Exhibit 10(x)


                               INDENTURE OF TRUST


                                     BETWEEN


                         NEW YORK STATE ENERGY RESEARCH
                            AND DEVELOPMENT AUTHORITY



                                       AND



                                 CHEMICAL BANK,
                                   AS TRUSTEE




                           Dated as of August 1, 1995


                                  -relating to-


                        Electric Facilities Revenue Bonds
              (Long Island Lighting Company Project), 1995 Series A

                                                                               

<PAGE>
                  THIS  INDENTURE OF TRUST,  made and dated as of the 1st day of
August,  1995,  by and between New York State Energy  Research  and  Development
Authority (the "Authority"), a body corporate and politic, constituting a public
benefit  corporation,  and Chemical Bank (the "Trustee"),  a banking corporation
organized under the laws of the State of New York, with its principal  corporate
trust office located in New York, New York, as trustee,

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

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

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

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

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

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

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

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

                  WHEREAS,  pursuant to Resolution  No. 850 adopted  January 30,
1995,  the Authority has  determined to issue  $50,000,000  aggregate  principal
amount of electric facilities

                                                                


<PAGE>

revenue bonds  initially  bearing the designation set forth on the title page of
the  Indenture of Trust (the  "Bonds") for the purpose of financing  the cost of
the Project; and

                  WHEREAS, in order to provide an inducement to the Authority to
issue  the  Bonds,  the  Company  has  entered  into  a  Letter  of  Credit  and
Reimbursement  Agreement  relating to the Bonds dated as of August 1, 1995, with
Union Bank of  Switzerland,  New York  Branch (the  "Bank")  and  certain  other
parties, pursuant to which the Bank has agreed to issue an irrevocable letter of
credit in favor of the Trustee,  which letter of credit  expires by its terms on
August 24, 1998, unless extended or unless earlier terminated in accordance with
its terms,  to provide for the payment of such amounts as are specified  therein
with respect to the  principal of,  premium,  if any, and interest on, the Bonds
and certain other payments with respect to the Bonds; and

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

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



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<PAGE>

                                 [Form of Bonds]

                       [MONEY MARKET MUNICIPAL RATE LEGEND

                                                Last Day of Money Market
Interest Rate _____                             Municipal Rate Period _____

Interest due at end of Money
Market Municipal Rate Period _____              Number of Days _____]^1



                       NEW YORK STATE ENERGY RESEARCH AND
                              DEVELOPMENT AUTHORITY
                        ELECTRIC FACILITIES REVENUE BOND
                     (LONG ISLAND LIGHTING COMPANY PROJECT)
                                  1995 SERIES A

NO. _____                                               $__________*

MATURITY DATE               ORIGINAL ISSUE DATE           CUSIP

AUGUST 1, 2025              AUGUST 24, 1995               ________

REGISTERED OWNER: CEDE & CO.

PRINCIPAL AMOUNT: ____________________ DOLLARS


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



--------
1Such legend to appear only on face of Bonds bearing  interest at a Money Market
Municipal Rate.

                                                           


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<PAGE>

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

                  This  bond is one of a duly  authorized  issue of bonds of the
Authority designated as "Electric Facilities Revenue Bonds (Long Island Lighting
Company  Project),  1995  Series  A"  (the  "Bonds"),  issued  in the  aggregate
principal  amount of $50,000,000  pursuant to the  Constitution  and laws of the
State  of New  York,  particularly  the  New  York  State  Energy  Research  and
Development Authority Act, Title 9 of Article 8 of the Public Authorities Law of
the State of New York, as amended (the "Act"),  and a resolution  adopted by the
Authority  on January  30,  1995.  The Bonds are issued  and  secured  under and
pursuant  to an  Indenture  of Trust  dated as of August 1,  1995,  between  the
Authority and Chemical Bank, as Trustee (the "Indenture").  The Bonds are issued
for the purpose of financing a portion of the cost of acquisition,  construction
and  installation  of certain  facilities of Long Island  Lighting  Company (the
"Company")  to be  used  for  the  local  furnishing  of  electric  energy  (the
"Project")  pursuant to a  Participation  Agreement  dated as of August 1, 1995,
between  the  Authority  and the Company  (hereinafter,  as it may be amended or
supplemented from time to time, called the "Participation Agreement"). All terms
used but not defined herein are used as defined in the Indenture.

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

                  *2. The Bonds are not general  obligations  of the  Authority,
and shall not  constitute  an  indebtedness  of or a charge  against the general
credit of the Authority or give rise

                                                                 

                                       4
<PAGE>

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

                  *3.  Interest  Rate.  Interest on the Bonds will  initially be
payable  at a Weekly  Rate of three and  eighty-five  one-hundredths  per centum
(3.85%) per annum from the initial  delivery  date to and  including  August 29,
1995 (the "First Interest  Period").  Subsequent to such period and prior to the
Fixed Rate Conversion Date,  interest on this Bond will be paid at the lowest of
(a) a Weekly Rate,  a Money  Market  Municipal  Rate,  a  Semi-Annual  Rate or a
Medium-Term Rate as from time to time selected and determined in accordance with
the Indenture,  (b) 15% or (c) the maximum interest rate specified in the Letter
of Credit with  respect to coverage  for the payment of interest or the interest
component  of Purchase  Price;  thereafter,  interest  will be paid at the Fixed
Rate,  determined in accordance with the Indenture,  which shall not exceed 18%.
Each such  Rate will be set by the  Remarketing  Agents in  accordance  with the
applicable  standards  provided in the  Indenture;  provided that each such Rate
will not be  greater  than  110% of the rate  index  for such  Rate  (the  "Rate
Index").  The Rate Index will be selected  by an  Indexing  Agent for such Rate,
appointed  pursuant to the  Indenture.  If such Rate is not  established  by the
Remarketing Agents, no Remarketing Agent shall be

                                                        

                                       5
<PAGE>

serving or the Rate so established is held to be invalid or  unenforceable  by a
final  judgment  of a court of law,  then such Rate will be 100% of the  related
Rate  Index.  Subsequent  to the  First  Interest  Period,  unless  and  until a
different Interest Rate Determination  Method is selected in accordance with the
Indenture,  interest on the Bonds will  continue to be payable at a Weekly Rate.
The Company may change the Interest Rate Determination  Method from time to time
in accordance with the Indenture; provided, however, that if the Company changes
the Interest Rate  Determination  Method to a Fixed Rate, it may not  thereafter
change the Interest  Rate  Determination  Method and the Fixed Rate shall be the
rate of  interest  on the  Bonds  from the  Fixed  Rate  Conversion  Date to the
Maturity  Date.  The Company may direct the Trustee to change the Interest  Rate
Determination  Method  applicable  to all or a portion of the  Bonds.  Except as
specifically provided otherwise in the Indenture,  the conditions and procedures
for such change in the Interest Rate  Determination  Method for a portion of the
Bonds shall be the same as the  conditions  and  procedures  for a change in the
Interest  Rate  Determination  Method  for the  entire  series of Bonds.  If the
Company  directs the Trustee to change the Interest  Rate  Determination  Method
from one Rate to another  for less than all of the Bonds then  outstanding,  the
Trustee shall select Bonds to be converted by lot or by such other method as the
Trustee shall deem appropriate.  In the event the Company wishes to convert less
than all the Bonds then  outstanding,  the Company  shall  notify the Trustee of
such  decision  not less than 40 days or more than 60 days before the  effective
date of the proposed conversion. On the Conversion Date the portion of the Bonds
which are being  converted  shall be redesignated in such a way as to identify a
separate  Subseries and thereby avoid confusion of such Subseries with any other
Subseries.  The Company may also determine to similarly  redesignate the portion
of the Bonds which are not being  converted on the Conversion  Date. The holders
of Bonds which are being  redesignated  may be required to deliver such Bonds to
the Trustee in order to receive a new Bond of the applicable designation, in the
same principal  amount.  In the event holders are not required to surrender such
Bonds, the Trustee shall  appropriately  designate any Bonds subsequently issued
in exchange  therefor.  If less than all of the Bonds are to be  converted,  all
references  herein  to the  Bonds  shall be deemed to refer to the Bonds of each
Subseries separately.

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

                                                            

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<PAGE>

Fixed Rate  Period,  each  February 1 and August 1; (v) during each Money Market
Municipal Rate Period, the first Business Day after any Calculation  Period; and
(vi) the Maturity  Date.  With respect to the First Interest  Period,  the first
Interest Payment Date will be September 1, 1995. If prior to the conversion to a
Semi-Annual  Rate  Period,  Medium-Term  Rate  Period or Fixed Rate  Period,  an
Officer's  Certificate  shall be delivered to the Trustee  specifying  different
Interest  Payment  Dates for such Rate Period  together  with an Opinion of Bond
Counsel  to the  effect  that such  adjustment  will not  adversely  affect  the
exclusion  of  interest on the Bonds from gross  income for  federal  income tax
purposes,  then the  Interest  Payment  Dates for such Rate  Period  shall be so
adjusted;  provided,  however,  that  no such  adjustment  shall  result  in the
establishment of Interest Payment Dates between which more than six months would
pass.

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

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

                  *4. Letter of Credit.  The Bonds are initially  supported by a
letter of credit issued by Union Bank of Switzerland, New York Branch (such bank
or any  issuer of any  alternate  credit  facility  as  described  herein  being
hereinafter  referred to as the "Bank"), in favor of the Trustee.  The letter of
credit expires on August 24, 1998, unless extended in accordance with its terms,
or on the earlier  occurrence of events  specified in it. The initial  letter of
credit or any Alternate Credit Facility meeting the requirements of Section 6.07
of the Indenture and Section 4.12 of the Participation Agreement during the time
it is in effect is  hereinafter  called the  "Letter of  Credit."  The Letter of
Credit shall be in effect at all times prior to the Fixed Rate Conversion  Date,
except any period  during  which all of the  outstanding  Bonds are owned by the
Company.  The Letter of Credit  shall  entitle  the Trustee to draw up to (a) an
amount equal to the principal  amount of the Bonds then  outstanding  to pay the
principal amount of the Bonds (or the portion of the Purchase Price of the Bonds
corresponding  to  principal);  plus (b) an amount  equal to 210  days'  accrued
interest on the Bonds at a maximum  rate  specified  therein,  which shall in no
event  exceed  15%,  to pay  interest on the Bonds.  Such  maximum  rate for the
initial  letter of credit is 15%. If the Bonds shall be  redeemable at a premium
during a period during which a Letter of Credit is in effect,  no redemption may
be made unless the Letter of Credit or other  Available  Moneys are available to
pay such premium.


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<PAGE>

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

                  *5.  Tender of Bonds for Purchase.

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

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

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

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

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

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


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<PAGE>

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

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

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

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

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

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

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



                                       9
<PAGE>
                                                                   

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

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

                  *6.  Redemptions.

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

             Redemption Date                                  Redemption Prices

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

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

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



                                       10
<PAGE>
                                                                          

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

            Redemption Date                                   Redemption Prices

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

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

         Second Anniversary of the Earliest Optional                    100
          Redemption Date and thereafter

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

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

         Redemption Date                                     Redemption Prices

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

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



                                       11
<PAGE>
                                                                
         Second Anniversary of the Earliest Optional                  100.5
          Redemption Date through the last day prior
          to the Third Anniversary of the Earliest
          Optional Redemption Date

         Third Anniversary of the Earliest Optional                   100
          Redemption Date and thereafter

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

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

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

              Redemption Date                               Redemption Prices

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

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

         Second Anniversary of the Earliest Optional               100
          Redemption Date and thereafter

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

                                                                  

                                       12
<PAGE>


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


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

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

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

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

                  *Special Optional Redemptions.  The Bonds will also be subject
to redemption  at the option of the Authority  exercised at the direction of the
Company,  in whole at a redemption  price equal to the principal  amount thereof
plus accrued and unpaid  interest  thereon to the redemption date if the Company
reasonably concludes and certifies to the Trustee that the business, properties,
condition  (financial or  otherwise),  operations  or business  prospects of the
Company will be materially  and adversely  affected  unless the Company takes or
omits to take


                                       13
<PAGE>
                                                                

a  specified  action and that the  Company  has been  advised in writing by Bond
Counsel that either (x) the specified  action or omission would adversely affect
the exclusion  from gross income for federal  income tax purposes of interest on
the Bonds afforded by Section 103 of the Code, or (y) that the matter is subject
to such doubt that such Bond  Counsel is unable to advise the  Company  that the
specified  action or omission would not adversely  affect such  exclusion.  Such
conclusion and certification  shall be evidenced by delivery to the Trustee of a
written  certificate of an Authorized Company  Representative to the effect that
the Company has reached such conclusion,  together with a copy of such advice of
Bond Counsel.

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

                  *Mandatory  Redemption on  Determination  of  Taxability.  The
Bonds will be redeemed in whole (or in part as provided below),  at a redemption
price equal to the  principal  amount  thereof plus accrued and unpaid  interest
accrued thereon to the redemption  date, on the first day of a month selected by
the  Authority  at the  direction  of the  Company  (such  direction  also being
delivered to the  Trustee)  within 180 days after the Company  receives  written
notice  from  a  Bondowner  or  former  Bondowner  or  the  Trustee  of a  final
determination   by  the  Internal  Revenue  Service  or  a  court  of  competent
jurisdiction that, as a result of a failure by the Company to perform any of its
agreements  in the  Participation  Agreement or the  inaccuracy,  the failure to
perform  or  breach  of any of the  representations,  warranties,  covenants  or
agreements  of the Company in the Tax  Regulatory  Agreement or any  requisition
submitted pursuant to the


                                       14
<PAGE>
                                                                     

Indenture, the interest paid or to be paid on any Bond (except to a "substantial
user" of the Project or a "related  person" of such a "substantial  user" within
the meaning of Section 147(a) of the Internal  Revenue Code of 1986, as amended)
is or was included in the gross  income of the Bond's  owner for federal  income
tax  purposes.  No  such  determination  will be  considered  final  unless  the
Bondowner or former Bondowner  involved in the determination  gives the Company,
the Authority and the Trustee prompt written notice of the  commencement  of the
proceedings  resulting in the determination  and offers the Company,  subject to
the Company's  agreeing to pay all expenses of the  proceeding  and to indemnify
the  owner  against  all  liabilities  that  might  result  from  it,  including
additional  income tax liabilities as a result of interest accruing on the Bonds
following  commencement  of such  proceedings,  the  opportunity  to control the
defense of the  proceeding  and either the Company does not agree within 30 days
to pay the expenses,  indemnify the owner and control the defense or the Company
exhausts or chooses  not to exhaust  available  procedures  to contest or obtain
review  of the  result  of the  proceedings.  Fewer  than all the  Bonds  may be
redeemed if, in the opinion of Bond Counsel,  redemption of fewer than all would
result in the  interest  payable on the Bonds  remaining  outstanding  being not
included in the gross income for federal  income tax purposes of any owner other
than a  "substantial  user"  of the  Project  or a  "related  person"  of such a
"substantial  user".  If fewer than all of the Bonds are  redeemed,  the Trustee
will select the Bonds to be redeemed as provided in the  Indenture.  IF THE LIEN
OF THE  INDENTURE  IS  DISCHARGED  AS DESCRIBED IN SECTION 10 BELOW PRIOR TO THE
OCCURRENCE OF A FINAL  DETERMINATION OF TAXABILITY AS DESCRIBED ABOVE, THE BONDS
WILL NOT BE REDEEMED AS DESCRIBED IN THIS PARAGRAPH.

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

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

                  *Effect of Notice of Redemption.  When notice of redemption is
required and given,  Bonds called for  redemption  become due and payable on the
redemption date at the applicable redemption price, except as otherwise provided
herein;  in such case when funds are deposited  with the Trustee  sufficient for
redemption or for the purchase of Bonds otherwise


                                       15
<PAGE>

subject to redemption,  interest on the Bonds to be redeemed or purchased ceases
to accrue as of the date of redemption  or purchase  whether or not such Bond is
delivered to the Trustee on such date.

