Document:

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                                  EXHIBIT 10.9

                                 TRUST INDENTURE

                 VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY

                                       and

                       THE FIRST NATIONAL BANK OF BOSTON,
                                   as Trustee

                                  securing the

                                   $7,500,000
                 Village of Walden Industrial Development Agency
                 Industrial Development Revenue Refunding Bonds
                (Spence Engineering Company Project), Series 1994

                            DATED AS OF JUNE 1, 1994

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                                TABLE OF CONTENTS

                                                                         Page

Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

Forms:
     Form of Bond. . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
     Form of Bondholder's Optional Retention Notice. . . . . . . . . . . 17

ARTICLE I  DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . 18

     Section 101.  Definitions . . . . . . . . . . . . . . . . . . . . . 18
     Section 102.  Rules of Construction . . . . . . . . . . . . . . . . 27

ARTICLE II THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . 28

     Section 201.  Amount, Terms, and Issuance of the Bonds. . . . . . . 28
     Section 202.  Designation, Denominations, Maturity Date and
                   Interest Rates of the Bonds . . . . . . . . . . . . . 29
     Section 203.  Optional Tender Provisions of the Bonds . . . . . . . 32
     Section 204.  Registered Bonds Required; Bond Registrar and Bond
                   Register  . . . . . . . . . . . . . . . . . . . . . . 33
     Section 205.  Transfer and Exchange . . . . . . . . . . . . . . . . 34
     Section 206.  Execution . . . . . . . . . . . . . . . . . . . . . . 35
     Section 207.  Authentication; Authenticating Agent. . . . . . . . . 35
     Section 208.  Payment of Principal and Interest; Interest Rights
                   Preserved . . . . . . . . . . . . . . . . . . . . . . 36
     Section 209.  Persons Deemed Owners . . . . . . . . . . . . . . . . 37
     Section 210.  Mutilated, Destroyed, Lost, Stolen or Undelivered
                   Bonds . . . . . . . . . . . . . . . . . . . . . . . . 37
     Section 211.  Temporary Bonds . . . . . . . . . . . . . . . . . . . 38
     Section 212.  Cancellation of Surrendered Bonds . . . . . . . . . . 38
     Section 213.  Conditions of Issuance. . . . . . . . . . . . . . . . 38

ARTICLE III        PURCHASE AND REMARKETING OF TENDERED BONDS. . . . . . 40

     Section 301.  Remarketing of Tendered Bonds . . . . . . . . . . . . 40
     Section 302.  Purchase of Bonds Delivered to the Tender Agent . . . 41
     Section 303.  Delivery of Purchased Bonds . . . . . . . . . . . . . 42
     Section 304.  Delivery of the Proceeds of the Sale of Remarketed
                   Bonds . . . . . . . . . . . . . . . . . . . . . . . . 43
     Section 305.  No Remarketing After Certain Events . . . . . . . . . 43

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ARTICLE IV REFUNDING OF PRIOR BONDS. . . . . . . . . . . . . . . . . . . 43

     Section 401.  Refunding of Prior Bonds. . . . . . . . . . . . . . . 43

ARTICLE V  REVENUES AND APPLICATION THEREOF. . . . . . . . . . . . . . . 44

     Section 501.  Revenues to be Paid Over to Trustee . . . . . . . . . 44
     Section 502.  The Bond Fund . . . . . . . . . . . . . . . . . . . . 44
     Section 503.  Revenues to Be Held for All Bondholders; Certain
                   Exceptions. . . . . . . . . . . . . . . . . . . . . . 46
     Section 504.  Rebate Fund . . . . . . . . . . . . . . . . . . . . . 46

ARTICLE VI DEPOSITARIES OF MONEYS, SECURITY FOR DEPOSITS AND
           INVESTMENT OF FUNDS; THE CREDIT FACILITY. . . . . . . . . . . 46

     Section 601.  Security for Deposits.. . . . . . . . . . . . . . . . 46
     Section 602.  Investment of Moneys. . . . . . . . . . . . . . . . . 47
     Section 603.  The Credit Facility . . . . . . . . . . . . . . . . . 47

ARTICLE VII        REDEMPTION OR PURCHASE OF THE BONDS . . . . . . . . . 50

     Section 701.  Redemption or Purchase Dates and Prices . . . . . . . 50
     Section 702.  Company to Direct Optional Redemption . . . . . . . . 52
     Section 703.  Selection of Bonds to be Called for Redemption. . . . 52
     Section 704.  Notice of Redemption or Purchase. . . . . . . . . . . 53
     Section 705.  Bonds Redeemed or Purchased in Part . . . . . . . . . 54

ARTICLE VIII       PARTICULAR COVENANTS AND PROVISIONS . . . . . . . . . 54

     Section 801.  Covenant to Pay the Bonds; Bonds Limited
                   Obligations of the Issuer . . . . . . . . . . . . . . 54
     Section 802.  Covenants to Perform Obligations Under this
                   Indenture . . . . . . . . . . . . . . . . . . . . . . 54
     Section 803.  Covenant to Perform Obligations Under the Sale
                   Agreement . . . . . . . . . . . . . . . . . . . . . . 55
     Section 804.  Trustee May Enforce the Issuer's Rights Under the
                   Sale Agreement. . . . . . . . . . . . . . . . . . . . 55
     Section 805.  Covenant Against Arbitrage. . . . . . . . . . . . . . 56
     Section 806.  Inspection of the Bond Register . . . . . . . . . . . 56
     Section 807.  Priority of Pledge and Security Interest. . . . . . . 56
     Section 808.  Insurance and Condemnation Proceeds . . . . . . . . . 56

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ARTICLE IX DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . 56

     Section 901.  Defaults. . . . . . . . . . . . . . . . . . . . . . . 56
     Section 902.  Acceleration and Annulment Thereof. . . . . . . . . . 57
     Section 903.  Other Remedies. . . . . . . . . . . . . . . . . . . . 58
     Section 904.  Legal Proceedings by the Trustee. . . . . . . . . . . 59
     Section 905.  Discontinuance of Proceedings by the Trustee. . . . . 59
     Section 906.  Credit Facility Issuer or Bondholders May Direct
                   Proceedings . . . . . . . . . . . . . . . . . . . . . 59
     Section 907.  Limitations on Actions by the Bondholders . . . . . . 60
     Section 908.  Trustee May Enforce Rights Without Possession of
                   the Bonds . . . . . . . . . . . . . . . . . . . . . . 60
     Section 909.  Remedies Not Exclusive. . . . . . . . . . . . . . . . 60
     Section 910.  Delays and Omissions Not to Impair Rights . . . . . . 61
     Section 911.  Application of Moneys in the Event of Default . . . . 61
     Section 912.  Trustee and Bondholders Entitled to All Remedies
                   Under the Act . . . . . . . . . . . . . . . . . . . . 61
     Section 913.  Trustee May File Claim in Bankruptcy. . . . . . . . . 62
     Section 914.  Receiver. . . . . . . . . . . . . . . . . . . . . . . 63

