of each such assumption of obligations and assignment.

         Section 9.2       Assignment and Pledge by City. The City shall assign
certain of its interests in and pledge certain of the moneys receivable under
this Loan Agreement to the Trustee pursuant to the Indenture and the Assignment
as security for payment of the principal of, premium, if any, and interest on
the Bonds and Parity Indebtedness. The Company hereby consents to such
assignment and pledge.

         Section 9.3       Redemption of Bonds. Upon the agreement of the
Company to deposit moneys in the Bond Principal Fund and the Bond Interest Fund
in an amount sufficient to redeem Bonds subject to redemption, the City, at the
request of the Company Representative, shall forthwith take all reasonable steps
consistent with the Indenture and this Loan Agreement necessary under the
applicable redemption provisions of the Indenture to effect redemption of all or
part of the then Outstanding Bonds on the redemption date.

                                       31

<PAGE>

                                    ARTICLE X

                         EVENTS OF DEFAULT AND REMEDIES

         Section 10.1      Events of Default Defined. The following shall be
"events of default" under this Loan Agreement and the term "event of default"
shall mean any one or more of the following events:

                  (a)      failure to pay the Loan Payments required to be paid
under Section 5.1(a) hereof for a period of 15 days after the time such Loan
Payments were required to be paid thereunder;

                  (b)      failure by the Company to observe and perform any
covenant, condition or agreement on its part to be observed or performed, other
than as referred to in subsection (a) of this Section, for a period of 30 days
after written notice, specifying such failure and requesting that it be
remedied, shall have been given to the Company by the City or the Trustee,
provided, with respect to any such failure covered by this subsection (b) no
event of default shall be deemed to have occurred so long as a course of action
adequate to remedy such failure shall have been commenced within such 30-day
period and shall thereafter be diligently prosecuted to completion and the
failure shall be remedied thereby; provided, however, that failure to correct
such default within 90 days after receipt of such notice shall constitute an
Event of Default;

                  (c)      any representation or warranty made by the Company
hereunder or otherwise in connection with the sale and delivery of the Bonds
shall prove to have been incorrect in any material respect on or as of the date
of issuance of the Bonds or the date of making such representation or warranty
and cannot be cured within 30 days after written notice by the City or the
Trustee, specifying such incorrect representation or warranty and requesting
that it be cured, provided no event of default shall be deemed to have occurred
under this subsection (c) so long as a course of action adequate to cure shall
have been commenced within such 30-day period and shall thereafter be diligently
prosecuted to completion and remedied thereby; provided, however, that failure
to correct such default within 90 days after receipt of such notice shall
constitute an Event of Default;

                  (d)      an event of default shall have occurred under the
Indenture or the Tax Certificates;

                  (e)      if the Company shall file a petition in bankruptcy or
for reorganization or for an arrangement pursuant to any present or future
federal bankruptcy act or under any similar federal or state law, or shall be
adjudicated a bankrupt or insolvent, or shall make an assignment for the benefit
of its creditors or shall admit in writing its inability to pay its debts
generally as they become due, or if a petition or answer proposing the
adjudication of the Company as a bankrupt or its reorganization under any
present or future federal bankruptcy act or any similar federal or state law
shall be filed in any court and such petition or answer shall not be discharged
or denied within 90 days after the filing thereof, or if a receiver, trustee or
liquidator of the Company or of all or substantially all of the assets of the
Company, or the Property, Plant and Equipment shall be

                                       32

<PAGE>

appointed in any proceeding brought against the Company and shall not be
discharged within 90 day's after such appointment or if the Company shall
consent to or acquiesce in such appointment if the estate or interest of the
Company in the Property, Plant and Equipment or any part thereof shall be levied
upon or attached in any proceeding and such process shall not be vacated,
discharged or released within 60 days after such levy or attachment, or if the
Property, Plant and Equipment shall have been abandoned by the Company for a
period of 30 consecutive days, or if the Company shall be dissolved or
liquidated (other than as a result of a merger or consolidation of the Company
into or with another entity under the conditions permitting such actions
contained in this Loan Agreement); and

                  (f)      a final judgment is entered against the Company
which, together with all unsatisfied final judgments against the Company,
exceeds the sum of $1,000,000 and which is not covered by insurance or adequate
Company reserves and such judgment shall remain unsatisfied or unstayed for a
period of 90 days after the entry thereof.