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

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

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

                  *9.  Unclaimed  Money.  On or after the Fixed Rate  Conversion
Date and solely with respect to moneys not  resulting  from a draw on the Letter
of Credit and not constituting remarketing proceeds, if money for the payment of
principal, premium, if any, interest or Purchase Price remains unclaimed for two
years,  the Trustee will,  upon request of the Company,  pay the money to or for
the account of the Company. After that, owners entitled to the money


                                       16
<PAGE>
                                                                        

must look only to the  Company  and not to the  Trustee or the Bank for  payment
unless an applicable abandoned property law designates another person.

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

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

                  *12.  Defaults and Remedies.  The Indenture  provides that the
occurrences of certain events constitute Events of Default.  An Event of Default
and its consequences may be waived as provided in the Indenture.  Bondowners may
not enforce the Indenture or the Bonds except as provided in the Indenture.  The
Trustee  may refuse to enforce  the  Indenture  or the Bonds  unless it receives
indemnity satisfactory to it. Subject to certain limitations, owners of


                                       17
<PAGE>
                                                                 

a  majority  in  principal  amount of the Bonds may  direct  the  Trustee in its
exercise of any trust or power.

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

                  *14.  Remarketing  Agents;  Indexing Agent;  Tender Agent. The
Authority has appointed Lehman Brothers Inc. and Dillon,  Read & Co. Inc. as the
initial  Remarketing Agents under the Indenture.  The Authority may from time to
time,  at the  request  of the  Company,  remove or  replace  one or more of the
Remarketing  Agents. The Authority has appointed Kenny Information  Systems Inc.
as Indexing Agent under the  Indenture.  The Authority may from time to time, at
the request of the Company,  remove the  Indexing  Agent and appoint a different
nationally  recognized  municipal  securities  evaluation  service  to  serve as
Indexing Agent. The Authority has appointed  Chemical Bank as Tender Agent under
the  Indenture.  The  Authority  may from time to time,  at the  request  of the
Company, remove or replace the Tender Agent.

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

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

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

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


                                       18
<PAGE>

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

                                         NEW YORK STATE ENERGY RESEARCH
                                           AND DEVELOPMENT AUTHORITY


                                         By  /s/
                                             ---------------------------------
                                                         President

Attest:


/s/ -------------------------------
         Secretary

Dated:



                                       19
<PAGE>

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

                          CERTIFICATE OF AUTHENTICATION

                  This  Bond is one of the  Electric  Facilities  Revenue  Bonds
(Long  Island  Lighting  Company  Project),  1995  Series  A,  described  in the
within-mentioned Indenture.

Chemical Bank                                                    Chemical Bank
  as Trustee                                or                  as Tender Agent



By_____________________________                  By_____________________________



                                       20
<PAGE>


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

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

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

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

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


                               [END OF BOND FORM]

                                       21
<PAGE>

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

                                 GRANTING CLAUSE

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


                                       22
<PAGE>

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


                                       23
<PAGE>

                                    ARTICLE I

                       DEFINITIONS; LIABILITY UNDER BONDS;
                        INDENTURE TO CONSTITUTE CONTRACT

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

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

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

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

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

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


                                       24
<PAGE>

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

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

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

                  Authorized  Officer  means the Chair,  Vice-Chair,  President,
Treasurer, Assistant Treasurer or Secretary of the Authority.

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

                  Bank means Union Bank of  Switzerland,  New York  Branch,  the
issuer of the initial Letter of Credit,  in its capacity as issuer of the Letter
of  Credit,  the  issuer  of any  Alternate  Credit  Facility  and each of their
successors in such capacity.

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

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



                                       25
<PAGE>

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

                  Bond  Register  shall have the  meaning  specified  in Section
2.11.

                  Bond Year shall mean each one-year  period (or shorter  period
from the issue date) that ends at the close of business each August 1.

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

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

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

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

                  Company Indenture shall mean  collectively,  (i) the Indenture
of Mortgage and Deed of Trust,  dated as of September 1, 1951,  from the Company
to IBJ Schroder Bank and Trust Company  (formerly J. Henry Schroder Bank & Trust
Company)  as  trustee,  as amended  and  supplemented  and (ii) the  General and
Refunding  Indenture dated as of June 1, 1975, from the Company to United States
Bank & Trust  Company  of New  York  (as  successor  trustee),  as  amended  and
supplemented.

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

                  Company Note  Payments  shall mean the amounts  payable by the
Company under the Company Note.

                  completed  or  completion,  when  used with  reference  to the
Project as of a stated  date,  shall mean that the Project has been  constructed
substantially in accordance with the description thereof  (notwithstanding  that
substantial  additions or modifications thereto are planned, and notwithstanding
that additional licensing or testing may be required with respect


                                       26
<PAGE>

to the  Project),  and that the  Company  does not intend to submit any  further
requisitions  pursuant  to  Section  3.03 of the  Participation  Agreement  with
respect to the Project.

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

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

                  Computation  Period  shall have the  meaning  ascribed to such
term in the Tax Regulatory Agreement.

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

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

                  Conversion  Notice shall have the meaning set forth in Section
2.04(a)(1).

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

                  Cost of  Construction  shall  mean all costs  incurred  by the
Company at any time prior to or after delivery of the Bonds for or in connection
with the  construction of the Project and shall include,  but not be limited to,
(a) obligations of the Company incurred for labor, services, materials and other
expenses and to  contractors,  builders and  materialmen in connection  with the
construction of the Project;  (b) the cost of acquiring necessary land or rights
in land and any costs incidental thereto;  (c) the cost of contract bonds and of
insurance of all kinds that may be required or necessary prior to the Completion
Date which is not paid by the contractor or  contractors  or otherwise  provided
for; (d) expenses of the Company (including overhead charges)


                                       27
<PAGE>

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

                  Debt Service  Account  shall mean the account in the Bond Fund
so designated and created pursuant to Section 6.01.

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

                  Determination   Date   shall   mean  the  first  day  of  each
Calculation Period.

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

                  Event of Default shall mean any event of default  specified in
Section 10.01.

                  First  Interest  Period means the period  described as such in
Section 2.03(a).



                                       28
<PAGE>

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

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

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

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

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

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



                                       29
<PAGE>

                  Interest Payment Date means (i) during any Weekly Rate Period,
the first Business Day of each calendar month;  (ii) each Conversion Date; (iii)
during any Semi-Annual  Rate Period or Medium-Term  Rate Period the first day of
each of two months which are six months apart,  as specified in a certificate of
an Authorized  Officer  delivered to the Trustee prior to the  Conversions  to a
Semi-Annual Rate Period or Medium-Term Rate Period,  provided,  however,  if the
last such day  occurring  in any  Semi-Annual  Rate Period is not a Business Day
then the first  Business  Day  thereafter  shall be the Interest  Payment  Date,
provided,  further,  however, if any Interest Payment Date in a Semi-Annual Rate
Period,  determined as set forth above, would cause such Semi-Annual Rate Period
to extend for a period in excess of 182 days, the Interest Payment Date for such
Semi-Annual  Rate Period shall be the last  Business Day  occurring  within such
Semi-Annual  Rate  Period  that does not cause such  Semi-Annual  Rate Period to
exceed 182 days in duration;  (iv) during the Fixed Rate Period, each February 1
and August 1; (v) during each Money  Market  Municipal  Rate  Period,  the first
Business Day after any  Calculation  Period;  and (vi) the Maturity  Date.  With
respect to the First Interest  Period,  the first Interest  Payment Date will be
September  1, 1995.  If prior to the  conversion  to a  SemiAnnual  Rate Period,
Medium-Term Rate Period or Fixed Rate Period, an Officer's  Certificate shall be
delivered to the Trustee  specifying  different  Interest Payment Dates for such
Rate  Period  together  with an Opinion of Bond  Counsel to the effect that such
adjustment will not adversely affect the exclusion of interest on the Bonds from
gross income for federal  income tax purposes,  then the Interest  Payment Dates
for such Rate  Period  shall be so  adjusted;  provided,  however,  that no such
adjustment  shall result in the  establishment of Interest Payment Dates between
which more than six months would pass.

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

                  Interest Rate Determination Method means any of the methods of
determining the interest rate on the Bonds described in Section 2.03.

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

                  Investment Obligations shall have the meaning assigned to that
term in Section 14.01.2.

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

                  Letter of Credit  Account  shall mean the  account in the Bond
Fund so designated and created pursuant to Section 6.01.



                                       30
<PAGE>

                  Mandatory  Purchase  Date  means a date on which the Bonds are
required to be purchased in accordance with Section 2.05(e).

                  Maturity Date shall mean August 1, 2025.

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

                  Medium-Term   Rate  means  the  interest  rate  on  the  Bonds
established from time to time under Section 2.03(e).

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

                  Medium-Term  Rate  Period  means  Medium-Term  Rate  Period as
defined in Section 2.03(e).

                  Money  Market  Municipal  Rate  shall  mean an  interest  rate
established pursuant to Section 2.03(d).



                                       31
<PAGE>

                  Money Market  Municipal  Rate Index shall mean with respect to
the first day of each  Calculation  Period during a Money Market  Municipal Rate
Period,  the average of yield  evaluations  at par,  determined  by the Indexing
Agent, of securities  (whether or not actually issued) all of which shall have a
term as near as practicable to such  Calculation  Period or which are subject to
optional or mandatory  tender by the owner  thereof at the end of a term as near
as practicable to such Calculation Period, the interest on which is not included
in gross  income for  federal  income  tax  purposes,  of no fewer  than  twenty
Component  Issuers  selected  by  the  Indexing  Agent,   including  issuers  of
commercial paper,  project notes,  bond anticipation  notes and tax anticipation
notes,  computed by the  Indexing  Agent on and as of such day. If the Bonds are
rated by a Rating  Agency or are  subject to the  benefits of a Letter of Credit
and the issuer of such Letter of Credit has issued  letters of credit to support
other  debt  obligations  rated  by a  Rating  Agency  in its  highest  note  or
commercial paper rating category or one of its two highest long-term debt rating
categories,  each Component Issuer must (a) have outstanding securities rated by
a Rating Agency in its highest note or commercial  paper rating  category or (b)
not have outstanding notes or commercial paper rated by a Rating Agency but have
outstanding  securities  rated  by a  Rating  Agency  in one of its two  highest
long-term  debt  rating  categories.  If the  Bonds  or other  debt  obligations
supported by letters of credit  issued by the Bank are rated by a Rating  Agency
in a rating  category  that is lower than its highest note or  commercial  paper
rating  category or its two highest  long-term debt rating  categories  (and the
Bonds or other debt  obligations  supported  by letters of credit  issued by the
Bank are not rated in one of such categories by the other Rating  Agency),  each
Component Issuer must (a) have  outstanding  securities rated by a Rating Agency
in  its  note  or  commercial  paper  rating  category  which  is  the  same  or
correlative,  in the Indexing Agent's judgment,  to the note or commercial paper
rating  category or the long-term debt rating category of the Bonds or the other
debt  obligations  supported by letters of credit issued by the Bank or (b) have
outstanding  securities  rated by a Rating  Agency  in the same  long-term  debt
rating category as the Bonds or the other debt obligations  supported by letters
of credit  issued by the Bank are rated by that  Rating  Agency and not have any
outstanding notes or commercial paper rated by such Rating Agency.  The Indexing
Agent may  change the  Component  Issuers  from time to time in its  discretion,
subject to the foregoing  requirements.  In addition,  at the written request of
the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that,
under then-existing statutes and court decisions, such action will not adversely
affect the  exclusion  of interest on the Bonds from gross  income of the owners
thereof for federal income tax purposes, the Authority,  with the consent of the
Company,  may designate a new method of setting the Money Market  Municipal Rate
Index in the event any of the  above-described  methods  are  determined  by the
Authority to be unavailable, impracticable or unrealistic in the market place.

                  Money  Market   Municipal   Rate  Period  means  Money  Market
Municipal Rate Period as defined in Section 2.03(d).

                  Money  Market  Municipal  Rate Period  Record Date shall mean,
with respect to each Interest  Payment Date during a Money Market Municipal Rate
Period, the Business Day next preceding such Interest Payment Date.


                                       32
<PAGE>

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

                  Officer's  Certificate  shall mean a certificate  signed by an
Authorized Officer.

                  Opinion of Bond Counsel  shall mean a written  opinion of Bond
Counsel.

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

                  Optional  Retention  Notice Date means the fifth  Business Day
prior to a Mandatory Purchase Date.

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

                  Other  Facilities  shall  mean  the  facilities  described  in
Exhibit B to the Participation Agreement.

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

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

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

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


                                       33
<PAGE>

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

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

                  Owner or  Bondowner  or, when used with respect to an owner of
Bonds, owner shall mean the Registered Owner of any Bond.

                  Participation Agreement shall mean the Participation Agreement
dated as of August 1, 1995,  between the Authority  and the Company,  as amended
and supplemented by Supplemental Participation Agreements from time to time.

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

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

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

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

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

                  Purchase  Price means an amount equal to 100% of the principal
amount of any Bond tendered or deemed  tendered to the Tender Agent for purchase
pursuant to Section 2.05


                                       34
<PAGE>

(or an amount equal to any applicable  optional redemption price on such date if
such  Bonds  are  to be  purchased  on a  Conversion  Date  occurring  during  a
Medium-Term  Rate Period in  accordance  with  Section  2.04),  plus accrued and
unpaid interest thereon to the date of purchase;  provided, however, if the date
of such purchase occurs after the Record Date applicable to the interest accrued
on such Bond from the last occurring  Interest  Payment Date,  then the Purchase
Price shall not include accrued and unpaid interest,  which shall be paid to the
owner of record on the applicable Record Date.

                  Rate means the  Weekly  Rate,  Money  Market  Municipal  Rate,
Semi-Annual Rate, Medium-Term Rate or Fixed Rate.

                  Rate Index means the Weekly Rate Index,  the Semi-Annual  Rate
Index,  the Medium-Term Rate Index, the Money Market Municipal Rate Index or the
Fixed Rate Index.

                  Rate Period  means any Weekly Rate  Period,  Semi-Annual  Rate
Period, MediumTerm Rate Period, Money Market Municipal Rate Period or Fixed Rate
Period.

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

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

                  Rebate Amount shall have the meaning  ascribed to such term in
the Tax Regulatory Agreement.

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

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

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

                  Reimbursement   Agreement  means  the  Letter  of  Credit  and
Reimbursement  Agreement dated as of August 1, 1995, between the Company,  Union
Bank of  Switzerland,  New York  Branch,  as  Issuing  Bank and  Agent,  and the
Participating Banks named therein,  and any and all modifications,  alterations,
amendments and supplements thereto and, upon the issuance


                                       35
<PAGE>

and delivery of an Alternate  Credit Facility,  "Reimbursement  Agreement" shall
mean the  letter of  credit  and  reimbursement  agreement  (or  other  document
performing a similar function) relating to such Alternate Credit Facility.

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

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

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

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

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

                           Semi-Annual   Adjustment   Date   means   Semi-Annual
                  Adjustment Date as defined in Section 2.03(c).

                  Semi-Annual   Rate  means  the  interest  rate  on  the  Bonds
established from time to time pursuant to Section 2.03(c).

                  Semi-Annual  Rate Index means the average of  six-month  yield
evaluations at par,  determined by the Indexing Agent, of securities (whether or
not actually issued),  the interest on which is not included in gross income for
federal income tax purposes,  of at least twenty  Component  Issuers selected by
the Indexing Agent,  including issuers of commercial paper,  project notes, bond
anticipation notes and tax anticipation notes, computed by the Indexing Agent as
of the Business Day next  preceding each date on which the  Semi-Annual  Rate is
determined  by the  Remarketing  Agents.  When the  Bonds  are rated by a Rating
Agency or shall be  subject to the  benefits  of a Letter of Credit and the Bank
has issued letters of credit to support other debt obligations rated by a Rating
Agency in its highest note or commercial paper rating category or one of its two
highest long-term debt rating categories, each Component Issuer must


                                       36
<PAGE>

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

                  Semi-Annual  Rate  Period  means  Semi-Annual  Rate  Period as
defined in Section 2.03(c).