ARTICLE X  CONCERNING THE TRUSTEE. . . . . . . . . . . . . . . . . . . . 63

     Section 1001. Acceptance of the Trusts. . . . . . . . . . . . . . . 63
     Section 1002. Trustee to Give Notice. . . . . . . . . . . . . . . . 64
     Section 1003. Trustee Entitled to Indemnity . . . . . . . . . . . . 65
     Section 1004. Trustee Not Responsible for Insurance, Taxes,
                   Execution of this Indenture, Acts of the Issuer or
                   Application of the Moneys Applied in Accordance
                   with this Indenture . . . . . . . . . . . . . . . . . 66
     Section 1005. Compensation. . . . . . . . . . . . . . . . . . . . . 67
     Section 1006. Trustee to Preserve Records . . . . . . . . . . . . . 67
     Section 1007. Trustee May Be a Bondholder . . . . . . . . . . . . . 67
     Section 1008. Trustee Not Responsible for Recitals. . . . . . . . . 67
     Section 1009. No Trustee Responsibility for Recording or Filing . . 68
     Section 1010. Trustee May Require Information . . . . . . . . . . . 68
     Section 1011. Trustee May Rely on Certificates. . . . . . . . . . . 68
     Section 1012. Trustee Bond. . . . . . . . . . . . . . . . . . . . . 68
     Section 1013. Segregation of Funds; Interests . . . . . . . . . . . 68
     Section 1014. Qualification of the Trustee. . . . . . . . . . . . . 69
     Section 1015. Resignation and Removal of the Trustee. . . . . . . . 69
     Section 1016. Successor Trustee . . . . . . . . . . . . . . . . . . 70
     Section 1017. Co-Trustee. . . . . . . . . . . . . . . . . . . . . . 71
     Section 1018. Notice to Moody's or S&P. . . . . . . . . . . . . . . 71
     Section 1019. Filing of Certain Continuation Statements . . . . . . 72

ARTICLE XI EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS
           AND PROOF OF OWNERSHIP OF THE BONDS . . . . . . . . . . . . . 72

     Section 1101. Execution of Instruments by the Bondholders and
                   Proof of Ownership of the Bonds . . . . . . . . . . . 72
     Section 1102. Preservation of Information . . . . . . . . . . . . . 73

ARTICLE XII        THE REMARKETING AGENT; THE
           TENDER AGENT; THE PLACEMENT AGENT . . . . . . . . . . . . . . 73

     Section 1201. The Remarketing Agent . . . . . . . . . . . . . . . . 73
     Section 1202. The Tender Agent. . . . . . . . . . . . . . . . . . . 74
     Section 1203. The Placement Agent . . . . . . . . . . . . . . . . . 75
     Section 1204. Notices . . . . . . . . . . . . . . . . . . . . . . . 75

ARTICLE XIII       AMENDMENTS AND SUPPLEMENTS. . . . . . . . . . . . . . 75

     Section 1301. Amendments and Supplements Without the
                   Bondholders' Consent. . . . . . . . . . . . . . . . . 75
     Section 1302. Amendments With the Bondholders' and the Credit
                   Facility Issuer's Consent . . . . . . . . . . . . . . 76
     Section 1303. Supplemental Indentures Affecting the Rights of
                   the Credit Facility Issuer. . . . . . . . . . . . . . 77
     Section 1304. Amendment of the Sale Agreement . . . . . . . . . . . 77
     Section 1305. Amendment of the Sale Agreement Requiring the
                   Consent of the Credit Facility Issuer . . . . . . . . 78
     Section 1306. Amendment of the Credit Facility. . . . . . . . . . . 78
     Section 1307. Trustee Authorized to Join in Amendments and
                   Supplements; Reliance on Counsel. . . . . . . . . . . 78

ARTICLE XIV        DEFEASANCE; OTHER PAYMENTS. . . . . . . . . . . . . . 79

     Section 1401. Defeasance. . . . . . . . . . . . . . . . . . . . . . 79
     Section 1402. Deposit of Funds for Payment of the Bonds . . . . . . 80
     Section 1403. Effect of Purchase of the Bonds . . . . . . . . . . . 81

ARTICLE XV MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . 81

     Section 1501. Covenants of the Issuer to Bind its Successors. . . . 81
     Section 1502. Notices . . . . . . . . . . . . . . . . . . . . . . . 81
     Section 1503. Trustee as the Paying Agent and the Bond Registrar. . 83
     Section 1504. Rights Under this Indenture . . . . . . . . . . . . . 83
     Section 1505. Form of Certificates and Opinions . . . . . . . . . . 83
     Section 1506. Severability. . . . . . . . . . . . . . . . . . . . . 83
     Section 1507. Covenants of the Issuer Not Covenants of Officials
                   Individually. . . . . . . . . . . . . . . . . . . . . 83
     Section 1508. State Law Governs . . . . . . . . . . . . . . . . . . 84
     Section 1509. Payments Due on Days Other Than Business Days . . . . 84
     Section 1510. Execution in Counterparts . . . . . . . . . . . . . . 84

Execution by the Issuer. . . . . . . . . . . . . . . . . . . . . . . . . 85
Execution by the Trustee . . . . . . . . . . . . . . . . . . . . . . . . 85

Exhibit A  Form of Bondholder's Optional Tender Notice . . . . . . . . . 86
Exhibit B  Notice of Conversion. . . . . . . . . . . . . . . . . . . . . 88

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                                 TRUST INDENTURE

     This TRUST INDENTURE, dated as of June 1, 1994, between Village of Walden
Industrial Development Agency (the "Issuer"), a body corporate and politic of
the State of New York, and The First National Bank of Boston, a national banking
association, having its principal office in Boston, Massachusetts (in its
capacity as trustee to be hereinafter referred to as the "Trustee").

                              W I T N E S S E T H:

     WHEREAS, the Issuer intends to (a) issue and sell its variable rate
industrial revenue refunding bonds in the aggregate principal amount of
$7,500,000 (the "Bonds"); (b) pursuant to a Sale Agreement (the "Sale
Agreement") of even date herewith, use the proceeds of the Bonds to refund the
Issuer's $7,500,000 Village of Walden Industrial Development Agency (Spence
Engineering Company Project), Series 1984 Bonds (the "Prior Bonds"); (c) to sell
the Project (as defined in the Sale Agreement) to the Company; and (d) secure
the repayment of the Bonds by (1) the assignment contained herein from the
Issuer to the Trustee, pursuant to which the Issuer assigns to the Trustee for
the benefit of the Bondholders (hereinafter defined) certain of its rights under
the Sale Agreement, endorses without recourse to the order of, and pledges and
assigns to, the Trustee, the Note of even date herewith issued by the Company
pursuant to the Sale Agreement (the "Note"), and (2) the delivery to the Trustee
of an irrevocable direct pay letter of credit dated the date of issuance of the
Bonds in the amount of $7,875,000, issued by First Union National Bank of North
Carolina;

     WHEREAS, as security for the payment of the Bonds, the Issuer has agreed to
assign and pledge to the Trustee all right, title and interest of the Issuer in
(a) the Sale Agreement (except certain rights reserved by the Issuer under the
terms of this Indenture), (b) the "Pledged Revenues" (hereinafter defined), and
(c) all amounts on deposit from time to time in the "Bond Fund" (hereinafter
defined), but excluding any amounts on deposit in the "Rebate Account"
(hereinafter defined); and

     WHEREAS, the Company and First Union National Bank of North Carolina, a
national banking association (the "Bank") have entered into a Letter of Credit
and Reimbursement and Guaranty Agreement, dated as of June 1, 1994 (the
"Reimbursement Agreement") pursuant to which the Bank has agreed to issue its
irrevocable direct-pay letter of credit, dated the date of the delivery of the
Bonds (the "Letter of Credit"), in favor of the Trustee, for the account of the
Company obligating the Bank to pay the Trustee upon draws made by the Trustee in
accordance with the terms thereof, up to (i) an amount equal to the aggregate
principal amount of the Bonds then Outstanding (as hereinafter defined) to be
used by the Trustee (a) to pay the principal of such Bonds whether at maturity,
upon redemption,