         The foregoing provisions of subsection (b) of this Section are subject
to the following limitations: If by reason of force majeure the Company is
unable in whole or in part to carry out its agreements herein contained, other
than the obligations on the part of the Company contained in Article V and in
Sections 4.7 and 8.5 hereof, the Company shall not be deemed in default during
the continuance of such inability so long as (i) the Company provides the
Bondholders written notice that an Event of Default has occurred by reason of
force majeure within 10 Business Days of the receipt of the notice of an Event
of Default from the Trustee and (ii) a majority of Bondholders consents to
implementation of Company's plan to cure such Event of Default. The Company
agrees to promptly submit its plans for curing the Event of Default to the
Bondholders; provided that the settlement of strikes, lockouts and other
industrial disturbances shall be entirely within the discretion of the Company,
and the Company shall not be required to make settlement of strikes, lockouts or
other industrial disturbances by acceding to the demands of the opposing party
or parties when such course is in the reasonable judgment of the Company
unfavorable to the Company. The term "force majeure" as used herein shall mean
the following: acts of God; strikes, lockouts or other industrial disturbances;
acts of public enemies, insurrections; riots; epidemics; landslides; lightning;
earthquake; fire; hurricane; tornadoes; storms; floods; washouts; droughts;
arrests; restraint of government and people; civil disturbances; war,
explosions; or partial or entire failure of utilities.

         Section 10.2      Remedies on Default. Whenever any event of default
referred to in Section 10.1 hereof shall have occurred and is continuing, the
City, or the Trustee, where so provided herein, may take any one or more of the
following remedial steps:

                  (a)      the Trustee (acting as assignee of the City), as and
to the extent provided in the Indenture, or the City (in the event of a failure
of the Trustee to act under this subsection), may, and, at the direction of
holders of 25 percent of the aggregate amount of the Bonds and Parity
Indebtedness, the Trustee shall, declare the Loan Payments payable hereunder for
the remainder of the term of this Loan Agreement to be immediately due and
payable, whereupon the same shall become due and payable;

                  (b)      the Trustee may, subject to indemnification as
provided in the Indenture, and, at the direction of holders of 25 percent of the
aggregate amount of the Bonds and Parity

                                       33

<PAGE>

Indebtedness, shall, take any action permitted under the Indenture with respect
to an Event of Default thereunder;

                  (c)      the Trustee (acting as assignee of the City) may
foreclose on all or any portion of the Property or any interest of the Company
therein as and to the extent permitted of a mortgagee by the laws of the State
of Arkansas and exercise all of the rights and remedies of a secured party under
the Uniform Commercial Code of the State of Arkansas with respect thereto and to
the tangible personal property, furniture, machinery and equipment of the
Company described in Section 3.1;

                  (d)      the Trustee may foreclose on all or any portion of
the Lowell Property and the Junction Property and any interest of the Company
therein as and to the extent permitted of a mortgagee by the laws of the State
of Arkansas and the State of Texas, respectively, and exercise all of the rights
and remedies of a secured party under the Uniform Commercial Code of the State
of Arkansas and the State of Texas, respectively, with respect thereto;

                  (e)      the Trustee may take exercise any rights permitted
pursuant to the Patent and Trademark Security Agreement;

                  (f)      the Trustee (acting as assignee of the City) may
realize upon the security interest in the Pledged Revenues and exercise all of
the rights and remedies of a secured party under the Uniform Commercial Code of
the State of Arkansas and the State of Texas with respect thereto; or

                  (g)      the Trustee (acting as assignee of the City), as and
to the extent provided in the Indenture, or the City (in the event of a failure
of the Trustee to act under this subsection) may take whatever action at law or
in equity as may appear necessary or desirable to collect the amounts then due
and thereafter to become due, or to enforce performance or observance of any
obligations, agreements or covenants of the Company under this Loan Agreement.