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

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

                  Supplemental  Participation  Agreement shall mean an agreement
supplementing or amending the Participation Agreement.

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



                                       37
<PAGE>

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

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

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

                  Weekly Rate means the interest  rate on the Bonds  established
pursuant to Section 2.03(b).

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



                                       38
<PAGE>

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

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

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

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

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

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

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

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

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

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



                                       39
<PAGE>

                                   ARTICLE II

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

                  Section 2.01. Issuance of Bonds; Designation of Bonds; Certain
Particulars  and Form of Bonds.  The Bonds  shall be issued in one series in the
aggregate  principal  amount of $50,000,000 and shall be designated as "Electric
Facilities Revenue Bonds (Long Island Lighting Company Project), 1995 Series A."
In order to  distinguish  between Bonds which are subject to different  Interest
Rate Determination  Methods, Bonds may be designated and redesignated (as herein
provided) in such a way as to identify several Subseries.  Such Subseries may be
designated as Subseries A-1,  Subseries A-2, and so forth.  Each Bond shall bear
upon the face thereof such designation or redesignation, if any.

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

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

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

                  Only  such  Bonds  as  shall  have  been  endorsed  thereon  a
certificate of authentication substantially in the form set forth in the Form of
Bond duly  executed by the Trustee or the Tender  Agent shall be entitled to any
right or benefit under the  Indenture.  No Bond shall be valid or obligatory for
any purpose unless and until such certificate of authentication  shall have been
duly executed by the Trustee or the Tender Agent, and such executed  certificate
of the  Trustee or the Tender  Agent  upon any such  Bonds  shall be  conclusive
evidence  that  such  Bond  has  been  authenticated  and  delivered  under  the
Indenture.  The certificate of authentication of the Trustee or the Tender Agent
on any Bond shall be deemed


                                       40
<PAGE>

to have  been  executed  by it,  respectively,  if  signed  with  an  authorized
signature of the Trustee or the Tender Agent, but it shall not be necessary that
the same party or the same person sign the certificate of  authentication on all
of the Bonds issued hereunder.

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

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

                  Section 2.03.     Interest Rates on Bonds.

                  [2.03] (a) Generally;  Initial Rates.  Interest accrued on the
Bonds shall be paid on each  Interest  Payment  Date.  The interest  rate on the
Bonds will be  determined  as provided in this  Section,  provided,  that in any
event (i) no Weekly  Rate,  Money Market  Municipal  Rate,  Semi-Annual  Rate or
Medium-Term  Rate shall  exceed the lesser of: (a) fifteen per centum  (15%) per
annum and (b) the maximum  interest rate  specified in the Letter of Credit with
respect to coverage  for the payment of interest or the  interest  component  of
Purchase  Price and (ii) the Fixed  Rate shall not  exceed  eighteen  per centum
(18%) per annum and,  provided,  further,  no rate as so determined shall exceed
the  maximum  rate  permitted  by  applicable  law.  Interest  on the Bonds will
initially  be payable at a Weekly Rate of three and  eighty-five  one-hundredths
per  centum  (3.85%)  per annum for the period  from  August  24,  1995,  to and
including August 29, 1995 (the "First Interest Period").  Thereafter, unless and
until the Interest Rate Determination  Method is changed as described in Section
2.04, the Bonds will bear interest at a Weekly Rate.


                                       41
<PAGE>

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

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

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


                                       42
<PAGE>

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

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


                                       43
<PAGE>

                  The Indexing Agent shall establish the Semi-Annual  Rate Index
during the SemiAnnual Rate Period on the Business Day next preceding each day on
which a Semi-Annual Rate is determined by the Remarketing Agents.

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

                  [2.03 (d)] (i)  Establishment of Calculation  Periods.  During
         any Money Market  Municipal Rate Period,  at or prior to 12:00 noon New
         York City time on any Conversion Date immediately after which the Bonds
         will bear  interest  at the Money  Market  Municipal  Rate and each day
         immediately  after the end of a  Calculation  Period,  the  Remarketing
         Agents shall  establish  Calculation  Periods with respect to Bonds for
         which no  Calculation  Period is  currently in effect.  In  determining
         Calculation  Periods,  the Remarketing  Agents shall take the following
         factors into account:  (1) existing  short-term  taxable and tax-exempt
         market  rates and indices of such  short-term  rates,  (2) the existing
         market  supply and demand for  short-term  tax-exempt  securities,  (3)
         existing  yield  curves  for   short-term   and  long-term   tax-exempt
         securities or obligations  having a credit rating that is comparable to
         the Bonds, (4) general economic conditions,  (5) economic and financial
         factors present in the securities  industry that may affect or that may
         be  relevant  to the Bonds  and (6) any  information  available  to the
         Remarketing  Agents pertaining to the Bank or the Company regarding any
         events or  anticipated  events which could have a direct  impact on the
         marketability of or interest rates on the Bonds. The Remarketing Agents
         shall select the  Calculation  Periods and the applicable  Money Market
         Municipal Rates that,  together with all other Calculation  Periods and
         related  Money  Market  Municipal  Rates,  in the sole  judgment of the
         Remarketing Agents, will result in the lowest overall borrowing cost on
         the  Bonds or are  otherwise  in the best  financial  interests  of the
         Company,   as  determined  in  consultation   with  the  Company.   Any
         Calculation  Period  established  hereunder  may not extend  beyond any
         Conversion  Date,  the first  Business Day next preceding the scheduled
         expiration  date  of the  Letter  of  Credit  or the day  prior  to the
         maturity date of the Bonds,  and the maximum length of the  Calculation
         Period shall not exceed the number of days of interest  coverage  under
         the Letter of Credit minus 30 days of interest coverage.

                  [2.03  (d)] (ii)  Setting  of Rates.  On the first day of each
         Calculation  Period,  the  Remarketing  Agents shall set rates  ("Money
         Market  Municipal  Rates")  by 12:00  noon New York  City time for each
         Calculation  Period. With respect to Bonds for each Calculation Period,
         the Money Market Municipal Rate shall be the rate of interest which,



                                       44
<PAGE>

         if borne by such  Bonds,  would,  in the  judgment  of the  Remarketing
         Agents, having due regard to the prevailing financial market conditions
         for tax-exempt  revenue bonds or other tax-exempt  securities which are
         competitive  as to credit and  maturity  (or period of tender) with the
         credit and maturity (or period of tender) of such Bond, be the interest
         rate necessary,  but would not exceed the interest rate  necessary,  to
         enable the  Remarketing  Agents to remarket such Bond at a price of par
         on the date such rate is set;  provided that the Money Market Municipal
         Rates shall not be greater than 110% of the Money Market Municipal Rate
         Index.

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

                  The Indexing Agent shall establish the Money Market  Municipal
Rate Index.

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

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



                                       45
<PAGE>

         Bonds  will not cause  interest  on the Bonds to be  included  in gross
         income for federal income tax purposes.

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

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

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

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

                  [2.03] (f) Fixed  Rate.  During the period  commencing  on the
date that the Interest Rate Determination  Method is converted to a method where
the Bonds bear  interest at the Fixed Rate  pursuant to Section 2.04 to (subject
to the right of prior redemption at the prices and dates


                                       46
<PAGE>

and upon the terms and  conditions  hereinafter  set forth) the Maturity Date of
the Bonds (the "Fixed Rate Period"),  the Bonds shall bear interest at the Fixed
Rate.

                  With respect to the Fixed Rate Period,  the Remarketing Agents
will set a rate (the "Fixed  Rate") not later than 10:00 a.m. New York City time
one Business Day prior to any Fixed Rate  Conversion  Date. The Fixed Rate shall
be the interest rate which, if borne by the Bonds, would, in the judgment of the
Remarketing Agents having due regard for prevailing  financial market conditions
for  tax-exempt   revenue  bonds  or  other  tax-exempt   securities  which  are
competitive  as to credit and maturity (or period of tender) with the credit and
maturity of the Bonds, be the interest rate necessary,  but would not exceed the
interest  rate  necessary,  to enable the  Remarketing  Agents to  remarket  the
Bonds(s) as aforesaid tendered (or deemed to have been tendered) for purchase at
a price of par (plus  accrued  interest,  if any) on the Fixed  Rate  Conversion
Date,  provided  that the Fixed Rate shall not be greater than 110% of the Fixed
Rate Index.  If for any reason the applicable  Fixed Rate is not  established as
aforesaid by the Remarketing  Agents,  no Remarketing  Agent shall be serving as
such hereunder or the rate so established is held to be invalid or unenforceable
by a final  judgment  of a court of law,  the  interest  rate to be borne by all
Bonds outstanding under the Indenture from the Fixed Rate Conversion Date to the
date of  payment  in full of the Bonds  shall be equal to 100% of the Fixed Rate
Index as of such Computation Date.

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

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

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

                  [2.03] (i) No Liability. In determining the interest rate that
the Bonds shall bear as provided in this Section, the Remarketing Agents and, as
aforesaid, the Trustee shall have


                                       47
<PAGE>

no liability to the Authority,  the Company,  the Tender Agent, the Paying Agent
or any Bondowner except for their willful misconduct.

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

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

                  If the Company directs the Trustee to change the Interest Rate
Determination  Method  from one Rate to  another  for less than all of the Bonds
then  outstanding,  the Trustee  shall select Bonds to be converted by lot or by
such other method as the Trustee may select.  In the event the Company wishes to
convert less than all the Bonds then  outstanding,  the Company shall notify the
Trustee of such  decision  not less than 40 days or more than 60 days before the
effective date of the proposed conversion. On the Conversion Date the portion of
the Bonds which are being  converted  shall be  redesignated in such a way as to
identify a separate Subseries and thereby avoid confusion of such Subseries with
any other Subseries. The Company may also determine to similarly redesignate the
portion of the Bonds which are not being  converted on the Conversion  Date. The
holders of Bonds which are being  redesignated  may be required to deliver  such
Bonds  to the  Trustee  in  order  to  receive  a new  Bond  of  the  applicable
designation, in the same principal amount. In the event holders are not required
to surrender  such Bonds,  the Trustee shall  appropriately  designate any Bonds
subsequently issued


                                       48
<PAGE>

in exchange therefor.  The Trustee shall not be liable to any Bondholder for the
method  selected and employed by the Trustee or by the Company's  selection of a
partial redemption.

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

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

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

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

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

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

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

                  [2.04(a)]  (3) Any change in the Interest  Rate  Determination
Method shall not be effective  unless by 10:00 a.m.,  New York City time, on the
Conversion Date the Company  delivers a supplemental  Opinion of Bond Counsel to
the Trustee  stating  that under the laws  existing on the  Conversion  Date the
conversion to the other Rate will not cause the interest on



                                       49
<PAGE>

the Bonds to be included in gross income for federal income tax purposes and the
Rate to be in effect  after the  conversion  does not  exceed the  maximum  rate
permitted by the Indenture and by applicable law.

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

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

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

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

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

                  [2.04(b)]  (4) if  applicable,  that the interest  rate on the
         Bonds shall not be converted unless the Company delivers to the Trustee
         on the  applicable  Conversion  Date a  supplemental  Opinion  of  Bond
         Counsel stating that under the statutes and court decisions existing on
         the  Conversion  Date,  (A) the  conversion of the interest rate on the
         Bonds will not cause the  interest on the Bonds to be included in gross
         income  for  federal  income  tax  purposes;  and (B) the rate to be in
         effect after the conversion  does not exceed the maximum rate permitted
         by the Indenture and by applicable law; provided,  however, that if the
         Company fails to deliver such  supplemental  Opinion of Bond Counsel on
         such date, the interest rate on the Bonds shall not be converted on the
         applicable  Conversion  Date, and all Bonds tendered (or deemed to have
         been  tendered) for purchase  shall not be purchased on the  applicable
         Conversion Date as provided herein and the Bonds shall continue to bear
         interest in accordance with the Interest Rate  Determination  Method in
         effect prior to the proposed Conversion Date;



                                       50
<PAGE>

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

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

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

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

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

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

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

                  [2.04] (c) If the  Company  fails to deliver to the Trustee by
10:00 a.m. New York City time on the Conversion Date, the  supplemental  Opinion
of Bond  Counsel as and if  required  by  subsection  (a) of this  Section,  the
interest  rate  on  the  Bonds  shall  not be  converted  to  the  Weekly  Rate,
Semi-Annual Rate, Medium-Term Rate, Money Market Municipal Rate or Fixed Rate on
the  Conversion  Date, as the case may be, and Bonds tendered (or deemed to have
been tendered) for purchase on the Conversion Date shall not be purchased on the
Conversion  Date and the  Bonds  shall  continue  to bear  interest  at the rate
determined in accordance with the Interest Rate  Determination  Method in effect
prior  to the  proposed  Conversion  Date.  In such  event,  all  rights  of the
Authority, the Trustee and the Company hereunder shall continue as if


                                       51
<PAGE>
         
no such  proceedings  for the  conversion  of the interest rate on the Bonds had
been taken and the Bonds shall be available for remarketing  under Section 2.06.
The Trustee shall promptly  notify the Authority and the Bondowners by mail (and
shall  promptly  notify the Tender  Agent,  the Paying  Agent,  the Bank and the
Remarketing  Agents by  telephone)  in the event that the  interest  rate on the
Bonds is not converted on the Conversion Date as provided herein.

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

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

                  Section  2.05.  Optional  and  Mandatory  Tender  of Bonds for
Purchase.  (a) During any Weekly Rate Period, the owners of the Bonds shall have
the right to tender any Bond (or portion thereof in an authorized  denomination)
to the Tender Agent for purchase on any Optional Tender Date, but only upon:

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

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

Any election of a Bondowner to tender a Bond (or portion  thereof as  aforesaid)
for purchase on the Optional  Tender Date in accordance with this subsection (a)
shall be irrevocable and shall be binding on the Bondowner  making such election
and on any  transferee of such Bondowner and any Bond with respect to which such
an election has been made which is not properly  delivered by the owner  thereof
to the Tender Agent shall be deemed to have been properly tendered to the Tender
Agent, and, to the extent that there shall be on deposit with the Tender



                                       52
<PAGE>

Agent on or before the Optional  Tender Date,  an amount  sufficient  to pay the
Purchase Price thereof, such Bond shall cease to constitute or represent a right
to payment of principal or interest  thereon and shall  constitute and represent
only the right to payment of the Purchase Price payable on such date.

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

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

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

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

                  [2.05]  (c) The  Tender  Agent  shall  give the  Trustee,  the
Company,  the Remarketing Agents, the Paying Agent and the Bank prompt notice by
telephone  confirmed  promptly  in  writing  of the  receipt  of any  notice  in
accordance  with  clause  (1)  of  subsection  (a)  or  (b)  above.  During  any
Semi-Annual Rate Period, the Trustee shall give notice by mail to Bondowners not
more than  forty-five  or less than thirty  calendar  days before each  Optional
Tender Date, which notice shall state in substance: (i) the next Optional Tender
Date,  and (ii) that the Bonds are  subject to tender at the option of the owner
thereof in the manner set forth in subsection (b) of this section.