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acceleration or otherwise, and (b) to pay the portion of the purchase price
equal to the principal amount of any such Bonds delivered to the Tender Agent
(hereinafter defined) for purchase, plus (ii) an amount equal to up to one
hundred twenty (120) days' accrued interest on the Bonds at the maximum interest
rate of fifteen percent (15%) per annum, to be used by the Trustee to pay
accrued interest on the Bonds and to pay the portion of the purchase price of
tendered Bonds equal to the accrued interest, if any, on any such Bonds; and

     WHEREAS, all things necessary to make the Bonds, when authenticated by the
Trustee and issued and delivered as provided in this Indenture, the legal,
valid, binding and enforceable limited obligations of the Issuer, according to
the import thereof, and to create a valid assignment and pledge of the Pledged
Revenues to the payment of the principal of, and the redemption premium (if any)
and the interest on, the Bonds and a valid assignment of certain of the rights,
title and interest of the Issuer in the Sale Agreement and the Note, have been
done and performed, and the execution, issuance and delivery of the Bonds,
subject to the terms hereof, have in all respects been authorized; and

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

     WHEREAS, the Issuer has determined that the Bonds to be issued hereunder
shall be substantially in the following form, with such variations, omissions
and insertions as are required or permitted by this Indenture:

                                 [Form of Bond]
                                                                 CUSIP _________

THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON THIS BOND ARE
SPECIAL OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE SOURCES AND SPECIAL
FUNDS PLEDGED FOR THEIR BENEFIT PURSUANT TO THE INDENTURE. THIS BOND SHALL NOT
CONSTITUTE A DEBT OF THE STATE OF NEW YORK OR ANY POLITICAL SUBDIVISION THEREOF
OR THE ISSUER WITHIN THE MEANING OF ANY PROVISION OF THE CONSTITUTION OR LAWS OF
THE STATE AND SHALL NOT CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE
STATE OR ANY POLITICAL SUBDIVISION THEREOF OR THE ISSUER OR A CHARGE AGAINST THE
GENERAL CREDIT OR TAXING POWERS OF ANY OF THEM.

THIS BOND MAY BE TENDERED FOR PURCHASE AS DESCRIBED HEREIN. DELIVERY OF AN
OPTIONAL TENDER NOTICE WITH RESPECT TO THIS BOND CONSTITUTES AN IRREVOCABLE
OFFER TO SELL THIS BOND ON THE DATE SPECIFIED THEREIN AND IS BINDING ON
SUBSEQUENT OWNERS OF THIS BOND. IN THE EVENT THE OWNER OF THIS BOND FAILS TO
DELIVER THIS BOND TO THE TENDER AGENT ON THE SPECIFIED DATE, THE OWNER HEREOF
SHALL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO
THE BENEFITS OF THE INDENTURE. THIS BOND ALSO IS SUBJECT TO MANDATORY TENDER AND
PURCHASE AS DESCRIBED HEREIN.

                 VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY
                  INDUSTRIAL DEVELOPMENT REVENUE REFUNDING BOND
                (SPENCE ENGINEERING COMPANY PROJECT), SERIES 1994

                                                                 No. R-_________

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Registered Owner:  __________________________

Principal Amount:  __________________________

Maturity Date:  First Business Day of December, 2006

Initial Interest Rate:  2.75%

Interest Payment Dates:  The first Business Day of each March, June, September
                         and December, commencing the first Business Day of
                         September, 1994, the Conversion Date (hereinafter
                         defined) and the Maturity Date.

Original Delivery Date:  _________________

     VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY (herein called the
"Issuer"), a corporate governmental agency, constituting a public benefit
corporation created and existing under the constitution and laws of the State of
New York (herein called the "State"), for value received, hereby promises to pay
(but only from the sources hereinafter mentioned) to the Registered Owner set
forth above, or registered assigns, the Principal Amount set forth above on the
Maturity Date set forth above and to pay (but only from the sources hereinafter
mentioned) interest thereon from the Interest Payment Date immediately preceding
the Date of Authentication endorsed hereon, unless this Bond is authenticated on
an Interest Payment Date in which event it will bear interest from such date or
unless it is authenticated prior to the first Business Day of September, 1994,
in which event it will bear interest from the Date of Authentication, payable on
each Interest Payment Date, until payment of said principal sum has been made or
provided for, at the rate or rates per annum set forth below. Principal and
interest and premium, if any, will be paid in any coin or currency of the United
States of America which, at the time of payment, is legal tender for the payment
of public and private debts. Interest will be paid by check mailed on the
Interest Payment Date to the person in whose name this Bond is registered at the
close of business on the Regular Record Date (as hereinafter defined)
immediately preceding such Interest Payment Date; provided, however, that while
the Bonds (as hereinafter defined) bear interest at the Variable Rate (as
hereinafter defined) interest will also be payable by wire transfer to the
account at a member bank of the Federal Reserve System of any registered owner
of Bonds in the aggregate principal amount of One Million Dollars ($1,000,000)
or more at the written request (identifying such account by number) of such
owner received by the Trustee (as hereinafter defined) on or before the Regular
Record Date. While the Bonds bear interest at the Variable Rate (as hereinafter
defined), the Regular Record Date will be the close of business on the Business
Day immediately preceding each Interest Payment Date. While the Bonds bear
interest at the Fixed Rate (as hereinafter defined), the Regular Record Date
will be the fifteenth (15th) day of the calendar month immediately preceding
each Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the owner on such Regular
Record Date, and may be paid to the person in whose name this Bond is registered
at the close of business on a Special Record Date (as defined in the Indenture
(hereinafter defined)) for the payment of such defaulted interest to be fixed by
the Trustee, or may be paid at any time in any other lawful manner, all as more
fully provided in the Indenture. Principal and redemption price will be paid
upon surrender of this Bond at the principal corporate trust office of The First
National Bank of Boston,

<PAGE>

as Trustee (said banking institution and any successor trustee or co-trustee
under the Indenture being herein called the "Trustee"), in the Town of Canton,
Massachusetts. Payment of the purchase price of Bonds purchased as described
herein will be paid, upon surrender of such Bonds, at the office of The First
National Bank of Boston, in the Town of Canton, Massachusetts (in such capacity,
herein called the "Tender Agent").

     This Bond is issued under and pursuant to the Constitution and laws of the
State of New York (the "State"), particularly an act of the Village of Walden of
the State of New York, including without limitation Chapter 1030 of the Laws of
1969 of the State, constituting Title 1 of Article 18-A of the General Municipal
Law of the State, as amended from time to time, together with Chapter 632 of the
Laws of 1977 of the State, constituting Section 925-a of the General Municipal
Law of the State, as amended from time to time, as amended (the "Act"), and
under and pursuant to a resolution duly adopted by the Issuer on June 13, 1994.
This Bond and the issue of which it is a part and the purchase price thereof,
the premium, if any, and interest thereon are limited obligations of the Issuer
payable by the Issuer solely from the revenues and receipts derived from the
Sale Agreement (as hereinafter defined), including payments received under the
Note (as hereinafter defined), which revenues and receipts have been pledged and
assigned to the Trustee to secure payment thereof and from amounts received
pursuant to the Credit Facility (as hereinafter defined). This Bond and the
interest hereon will not constitute an indebtedness or a charge against the
general credit or taxing powers of the Issuer within the meaning of any
constitutional provision or statutory limitation and shall never constitute nor
give rise to any pecuniary liability of the Issuer, but will be a limited
obligation of the Issuer payable solely from the revenues and other funds
pledged therefor and will not be payable from any assets or funds of the Issuer
other than the revenues and other funds pledged therefor, and neither the faith
and credit nor the taxing power of the State or any political subdivision or any
agency thereof is pledged to the payment of the principal of or the interest on
this Bond.