         At any time after such a declaration of acceleration has been made, but
before the entry of a judgment or decree to enforce remedies under the Indenture
or this Loan Agreement, such declaration and its consequences shall be rescinded
and annulled (unless the Trustee is otherwise directed by the holders of a
majority of the principal amount of the Bonds Outstanding (excluding Bonds of
any series which are subordinate to any other Series of Bonds)) if:

                  (A)      There has been paid to or deposited with the Trustee,
or provision satisfactory to the Trustee has been made for the payment of a sum
sufficient to pay:

                           (i)      all sums reasonably paid or advanced by the
                  Trustee (including reasonable counsel fees and disbursements)
                  under the Indenture or this Loan Agreement and the reasonable
                  compensation, expenses, disbursements and advances of the
                  Trustee (including reasonable counsel fees and disbursements);

                           (ii)     all overdue installments of interest on the
                  Bonds payable by the Company with interest on such overdue
                  interest at the rate of one (1) percent per

                                       34

<PAGE>

                  annum above the interest borne by the Bonds during the 365
                  days prior to the date of such payment;

                           (iii)    the principal of any Bonds which have become
                  due otherwise than by such declaration of acceleration and
                  accrued interest thereon to the date of payment of such Bonds
                  payable by the Company at the rate or rates borne by such
                  Bonds;

                           (iv)     the amounts required to be on deposit in the
                  Reserve Fund in accordance with the Indenture; and

                           (v)      all sums, including the reasonable fees and
                  expenses of counsel, reasonably paid or advanced by any
                  Bondholder because of the Company's default.

                  (B)      All Events of Default of the Company, other than the
nonpayment of the principal of the Bonds, which have become due solely by such
declaration of acceleration, have been cured or waived as provided in the
Indenture and this Loan Agreement.

In the event that the Company fails to make any payment required hereby, the
payment so in default shall continue as an obligation of the Company until the
amount in default shall have been fully paid. Any proceeds received by the City
or the Trustee from the exercise of any of the above remedies, after
reimbursement of any costs incurred by the City or the Trustee in connection
therewith, shall be applied by the Trustee in accordance with the provisions of
the Indenture.

         Section 10.3      No Remedy Exclusive. No remedy herein conferred upon
or reserved to the City 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 Loan Agreement
or now or hereafter existing at law or in equity or by statute. No delay or
omission to exercise any right or power accruing upon any default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right or power may be exercised from time to time and as often as may be
deemed expedient. In order to entitle the City to exercise any remedy reserved
to it in this Article, it shall not be necessary to give any notice, other than
notice required herein or by applicable law. Such rights and remedies given the
City hereunder shall also extend to the Trustee and the owners of the Bonds,
subject to the Indenture.

         Section 10.4      Agreement to Pay Attorneys' Fees and Expenses. In the
event the Company should default under any of the provisions of this Loan
Agreement, the Indenture or the Tax Certificates, and the City, any Significant
Bondholder or the Trustee should employ attorneys or incur other expenses for
the collection of Loan Payments or the enforcement of performance or observance
of any obligation or agreement on the part of the Company herein or in the Tax
Certificates or the Indenture, the Company agrees that it will within 30 days of
a request therefor pay to the City, any Significant Bondholder or the Trustee,
as the case may be, the reasonable fees of such attorneys and such other
reasonable expenses incurred by the City, any Significant Bondholder or the
Trustee. This Section shall continue in full force and effect, notwithstanding
the full payment of all obligations under this Loan Agreement or the termination
of this Loan Agreement for any reason.

                                       35

<PAGE>

         Section 10.5      Waiver. In the event any agreement contained in this
Loan Agreement should be breached by any party and thereafter waived by any
other party, such waiver shall be limited to the particular breach waived and
shall not be deemed to waive any other breach hereunder. In view of the
assignment of the City's rights in and under this Loan Agreement to the Trustee
under the Indenture, the City shall have no power to waive any Event of Default
hereunder without the written consent of the Trustee. Notwithstanding the
foregoing, a waiver of an Event of Default under the Indenture or a rescission
of a declaration of acceleration of the Bonds and a rescission and annulment of
its consequences shall constitute a waiver of the corresponding event of default
under this Loan Agreement and a rescission and annulment of its consequences;
provided that no such waiver or rescission shall extend to or affect any
subsequent or other default hereunder or impair any right consequent thereon.