                                       53
<PAGE>

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

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

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

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

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

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

                  (i)  [intentionally omitted];

                  (ii)  the Optional Retention Date, if applicable;

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

                  (iv)  in the  case  of the  delivery  of an  Alternate  Credit
Facility  meeting the requirements of Section 6.07(3) hereof but not meeting the
requirements of Section 6.07(2)(c) hereof,  that in connection with the issuance
of the Alternate Credit Facility, the Trustee has not received a letter from the
Rating  Agency  then rating the Bonds  stating  (1) that such Rating  Agency has
reviewed  the terms of the  Alternate  Credit  Facility and the bank issuing the
same



                                       54
<PAGE>

and (2) that  issuance of the Alternate  Credit  Facility for the benefit of the
Bondowners  will not result in a lowering  of the rating  then  assigned by such
Rating  Agency to the Bonds,  and,  in such case,  stating  the name of the bank
issuing the Alternate Credit Facility and the effective date thereof;

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

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

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

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

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


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

                  [2.05(e)]  (4) The Bonds  shall be  tendered  for  purchase as
provided  in this  subsection  (e),  except  for any Bond or Bonds (or  portions
thereof in  authorized  denominations)  the owner of which shall  deliver to the
Tender  Agent at its  principal  office no later  than the  applicable  Optional
Retention Notice Date, a written notice, substantially in the form of EXHIBIT



                                       55
<PAGE>

A to the  Indenture,  appropriately  completed;  provided that such owners shall
have the right to retain  only  those  Bonds to be secured by a Letter of Credit
meeting the minimum requirements of Section 4.12 of the Participation  Agreement
following  the  Mandatory  Purchase Date and any Bonds not meeting those minimum
requirements  shall be deemed tendered and shall be subject to subsection (f) of
this Section notwithstanding any election to retain such Bonds.

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

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

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

                  (i) moneys  drawn  under the  Letter of Credit by the  Trustee
pursuant to Section 6.07.1;



                                       56
<PAGE>

                  (ii)  proceeds  of the  remarketing  of such Bond or Bonds (or
         portions thereof in authorized  denominations) pursuant to Section 2.06
         which  have been  transferred  to the  Tender  Agent  pursuant  to said
         Section; and

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

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

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

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

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



                                       57
<PAGE>

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

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

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

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



                                       58
<PAGE>

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

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

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

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

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

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

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


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<PAGE>

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

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

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




                                       60
<PAGE>

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

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

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




                                       61
<PAGE>

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

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

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

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

                  The  registration  of  transfer of any Bond shall be made only
upon the Bond Register at such Corporate  Trust Office at the written request of
the Registered Owner thereof



                                       62
<PAGE>

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

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

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

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

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

                  THE AUTHORITY,  THE COMPANY, THE TRUSTEE, THE PAYING AGENT AND
THE  REMARKETING  AGENTS WILL NOT HAVE ANY  RESPONSIBILITY  OR OBLIGATION TO ANY
BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY A
SECURITIES DEPOSITORY; (II) THE



                                       63
<PAGE>

PAYMENT BY A SECURITIES  DEPOSITORY OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL,
PURCHASE PRICE,  INCLUDING PREMIUM,  IF ANY, OR INTEREST ON THE BONDS; (III) ANY
NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO  BENEFICIAL  OWNERS OR (IV)
ANY  CONSENT  GIVEN OR OTHER  ACTION  TAKEN BY A  SECURITIES  DEPOSITORY  OR ITS
NOMINEE AS BONDOWNER.

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

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

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

                  In  connection  with any notice or other  communication  to be
provided to Bondowners pursuant to the Indenture by the Authority or the Trustee
with  respect to any  consent  or other  action to be taken by  Bondowners,  the
Authority or the Trustee,  as the case may be, shall establish a record date for
such consent or other action and give the nominee or



                                       64
<PAGE>

Securities  Depository notice of such record date not less than fifteen calendar
days in advance of such record date to the extent possible.

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

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

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

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

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

                  Section  2.14.  Payment For and  Limitations  on Exchanges and
Transfers.  In all cases in which the right of  exchanging  or  registering  the
transfer of Bonds is  exercised,  the  Authority  shall  execute and the Trustee
shall  authenticate and deliver Bonds in accordance with the provisions  hereof.
All Bonds  surrendered for  registration of transfer or exchange shall forthwith
be cancelled by the Trustee. For every such registration of transfer or exchange
of Bonds,  the Trustee may charge an amount  sufficient  to reimburse it for any
tax, fee or other  governmental  charge required to be paid with respect to such
registration  of transfer or exchange  which,  if not  resulting  in a change in
Bondowner, shall be paid by the Company pursuant to the Participation Agreement.
The cost of  preparing  each new Bond  upon each  registration  of  transfer  or
exchange,  and any other  expenses  (except  any  applicable  tax,  fee or other
governmental charge) of the Authority or the Trustee incurred in connection with
such

                                                                        


                                       65
<PAGE>

registration  of transfer or exchange  shall be paid by the Company  pursuant to
the Participation Agreement.

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

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

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


                                       66
<PAGE>

                                   ARTICLE III
                      SECURITY FOR BONDS; ISSUANCE OF BONDS

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

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

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

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



                                       67
<PAGE>

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

                  (c)      The  Company Note;

                  (d)      The Letter of Credit;

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

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

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

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



                                       68
<PAGE>

                                   ARTICLE IV

                                  AMENDMENT OF
                      PARTICIPATION AGREEMENT, COMPANY NOTE
                          AND TAX REGULATORY AGREEMENT

                  Section  4.01.  Amendments  to  Participation   Agreement  not
Requiring  Consent of Bondowners.  The Authority may, without the consent of the
Trustee  and  without  notice to or  consent of the  Bondowners,  enter into any
amendment  or  modification  of the rights and interest of the  Authority  under
Article III of the  Participation  Agreement or Sections 4.04,  4.08, 4.09, 4.10
and 5.16 of the  Participation  Agreement upon the delivery to the Trustee of an
Opinion of Bond  Counsel,  satisfactory  to the Trustee,  to the effect that the
proposed  amendment or  modification  will not impair the  exclusion  from gross
income  for  federal  income  tax  purposes  of  interest  on any  of the  Bonds
theretofore issued or otherwise  adversely affect the rights and/or interests of
the Trustee or any of the owners of the Bonds.  The Authority  may,  without the
consent of or notice to the  Bondowners,  amend or modify any other provision of
the Participation Agreement as may be required (i) for the purpose of curing any
ambiguity or formal defect or omission in the Participation  Agreement;  or (ii)
in  connection  with any other change  therein which is not  prejudicial  to the
interests of the Trustee or the owners of the Bonds,  including  but not limited
to any change necessary to obtain or maintain a rating of the Bonds from Moody's
or S&P.

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

                  Section 4.02. Amendments to Participation  Agreement Requiring
Consent of  Bondowners.  Except for amendments or  modifications  as provided in
Section 4.01, the Authority  shall not enter into any amendment or  modification
of the  Participation  Agreement  without the written consent of the Trustee and
the owners of not less than  two-thirds  in  aggregate  principal  amount of the
Bonds then outstanding and affected by such modification or amendment.

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

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

                  Notwithstanding  anything  to the  contrary  contained  in the
Indenture or the Participation  Agreement,  the Authority shall not agree to any
amendment,  change or modification  of, or any waiver,  discharge or termination
of, any of the provisions of the



                                       69
<PAGE>

Participation  Agreement in any respect  which would impair the  exclusion  from
gross income for federal income tax purposes of interest on any of the Bonds.

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

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

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

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

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



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<PAGE>

                                    ARTICLE V
                            PROJECT FUND; REBATE FUND

                  Section  5.01.  Creation and Custody of Project Fund. 1. There
is hereby  created a Project  Fund,  which shall be held by the  Trustee.  There
shall be paid into the  Project  Fund the amount  required  to be so paid by the
provisions of Section 3.02.

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

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

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

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


                                       71
<PAGE>

                           (a) the requisition number;

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

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

                           (d) the amount of such payment;

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

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

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

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

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

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

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



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<PAGE>

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

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

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

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

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



                                       73
<PAGE>

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



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<PAGE>

                                   ARTICLE VI

                           BOND FUND; LETTER OF CREDIT

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

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

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

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

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



                                       75
<PAGE>

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

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

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

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

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

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

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

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

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

                  If on the due  date  of  principal  and  premium,  if any,  or
interest with respect to Bonds,  the amounts on deposit in the Bond Fund (except
amounts held by the Trustee pursuant



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<PAGE>

to Section  6.04) are not  sufficient  to pay in full all such  principal of and
premium, if any, and interest on the Bonds, such amounts shall be applied to the
payment  of  such  principal,  premium  and  interest  in  accordance  with  the
provisions of Section 10.09.

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

                  Section 6.05.     (Intentionally Deleted).

                  Section 6.06. Trustee to Notify Authority and Company of Funds
in Bond Fund.  The  Trustee,  upon the  written  request  of the  Company or the
Authority,  shall notify the Company and the Authority of the amount of funds on
deposit in the Bond Fund at the time of such request.

                  Section  6.07.  Letter of Credit.  (1) The Trustee  shall draw
moneys under the Letter of Credit in accordance  with the terms thereof as shall
be necessary to make timely payments of principal of, and interest on, the Bonds
required to be made from the Bond Fund and to make timely  payments  required to
be made pursuant to, and in accordance  with,  Section 2.05. In connection  with
each  such  drawing,   the  Trustee   shall  timely   prepare  and  present  all
certificates,  drafts and other documents which are required by the terms of the
Letter of Credit to effect payment thereunder.  The Trustee shall give immediate
telephonic or facsimile  (confirmed in writing)  notice to the Company of a draw
under the Letter of Credit and the amount thereof.  Nothing in this Section 6.07
shall  require  the  Trustee to draw  moneys  under the Letter of Credit for the
payment  of Bonds  registered  in the name of,  or held  beneficially  for,  the
Company or the Bank or any Bonds held or required to be held by the Tender Agent
for the


                                       77
<PAGE>

account of the Company or the Bank  pursuant to the  Indenture to the extent not
permitted by the Letter of Credit.

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

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

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

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


                                       78
<PAGE>

places where such Bonds must be delivered for such purchase,  and (c) either (i)
if the  requirements  of  subsection  2 of this  Section 6.07 have not been met,
state that the Bonds shall be subject to  mandatory  tender for  purchase at the
Purchase Price thereof on the Mandatory  Purchase Date or (ii) state the name of
the issuer of the Alternate Credit Facility. Such notice shall be given by first
class mail not later than thirty (30) days prior to the Mandatory Purchase Date.

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


                                       79
<PAGE>

                                   ARTICLE VII

                      SECURITY FOR AND INVESTMENT OF MONEYS

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

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

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

                  Moneys on deposit  to the credit of the Bond Fund,  other than
moneys on  deposit  in the Letter of Credit  Account,  subject to Section  6.04,
shall without any instruction from the


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Company or the Authority be invested in shares of a money market fund,  the sole
assets of which are comprised of obligations  issued or guaranteed by, or backed
by the full faith and credit of,  the United  States of America  (including  any
certificates  or any  other  evidence  of an  ownership  interest  in  any  such
obligation  or in  specified  portions  thereof,  which may consist of specified
portions of the principal thereof or the interest thereon and which certificates
or other  evidence of an ownership  interest  must be rated by the Rating Agency
then rating the Bonds at least as high as the  obligations  issued or guaranteed
by, or backed by the full faith and credit  of, the United  States of  America);
provided that to the extent that such investments may be unavailable the Trustee
may hold such funds uninvested.

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

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

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


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<PAGE>

comply with the  provisions  of the  Indenture,  the Trustee  shall  effect such
redemption or sale, employing in the case of a sale any commercially  reasonable
method of effecting such sale.

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

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

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


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                                  ARTICLE VIII

                               REDEMPTION OF BONDS

                  Section 8.01.  Bonds to be Redeemed Only in Manner Provided in
Article VIII.  Any  redemption of all or any part of the Bonds which are subject
to redemption shall be made in the manner provided in this Article VIII.

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

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

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


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<PAGE>

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

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

                  Section 8.04.  Rights of Owners of Bonds Called for Redemption
Limited to Redemption  Price and Accrued  Interest.  If notice of redemption has
been given as provided in Section 8.03, the Bonds or portions thereof called for
redemption  shall be due and  payable  on the date fixed for  redemption  at the
redemption  price,  together  with  accrued  interest  to  the  date  fixed  for
redemption.  Payment of the redemption  price,  together with accrued  interest,
shall be made by the Trustee  upon  surrender  of such Bonds.  If there shall be
called for  redemption  less than the  entire  principal  amount of a Bond,  the
Authority  shall  execute and deliver and the Trustee shall  authenticate,  upon
surrender of such Bond, and without  charge to the owner thereof,  Bonds for the
unredeemed portion of the principal amount of the Bond so surrendered.

                  Subject to the deposit  with the Trustee of amounts  necessary
for the redemption of such Bonds as provided in Section 8.01, from and after the
date fixed for redemption


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<PAGE>

designated  in such  notice,  notwithstanding  that  any  Bonds  so  called  for
redemption in whole or in part shall not have been surrendered for cancellation,
no further  interest  shall  accrue  upon the  principal  of any of the Bonds or
portions thereof so called for redemption; and such Bonds or portions thereof so
to be redeemed shall cease to be entitled to any lien, benefit or security under
the  Indenture  and the owners  thereof  shall have no rights in respect of such
Bonds or portions  thereof  except to receive  payment of the  redemption  price
thereof and unpaid  interest  accrued to the date fixed for redemption from such
amounts deposited with the Trustee which shall be held uninvested by the Trustee
in trust for the owner of such Bonds or portions thereof.

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


                                       85
<PAGE>

                                   ARTICLE IX

                              PARTICULAR COVENANTS

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

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

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

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

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


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<PAGE>

                  Section 9.06.  Trustee's,  Paying Agent's,  Indexing  Agent's,
Tender Agent's and Remarketing  Agents' Fees, Charges and Expenses.  Pursuant to
the provisions of Section 4.05 of the Participation  Agreement,  the Company has
agreed to pay the fees and the expenses of the Trustee,  the Paying  Agent,  the
Indexing Agent, the Tender Agent and the Remarketing  Agents, in the amounts set
forth more fully  therein,  and the  Authority  shall have no liability  for the
payment of any fees or expenses of the Trustee,  the Paying Agent,  the Indexing
Agent, the Tender Agent and the Remarketing Agents.

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

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


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<PAGE>

                                    ARTICLE X

                              DEFAULTS AND REMEDIES

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

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

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

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

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

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

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

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

then, upon (a) the occurrence and continuance of any Event of Default  described
in clause (a), (b), (c), (d) or (e) of this  paragraph,  the Trustee may, and at
the written request of owners of not less than 25% in aggregate principal amount
of Bonds then  outstanding  shall,  or (b) the occurrence of an Event of Default
described in clause (f) or (g) of this paragraph the Trustee shall  immediately,
by written notice given to the Authority, the Governor, the Comptroller, the



                                       88
<PAGE>

Attorney General of the State of New York and the Company, declare the principal
of all Bonds then outstanding to be due and payable  immediately,  at which time
(unless a Fixed Rate Conversion Date has occurred and the Letter of Credit is no
longer in effect) interest shall cease to accrue,  and upon such declaration the
said principal,  together with interest  accrued  thereon,  shall become due and
payable  immediately at the place of payment provided  therein,  anything in the
Indenture or in the Bonds to the contrary  notwithstanding and the Trustee shall
give  notice  thereof to the  Authority,  the  Company,  the Tender  Agent,  the
Remarketing  Agents and the Bank,  and shall give notice  thereof by mail to all
owners of  outstanding  Bonds.  Prior to the expiration of the Letter of Credit,
the Trustee  shall draw  immediately  upon the Letter of Credit in the event the
Bonds shall have been declared immediately due and payable and immediately apply
amounts drawn under the Letter of Credit to payment of Bonds in accordance  with
the Indenture.