     This Bond is one of the Bonds of a duly authorized issue of variable rate
industrial revenue bonds of the Issuer in the aggregate original principal
amount of $7,500,000 and designated "Village of Walden Industrial Development
Agency Industrial Development Revenue Refunding Bonds (Spence Engineering
Company Project), Series 1994" (the "Bonds").

     The Bonds are being issued for the purpose of refunding in whole the
outstanding principal amount of the Village of Walden Industrial Development
Agency Industrial Development Revenue Bonds (Spence Engineering Company Project)
Series 1984 in the original aggregate principal amount of $7,500,000 (the "Prior
Bonds"), the proceeds of which were used to finance, in whole or in part, the
cost of acquiring, constructing and installing a certain project in Walden, New
York owned and operated by the Company (the "Project").

     This Bond is issued under and pursuant to a Trust Indenture dated as of
June 1, 1994 (said Trust Indenture, together with all such supplements and
amendments thereto as therein permitted, being herein called the "Indenture"),
by and between the Issuer and The First National Bank of Boston, as trustee
(said banking institution and any successor trustee or co-trustee under the
Indenture being herein called the "Trustee"). An executed counterpart of the
Indenture is on file at the principal corporate trust office of the Trustee.
Reference is hereby made to the Indenture for

<PAGE>

the provisions, among others, with respect to the custody and application of the
proceeds of the Bonds; the collection and disposition of revenues; a description
of the funds charged with and pledged to the payment of the principal of and
interest on and any other amounts payable under the Bonds; the nature and extent
of the security; the terms and conditions under which the Bonds are or may be
issued; and the rights, duties and obligations of the Issuer and of the Trustee
and the rights of the owners of the Bonds, and, by the acceptance of this Bond,
the owner hereof assents to all of the provisions of the Indenture.

     The Issuer has entered into a Sale Agreement dated as of June 1, 1994
(herein called the "Sale Agreement"), with Spence Engineering Company, Inc., a
Delaware corporation (herein called the "Company"), under which the Issuer has
agreed to sell Company the project as described in the Sale Agreement, and in
consideration and as evidence of the sale, the Company has agreed to issue its
promissory note (herein called the "Note") in the principal amount, payable in
installments, bearing interest at a rate or rates and payable at times
corresponding to the principal amount of, installments of principal of, interest
rates on and due dates of the Bonds. The Sale Agreement also provides for the
payment by the Company of certain fees and expenses of the Issuer and the
Trustee, and the Sale Agreement further obligates the Company (a) to pay the
cost of maintaining the Project in good repair in all material respects and
keeping the same properly insured and (b) to maintain a Credit Facility (as
hereinafter defined) during the period of time the Bonds bear interest at the
Variable Rate (herein called the "Variable Rate Period").

     As security for the payment of the Bonds, all right, title and interest of
the Issuer in (a) the Sale Agreement (except certain rights reserved by the
Issuer under the terms of the Indenture), together with the Sale Agreement, (b)
the Pledged Revenues, and (c) all amounts on deposit from time to time in the
Bond Fund (defined in the Indenture), but excluding any amounts on deposit in
the "Rebate Account" (defined in the Indenture), have been assigned to the
Trustee under the Indenture and pledged to the payment of the principal of, and
the redemption premium (if any) and the interest on, the Bonds. The Issuer shall
not be vested with any interest in the Project by virtue of the issuance of the
Bonds, and the Project shall not otherwise constitute any part of the security
for the payment of the Bonds.

     Reference to the Indenture is hereby made for a description of the
aforesaid Bond Fund which is charged with, and pledged to, the payment of the
principal of, and the redemption premium (if any) and the interest on, the
Bonds, the nature and extent of the security, the rights, duties and obligations
of the Issuer, the Company and the Trustee, the rights of the owners of the
Bonds, the terms and conditions under and upon the occurrence of which the
Indenture and the Sale Agreement may be modified and the terms and conditions
under and upon the occurrence of which the lien of the Indenture may be defeased
as to this Bond prior to the maturity or redemption date hereof, to all of the
provisions of which the owner hereof, by the acceptance of this Bond, assents.

     Credit Facility. The Company has entered into a Letter of Credit,
Reimbursement and Guaranty Agreement dated as of June 1, 1994 (herein called the
"Reimbursement Agreement") by and among the Company, Watts Industries, Inc, as
guarantor and First Union National Bank of North Carolina (in such capacity,
herein called the "Bank").

<PAGE>

     Pursuant to the Reimbursement Agreement, the Company has caused a Letter of
Credit issued by the Bank (herein called the "Letter of Credit"; such Letter of
Credit and any extensions or renewals thereof or any amendment thereto and any
Alternate Credit Facility (as hereinafter defined) referred to herein as the
"Credit Facility"), to be delivered to the Trustee. The Trustee will be entitled
under the Letter of Credit to draw up to an amount of $7,875,000, of which (a)
$7,500,000 will be available for the payment of principal or that portion of the
purchase price corresponding to principal of the Bonds and (b) 375,000 will
support the payment of up to one hundred twenty (120) days' interest or that
portion of the purchase price corresponding to interest on the Bonds at a
maximum rate of fifteen percent (15%) per annum. Subject to the provisions of
the Indenture, the Company is required during the Variable Rate Period to
provide an alternate credit facility with terms and provisions substantially the
same as those of the Letter of Credit (an "Alternate Credit Facility") prior to
the termination of Letter of Credit. During the Variable Rate Period unless the
Letter of Credit or the then current Alternate Credit Facility is replaced prior
to its expiration in accordance with the terms of the Indenture, this Bond will
become subject to mandatory redemption as provided in the Indenture.

     Source of Funds. The principal of, premium, if any, and interest on the
Bonds are payable solely from payments on the Note, under the Sale Agreement and
from any other moneys held by the Trustee under the Indenture for such purpose,
including, with respect to principal and interest only, moneys drawn by the
Trustee under the Letter of Credit or Alternate Credit Facility for the benefit
of the Bondholders (the Bank as the issuer of the Letter of Credit and the
institution issuing any Alternate Credit Facility are herein called the "Credit
Facility Issuer"). Except as otherwise specified in the Indenture, this Bond is
entitled to the benefits of the Indenture equally and ratably both as to
principal (and redemption and purchase price) and interest with all other Bonds
issued under the Indenture.

                                 INTEREST RATES

     Initial Interest Rate.

     The Bonds will bear interest from the Original Delivery Date to June 22,
1994 at the Initial Interest Rate.

     Variable Rate.