         Section 10.6      Appointment of Receiver. Upon the occurrence of any
Event of Default, unless the same shall have been waived as herein provided, the
Trustee, acting as assignee of the City, shall be entitled as a matter of right
if it shall so elect, without notice or demand (such notice being expressly
waived hereby), ex parte, (i) forthwith and without declaring the Bonds or
Parity Indebtedness to be due and payable, (ii) after declaring the same to be
due and payable, or (iii) upon the commencement of an action to enforce the
specific performance hereof or in aid thereof or upon the commencement of any
other judicial proceeding to enforce any right of the Trustee, the Bondholders
or the holders of Parity Indebtedness, to the appointment of a receiver or
receivers of any or all of the Property, Junction Property and Lowell Property
with such powers as the court making such appointment shall confer. The Company
hereby consents and agrees, and will if requested by the Trustee consent and
agree at the time of application by the Trustee for appointment of a receiver of
the Property, Junction Property and Lowell Property, to the appointment of such
receiver of the Property, Junction Property and Lowell Property and that such
receiver may be given, the right, power and authority, to the extent the same
may lawfully be given to take possession of and operate and deal with the
Property, Junction Property and Lowell Property and the revenues, profits and
proceeds therefrom, with like effect as the Company could do so, and to borrow
money and issue evidences of indebtedness as such receiver.

         Section 10.7      Remedies Subject to Provisions of Law. All rights,
remedies and powers provided by this Article may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Article are intended to be subject to all applicable
mandatory provisions of law which may be controlling and to be limited to the
extent necessary so that they will not render this instrument or the provisions
hereof invalid or unenforceable under the provisions of any applicable law.

         Section 10.8      Waiver of Appraisement, Valuation, Stay, and
Execution Laws. The Company agrees, to the extent permitted by law, that in the
case of the occurrence of an Event of Default, neither the Company nor anyone
claiming through or under it shall or will set up, claim or seek to take
advantage of any appraisement, valuation, stay or extension laws now or
hereafter in force in order to prevent or hinder the enforcement or foreclosure
of the lien of this Loan Agreement, or the absolute sale of the Property,
Junction Property and Lowell Property, or any interest of the Company therein,
or the final and absolute putting into possession thereof, immediately after
such sale, of the purchasers thereof, and the Company for itself and all who may
at any time claim through or under it, hereby waives, to the full extent that it
may lawfully do so, the benefit of all such

                                       36

<PAGE>

laws, and any and all right to have the estates comprising the security intended
to be hereby created marshaled upon any foreclosure of the lien hereof and
agrees that the Trustee or any court having jurisdiction to foreclose such lien
may sell the Property, Junction Property and Lowell Property, or any interest of
the Company therein as an entirety.

         Section 10.9      Purchase of Property, Junction Property and Lowell
Property by Bondholder or Holder of Parity Indebtedness. Upon the occurrence of
an Event of Default, the lien and/or security interest on the Property, Junction
Property and Lowell Property created and vested by this Loan Agreement may be
foreclosed. If sold at public sale, any Bondholder, and holder of Parity
Indebtedness or the Trustee may bid for and purchase the Property, Junction
Property and Lowell Property or any interest of the Company therein and upon
compliance with the terms of sale, may hold, retain and possess and dispose of
such Property, Junction Property and Lowell Property or interest therein in his
own absolute right without further accountability; and any purchaser at any such
sale may, if permitted by law, after allowing for the proportion of the total
purchase price required to be paid in cash for the costs and expenses of the
sale, compensation and other charges, in paying purchase money, surrender Bonds
or Parity Indebtedness then Outstanding, as the case may be, in lieu of cash.
Said Bonds or Parity Indebtedness, in case the amount so payable thereon shall
be less than the amount due thereon, shall be returned to the holders thereof
after being properly stamped to show partial payment. If the Trustee shall
acquire title to the Property, Junction Property and Lowell Property or any
interest of the Company therein as a result of any such foreclosure sale or any
proceedings or transaction in lieu of foreclosure, the Trustee may thereafter
take any lawful action with respect to the Property, Junction Property and
Lowell Property or interest therein which it shall deem to be in the best
interest of the holders of the Bonds or Parity Indebtedness, including but not
limited to: (i) the enforcement of all rights and remedies set forth in the
Indenture and the taking of all other courses of action permitted herein, and
(ii) the sale of the Property, Junction Property and Lowell Property or any
interest therein, or any portion thereof.