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

                  The provisions of the second preceding paragraph are, further,
subject  to the  condition  that any  waiver by the Bank of any event of default
under  the  Reimbursement  Agreement  and a  rescission  and  annulment  of  its
consequences  shall  constitute a waiver of the  corresponding  Event of Default
under the Indenture and a rescission and annulment of the consequences  thereof;
provided that,  the Trustee shall have received  written notice from the Bank to
the effect that the Letter of Credit has been reinstated, if applicable,  and is
in full force and effect (with  respect to the  principal  of,  premium,  if any
(only to the extent  that the Letter of Credit then in effect  provides  for the
payment of premium,  if any),  interest on, and the purchase price of, all Bonds
then entitled to the benefits of the Letter of Credit). If written


                                       89
<PAGE>

notice of such event of default  under the  Reimbursement  Agreement  shall have
been given as provided herein and if the Trustee shall  thereafter have received
written  notice from the Bank that such event of default shall have been waived,
the Trustee  shall  promptly give written  notice of such waiver,  rescission or
annulment and of the corresponding waiver, rescission and annulment of the Event
of Default  hereunder to the  Authority,  the  Governor,  the  Comptroller,  the
Attorney  General of the State of New York,  the Company,  the Bank,  the Tender
Agent and the Remarketing  Agents, and shall give written notice thereof by mail
to all owners of outstanding Bonds; but no such waiver, rescission and annulment
shall extend to or affect any subsequent Event of Default or impair any right or
remedy consequent thereon.

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

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

                           (b)      bring suit upon the Bonds;

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

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

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

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



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with  any  provision  of  the  Indenture  (including,  without  limitation,  any
provision  requiring the Trustee to accelerate  the Bonds and draw on the Letter
of Credit upon the  occurrence of an Event of Default under Section  10.01(f) or
(g)) and shall not unduly  prejudice the rights of the Bondowners who are not in
such majority.  The Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in  accordance  with the direction of
the owners of a majority in aggregate principal amount of the Bonds and which is
not in conflict with the Trustee's  obligation to accelerate  the Bonds and draw
on the Letter of Credit upon the occurrence of an Event of Default under Section
10.01(f) or (g).

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

                  Section 10.06. Trustee's Right to Enforce Rights in Respect of
Bonds in Own Name and Without  Possession  of Bonds.  All rights of action under
the Indenture or under any of the Bonds which are enforceable by the Trustee may
be enforced by it without the possession of any of the Bonds,  or the production
thereof at the trial or other proceedings  relative thereto,  and any such suit,
action or proceeding  instituted by the Trustee shall be brought in its name, as
trustee, for the equal and ratable benefit of the owners of the Bonds subject to
the provisions of the Indenture.



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<PAGE>

                  Section  10.07.  No Remedy herein  Conferred  upon or Reserved
Exclusive.  No remedy herein conferred upon or reserved to the Trustee or to the
owners of the Bonds is intended to be exclusive of any other remedy or remedies,
except as provided  in Section  10.10,  and each and every such remedy  shall be
cumulative, and shall be in addition to every other remedy given hereunder.

                  Section  10.08.  No Delay or Omission  to be Deemed  Waiver of
Default.  No delay or  omission  of the  Trustee or of any owner of the Bonds to
exercise  any right or power  accruing  upon any default  shall  impair any such
right or power or shall be construed to be a waiver of any such  default,  or an
acquiescence  therein; and every power and remedy given by this Article X to the
Trustee and to the owners of the Bonds, respectively, may be exercised from time
to time and as often as may be deemed expedient.

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

                           (a)  Unless  the  principal  of all Bonds  shall have
                  become or shall have been  declared due and payable,  all such
                  moneys shall be applied:

                           First: To the payment to the Persons entitled thereto
                           of  all  installments  of  interest  then  due on the
                           Bonds,   in  the  order  of  the   maturity   of  the
                           installments  of  such  interest  including  (to  the
                           extent   permitted   by  law)   interest  on  overdue
                           installments  of  interest  at the rate  borne by the
                           Bonds on which such interest  shall then be due, and,
                           if the amount  available  shall not be  sufficient to
                           pay   in   full   any   particular   installment   or
                           installments,  then to the payment ratably, according
                           to  the   amounts   due  on   such   installment   or
                           installments,   to  the  Persons  entitled   thereto,
                           without any discrimination or preference; and

                           Second:  To  the  payment  to  the  Persons  entitled
                           thereto of the unpaid  principal of and  premium,  if
                           any,  on any of the Bonds which shall have become due
                           (other  than  Bonds  called  for  redemption  for the
                           payment  of which  moneys  are held  pursuant  to the
                           provisions  of the  Indenture)  in the order of their
                           due  dates,  with  interest  on such  Bonds  from the
                           respective  dates upon which they  become due and, if
                           the amount  available  shall not be sufficient to pay
                           in full Bonds due on any  particular  date,  together
                           with  such  interest,  then to the  payment  ratably,
                           according to the amount of


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principal  due on  such  date,  to the  Persons  entitled  thereto  without  any
discrimination or preference.

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

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

                  Moneys  drawn under the Letter of Credit may not be applied to
effect any payment on any Bond not entitled to the benefits  thereof as provided
in Section 3.01. Whenever moneys are to be applied pursuant to the provisions of
this Section, such moneys shall be applied at such times, and from time to time,
as the Trustee shall  determine,  having due regard to the amount of such moneys
available for  application  and the  likelihood of  additional  moneys  becoming
available for such  application in the future.  Whenever the Trustee shall apply
such funds,  it shall fix the date  (which  shall be an  Interest  Payment  Date
unless it shall deem another date more suitable) upon which such  application is
to be made and upon such date  interest on the amount of principal to be paid on
such date shall cease to accrue. Notwithstanding the two preceding sentences any
moneys drawn under the Letter of Credit under this Article X shall be applied by
the Trustee  pursuant to the  provisions  of this Section 10.09 within five days
after such moneys have been drawn. For the purpose of determining the Bondowners
who are entitled to such  application,  the Trustee may  establish a record date
not more than five days before such payment  date.  The Trustee  shall give such
notice to  Bondowners  by mailing in the manner it may deem  appropriate  of the
deposit with it of any such moneys and of the fixing of any such  payment  date,
and shall not be  required  to make  payment to the owner of any Bond until such
Bond shall be  presented  to the  Trustee  for  appropriate  endorsement  or for
cancellation if fully paid.

                  Section 10.10. Entirety of Agreement.  The rights and remedies
of the owners of the Bonds and of the Trustee set forth in this Article X are in
lieu of the rights and remedies


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of owners of bonds of the Authority set forth in Section 1865 of the Act and the
provisions of such Section 1865 are hereby abrogated with respect to the Bonds.

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


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<PAGE>

                                   ARTICLE XI

                     CONCERNING THE TRUSTEE AND PAYING AGENT

                  Section 11.01. Appointment of Trustee; Paying Agents. Chemical
Bank is hereby appointed as Trustee and Paying Agent for the owners from time to
time of the Bonds.  The Trustee hereby accepts the duties and obligations of the
Trustee and Paying Agent  created by the  Indenture  for the owners from time to
time of the Bonds.

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

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

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

                  Section  11.03.  No  Responsibility   for  Default  of  Agents
Selected with Due Care, nor for Own Acts Save Willful  Misconduct or Negligence.
The Trustee may execute  such of the trusts or powers  required of it  hereunder
and perform the duties  required of it hereunder as may be reasonably  necessary
by or  through  attorneys,  agents or  receivers  and the  Trustee  shall not be
answerable for the default, negligence or misconduct of any such attorney, agent
or receiver  selected by it with  reasonable  care. The Trustee may in all cases
pay such  reasonable  compensation  to and  receive  reimbursement  for all such
attorneys,  agents,  receivers,  and employees as may  reasonably be employed in
connection  with the trusts  hereof.  The  Trustee  may act upon the  opinion or
advice of any attorney  (who may be the attorney or attorneys  for the Authority
or the Company), approved by the Trustee in the exercise of reasonable care. The
Trustee  shall  not be  responsible  for any loss or damage  resulting  from any
action or non-action


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<PAGE>

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

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

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

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


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<PAGE>

                  Section  11.06.  Right to Own and Deal in Bonds and  Engage in
Other  Transactions  with  Authority and Company.  The Trustee may in good faith
buy, sell,  own, hold and deal in any of the Bonds issued  hereunder and secured
by the Indenture, and may join in any action which any Bondowner may be entitled
to take with like  effect as if the Trustee  were not a party to the  Indenture.
The Trustee,  either as principal or agent,  may also engage in or be interested
in any financial or other transaction with the Authority or the Company, and may
act as depository,  trustee, or agent for any committee or body of owners of the
Bonds secured  hereby or other  obligations  of the Authority as freely as if it
were not Trustee hereunder.

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

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

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

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

                  Section 11.10.  Appointment of Successor Trustee by Bondowners
or Authority. In case at any time the Trustee shall resign, or shall be removed,
or be dissolved,  or if its property or affairs shall be taken under the control
of any state or federal  court or  administrative  body because of insolvency or
bankruptcy,  or for any other reason,  a vacancy shall  forthwith and ipso facto
exist in the office of the Trustee, then a successor may be appointed by the


                                       97
<PAGE>

owners  of  a  majority  in  aggregate   principal  amount  of  the  Bonds  then
outstanding, by an instrument or instruments in writing filed with the Secretary
of the Authority,  signed by such Bondowners or by their  attorneys-in-fact duly
authorized.  Copies of each such instrument  shall be promptly  delivered by the
Authority to the  predecessor  Trustee,  to the Trustee so appointed  and to the
Company.

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

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

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

                  Section 11.13.  Acceptance of Appointment  by, and Transfer of
Trust Estate to, Successor  Trustee.  Any successor Trustee appointed  hereunder
shall execute,  acknowledge and deliver to the Authority an instrument accepting
such  appointment  hereunder as a fiduciary  for the owners from time to time of
the Bonds and shall  request the Bank to transfer  the Letter of Credit to it as
successor  Trustee,  and thereupon such successor  Trustee,  without any further
act,  deed or  conveyance,  shall  become  duly  vested  with  all the  estates,
property,  rights,  powers, trusts, duties and obligations of its predecessor in
the trust hereunder,  with like effect as if originally named Trustee herein and
shall give notice  thereof to the  Company.  Upon request of such  Trustee,  the
Trustee ceasing to act and the Authority shall execute and deliver an instrument
transferring to such successor Trustee all the estates, property, rights, powers
and


                                       98
<PAGE>

trusts hereunder of the Trustee so ceasing to act, and the Trustee so ceasing to
act  shall pay over to the  successor  Trustee  all  moneys  and  other  assets,
including the Company Note at the time held by it hereunder.

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

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

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

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

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


                                       99
<PAGE>

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

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

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

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

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

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


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<PAGE>

separate  or  co-trustee,  so far as  permitted  by  law,  shall  vest in and be
exercised by the Trustee until the  appointment of a new trustee or successor to
such separate or co-trustee.


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<PAGE>

                                   ARTICLE XII

                     EXECUTION OF INSTRUMENTS BY BONDOWNERS
                         AND PROOF OF OWNERSHIP OF BONDS

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

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

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

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



                                      102
<PAGE>

                                  ARTICLE XIII

                         INDENTURES SUPPLEMENTAL HERETO

                  Section 13.01.  Supplemental  Indentures not Requiring Consent
of Bondowners.  Subject to the conditions and restrictions herein contained, the
Authority  and  the  Trustee  may,  without  the  consent  of or  notice  to the
Bondowners,  enter into an indenture or indentures  supplemental hereto, for any
one or more of the following purposes:

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

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

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

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

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

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

                  Section 13.02.  Supplemental  Indentures  Requiring Consent of
Bondowners.  Except as otherwise  provided in Section 13.01, any modification or
amendment  of the  Indenture  may be made only with the consent of the owners of
not less than  two-thirds  in  aggregate  principal  amount  of the  Bonds  then
outstanding  and  shall  be set  forth  in a  Supplemental  Indenture.  No  such
modification  or amendment  shall be made which will reduce the  percentages  of
aggregate  principal  amount of Bonds,  the  consent  of the  owners of which is
required for any such  modification or amendment,  or permit the creation by the
Authority of any lien prior to or


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<PAGE>

on a parity with the lien of the  Indenture  upon the Company Note  Payments and
other  funds  pledged  hereunder,  or which will  affect the times,  amounts and
currency of payment of the principal of and premium, if any, and interest on the
Bonds  without  the  consent  of the owners of all Bonds  then  outstanding  and
affected thereby.

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

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

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


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<PAGE>

                                   ARTICLE XIV

                                   DEFEASANCE

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

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

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

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

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


                                      105
<PAGE>

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

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


                                      106
<PAGE>

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


                                      107
<PAGE>

                                   ARTICLE XV

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

                  Section 15.01.  Appointment and Duties of Remarketing  Agents.
The Authority has appointed,  with the approval of the Company,  Dillon,  Read &
Co. Inc. as the initial  Remarketing Agent (the "Remarketing  Agent") and Lehman
Brothers Inc. as the initial  CoRemarketing Agent (the  "Co-Remarketing  Agent")
for the  Bonds  (the  Remarketing  Agent  and  the  Co-Remarketing  Agent  shall
hereafter  be  collectively  referred  to as  the  "Remarketing  Agents").  Each
Remarketing  Agent  shall  designate  to the Trustee  its  principal  office and
signify its acceptance of the duties and  obligations  imposed upon it hereunder
by a written  instrument of acceptance  delivered to the Authority,  the Company
and the Trustee under which such  Remarketing  Agent will agree  particularly to
(i) perform its obligations under Section 2.03 with respect to the determination
of the Weekly Rate, the Semi-Annual Rate, the Medium-Term Rate, the Money Market
Municipal  Rate, and the Fixed Rate (ii) perform its  obligations  under Section
2.06 with respect to any Bond  delivered or deemed to have been delivered to the
Tender Agent for  purchase  pursuant to Section  2.05,  and (iii) keep books and
records with respect to its  activities  hereunder as shall be  consistent  with
prudent  industry  practice  and to make such books and  records  available  for
inspection  by the  Authority,  the  Trustee,  the  Company  and the Bank at all
reasonable times. Such acceptance shall include a designation of one Remarketing
Agent as the "Remarketing  Representative"  who shall act on behalf of the other
Remarketing  Agent(s)  and the  acceptance  by  each  Remarketing  Agent  of the
determinations of the Remarketing Representative.

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

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

                  Section 15.02.  Qualifications  of a Remarketing  Agent.  Each
Remarketing  Agent  shall  be a  commercial  bank  or  member  of  the  National
Association of Securities  Dealers,  Inc.,  having a capitalization  of at least
$25,000,000 and  authorization  by law to perform all the duties imposed upon it
by the Indenture  (provided  that to qualify as a successor  Remarketing  Agent,
such successor,  or the parent corporation of such successor,  shall be rated at
least  Baa-3  and/or P-3 or an  equivalent  rating by Moody's  or  otherwise  be
acceptable to Moody's and the Authority).  Subject to the provisions of the next
succeeding paragraph, a Remarketing Agent


                                      108
<PAGE>

may at any time resign and be discharged of the duties and  obligations  created
by the  Indenture by giving at least thirty (30) days' notice to the  Authority,
the Company and the Trustee.  A  Remarketing  Agent may be removed upon 30 days'
notice,  upon written  request of the Company,  by an instrument,  signed by the
Authority,  filed with the Company,  each Remarketing  Agent (if more than one),
the Indexing Agent, the Tender Agent, the Trustee and the Bank.

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

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

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

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

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


                                      109
<PAGE>

                  Section 15.04. Qualifications of Indexing Agents. The Indexing
Agent  shall be a  commercial  bank,  a member of the  National  Association  of
Securities  Dealers,  Inc.  or  a  nationally  recognized  municipal  securities
evaluation  service  authorized by law to perform all the duties imposed upon it
by the Indenture. The Indexing Agent may at any time resign and be discharged of
the duties and  obligations  created by the  Indenture  by giving at least sixty
(60) days' written notice to the Authority,  the Company, the Remarketing Agents
and the Trustee.  The Indexing  Agent may be removed at any time, at the written
direction of the Company, by an instrument,  signed by the Authority, filed with
the Company,  the Indexing Agent,  the Remarketing  Agents,  the Trustee and the
Bank.