     After June 22, 1994, prior to (and including) the Conversion Date
(hereinafter defined), the Bonds will bear interest at a rate equal to a
floating rate established as hereinafter provided (herein called the "Variable
Rate"). The Variable Rate will be equal to the rate of interest certified to the
Trustee by First Union National Bank of North Carolina as remarketing agent for
the Bonds (herein, with its successors in such capacity, called the "Remarketing
Agent") on and as of each Wednesday (or the next succeeding Business Day (as
defined in the Indenture) if such Wednesday is not a Business Day) (herein
called the "Determination Date") as the minimum rate of interest necessary, in
the judgment of the Remarketing Agent taking into account market conditions
prevailing on the Determination Date, to enable the Remarketing Agent to arrange
for the sale of all of the Bonds on the Determination Date in the secondary
market at a

<PAGE>

price equal to the principal amount thereof (plus interest accrued to the date
of settlement). If the Remarketing Agent fails to certify such rate, the
Variable Rate for the next Calculation Period or Periods (hereinafter defined)
until thereafter certified by the Remarketing Agent will remain the same as that
most recently established and certified by the Remarketing Agent. In the event
the Remarketing Agent fails to certify such rate for four (4) consecutive
Calculation Periods, the rate for each Calculation Period thereafter (if none is
certified by the Remarketing Agent) will be ninety percent (90%) of the yield
for United States Treasury bills maturing approximately thirty (30) days after
the Determination Date as published by The Wall Street Journal on such
Determination Date (or, if The Wall Street Journal is no longer published, then
any reasonably equivalent financial publication selected by the Remarketing
Agent) (or the next preceding Business Day on which The Wall Street Journal is
published if not published on the Determination Date). For purposes hereof,
"Calculation Period" shall mean the period from and including the day following
the Determination Date of each week (even if not a Business Day) to and
including the following Determination Date; provided that if during the Variable
Period the Determination Date at the end of such Calculation Period is a Regular
Record Date, such Calculation Period will extend until the Business Day
following such Determination Date. If, for any reason, the Variable Rate is not
determined as described above or is held to be invalid or unenforceable by a
court of competent jurisdiction for any period, the interest rate for each such
period will be equal to eight percent (8.00%) per annum. Notwithstanding
anything to the contrary contained herein or in the Indenture, the Variable Rate
will not be a rate of interest in excess of fifteen percent (15.00%) per annum.
Interest prior to the Conversion Date (hereinafter defined) will be computed on
the basis of a three hundred sixty-five (365) or three hundred sixty-six (366)
day year, as applicable, for the number of days actually elapsed, and will be
payable on each Interest Payment Date.

     Fixed Rate.

     (a) The interest rate on this Bond will be converted to the Fixed Rate upon
an election by the Company pursuant to the Indenture to convert the rate of
interest on all Bonds then outstanding from the Variable Rate to the Fixed Rate
upon satisfaction of certain conditions and notice given by the Company and by
the Trustee in accordance with the requirements of the Indenture, and the Bonds
shall be subject to mandatory tender for purchase by the owners thereof on the
Conversion Date, which shall be an Interest Payment Date. On and after the
Conversion Date the owners of the Bonds will not be entitled to tender Bonds for
purchase. On or before the Conversion Date, the Placement Agent will determine
the Fixed Rate in the manner described in subsection (c) below, and will
promptly notify the Company and the Trustee of the Fixed Rate.

     (b) At least twenty (20) but not more than thirty (30) days prior to the
Conversion Date, a notice will be mailed by the Trustee to each registered owner
of Bonds stating, among other things, (1) the Conversion Date, (2) the name and
address of the placement agent which has agreed to use its best efforts to
arrange for the sale of any Bonds to be tendered or deemed tendered for purchase
on the Conversion Date (herein called the "Placement Agent"), (3) that after the
seventeenth (17th) day preceding the Conversion Date, the owner will not be
entitled to deliver an Optional Tender Notice and that after the tenth (10th)
day preceding the Conversion Date, the owner will not be entitled to tender this
Bond for purchase as

<PAGE>

described below, (4) that this Bond will be deemed tendered for purchase on the
Conversion Date, (5) that in order to receive payment of the purchase price of
any Bond which is deemed to have been tendered, the registered owner of such
Bond must deliver such Bond to the office of the Tender Agent before 10 a.m.
Eastern time on the Conversion Date, and (6) that interest on any Bond will be
payable only to (but not including) the Conversion Date.

     Any Bonds not so tendered on the Conversion Date ("Undelivered Bonds"), for
which there has been irrevocably deposited in trust with the Trustee an amount
of moneys sufficient to pay the purchase price of the Undelivered Bonds, shall
be deemed to have been tendered and purchased at the purchase price. IN THE
EVENT OF A FAILURE BY AN OWNER OF BONDS TO TENDER ITS BONDS ON OR PRIOR TO THE
CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY
INTEREST TO ACCRUE SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE
PRICE FOR SUCH UNTENDERED BONDS, AND ANY UNTENDERED BONDS SHALL NO LONGER BE
ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF
THE PURCHASE PRICE THEREFOR.

     (c) Upon the Conversion Date stated in such notice, the Fixed Rate to be
borne by the Bonds for the period beginning on the Conversion Date and ending on
the Maturity Date or prior redemption of the Bonds (the "Fixed Rate"), will be
the interest rate per annum which, in the sole judgment of the Placement Agent,
taking into account prevailing financial market conditions, would be the minimum
interest rate required to sell such Bonds on the Conversion Date at a price
equal to 100% of the principal amount thereof. The Fixed Rate shall be
determined by the Placement Agent on or before the Conversion Date, and the
Placement Agent shall notify the Trustee and the Company thereof by telephone or
such other manner as may be appropriate by not later than 2:00 p.m., Eastern
time on such date, which notice shall be promptly confirmed in writing.

     (d) If, for any reason, the Fixed Rate is held to be invalid or
unenforceable by a court of competent jurisdiction, the Fixed Rate will be eight
percent (8.00%) per annum. Notwithstanding anything to the contrary contained
herein or in the Indenture, the Fixed Rate will not be a rate of interest in
excess of fifteen percent (15.00%) per annum.

     (e) The Fixed Rate will be computed on the basis of a three hundred sixty
(360)-day year, computed for the actual number of days elapsed, and will be
payable on each Interest Payment Date after the Conversion Date until the
principal of, and premium, if any, and interest on the Bonds shall have been
paid in full.

     Interest Rate Determination Binding.

     The determination of the interest rate on the Bonds by the Remarketing
Agent or Placement Agent, as appropriate, in accordance with the terms of the
Indenture will be conclusive and binding upon the registered owners of the
Bonds, the Issuer, the Company, the Trustee, the Remarketing Agent, the
Placement Agent, the Tender Agent and the Credit Facility Issuer.

                               REDEMPTION OF BONDS

     Optional Redemption.

<PAGE>

     (a) While the Bonds bear interest at the Variable Rate, the Bonds will be
subject to redemption upon the written direction of the Issuer, given at the
request of the Company, on any Interest Payment Date and on the Conversion Date,
in whole or in part, at a redemption price equal to one hundred percent (100%)
of the principal amount thereof without premium plus interest accrued to the
redemption date.

     (b) While the Bonds bear interest at the Fixed Rate, the Bonds will be
subject to redemption upon the written direction of the Issuer, given at the
request of the Company, in whole or in part, on any Interest Payment Date
occurring on or after the dates set forth below, at the redemption prices (with
a premium expressed as a percentage of principal amount to be redeemed) set
forth below plus interest accrued to the redemption date as follows:

         Commencement of
         Redemption Period          Redemption Price

         The Business Day four      103%, declining by 1/2% on each
         (4) years from the         succeeding anniversary of the first
         Conversion Date            day of the redemption period until
                                    reaching 100% and thereafter at 100%

     (c) The Bonds will be subject to redemption upon the written direction of
the Issuer, given at the request of the Company, at any time in whole or in part
at a redemption price equal to one hundred percent (100%) of the principal
amount thereof plus interest accrued to the redemption date in the event of
damage, destruction or condemnation of the Project, all as more fully described
in Section 701(b) of the Indenture.