                                       37

<PAGE>

                                   ARTICLE XI

                             PREPAYMENT OF THE LOAN

         Section 11.1      General Option to Prepay the Loan. Subject to Section
11.3 hereof, the Company shall have and is hereby granted the option exercisable
at any time to prepay all or any portion of the Loan by depositing with the
Trustee an amount of money or Government Obligations described in Section 1 (a)
of the definition of such term as set forth in Article I of the Indenture to the
extent permitted by Section 7.1 of the Indenture, the principal and interest on
which, when due, will be equal (giving effect to the credit, if any, provided by
Section 11.2 hereof) to an amount sufficient to pay the principal of (in
integral multiples of $100,000 and in multiples of $5,000 in excess thereof),
premium, if any, and interest on any portion of the Series 2003 Bonds then
Outstanding under the Indenture. The exercise of the option granted by this
Section shall not be cause for redemption of Bonds unless such redemption is
permitted or required at that time under the provisions of Article V of the
Indenture, and the Company Representative specifies the date for such
redemption. In the event the Company prepays all of the Loan pursuant to this
Section (and the Series 2003 Bonds are defeased in accordance with the
Indenture) and pays all reasonable and necessary fees and expenses of the
Trustee accrued and to accrue through final payment or redemption of the Series
2003 Bonds as a result of such prepayment and all of its liabilities accrued and
to accrue hereunder to the City through final payment or redemption of the
Series 2003 Bonds as a result of such prepayment, this Loan Agreement shall
terminate except for Sections 5.1 (f), 4.6 and 8.5 hereof. The City and the
Trustee may certify to the Company prior to payment all expenses, fees and
liabilities due for payment hereunder. Payment of moneys or securities to the
Trustee under this Section 11.1 shall be accompanied by an Opinion of Bond
Counsel to the effect that the application of such payment will not adversely
affect the tax-exempt status of the Bonds Outstanding.

         Section 11.2      Prepayment Credits. In the event of prepayment by the
Company of the Loan in whole the amounts then contained in the Funds related to
the Series 2003 Bonds shall be credited first to the Rebate Fund so that it
shall be fully funded for any required payment to the federal government
therefrom, and then against the Company's prepayment obligation.

         Section 11.3      Notice of Prepayment. In order to exercise the option
granted by this Article, the Company shall give written notice to the City and
the Trustee which shall specify therein the date of making the prepayment, which
date shall be not less than 60 days nor more than 90 days from the date the
notice is mailed. In the case of any prepayment pursuant to this Article, the
Company Representative shall make arrangements with the Trustee for giving the
required notice of redemption of any Series 2003 Bonds to be redeemed.

         Section 11.4      Use of Prepayment Moneys. By virtue of the assignment
of the rights of the City under this Loan Agreement to the Trustee, the Company
agrees to and shall pay any amount required to be paid by it under this Article
directly to the Trustee (other than amounts to be paid to the City for its own
account or as otherwise provided in Section 5.3 hereof). The Trustee shall use
the moneys so paid to it by the Company to pay the principal of and interest on
the Series 2003 Bonds on regularly scheduled payment or redemption dates.

                                       38

<PAGE>

                                   ARTICLE XII
                                  MISCELLANEOUS

         Section 12.1      Notices. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be deemed given
when mailed by certified mail, return-receipt requested, postage prepaid, or
dispatched by telegram or telecopy (if confirmed promptly telephonically and in
writing by the sender of such telecopy and if receipt of such telecopy is
confirmed in writing by the intended recipient), addressed as follows:

         City:             City of Springdale
                           201 Spring Street
                           Springdale, Arkansas 72764
                           Attn: Mayor
                           Telephone: (479) 750-8119
                           Facsimile: (479) 750-8505

         Trustee:          Regions Bank
                           Corporate Trust, 7th Floor
                           400 W. Capitol
                           Little Rock, AR 72201
                           (501) 371-6728
                           Fax: (501) 371-3262

         Company:          A.E.R.T.
                           801 North Jefferson
                           Springdale, Arkansas 72765
                           Telephone: (479) 750-1299
                           Facsimile: (479) 750-1322

The City, the Company, and the Trustee may, by notice hereunder, designate any
further or different addresses to which subsequent notices, certificates or
other communications shall be sent.

         Section 12.2      Binding Effect. This Loan Agreement shall inure to
the benefit of and shall be binding upon the City and the Company and their
respective successors and assigns, subject, however, to the limitations
contained in Sections 8.14, 9.1, 9.2 and 12. 10 hereof.