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

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

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

                  The Tender Agent may  designate  from time to time a different
Corporate  Trust  Office  within  The City of New York,  New York,  by a written
instrument delivered to the


                                      110
<PAGE>

Authority, the Trustee, the Remarketing Agents, the Indexing Agent, the Bank and
the Company.

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

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

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

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

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


                                      111
<PAGE>

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


                                      112
<PAGE>

                                   ARTICLE XVI

                                  MISCELLANEOUS

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

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

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

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

                  Section  16.05.   Notices.  (a)  All  notices,   certificates,
requests or other communications hereunder shall be sufficiently given and shall
be deemed given,  unless  otherwise  required by the  Indenture,  when mailed by
first class mail, postage prepaid, addressed as follows: If to the Authority, at
2 Empire State Plaza, Suite 1901, Albany, New York 12223, Attention:  President;
if to the  Company,  at  175  East  Old  Country  Road,  Hicksville,  New  York,
Attention:  Treasurer;  if to the Trustee,  at 450 West 33rd Street, 15th Floor,
New  York,  New  York  10001,   Attention:   Corporate  Trustee   Administration
Department;  if to the  Tender  Agent,  at 55  Water  Street,  Room  234,  North
Building,  New York, New York 10041,  Attention:  Corporate  Tellers;  if to the
Bank, at its address  specified in the Reimbursement  Agreement;  and, if to the
Indexing  Agent  or  Remarketing  Agents,  at the  address  specified  in  their
respective  acceptances  delivered  pursuant to Article XV. A duplicate  copy of
each notice, certificate,  request or other communication given hereunder to the
Authority, the Company, the Trustee,


                                      113
<PAGE>

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

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

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

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

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

                  Section 16.09. Date for Identification Purposes Only. The date
of the  Indenture  shall be for  identification  purposes  only and shall not be
construed to imply that the  Indenture  was  delivered as of any date other than
the actual date of the delivery hereof by the parties hereto.


                                      114
<PAGE>

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

                                                  NEW YORK STATE ENERGY
                                                  RESEARCH AND DEVELOPMENT
                                                  AUTHORITY


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

Attest:

  /s/ Howard A. Jack
  -------------------
      Secretary

                                                       CHEMICAL BANK
                                                         AS TRUSTEE


(SEAL)                                        By  /s/ Gregory McFarlane
------                                            ---------------------
                                                       Vice President
Attest:

/s/ Richard Lorenzen
--------------------
Senior Trust Officer


                                      115
<PAGE>

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


                  On the 23rd day of August,  1995 before me personally  came G.
McFarlane and R. Lorenzen,  to me known, who, being by me duly sworn, did depose
and say that  they are a(n)  Vice  President  and  a(n)  Senior  Trust  Officer,
respectively, of Chemical Bank, the Trustee, described in and which executed the
above instrument; that they know the seal of said Trustee; that the seal affixed
to said  instrument is such corporate  seal; that it was so affixed by authority
of the Corporate Trust Committee of the Board of Directors of said Trustee,  and
that they signed their names thereto by like authority.


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

                                  Emily Fayan
                                  Notary Public, State of New York
                                  No. 24-4737006
                                  Qualified in Kings County
                                  Certificate Filed in New York County
                                  Commission Expires December 31, 1995



                                      116
<PAGE>

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

                  On the 11th day of August,  1995, before me personally came F.
William  Valentino,  to me known, who being by me duly sworn, did depose and say
that  he is  President  of  New  York  State  Energy  Research  and  Development
Authority,  the Authority  described in and which executed the above  instrument
and  that he  signed  his name  thereto  by  authority  of the  members  of said
Authority.

                                                /s/ Jacquelyn L. Jerry
                                                ----------------------
                                                Notary Public

                                                Jacquelyn L. Jerry
                                                Notary Public, State of New York
                                                Qualified in Albany County
                                                No. 4679424
                                                Commission Expires July 31, 1997

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

                  On the 11th day of August,  1995,  before me  personally  came
Howard A. Jack, to me known, who being by me duly sworn, did depose and say that
he is Secretary of New York State Energy Research and Development Authority, the
Authority  described in and which executed the above  instrument;  that he knows
the seal of said  Authority,  the Authority  described in and which executed the
above  instrument;  that he  knows  the  seal of said  Authority;  that the seal
affixed to said  instrument is such  corporate  seal;  that it was so affixed by
authority of the members of said Authority,  and that he signed his name thereto
by like authority.


                                            /s/ Jacquelyn L. Jerry
                                            ----------------------
                                            Notary Public

                                            Jacquelyn L. Jerry
                                            Notary Public, State of New York
                                            Qualified in Albany County
                                            No. 4679424
                                            Commission Expires July 31, 1997


                                      117
<PAGE>

                                    EXHIBIT A


                       NOTICE OF ELECTION TO RETAIN BOND2
                       FOLLOWING A MANDATORY PURCHASE DATE


[Name and Address
 of Tender Agent]

         Attention:  Bond Tender Unit

Ladies and Gentlemen:

                  This  notice is being sent to you in your  capacity  as Tender
Agent  under the  Indenture  of Trust (the  "Indenture"),  dated as of August 1,
1995,  between New York State Energy  Research and  Development  Authority  (the
"Authority")  and  Chemical  Bank as Trustee  (the  "Trustee"),  relating to the
Authority's  $50,000,000  aggregate principal amount Electric Facilities Revenue
Bonds (Long Island Lighting Company Project),  1995 Series A (the "Bonds").  You
are hereby notified that:

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

                  2. The undersigned's address is __________________.

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

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

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



-------- 

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

                                       A-1
                                                                             

<PAGE>




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

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

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

Dated: ____________________


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



                                       A-2
                                                                            

<PAGE>



                                    EXHIBIT B


                             REQUISITION CERTIFICATE


                  Long Island Lighting  Company (the "Company")  hereby requests
Chemical  Bank, as Trustee,  under the  Indenture of Trust  relating to New York
State Energy Research and Development  Authority's  (the  "Authority")  Electric
Facilities  Revenue Bonds (Long Island Lighting Company Project),  1995 Series A
dated as of August 1, 1995 (the "Indenture"),  to withdraw  $__________ from the
Construction  Account in the Project Fund  established  under the  Indenture for
purposes permitted by Section 5.03 thereof.  In connection with this withdrawal,
the Company states as follows:

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

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

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


                  Person             Amount                 Item







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

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

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

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

                                       B-1
                                                                           

<PAGE>




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

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

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

                  I am an Authorized Company Representative.


                                                LONG ISLAND LIGHTING COMPANY



                                                By:____________________________
                                                   Name:
                                                   Title:



                                       B-2
                                                                      

<PAGE>



                                TABLE OF CONTENTS
                                                                    Page


                                    ARTICLE I

                       DEFINITIONS; LIABILITY UNDER BONDS;
                        INDENTURE TO CONSTITUTE CONTRACT

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


                                   ARTICLE II

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

Section 2.01.     Issuance of Bonds; Designation of Bonds; Certain
                    Particulars and Form of Bonds..........................40
Section 2.02.     Additional Particulars of Bonds..........................40
Section 2.03.     Interest Rates on Bonds..................................41
Section 2.04.     Conversion of Interest Rate on Bonds.....................48
Section 2.05.     Optional and Mandatory Tender of Bonds for
                    Purchase...............................................52
Section 2.06.     Remarketing of Bonds.....................................58
Section 2.07.     Delivery of Purchased Bonds..............................59
Section 2.08.     Mutilated, Lost, Stolen or Destroyed Bonds...............61
Section 2.09.     Temporary Bonds..........................................62
Section 2.10.     Execution of Bonds; Effect of Change of Officers.........62
Section 2.11.     Registration of Bonds; Transfers; Securities
                    Depository.............................................62
Section 2.12.     Persons Treated as Owners................................65
Section 2.13.     Exchange of Bonds........................................65
Section 2.14.     Payment For and Limitations on Exchanges and
                    Transfers..............................................65
Section 2.15.     Endorsement of Certificate of Authentication on
                    Bonds..................................................66
Section 2.16.     Cancellation of Bonds....................................66
Section 2.17.     Redemption of Bonds......................................66




                                       (i)
                                                                    

<PAGE>


                                                                         Page



                                   ARTICLE III
                      SECURITY FOR BONDS; ISSUANCE OF BONDS

Section 3.01.     Pledge and Assignment Effected by Indenture;
                    Bonds Equally and Ratably Secured...................... 67
Section 3.02.     Issuance of Bonds........................................ 67


                                   ARTICLE IV

                                  AMENDMENT OF
                      PARTICIPATION AGREEMENT, COMPANY NOTE
                          AND TAX REGULATORY AGREEMENT

Section 4.01.     Amendments to Participation Agreement not
                    Requiring Consent of Bondowners........................ 69
Section 4.02.     Amendments to Participation Agreement
                    Requiring Consent of Bondowners........................ 69
Section 4.03.     Amendments to Company Note............................... 70
Section 4.04.     Amendments to Tax Regulatory Agreement................... 70
ARTICLE V
                   PROJECT FUND; REBATE FUND

Section 5.01.     Creation and Custody of Project Fund..................... 71
Section 5.02.     Application of Moneys in the Project Fund................ 71
Section 5.03.     Construction Account Requisitions........................ 71
Section 5.04.     Retention of Requisitions................................ 72
Section 5.05.     Certification of Completion of the Project............... 72
Section 5.06.     Disposition of Balance Remaining in Project Fund......... 73
Section 5.07.     Creation and Custody of Rebate Fund...................... 73
Section 5.08.     Application of Moneys in the Rebate Fund................. 73


                          ARTICLE VI

                  BOND FUND; LETTER OF CREDIT

Section 6.01.     Creation and Custody of the Bond Fund.................... 75
Section 6.02.     Payments into the Bond Fund.............................. 75
Section 6.03.     Application of Moneys in the Bond Fund................... 75
Section 6.04.     Non-presentment of Bonds................................. 77
Section 6.05.     (Intentionally Deleted).................................. 77


                                      (ii)
                                                                           

<PAGE>


                                                                        Page


Section 6.06.     Trustee to Notify Authority and Company of
                  Funds in Bond Fund..................................... 77
Section 6.07.     Letter of Credit....................................... 77


                                   ARTICLE VII

                      SECURITY FOR AND INVESTMENT OF MONEYS

Section 7.01.    Moneys Held in Trust.................................... 80
Section 7.02.    Uninvested Moneys Held by the Trustee....................80
Section 7.03.    Investment of, and Payment of Interest on,
                   Moneys.................................................80
Section 7.04.    Disposition of Amounts After Payment of Bonds............82


                        ARTICLE VIII

                     REDEMPTION OF BONDS

Section 8.01.    Bonds to be Redeemed Only in Manner Provided
                   in Article VIII........................................83
Section 8.02.    Redemption of Less Than all Bonds........................84
Section 8.03.    Notice of Redemption.....................................84
Section 8.04.    Rights of Owners of Bonds Called for
                   Redemption Limited to Redemption Price and Accrued     84
                  Interest
Section 8.05.    Redemption at Demand of the State....................... 85


                         ARTICLE IX

                    PARTICULAR COVENANTS

Section 9.01.    Payment of Principal of and Interest and
                   Redemption Premium of Bonds...........................86
Section 9.02.    Performance of Covenants................................86
Section 9.03.    Further Instruments.....................................86
Section 9.04.    Inspection of Project Books.............................86
Section 9.05.    No Extension of Time of Payment of Interest.............86
Section 9.06.    Trustee's, Paying Agent's, Indexing Agent's,
                  Tender Agent's and Remarketing Agents's Fees, Charges and
                  Expenses...............................................87


                                      (iii)
                                                                   

<PAGE>


                                                                          Page


Section 9.07.      Agreement of the State of New York..................... 87


                            ARTICLE X

                      DEFAULTS AND REMEDIES

Section 10.01.     Events of Default...................................... 88
Section 10.02.     Judicial Proceedings by Trustee........................ 90
Section 10.03.     Effect of Discontinuance or Abandonment of
                     Proceedings.......................................... 90
Section 10.04.     Power of Bondowners to Direct Proceedings.............. 90
Section 10.05.     Limitation on Actions by Bondowners.................... 91
Section 10.06.     Trustee's Right to Enforce Rights in Respect of
                     Bonds in Own Name and Without Possession of Bonds.... 91
Section 10.07.     No Remedy herein Conferred upon or Reserved
                     Exclusive............................................ 91
Section 10.08.     No Delay or Omission to be Deemed Waiver of
                     Default.............................................. 92
Section 10.09.     Application of Moneys Received by Trustee
                     Pursuant to Article X................................ 92
Section 10.10.     Entirety of Agreement.................................. 93
Section 10.11.     Notice of Event of Default............................. 94


                                   ARTICLE XI

                     CONCERNING THE TRUSTEE AND PAYING AGENT

Section 11.01.    Appointment of Trustee; Paying Agents................... 95
Section 11.02.    No Responsibility for Correctness of Statements
                    in Indenture...........................................95
Section 11.03.    No Responsibility for Default of Agents Selected
                    with Due Care, nor for Own Acts Save Willful Misconduct or
                    Negligence.............................................95
Section 11.04.    No Duty to Take Enforcement Action Unless so
                    Requested by Owners of 25% of the Bonds................96
Section 11.05.    Right to Rely............................................96
Section 11.06.    Right to Own and Deal in Bonds and Engage in
                    Other Transactions with Authority and Company..........97
Section 11.07.    Construction of Provisions of Indenture by
                    Trustee................................................97


                                      (iv)
                                                                           

<PAGE>


                                                                         Page


Section 11.08.    Right to Resign Trust...................................97
Section 11.09.    Removal of Trustee......................................97
Section 11.10.    Appointment of Successor Trustee by Bondowners
                    or Authority..........................................97
Section 11.11.    Qualifications of Successor Trustee.....................98
Section 11.12.    Court Appointment of Successor Trustee..................98
Section 11.13.    Acceptance of Appointment by, and Transfer of
                    Trust Estate to, Successor Trustee....................98
Section 11.14.    Successor Trustee by Merger or Consolidation............99
Section 11.15.    Exercise of Rights and Powers During Event of
                    Default...............................................99
Section 11.16.    Trustee may Intervene in Judicial Proceedings
                    Involving Authority or the Company....................99
Section 11.17.    Paying Agents...........................................99
Section 11.18.    Appointment of Co-Trustee...............................00


                                   ARTICLE XII

                     EXECUTION OF INSTRUMENTS BY BONDOWNERS
                         AND PROOF OF OWNERSHIP OF BONDS

Section 12.01.    Execution of Instruments; Proof of Ownership of
                    Bonds.....................................  102


                                  ARTICLE XIII

                         INDENTURES SUPPLEMENTAL HERETO

Section 13.01.    Supplemental Indentures not Requiring Consent of
                    Bondowners..............................................103
Section 13.02.    Supplemental Indentures Requiring Consent of
                    Bondowners..............................................103
Section 13.03.    Company and Bank Consent to Amendment of
                    Indenture...............................................104




                                       (v)
                                                                     

<PAGE>


                                                                           Page


                                   ARTICLE XIV

                                   DEFEASANCE

Section 14.01.    Defeasance..............................................  105



                          ARTICLE XV

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

Section 15.01.    Appointment and Duties of Remarketing Agents.............108
Section 15.02.    Qualifications of a Remarketing Agent....................108
Section 15.03.    Appointment and Duties of Indexing Agents................109
Section 15.04.    Qualifications of Indexing Agents........................110
Section 15.05.    Dealings With the Authority and the Company..............110
Section 15.06.    Tender Agent.............................................110
Section 15.07.    Qualifications of Tender Agent; Resignation;
                    Removal................................................111