     Mandatory Redemption.

     (a) The Bonds will be subject to mandatory redemption in whole on any date
at a redemption price equal to one hundred percent (100%) of the principal
amount thereof plus accrued interest to the redemption date within one hundred
eighty (180) days after receipt by the Trustee of a written notice of a
Determination of Taxability (as defined in the Sale Agreement).

     (b) During the Variable Rate Period, the Bonds will be subject to mandatory
redemption in whole on the Interest Payment Date occurring closest to but not
after fifteen (15) days prior to the date of expiration of the then current
Credit Facility unless prior to such date an Alternate Credit Facility has been
provided in accordance with the Indenture, at a redemption price or purchase
price equal to one hundred percent (100%) of the principal amount thereof,
without premium, plus interest accrued to the redemption date.

     Notice of Redemption and Selection of Bonds.

     Any notice of redemption, identifying the Bonds or portions thereof to be
redeemed, will be given not more than sixty (60) days and not less than twenty
(20) days prior to the redemption date, by mailing a copy of the redemption
notice by first class mail to the owner of each Bond to be redeemed in whole or
in part at the address shown on the Bond Register maintained by the Bond
Registrar. Notice of optional redemption may be conditioned upon the deposit of
moneys with the Trustee before the date

<PAGE>

fixed for redemption and such notice will be of no effect unless such moneys are
so deposited. All Bonds so called for redemption, including Bonds purchased by
the Company as provided in the Indenture but not yet surrendered for payment of
the purchase price, will cease to bear interest on the specified redemption date
provided funds for their redemption price and any accrued interest payable on
the specified redemption date are on deposit at the principal place of payment
at that time. If less than all the Bonds are to be redeemed, the particular
Bonds to be called for redemption will be selected in the following order of
priority: first, Bonds pledged to the Credit Facility Issuer; second, Bonds
owned by the Company and third, Bonds selected by any random or other method
determined by the Trustee in its sole discretion.

     Mandatory Purchase Upon Conversion to Fixed Rate.

     The Bonds will be subject to mandatory purchase in whole (and not in part)
on the Conversion Date at a purchase price equal to one hundred percent (100%)
of the principal amount thereof plus interest accrued thereon to the date of
purchase.

     THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES TO THE MANDATORY
PURCHASE OF THIS BOND AS PROVIDED IN THE INDENTURE, AND AGREES THAT THIS BOND
WILL BE PURCHASED ON THE DATE SPECIFIED UPON DEPOSIT WITH THE TRUSTEE OF AN
AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND ALSO
UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND,
PROPERLY ENDORSED FOR TRANSFER, TO THE TRUSTEE ON THE DATE SPECIFIED, INTEREST
WILL CEASE TO ACCRUE HEREON ON SUCH SPECIFIED DATE AND THE OWNER HEREOF WILL
THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE
BENEFIT OF THE INDENTURE.

     Purchase at Option of the Owner During Variable Rate Period.

     While the Bonds bear interest at the Variable Rate, any Bond or portion
thereof in an authorized denomination will be purchased on the demand of the
owner thereof, on any Business Day at a purchase price equal to one hundred
percent (100%) of the principal amount thereof plus interest accrued to the date
of purchase upon delivery to the Tender Agent of an Optional Tender Notice in
the form attached hereto as Exhibit A (herein called the "Optional Tender
Notice") specifying the date on which such Bond will be purchased, which date
will be a Business Day not prior to the seventh (7th) day after the date of
delivery of the Optional Tender Notice. To receive payment of the purchase
price, the owner will be required to deliver such Bond to the Tender Agent,
accompanied by an executed form of assignment and any other instruments of
transfer satisfactory to the Trustee, not less than five (5) days prior to the
purchase date specified in such notice as provided in the Indenture; provided,
however, that any owner which is an investment company registered pursuant to
the Investment Company Act of 1940 may deliver such Bond to the Tender Agent at
or prior to 10:00 a.m. on the date of purchase. No purchase of Bonds at the
option of the owner thereof or on the Conversion Date will be deemed to be a
payment or redemption of the Bonds or any portion thereof. Notwithstanding the
foregoing, no owner will have a right to tender its Bond(s) for purchase as
described in this paragraph following acceleration of the payment of the Bonds
pursuant to the terms of the Indenture or after the Conversion Date.

THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES THAT DELIVERY OF THE

<PAGE>

WRITTEN NOTICE DESCRIBED IN THE PRECEDING PARAGRAPH BY THE OWNER CONSTITUTES AN
IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED, AND THAT THIS BOND
WILL BE PURCHASED ON SUCH DATE UPON DEPOSIT WITH THE TENDER AGENT OF AN AMOUNT
SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND ALSO
UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND,
PROPERLY ENDORSED FOR TRANSFER, TO THE TENDER AGENT ON THE DATE SPECIFIED IN THE
NOTICE, THIS BOND WILL BE HELD BY THE OWNER AS AGENT FOR THE COMPANY, INTEREST
WILL CEASE TO ACCRUE HEREON AS OF THE DATE SPECIFIED IN THE NOTICE AND THE OWNER
HEREOF WILL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT
TO THE BENEFITS OF THE INDENTURE AND THE ISSUER WILL, TO THE EXTENT PERMITTED BY
LAW, EXECUTE AND THE TRUSTEE WILL AUTHENTICATE AND DELIVER A SUBSTITUTE BOND IN
LIEU OF THE UNDELIVERED BOND.

     Tender Agent.

     The Issuer has appointed The First National Bank of Boston as Tender Agent.
The Tender Agent may be changed at any time by the Company with the consent of
the Trustee.

     Authorized Denominations.

     Subject to the provisions of the Indenture, the Bonds are issuable as
registered Bonds in the denomination of One Hundred Thousand Dollars ($100,000)
or any integral multiple of $5,000 in excess thereof; provided that if less than
$100,000 in principal amount of Bonds is Outstanding, one Bond shall be issued
in such smaller denomination; and provided further, that subsequent to the
initial issuance of the Bonds, replacement or substitution Bonds or Bonds issued
in exchange in accordance with the provisions of Section 205 of the Indenture
may be issued in denominations of $5,000 or integral multiples thereof. Subject
to the limitations provided in the Indenture and upon payment of any tax or
governmental charge, if any, Bonds may be exchanged for a like aggregate
principal amount of Bonds of other authorized denominations.

     Transfer.