         Section 12.3      Severability. In the event any provision of this Loan
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.

         Section 12.4      Amounts Remaining in Funds. It is agreed by the
parties hereto that any amounts remaining in the Funds upon expiration of the
term of this Loan Agreement shall be paid by the Trustee as directed in writing
by the Company Representative as provided in the Indenture.

                                       39

<PAGE>

         Section 12.5      Amendments, Changes and Modifications. Except as
otherwise provided in this Loan Agreement or in the Indenture, this Loan
Agreement may not be amended, changed, modified, altered or terminated.

         Section 12.6      Execution in Counterparts. This Loan Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.

         Section 12.7      Governing Law. This Loan Agreement shall be governed
and construed in accordance with the laws of the State of Arkansas.

         Section 12.8      Cancellation at Expiration of Term of Agreement. Upon
the expiration of the term of this Loan Agreement, the City shall deliver to the
Company any documents and take or cause the Trustee to take such actions as may
be necessary to evidence the termination of this Loan Agreement and the
discharge of the lien hereof.

         Section 12.9      Recording. The Company shall cause this Loan
Agreement, the Assignment and every assignment and modification hereof to be
recorded in the real estate records of the County in which the Site is located
(the "County"). In accordance with the Indenture, the Company shall cause the
security interest in the Pledged Revenues, Funds, the Equipment and trust
accounts referred to in Section 3.1 hereof granted to the City, the assignment
of such security interest to the Trustee and the security interest in this Loan
Agreement granted to the Trustee to be perfected to the extent permitted by law
by the filing of financing statements which fully comply with the Arkansas
Uniform Commercial Code in the office of the Secretary of State of Arkansas, the
office of the County and in such other office as is at the time provided by law
as the proper place for the filing thereof. The parties further agree that all
necessary continuation statements shall be filed by the Company within the time
prescribed by the Arkansas Uniform Commercial Code in order to continue such
security interests.

         Section 12.10     No Pecuniary Liability of City. No provision,
covenant or agreement contained in this Loan Agreement, or any obligations
herein imposed upon the City, or the breach thereof, shall constitute an
indebtedness or liability of the City within the meaning of any Arkansas
constitutional provision or statutory limitation or shall constitute or give
rise to a pecuniary liability of the City or any member, officer or agent of the
City or a charge against the City's general credit. In making the Loan , the
City has not obligated itself except with respect to the Trust Estate.

         Section 12.11     Partial Release. So long as no Event of Default shall
have occurred and be continuing under this Loan Agreement, whenever under the
terms of this Loan Agreement any portion of the Property or Equipment is
permitted to be sold, transferred, disposed of or released from the provisions
of this Loan Agreement, including releases in the event of condemnation of the
Property or Equipment in accordance with Article VII hereof, or Transfers
permitted under Section 8.14 hereof, the Trustee shall take all actions
reasonably necessary to release that portion of the Property or Equipment so
sold, leased or disposed of from the lien of this Loan Agreement. Any such
release shall be requested of the City in writing by the Company Representative
and shall be accompanied by a description of the Property or Equipment to be
released, an amendment or supplement to the exhibits of this Loan Agreement to
the extent necessary to provide for such release, a plat or improvement location
survey of the Property after the release by a registered civil

                                       40

<PAGE>

engineer or surveyor licensed in the state of Arkansas in accordance with the
standard detail requirements for land title surveys adopted by ALTA, and an
Opinion of Counsel to the effect that such release is permitted by the
provisions of this Loan Agreement.

         Section 12.12     General Release. Upon payment of all sums secured by
this Loan Agreement and upon full performance hereof by the Company, the
Trustee, as assignee of the City, shall promptly, after written notice from the
Company Representative, execute and deliver to the Company a release of the Lien
of this Loan Agreement in form reasonably acceptable to the Trustee. The Company
shall, however, pay all costs and expenses in connection with the preparation,
review, recordation and execution of said release.

         Section 12.13     Captions. The captions and headings in this Loan
Agreement are for convenience only and in no way define, limit or describe the
scope or intent of any provisions or sections of this Loan Agreement.