                                   ARTICLE XVI

                                  MISCELLANEOUS

Section 16.01.    Parties in Interest......................................113
Section 16.02.    Severability.............................................113
Section 16.03.    No Individual Liability..................................113
Section 16.04.    Payment Due on Saturdays, Sundays and Holidays...........113
Section 16.05.    Notices..................................................113
SECTION 16.06.    GOVERNING LAW............................................114
Section 16.07.    Effective Date; Counterparts.............................114
Section 16.08.    References to the Bank...................................114
Section 16.09.    Date for Identification Purposes Only....................114

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


                                      (vi)
                                                                         

<PAGE>
                                                                   Exhibit 10(x)






                         NEW YORK STATE ENERGY RESEARCH

                            AND DEVELOPMENT AUTHORITY


                                       AND


                          LONG ISLAND LIGHTING COMPANY





                             PARTICIPATION AGREEMENT





                           Dated as of August 1, 1995






                                 - relating to -
                        Electric Facilities Revenue Bonds
              (Long Island Lighting Company Project), 1995 Series A

                                                                           

<PAGE>



                  This  PARTICIPATION  AGREEMENT,  dated as of August  1,  1995,
between  NEW YORK  STATE  ENERGY  RESEARCH  AND  DEVELOPMENT  AUTHORITY,  a body
corporate and politic,  constituting a public benefit  corporation,  established
and  existing  under  and by  virtue  of the laws of the  State of New York (the
"Authority"), and LONG ISLAND LIGHTING COMPANY, a corporation duly organized and
existing and qualified to do business as a public  utility under the laws of the
State of New York (the "Company"),

                              W I T N E S S E T H :

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

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

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

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

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

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

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


                     
<PAGE>

                  WHEREAS,  the  Authority,  pursuant  to  Resolution  No.  850,
adopted  January 30,  1995,  has  determined  to issue its  Electric  Facilities
Revenue  Bonds  (Long  Island  Lighting  Company  Project),  bearing  the series
designation  set forth on the first page of this  Participation  Agreement in an
aggregate  principal  amount of $50,000,000  (the  "Bonds"),  for the purpose of
financing  a portion  of such  costs and  expenses,  all such Bonds to be issued
under and  secured by an  Indenture  of Trust  relating to the Bonds dated as of
August 1, 1995,  between  the  Authority  and  Chemical  Bank,  as Trustee  (the
"Indenture");

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


                                       2
<PAGE>

                                    ARTICLE I

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

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

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

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

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

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

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

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

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


                                       3
<PAGE>

                                   ARTICLE II

                                 REPRESENTATIONS

                  Section 2.01. Representations and Warranties by the Authority.
The Authority represents and warrants as follows:

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

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

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

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

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

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

                  Section 2.02.  Representations  and Warranties by the Company.
The Company represents and warrants as follows:

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

                                       4
<PAGE>

         proper  corporate  action and has duly  authorized  the  execution  and
         delivery  by it of this  Participation  Agreement,  the Tax  Regulatory
         Agreement and the Company Note;

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

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

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

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

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



                                       5
<PAGE>

                                   ARTICLE III

                          CONSTRUCTION OF THE PROJECT;
                                ISSUANCE OF BONDS

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

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

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

                  Section 3.02. Sale of Bonds and Deposit of Proceeds; Liability
Under Bonds.  1. In order to provide  funds for payment of a portion of the Cost
of Construction of the Project, the Authority,  as soon as practicable after the
execution of this Participation Agreement will issue, sell and deliver the Bonds
to the  initial  purchasers  thereof,  all  pursuant  to and as  provided in the
Purchase  Contract  for the  Bonds  among the  Authority,  the  Company,  Lehman
Brothers Inc. and Dillon,  Read & Co. Inc. and will deposit the proceeds of such
sale of the Bonds with the  Trustee,  as  follows:  (i) in the Bond Fund,  a sum
equal to the accrued  interest,  if any,  paid by the initial  purchasers of the
Bonds and (ii) in the  Construction  Account of the Project Fund, the balance of
the proceeds received from such sale.

                  2.  The  Bonds  shall  not  be  general   obligations  of  the
Authority,  and shall not constitute an indebtedness of, or a charge against the
general credit of, the Authority or give rise



                                       6
<PAGE>

to any  pecuniary  liability of the  Authority.  The  liability of the Authority
under  the  Bonds  shall  be  enforceable  only to the  extent  provided  in the
Indenture, and the Bonds shall be payable solely from the Company Note Payments,
funds  drawn  under the Letter of Credit and any other funds held by the Trustee
under the Indenture  and  available  for such payment.  The Bonds shall not be a
debt of the  State of New York,  and the  State of New York  shall not be liable
thereon.

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

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

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

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

                  (a) Prior to any such  revision the Company  shall  deliver to
         the  Trustee  and the  Authority  (1) a  certificate  of an  Authorized
         Company  Representative,  setting  forth the text of the  change in the
         description  of such  Project  which  would  be  necessary  to  reflect
         accurately  the  proposed  revision  in plans and  specifications,  and
         certifying that, notwithstanding such revision, such Project will still
         be designed to serve the purposes  which would have been served by such
         Project  in the  absence of such  revision,  and (2) an opinion of Bond
         Counsel  that  such  revision  of  such  Project  description  and  the
         expenditure of moneys from the Project Fund under the provisions of the
         Indenture to pay the Cost of Construction of such Project in accordance
         with the  revised  description  of such  Project  will not  impair  the
         exclusion of interest on any of the Bonds then  outstanding  from gross
         income for Federal income tax purposes.



                                       7
<PAGE>

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

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

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

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

                  Section  3.07. No Interest in Project  Conferred.  Neither the
Authority  nor the Trustee  shall be entitled to any  interest in the Project by
reason of the advance of Bond proceeds pursuant to this Participation Agreement.

                  Section 3.08. Operation, Maintenance and Repair. The Authority
and the Company recognize that the Project will constitute  integrated  portions
of the electric energy



                                       8
<PAGE>

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

                  Section  3.09.   Investment  of  Moneys  in  Funds  Under  the
Indenture.  Any moneys held as a part of any fund  created  under the  Indenture
shall be invested or reinvested by the Trustee as provided in Article VII of the
Indenture.  Any such  investment  shall be consistent with the provisions of the
Tax Regulatory Agreement.

                  Section 3.10.  Agreement not to Exercise  Option to Convert to
Fixed Rate Absent  Specified  Rating.  The  Company  agrees not to direct that a
Fixed Rate become effective  pursuant to Section 2.04(b) of the Indenture unless
the Company shall have delivered to the Authority  evidence  satisfactory to the
Authority  that upon  conversion  to a Fixed Rate the Bonds are  expected  to be
rated in at least the third highest rating category of Moody's or S&P (currently
"A" in the case of Moody's and "A" in the case of S&P).

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



                                       9
<PAGE>

                                   ARTICLE IV

                   COMPANY NOTE AND PAYMENTS; LETTER OF CREDIT

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

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

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

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


                                       10
<PAGE>

                  Section 4.04.  Administration Fees; Expenses, Etc. In order to
defray a portion of the expenses  incurred by the  Authority in  conducting  and
administering  its programs for the acquisition  and  construction of facilities
for the furnishing of  electricity,  special energy projects and the development
of advanced  technologies,  the Company  shall pay to the  Authority  an initial
Administration  Fee in the amount of $125,000 on the date of the delivery of the
Bonds to the initial purchasers thereof and an annual  Administration Fee in the
amount of $6,500 on August 1 of each year commencing  August 1, 1996,  until the
Bonds are no longer outstanding. In addition, the Company shall pay to the State
of New York with  respect to the Bonds a bond  issuance  charge in the amount of
$175,000 on the date of authentication  and delivery of the Bonds to the initial
purchasers.

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

                  Section   4.05.   Compensation   of  Trustee,   Paying  Agent,
Remarketing Agents, Indexing Agent and Tender Agent. The Company agrees:

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

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

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

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



                                       11
<PAGE>

                  Section 4.06.  Project Not Security for Bonds. It is expressly
recognized by the parties hereto that neither the Project nor any other property
of the Company will constitute any part of the security for the Bonds.

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

                  Section 4.08.  Indemnification of Authority,  Trustee,  Tender
Agent,  Paying Agent,  Remarketing  Agents and Indexing Agent. Any obligation of
the Authority created by or arising out of this Participation Agreement shall be
a limited  obligation  of the  Authority,  payable  solely from the Company Note
Payments,  any payments by the Company under Section 4.11, funds drawn under the
Letter of Credit and any other funds held by the Trustee under the Indenture and
available for such payment,  and shall not  constitute an  indebtedness  of or a
charge  against the general  credit of the Authority and shall not constitute or
give rise to any  pecuniary  liability of the  Authority;  nevertheless,  if the
Authority  shall  incur any such  pecuniary  liability,  then in such  event the
Company shall indemnify and hold the Authority  harmless by reason thereof.  The
Company releases the Authority,  the Trustee,  the Paying Agent, the Remarketing
Agents, the Tender Agent and the Indexing Agent from, agrees that the Authority,
the Trustee,  the Remarketing Agents, the Tender Agent, the Paying Agent and the
Indexing  Agent shall not be liable for,  and agrees to  indemnify  and hold the
Authority,  the Trustee,  the Paying Agent, the Remarketing  Agents,  the Tender
Agent and the Indexing Agent harmless from, any liability for any loss or damage
to property or any injury to or death of any person  that may be  occasioned  by
any cause whatsoever arising out of the construction or operation of the Project
or the  financing  thereof.  The  Company  agrees  to  indemnify  and  hold  the
Authority,  its members,  officers and employees, the Trustee, the Tender Agent,
the  Remarketing  Agents,  the Paying Agent and the Indexing Agent harmless from
any losses, costs,  charges,  expenses (including reasonable attorneys' fees and
disbursements),  judgments and  liabilities  incurred by it or them, as the case
may be, in  connection  with any claims  made,  any action,  suit or  proceeding
instituted


                                       12
<PAGE>

or  threatened,  in  connection  with  the  transactions  contemplated  by  this
Participation  Agreement  or the  Indenture  so  long  as,  in the  case  of the
Authority, its members,  officers and employees, it or they, as the case may be,
have  acted in good  faith to carry out the  transactions  contemplated  by this
Participation Agreement, the Remarketing Agreement or the Indenture and, except,
in the case of the Trustee,  the Tender Agent, the Paying Agent and the Indexing
Agent,  the Trustee's,  the Tender Agent's,  the Paying Agent's and the Indexing
Agent's willful misconduct or negligence.

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

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

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

                  Section 4.12.  The Letter of Credit.  At all times on or prior
to the Fixed Rate  Conversion  Date except  during any period when all the Bonds
then  outstanding  are held by or for the  account of the  Company,  a Letter of
Credit meeting the  requirements of this Section 4.12 shall be in effect and, in
the event that an Alternate  Credit Facility is to replace an expiring Letter of
Credit,  the requirements of Section 6.07 of the Indenture will be fulfilled.  A
Letter of Credit shall be an obligation of a bank or banks, insurance company or
companies,  other financial  institution or institutions,  or any combination of
the foregoing, entitling the Trustee to


                                       13
<PAGE>

draw up to (a) an  amount  equal  to the  principal  amount  of the  Bonds  then
outstanding  to pay (i) the principal of the Bonds when due, or (ii) the portion
of the Purchase Price of Bonds  corresponding  to principal,  plus (b) an amount
equal to 210 days' accrued  interest on the Bonds then  outstanding  computed at
the maximum  rate  specified  in such Letter of Credit,  which shall in no event
exceed fifteen percent (15%), on the basis of a 360-day year. A Letter of Credit
shall expire on the earliest  occurrence of (1) at its stated  expiration  date,
which shall be no earlier  than one (1) day after the next  succeeding  Optional
Tender Date or Purchase Date not less than six months from its  effective  date,
(2) when all  available  amounts  have been drawn,  (3) the first  business  day
following  the  effective  date of the Fixed Rate  Conversion  Date,  (4) on the
effective date of any Alternate Credit Facility that replaces the then effective
Letter of Credit,  (5) the earliest date on which no Bonds are  outstanding  and
(6) twelve (12) days after the Trustee  receives notice from the Bank that it is
terminating  the Letter of Credit and directing the Trustee to cause a mandatory
tender and  purchase of or to  accelerate  the Bonds.  A Letter of Credit  shall
provide that when there is a drawing to pay interest on scheduled payment dates,
if the Trustee  does not receive from the Bank by the close of business on a day
specified therein,  which shall not be later than the fourth (4th) day following
such a drawing in respect of interest,  notice by telephone confirmed in writing
(or by other means  acceptable to the Trustee and the Authority) that the amount
available to be drawn has not been  reinstated  by the amount of the drawing for
interest  (except on principal of a Bond being paid or purchased and cancelled),
the amount available to be drawn will  automatically be reinstated by the amount
of the drawing on such specified day.


                                       14
<PAGE>

                                    ARTICLE V

                                SPECIAL COVENANTS

                  Section 5.01. No Warranty as to  Suitability  of Project.  The
Authority makes no warranty,  either express or implied,  with respect to actual
or designed  capacity of the Project,  as to the  suitability of the Project for
the purposes specified in this Participation  Agreement,  as to the condition of
the Project,  or as to the suitability of the Project for the Company's purposes
or needs.

                  Section 5.02.  Authority's Rights to Inspect Project and Plans
and  Specifications.  The Authority shall have the right at all reasonable times
to examine and inspect the Project and, to the extent reasonably available,  the
plans  and  specifications  therefor  and such  other  information  and  records
relating  to the  Project  as may  be  reasonably  necessary  to  establish  the
qualification  of the Project for financing  under the Act and  compliance  with
this Participation Agreement.

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

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

                  Section 5.05. Company Agrees to Perform Obligations Imposed by
Indenture.  The Company agrees to perform such obligations as may be required of
it by the provisions of the Indenture.

                  Section 5.06.  Maintenance of Office or Agency of Company. The
Company will at all times keep in Hicksville,  New York, or another  location in
the State of New York an office or agency where notices and demands with respect
to the Company Note and this  Participation  Agreement may be served,  and will,
from time to time,  give written  notice to the Trustee and the Authority of the
location of such office or agency; and, in case the Company


                                       15
<PAGE>

shall  fail so to do,  notices  may be  served  and  demands  may be made at the
principal office of the Trustee.

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

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

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

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


                                       16
<PAGE>

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

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

                  Section  5.13.  Company  Not to Permit  Hindrance  or Delay of
Payment of Company Note. The Company will not  voluntarily  do, suffer or permit
any act or thing  intended  to hinder or delay the  payment of the  indebtedness
evidenced by the Company Note.

                  Section 5.14.  Corporate Existence,  Consolidation,  Merger or
Sale of Assets.  The Company will  maintain its  corporate  existence,  will not
consolidate  with or permit  itself to be merged into any other  corporation  or
corporations, or sell, transfer or otherwise dispose of all or substantially all
of its  properties  and  assets,  except  in the  manner  and upon the terms and
conditions set forth in this Section 5.14.

                  Nothing  contained  in  this  Participation   Agreement  shall
prevent (and this  Participation  Agreement shall be construed as permitting and
authorizing) any lawful  consolidation or merger of the Company with or into any
other corporation or corporations lawfully authorized to acquire and operate the
properties of the Company,  or a series of consolidations  or mergers,  in which
the Company or its successor or successors  shall be a party, or any sale of all
or  substantially  all  the  properties  of  the  Company  as an  entirety  to a
corporation  lawfully authorized to acquire and operate the same; provided that,
upon  any  consolidation,  merger  or  sale,  the  corporation  formed  by  such
consolidation,  or into which such merger may be made,  or making such  purchase
shall execute and deliver to the Trustee an instrument,  in form satisfactory to
the  Trustee,  whereby such  corporation  shall  effectually  assume the due and
punctual payment of the principal of, and premium,  if any, and interest on, the
Company Note  according to its tenor and the due and  punctual  performance  and
observance


                                       17
<PAGE>

of all covenants and agreements to be performed by the Company  pursuant to this
Participation Agreement, the Tax Regulatory Agreement and the Company Note.