     This Bond is transferable by the registered owner hereof or his duly
authorized attorney at the principal corporate trust office of The First
National Bank of Boston, as Bond Registrar, in Canton, Massachusetts, in
compliance with the terms and conditions set forth in the Indenture and upon
surrender of this Bond, provided that transfers in connection with the
remarketing hereof will be made at the corporate trust office of the Trustee in
Canton, Massachusetts, accompanied by a duly executed instrument of transfer in
form satisfactory to the Bond Registrar, subject to such reasonable regulations
as the Issuer, the Bond Registrar or the Trustee may prescribe and upon payment
of any tax or other governmental charge incident to such transfer, PROVIDED THAT
IF MONEYS FOR THE PURCHASE OF THIS BOND HAVE BEEN PROVIDED PURSUANT TO A DRAW
UNDER THE CREDIT FACILITY, THIS BOND IS NOT TRANSFERABLE TO ANYONE OTHER THAN
THE COMPANY OR ITS ASSIGNEE OR PLEDGEE. Upon any such transfer, the Trustee
shall cause a new Bond or Bonds registered in the name of the transferee or
transferees in denominations authorized by the Indenture and in the same
aggregate principal amount as the principal amount of this Bond (and of the same
maturity and bearing interest at the same rate) will be issued to the
transferee. Except as set forth in this Bond and as otherwise provided in the
Indenture, the person in whose name this Bond is registered will be

<PAGE>

deemed the owner hereof for all purposes, and the Issuer, the Bond Registrar and
the Trustee will not be affected by any notice to the contrary.

     The owner of this Bond will have no right to enforce the provisions of the
Indenture or to institute action to enforce the covenants therein, or to take
any action with respect to any Event of Default under the Indenture or to
institute, appear in or defend any suit or other proceeding with respect
thereto, except as provided in the Indenture.

     In certain events, on the conditions, in the manner and with the effect set
forth in the Indenture, the principal of this Bond may become or may be declared
due and payable before the stated maturity hereof, together with the interest
accrued hereon.

     Modifications or alterations of the Sale Agreement and the Indenture and
any supplement or amendment thereto may be made only to the extent and in the
circumstances permitted by the Indenture and may be made in certain cases
without the consent of the owners of the Bonds.

     Anything herein or in the Indenture to the contrary notwithstanding, the
obligations of the Issuer hereunder will be subject to the limitation that
payment of interest to the owner of this Bond will not be required to the extent
that receipt of any such payment by the owner of this Bond would be contrary to
the provisions of law applicable to such Bond which limits the maximum rate of
interest which may be charged or collected by such owner.

     In any case where the date of maturity of interest on or principal of the
Bonds or the date fixed for redemption of the Bonds shall be in the city of
payment a day other than a Business Day, then payment of interest or principal
need not be made on such date but may be made 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, provided that interest will accrue for the period of
any such extension.

     This Bond will be governed by and construed in accordance with the laws of
the State of New York.

     All acts, conditions and things required to happen, exist and be performed
precedent to and in the issuance of this Bond and the execution of the Indenture
have happened, exist and have been performed as so required.

     IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed with the
manual or facsimile signature of the Chairman or Vice Chairman of the Issuer,
its official seal to be impressed or imprinted hereon and the same to be
attested by the manual or facsimile signature of the Secretary or Assistant
Secretary of the Issuer, all as of __________ ___, 1994.

                                    Village of Walden Industrial Development
                                    Agency

                                    By:
                                        Chairman

<PAGE>

(Seal)

Attest:

By:
    Secretary

                                    * * * * *

                          CERTIFICATE OF AUTHENTICATION

     This Bond is one of the Bonds of the series designated therein and issued
under the provisions of the within-mentioned Indenture.

                                    The First National Bank of Boston, as
                                       Trustee

                                    By:
                                       Its:  Authorized Signatory

Date of Authentication: __________ ___, 1994

                                    * * * * *

                               [FORM OF ASSIGNMENT
                          TO APPEAR ON REVERSE OF BOND]

                               FORM OF ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

the within bond of the _______________________________ and does hereby
constitute and appoint _________________ ______________ attorney to transfer the
said bond on the books of the within named Issuer, with full power of
substitution in the premises.

Dated:

In the presence of:

                                   Bondholder

Signature Guaranteed:

                              [End of Form of Bond]

<PAGE>

; and

     NOW, THEREFORE, 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 Bondholders, and also for and in consideration of the sum of One
Dollar to the Issuer in hand paid by the Trustee at or before the execution and
delivery of this 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, delivered, secured and accepted by the Bondholders and
any and all other persons who shall from time to time be or become owners
thereof, and in order to secure the payment of the Bonds at any time issued and
outstanding hereunder and the interest 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 and herein contained;

     THE ISSUER DOES HEREBY PLEDGE AND ASSIGN, and grant a security interest
unto the Trustee and its successors and assigns for the benefit of the owners of
the Bonds all right, title and interest of the Issuer presently owned or
hereafter acquired in and to the following (collectively, the "Trust Estate"):

          (a) The Sale Agreement (as the same may from time to time be
     supplemented or amended), including, but not limited to, all payments or
     installment purchase obligations due and to become due under the Note and
     the Sale Agreement whether made at their respective due dates or as
     prepayments permitted or required by the Sale Agreement together with full
     power and authority, in the name of the Issuer or otherwise, to demand,
     receive, enforce, collect or receipt for any or all of the foregoing, to
     endorse or execute any checks or other instruments or orders, to file any
     claims and to take any action which the Trustee may deem necessary or
     advisable in connection therewith, and the Issuer hereby irrevocably
     appoints the Trustee attorney-in-fact of the Issuer for such purposes,
     which appointment is coupled with an interest and is irrevocable; provided,
     however, that the Issuer shall continue to have all the rights, together
     with the Trustee, contained in the following sections of the Sale
     Agreement:

             (i) Section 7.1 (pertaining to the Issuer's right of access to the
          Project (as defined in the Sale Agreement));

            (ii) Section 7.3 (pertaining to the Issuer's right to receive
          payment for certain costs and expenses);

           (iii) Section 7.6 (pertaining to the Issuer's right to

<PAGE>

          certain indemnities);

            (iv) Section 7.7 (pertaining to the Issuer's right to release and
          indemnification);

             (v) Section 7.8 (pertaining to the Issuer's right to receive
          certain information);

            (vi) Section 8.1 (pertaining to the Issuer's right to consent or
          withhold consent to assignment of rights of the Company under the Sale
          Agreement or lease or sale of the Project);

           (vii) Sections 9.3 and 9.5 (pertaining to the Issuer's right to
          reimbursement of expenses incurred upon a default);

          (viii) Sections 10.1(c), 10.2 and 10.3 (pertaining to the Issuer's
          right to notice of prepayments and rights upon the occurrence of
          certain events;

            (ix) Section 12.5 (pertaining to the Issuer's right to receive
          notices); and

             (x) Sections 12.12, 12.13 and 12.14 (pertaining to the limitations
          on the liability of the Issuer).

          (b) The Note of even date herewith of the Company to the Issuer in the
     original principal amount of $7,500,000 evidencing the Company's obligation
     to pay the purchase price pursuant to the Sale Agreement, together with
     interest thereon and other amounts with respect thereto, as provided for in
     the Sale Agreement, the Issuer having on this date endorsed, pledged and
     assigned the Note without recourse to the order of, and delivered the same
     to, the Trustee as security for the obligations of the Issuer to the
     Trustee hereinafter referred to.