         Section 12.14     Payments Due on Non-Business Day. If the date for
making any payment or the last date for performance of any act or the exercise
of any right, as provided in this Loan Agreement shall not be a Business Day,
such payment may be made or act performed or right exercised on the next
succeeding business day with the same force and effect as if done on the nominal
date provided in this Loan Agreement, except as otherwise expressly provided
herein.

         Section 12.15     Provision of General Application. Any consent or
approval of the City required pursuant to this Loan Agreement shall be in
writing and shall not be unreasonably withheld.

                                       41

<PAGE>

IN WITNESS WHEREOF, the City and the Company have caused this Loan Agreement to
be executed in their respective corporate names and attested by their duly
authorized officers and the Company has caused its corporate seal to be affixed
hereto, all as of the date first above written.

                                       CITY OF SPRINGDALE, ARKANSAS

                                       By: /s/ JERRE VAN HOOSE
                                           -----------------------------------
                                           Mayor

                                       ADVANCED ENVIRONMENTAL RECYCLING
                                       TECHNOLOGIES, INC.

                                       By: /s/ JOE G. BROOKS
                                           -------------------------------
                                           Co-CEO

                                       42

<PAGE>

                                    EXHIBIT A

                                      SITE

A PART OF THE NORTHEAST QUARTER (NE1/4) OF THE NORTHEAST QUARTER (NE1/4) OF
SECTION THIRTY-SIX (36), TOWNSHIP EIGHTEEN (18) NORTH, RANGE THIRTY (30) WEST,
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHEAST CORNER
OF SAID 40 ACRE TRACT, SAID POINT BEING AN EXISTING IRON; THENCE S89 degrees
55'46"W ALONG THE SOUTH LINE OF SAID 40 ACRE TRACT 675.00 FEET TO A SET 1/2"
IRON REBAR IN THE CENTER OF AN EXISTING DITCH; THENCE N03 degrees 43'29"E ALONG
THE CENTER OF SAID DITCH 56.10 FEET TO A SET 1/2" IRON REBAR IN THE CENTER OF A
MAIN DRAINAGE CHANNEL; THENCE N85 degrees 34'20"W ALONG THE CENTER OF SAID MAIN
CHANNEL 307.68 FEET TO A SET 1/2" IRON REBAR, SAID POINT BEING ON THE EAST EDGE
OF THE EXISTING PAVEMENT OF JEFFERSON STREET; THENCE N00 degrees 00'00"E 395.36
FEET TO A SET 1/2" IRON REBAR; THENCE N89 degrees 55'46"E 978.12 FEET TO A
CHISELED "X" ON THE EAST LINE OF SAID 40 ACRE TRACT, SAID POINT BEING IN A
CONCRETE DRAINAGE SWALE; THENCE SOUTH 475.47 FEET TO THE POINT OF BEGINNING,
CONTAINING 10.20 ACRES, MORE OR LESS, SPRINGDALE, WASHINGTON COUNTY, ARKANSAS.
THE ABOVE DESCRIBED 10.20 ACRE TRACT BEING SUBJECT TO THE RIGHT-OF-WAY OF
JEFFERSON STREET ALONG THE ENTIRE WEST BOUNDARY AND ANY EASEMENTS OF RECORD.