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

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

                  Section 5.15.  Financial  Statements  of Company.  The Company
agrees to furnish the Trustee with a copy of its annual  report to  stockholders
for each  year,  beginning  with the year  1995,  on or  before  March 31 of the
subsequent year or as soon thereafter as it is reasonably available. The Company
further  agrees  to  furnish  to the  Trustee,  and to any owner of the Bonds if
requested in writing by such owner,  all financial  statements which it sends to
its shareholders generally.

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


                                       18
<PAGE>

                                   ARTICLE VI

                          DEFAULTS BY COMPANY; REMEDIES

                  Section 6.01. Events of Default;  Acceleration. In case one or
more of the following events of default shall have occurred and be continuing:

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

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

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

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

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

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

then, and in any such event,  the Trustee,  may, and upon the written request of
the owners of at least twenty-five  percent (25%) in aggregate  principal amount
of the Bonds then  outstanding  shall,  by notice in writing to the  Company and
provided that the default has not  theretofore  been cured,  declare the Company
Note to be due and payable  immediately,  and upon any such declaration the same
shall become and shall be  immediately  due and payable,  anything  contained in
this   Participation   Agreement   or  in  the  Company  Note  to  the  contrary
notwithstanding.  Any amounts  collected by the Trustee pursuant to action taken
under this Section 6.01 shall be applied in accordance  with the  Indenture.  In
addition,  if at any time the principal of the Bonds shall have been declared to
be due and payable by acceleration  pursuant to the terms of the Indenture,  the
Company Note shall thereupon become and be immediately due and payable,


                                       19
<PAGE>

subject to such declaration with respect to the Bonds being annulled pursuant to
Section 10.01 of the Indenture.

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

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

                  Section 6.02. Certain Events of Default;  Authority or Trustee
May Take Certain  Actions.  In case the Company shall have failed to comply with
its obligations  under Article III or under Sections 4.04,  4.08,  4.09, 4.10 or
5.16,  which event shall have  continued  for a period of ninety (90) days after
the date on which  written  notice of such  failure,  requiring  the  Company to
remedy the same,  shall have been given to the Company by the  Authority  or the
Trustee,  the  Authority  or the Trustee may take  whatever  action at law or in
equity as may appear necessary or desirable to enforce performance or observance
of any  obligations or agreements of the Company under said Article or Sections.
In case the  Company  shall have  failed to comply  with its  obligations  under
Section 4.05, which event shall have continued for a period of ninety (90)


                                       20
<PAGE>

days  after the date on which  written  notice of such  failure,  requiring  the
Company to remedy the same, shall have been given to the Company by the Trustee,
the Trustee may take whatever action at law or in equity as may appear necessary
or  desirable  to the  Trustee  to  enforce  performance  or  observance  of any
obligations or agreements of the Company under said section.

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


                                       21
<PAGE>

                                   ARTICLE VII

                                  MISCELLANEOUS

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

                  Section 7.02. Notices. All notices, certificates,  requests or
other communications between the Authority, the Company and the Trustee required
to be given under this Participation Agreement or under the Indenture (except as
otherwise  provided  therein)  shall be  sufficiently  given and shall be deemed
given when delivered or mailed by first class mail,  postage prepaid,  addressed
as follows if to the Authority, at 2 Empire State Plaza, Suite 1901, Albany, New
York 12223,  Attention:  President;  if to the Company,  at 175 East Old Country
Road, Hicksville,  New York 11801, Attention:  Treasurer; and if to the Trustee,
at 450 West 33rd  Street,  15th  Floor,  New  York,  New York  10001  Attention:
Corporate  Trustee  Administration  Department  and  if  to  the  Tender  Agent,
Remarketing  Agents or the Indexing  Agent to the  addresses  set forth for such
persons in Section  16.05 of the  Indenture.  A duplicate  copy of each  notice,
certificate,  request or other  communication  given hereunder to the Authority,
the Company or the Trustee shall also be given to the others.  The Company,  the
Authority and the Trustee may, by notice given hereunder,  designate any further
or different  addresses to which subsequent notices,  certificates,  requests or
other communications shall be sent.

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

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



                                       22
<PAGE>

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

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

                  Section 7.07.  Participation  Agreement  Supersedes  Any Prior
Agreements.  This Participation  Agreement supersedes any other prior agreements
or  understandings,  written or oral,  between the parties  with  respect to the
transactions contemplated hereby.

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

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


                                       24
<PAGE>

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

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

                                                  NEW YORK STATE ENERGY
                                                   RESEARCH AND DEVELOPMENT
                                                    AUTHORITY


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

ATTEST:

  /s/ Howard A. Jack
  ------------------
       Secretary

                                                  LONG ISLAND LIGHTING COMPANY



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

ATTEST:

/s/ Herbert M. Leiman
---------------------
Assistant Secretary


                                                                            

<PAGE>



                                    EXHIBIT A


                      (To Participation Agreement dated as
                       of August 1, 1995, between New York
                      State Energy Research and Development
                   Authority and Long Island Lighting Company)


                       DESCRIPTION OF ELECTRIC FACILITIES


                  The Project will consist of the following facilities which are
to be acquired,  constructed and installed by Long Island Lighting  Company (the
"Utility") as part of the Utility's electric system:

1.   Production Facilities;

2.   Transmission Facilities including interconnections and subtransmission;

3.   Distribution  Facilities,   including  stations,  lines,  transformers  and
     meters;

4.   Certain Common Facilities.

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

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


                                                                         
                                       A-1

<PAGE>



                                    EXHIBIT B


                      (To Participation Agreement dated as
                       of August 1, 1995, between New York
                      State Energy Research and Development
                   Authority and Long Island Lighting Company)


                         DESCRIPTION OF OTHER FACILITIES


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


                                                                       
                                       B-1

<PAGE>



                                    EXHIBIT C


                     (To Participation Agreement dated as of
                        August 1, 1995, between New York
                      State Energy Research and Development
                   Authority and Long Island Lighting Company)


                          LONG ISLAND LIGHTING COMPANY

                                   $50,000,000

                                 PROMISSORY NOTE
                                       FOR
                        ELECTRIC FACILITIES REVENUE BONDS
              (LONG ISLAND LIGHTING COMPANY PROJECT), 1995 SERIES A


                  Long  Island  Lighting  Company  (the  "Company"),  a New York
corporation,  for value received, hereby promises to pay, on or before the dates
set forth below,  the amounts set forth below,  to Chemical  Bank, New York, New
York, as trustee or its successor or successors as trustee (the "Trustee") under
the Indenture of Trust relating to the above-referenced Bonds dated as of August
1, 1995,  between the New York State Energy Research and  Development  Authority
(the "Authority"),  a body corporate and politic,  constituting a public benefit
corporation,  established  and  existing  under and by virtue of the laws of the
State of New York,  and the  Trustee.  Such  Indenture  of  Trust,  as it may be
amended or  supplemented  from time to time, is herein  called the  "Indenture."
Unless  otherwise  defined  herein,  the terms used in this promissory note (the
"Company  Note") which are defined in Section 1.01 of the  Indenture  shall have
the  meanings,  respectively,  herein which such terms are given in said Section
1.01 of the Indenture.

                  This  Company  Note is issued  pursuant  to the  Participation
Agreement in order to evidence the obligation of the Company to the Authority to
repay  the  advance  of the  proceeds  of the  Bonds.  In  accordance  with  the
Participation  Agreement,  the Authority has authorized and directed the Company
to issue this  Company  Note payable to the order of the Trustee as security for
the payment of principal of,  premium,  if any, and interest on, the Bonds.  The
rights and interest of the Authority under the  Participation  Agreement (except
the rights and interest of the Authority  under  Article III and Sections  4.04,
4.08,  4.09 and 4.10 and 5.16  thereof  and  insofar as the  obligations  of the
Company  under  Section  4.07 relate to taxes and  assessments  imposed upon the
Authority and not the Trustee, Section 4.07 thereof),  subject to the provisions
of the  Participation  Agreement  relating to the amendment  thereof,  have been
assigned to the Trustee  pursuant to the Indenture.  In addition,  the Authority
has granted the Trustee the same power as the  Authority to enforce from time to
time the rights of the Authority set forth in said Article III and Section 5.16,
subject to the provisions of the Participation Agreement relating to

                                                                       
                                       C-1

<PAGE>



the  amendment  thereof.  All of the terms,  conditions  and  provisions  of the
Participation  Agreement are, by this reference thereto,  incorporated herein as
part of this Company Note.

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

         (a) On or before each Interest  Payment Date,  commencing  September 1,
         1995, a sum which  together  with other moneys then  available for such
         purpose in the Bond Fund will enable the Trustee to pay the interest on
         the Bonds coming due on such date;

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

         (c) On or before August 1, 2025, a sum which together with other moneys
         then  available  for such  purpose  in the Bond  Fund will  enable  the
         Trustee to pay the outstanding principal amount of the Bonds;

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

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

                  All  payments  of  principal  of,  and  premium,  if any,  and
interest on, this Company Note shall be made in immediately  available  funds to
the Trustee at its corporate trust office, 450 West 33rd Street, 15th Floor, New
York, New York 10001,  Attention:  Corporate Trustee Administration  Department,
Wire Transfer Number: 967-0-22461, or to such different address or wire transfer
number as the Trustee may from time to time designate, on or before each date on
which  such  principal,  premium,  if any,  or  interest  is due in such coin or
currency  of the United  States of  America  as at the time of payment  shall be
legal tender for the payment of public and private debts.

                  The Company has agreed in the Participation  Agreement that if
for any reason  Company Note  Payments,  together  with other moneys held by the
Trustee and then available for such purpose  (including  moneys paid by the Bank
under the Letter of Credit),  would not be sufficient to make the  corresponding
payments of principal  of, and premium,  if any, and interest on, the Bonds when
such  payments are due, the Company will pay the amounts  required  from time to
time to make up any such deficiency.

                                                                        
                                       C-2

<PAGE>




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

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

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

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

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

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

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


                                                                
                                       C-3

<PAGE>



                  IN WITNESS  WHEREOF,  the Company has caused this Company Note
to be duly executed and delivered as of August 24, 1995.

                                               LONG ISLAND LIGHTING COMPANY



(SEAL)                                         By: /s/
------                                            ----------------------------
                                                           Treasurer

ATTEST:



/s/-------------------------------
     Assistant Secretary



                                                                    
                                       C-4

<PAGE>



                                TABLE OF CONTENTS
                                                                         Page

                                    ARTICLE I

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

Section 1.01.     Definitions................................................ 3
Section 1.02.     Rules of Construction...................................... 3
Section 1.03.     Effective Date of Participation Agreement; Duration of
                  Participation Agreement.................................... 3



                          ARTICLE II

                        REPRESENTATIONS

Section 2.01.     Representations and Warranties by the Authority............ 4
Section 2.02.     Representations and Warranties by the Company.............. 4



                          ARTICLE III

                 CONSTRUCTION OF THE PROJECT;
                       ISSUANCE OF BONDS

Section 3.01.     Construction of the Project.................................6
Section 3.02.     Sale of Bonds and Deposit of Proceeds; Liability Under Bonds6
Section 3.03.     Disbursements from Project Fund and Rebate Fund.............7
Section 3.04.     Revision of Construction Plans..............................7
Section 3.05.     Certification of Completion of Project......................8
Section 3.06.     Payment of Cost of Construction of the Project in
                  Event Project Fund Inadequate...............................8
Section 3.07.     No Interest in Project Conferred............................8
Section 3.08.     Operation, Maintenance and Repair...........................8
Section 3.09.     Investment of Moneys in Funds Under the Indenture...........9
Section 3.10.     Agreement not to Exercise Option to Convert to Fixed Rate
                  Absent Specified Rating.....................................9
Section 3.11.     Securities Depository.......................................9



                                       (i)
                                                                           

<PAGE>


                                                                          Page


                                   ARTICLE IV

                   COMPANY NOTE AND PAYMENTS; LETTER OF CREDIT

Section 4.01.      Execution and Delivery of Company Note to Trustee.........10
Section 4.02.      Redemption of Bonds.......................................10
Section 4.03.      Obligation for Payment Absolute; Deficiencies.............10
Section 4.04.      Administration Fees; Expenses, Etc........................11
Section 4.05.      Compensation of Trustee, Paying Agent, Remarketing Agents,
                   Indexing Agent and Tender Agent...........................11
Section 4.06.      Project Not Security for Bonds............................12
Section 4.07.      Payment of Taxes and Assessments; No Liens or Charges.....12
Section 4.08.      Indemnification of Authority, Trustee, Tender Agent, Paying 
                   Agent, Remarketing Agents and Indexing Agent..............12
Section 4.09.      Company to Pay Attorneys' Fees and Disbursements..........13
Section 4.10.      No Abatement of Administration Fees and Other Charges.....13
Section 4.11.      Payment to Tender Agent...................................13
Section 4.12.      The Letter of Credit......................................13



                            ARTICLE V

                        SPECIAL COVENANTS

Section 5.01.      No Warranty as to Suitability of Project................. 15
Section 5.02.      Authority's Rights to Inspect Project and Plans and
                   Specifications                                            15
Section 5.03.      Company Consent to Amendment of Indenture................ 15
Section 5.04.      Tax Covenant..............................................15
Section 5.05.      Company Agrees to Perform Obligations Imposed by Indenture15
Section 5.06.      Maintenance of Office or Agency of Company................15
Section 5.07.      Further Assurances....................................... 16
Section 5.08.      Payment of Taxes and Other Charges........................16
Section 5.09.      Maintenance of Properties.................................16
Section 5.10.      Insurance.................................................16
Section 5.11.      Proper Books of Record and Account........................17
Section 5.12.      Certificates as to Defaults...............................17
Section 5.13.      Company Not to Permit Hindrance or Delay of
                   Payment of Company Note...................................17
Section 5.14.      Corporate Existence, Consolidation, Merger or Sale of 
                   Assets                                                    17
Section 5.15.      Financial Statements of Company......................... .18
Section 5.16.      Compliance with Laws..................................... 18


                                      (ii)
                                                                           

<PAGE>


                                                                          Page


                                   ARTICLE VI

                          DEFAULTS BY COMPANY; REMEDIES

Section 6.01.     Events of Default; Acceleration........................... 19
Section 6.02.     Certain Events of Default; Authority or Trustee May Take
                  Certain Actions............................................20
Section 6.03.     Judicial Proceedings by Trustee........................... 21



                          ARTICLE VII

                         MISCELLANEOUS

Section 7.01.     Disposition of Amounts After Payment of Bonds......... .. 22
Section 7.02.     Notices.................................................. 22
Section 7.03.     Successors and Assigns....................................22
Section 7.04.     References to the Bank....................................22
Section 7.05.     Amendment of Participation Agreement..................... 23
Section 7.06.     Assignment by Authority.................................. 23
Section 7.07.     Participation Agreement Supersedes Any Prior Agreements.. 23
Section 7.08.     Counterparts............................................. 23
Section 7.09.     Severability............................................. 23
Section 7.10.     New York Law to Govern................................... 24


EXHIBIT A        DESCRIPTION OF ELECTRIC FACILITIES.....................   A-1
EXHIBIT B        DESCRIPTION OF OTHER FACILITIES........................   B-1
EXHIBIT C        PROMISSORY NOTE........................................   C-1




                                      (iii)