AND

A PART OF THE SOUTHEAST QUARTER (SE1/4) OF THE NORTHEAST QUARTER (NE1/4) OF
SECTION THIRTY-SIX (36), TOWNSHIP EIGHTEEN (18) NORTH, RANGE THIRTY (30) WEST,
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER
OF SAID 40 ACRE TRACT, SAID POINT BEING AN EXISTING IRON; THENCE S00 degrees
15'57"W ALONG THE EAST LINE OF SAID 40 ACRE TRACT 1018.39 FEET TO AN EXISTING
IRON WHICH IS N00 degrees 12'50"E 300.19 FEET FROM THE SOUTHEAST CORNER OF SAID
40 ACRE TRACT; THENCE S89 degrees 50'58"W 178.79 FEET TO A SET 1/2" IRON REBAR;
THENCE S00 degrees 15'14"W 42.77 FEET TO A SET 1/2" IRON REBAR; THENCE S89
degrees 58'58"W 85.00 FEET TO A SET 1/2" IRON REBAR; THENCE S00 degrees 15'14"W
257.00 FEET TO A POINT ON THE SOUTH LINE OF SAID 40 ACRE TRACT, SAID POINT BEING
IN THE RIGHT-OF-WAY OF HUNTSVILLE AVENUE AND FROM WHICH AN EXISTING AN EXISTING
REFERENCE IRON BEARS N00 degrees 15'14"E 21.92 FEET; THENCE S89 degrees 58'58"W
ALONG THE SOUTH LINE OF SAID 40 ACRE TRACT 434.00 FEET TO A POINT FROM WHICH AN
EXISTING REFERENCE IRON BEARS N00 degrees 15'15"E 22.40 FEET; THENCE LEAVING THE
SOUTH LINE OF SAID 40 ACRE TRACT N00 degrees 15'15"E 279.00 FEET TO A SET 1/2"
IRON REBAR; THENCE N89 degrees 58'58"E 23.00 FEET TO A SET 1/2" IRON REBAR;
THENCE N00 degrees 15'15"E 1038.95 FEET TO A SET 1/2" IRON REBAR ON THE NORTH
LINE OF SAID 40 ACRE TRACT; THENCE N89 degrees 55'46"E 675.00 FEET TO THE POINT
OF BEGINNING, CONTAINING 18.84 ACRES, MORE OR LESS, SPRINGDALE, WASHINGTON
COUNTY, ARKANSAS. THE ABOVE DESCRIBED 18.84 ACRE TRACT BEING SUBJECT TO THE
RIGHT-OF-WAY OF HUNTSVILLE AVENUE ALONG THE ENTIRE WEST BOUNDARY AND ANY
EASEMENTS OF RECORD.

                                      A-1

<PAGE>

                                    EXHIBIT B

                              COSTS OF THE PROJECT

                                      B-1

<PAGE>

                                    EXHIBIT C

                              PERMITTED EXCEPTIONS

General and special taxes for the year 2002 and subsequent years which are not
         yet due and payable. Taxes for the year 2001 and prior years are paid.

Right-of-Way, executed by G. L. Wisdom and Martha L. Wisdom, to Southwestern
         Gas and Electric Company, dated August 10, 1950, and recorded August
         11, 1950, in Record Book 419 at Page 392 in the office of the Circuit
         Clerk and Ex-Officio Recorder of Washington County, Arkansas.

Right-of-Way, executed by Fred J. Clark and Kate B. Clark, to Southwestern Gas
         & Electric Company, dated May 28, 1957, and recorded June 15, 1957, in
         Record Book 495 at Page 375 in the office of the Circuit Clerk and
         Ex-Officio Recorder of Washington County, Arkansas.

Easement, executed by Fred J. Clark and Kate B. Clark, husband and wife, to
         the City of Springdale, a municipal corporation, dated June 20, 1961,
         and recorded June 22, 1961, in Record Book 554 at Page 417 in the
         office of the Circuit Clerk and Ex-Officio Recorder of Washington
         County, Arkansas.

Easement, executed by Springdale Industrial Park Commission of the City of
         Springdale, to Burlington Northern, Inc., dated March 9, 1981, and
         recorded March 10, 1981, in Record Book 1036 at Page 657 in the office
         of the Circuit Clerk and Ex-Officio Recorder of Washington County,
         Arkansas.

Right-of-Way Grant, dated July 20, 1995, executed by Dwain A. Newman and
         Glenda Newman, husband and wife, in favor of Arkansas Western Gas
         Company, recorded August 2, 1995, at 1:00 p.m., in Land Document No.
         95-38954 in the office of the Circuit Clerk and Ex-Officio Recorder of
         Washington County, Arkansas.

Easement/Right-of-Way, dated February 5, 1996, executed by Dwain Newman, in
         favor of the City of Springdale, Arkansas, all public utility
         companies, and to the cable television company, recorded April 23,
         1996, at 11:34 a.m., in Land Document No. 96024438 in the office of
         the Circuit Clerk and Ex-Officio Recorder of Washington County,
         Arkansas.

Right-of-Way Grant, dated September 30, 1998, executed by Dwain A. Newman and
         Glenda R. Newman, husband and wife, in favor of Arkansas Western Gas
         Company, recorded October 8, 1998, at 12:30 p.m., in Land Document No.
         98086912 in the office of the Circuit Clerk and Ex-Officio Recorder of
         Washington County, Arkansas.

Subject to the right-of-way of Jefferson Street on the West side of the subject
lands.

                                      B-2