          (c) All money or securities at any time on deposit in, in transit to
     or credited to any account or Fund created hereunder, including without
     limitation the Bond Fund but excluding the Rebate Fund;

          (d) Revenues (as hereinafter defined);

and it is so mutually agreed and covenanted by and between the parties hereto
for the equal and proportionate benefit and security of the Bondholders without
preference, priority or distinction as to lien or otherwise, except as
hereinafter provided, of any one Bond over any other Bond, by reason of priority
in the issue, sale or negotiation thereof or otherwise, for the benefit of the
Bondholders and as security for the fulfillment of the obligations of the Issuer
hereunder;

     TO HAVE AND TO HOLD the same forever, subject, however, to the exceptions,
reservations and matters therein and herein recited but IN TRUST, nevertheless,
for the benefit and security of the owners from time to time of the Bonds
delivered hereunder and issued by the Issuer and outstanding or, to the extent
set forth herein, for the benefit of the

<PAGE>

Credit Facility Issuer, so long as a Credit Facility is in place in respect of
the Bonds;

     PROVIDED, HOWEVER, that if, after the right, title and interest of the
Trustee in and to the Trust Estate pledged and assigned to it under this
Indenture shall have ceased, terminated and become void in accordance with
Article XIV hereof, the principal of and interest on the Bonds and any other
obligations arising hereunder shall have been paid to the Bondholders or shall
have been paid by the Company pursuant to Article XIV hereof, then, this
Indenture and all covenants, agreements and other obligations of the Issuer
hereunder shall cease, terminate and be void, and thereupon the Trustee shall
cancel and discharge this Indenture and execute and deliver to the Issuer and
the Company such instruments in writing as shall be required to evidence the
discharge hereof; otherwise, this Indenture shall be and remain in full force
and effect.

     THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that the
Bonds issued and secured hereunder are to be issued and delivered and the trust
estate and other revenues and funds herein pledged and assigned are to be dealt
with and disposed of under, upon and subject to the terms, conditions,
stipulations, covenants, agreements, trusts, uses and purposes as hereinafter
expressed, and the Issuer has agreed and covenanted, and does hereby agree and
covenant, with the Trustee and with the owners of said Bonds, as follows, that
is to say:

                                    ARTICLE I

                      DEFINITIONS AND RULES OF CONSTRUCTION

     Section 101.   Definitions.

     All words and terms defined in Article I of the Sale Agreement shall have
the same meanings in this Indenture, unless otherwise specifically defined
herein. In addition, the following words and terms as used in this Indenture
shall have the following meanings unless some other meaning is plainly intended:

     "Act" shall mean all applicable provisions of the Constitution and laws of
the State of New York, including without limitation Chapter 1030 of the Laws of
1969 of the State, constituting Title 1 of Article 18-A of the General Municipal
Law of the State, as amended from time to time, together with Chapter 632 of the
Laws of 1977 of the State, constituting Section 925-a of the General Municipal
Law of the State, as amended from time to time.

     "Alternate Credit Facility" shall mean an irrevocable direct pay letter of
credit, insurance policy or similar credit enhancement or support facility for
the benefit of the Trustee, the terms of which Alternate Credit Facility shall,
in all respects material to the Bondholders, be the same (except for the term of
such Alternate Credit Facility) as the Credit Facility that is replaced by such
Alternate Credit Facility as set forth in Section 603 hereof.

     "Authenticating Agent" shall mean the Trustee and any agent so appointed
pursuant to Section 207 hereof.

<PAGE>

     "Available Moneys" shall mean:

          (a) any moneys which have been paid to the Trustee by the Company and
     which have been on deposit with the Trustee for at least three hundred
     sixty-seven (367) days during and prior to which no Event of Bankruptcy
     shall have occurred, and the proceeds from the investment of such moneys
     after such moneys have become Available Moneys, and

          (b) moneys on deposit with the Trustee representing proceeds from the
     resale by the Remarketing Agent of Bonds to persons other than the Issuer
     or the Company as described in Article III hereof, which, in each case,
     were at all times since their deposit with the Trustee held in a separate
     and segregated account or accounts or sub-account or sub-accounts in which
     no moneys were which were not Available Moneys were at any time held, and
     the proceeds from the investment thereof, and

          (c) moneys drawn under a Credit Facility which in each case were at
     all times since their deposit with the Trustee held in a separate and
     segregated account or accounts or sub-account or sub-accounts in which no
     moneys (other than those drawn under a Credit Facility) were at any time
     held.

     "Bank" shall mean First Union National Bank of North Carolina as the issuer
of the Letter of Credit, and its successors and assigns.

     "Bank Account" shall mean the account of that name established in the Bond
Purchase Fund pursuant to Section 302 hereof.

     "Bond" or "Bonds" shall mean any bond or bonds authenticated and delivered
under this Indenture.

     "Bond Counsel" shall mean an attorney-at-law or a firm of attorneys of
nationally recognized standing in matters pertaining to the tax-exempt nature of
interest on bonds issued by states and their political subdivisions, duly
admitted to the practice of law before the highest court of any state of the
United States of America and approved by the Issuer.

     "Bond Fund" shall mean the trust fund so designated which is established
pursuant to Section 502(a) hereof.

     "Bond Purchase Fund" shall mean the trust fund so designated which is
established pursuant to Section 302 hereof.

     "Bond Register" shall have the meaning provided in Section 204 hereof.

     "Bond Registrar" shall mean the Bond Registrar as designated in Section 204
hereof.

     "Bondholder" or "Bondholders" or "owner" or "owners" shall mean the initial
owner or owners and any future owner or owners of the Bond or Bonds as
registered on the books and records of the Bond Registrar pursuant to Section
204 hereof.

     "Business Day" shall mean a day upon which banks in the State and in the
States of Massachusetts and North Carolina are open for the transaction

<PAGE>

of business of the nature required pursuant to the Sale Agreement and this
Indenture.

     "Calculation Period" shall mean the period from and including the day
following the Determination Date of each week (even if not a Business Day) to
and including the following Determination Date; provided, that if the
Determination Date at the end of a Calculation Period is a Regular Record Date,
such Calculation Period will extend until the Business Day following such
Determination Date.

     "Company" shall mean Spence Engineering Company, Inc., a Delaware
corporation, and its successor or assigns and any surviving, resulting or
transferee corporation or other entity.

     "Conversion Date" shall mean that Business Day elected by the Company in
accordance with Section 202(e) of the Indenture as the effective date of
conversion of the interest rate on the Bonds from the Variable Rate to the Fixed
Rate, which date shall be an Interest Payment Date.

     "Counsel" shall mean an attorney or firm of attorneys acceptable to the
Trustee (who may, but need not be, counsel to the Issuer or the Company).

     "Credit Facility" shall mean the Letter of Credit or any Alternate Credit
Facility delivered to the Trustee pursuant to Article VI hereof.

     "Credit Facility Account" shall mean the account of that name established
in the Bond Fund pursuant to Section 502 hereof.

     "Credit Facility Issuer" shall mean the Bank with respect to the Letter of
Credit and the institution issuing any Alternate Credit Facility.

     "Defaulted Interest" has the meaning provided in Section 208 hereof.

     "Determination Date" shall mean Wednesday of each week or if Wednesday is
not a Business Day then the next succeeding Business Day.

     "Event of Bankruptcy" shall mean a petition by or against the Company or
the Issuer under any bankruptcy act or under any similar act which may be
enacted which shall have been filed (other than bankruptcy proceedings
instituted by the Company or the Issuer against third parties) unless such
petition shall have been dismissed and such dismissal shall be final and not
subject to appeal.

     "Event of Default" shall mean any of the events specified in Section 901
hereof to be an Event of Default.

     "Fixed Rate" shall mean the fixed annual rate of interest on the bonds
determined by the Placement Agent pursuant to Section 202(e) hereof. If, for any
reason, the Fixed Rate is held to be invalid or unenforceable by a court of
competent jurisdiction, the Fixed Rate shall be equal to eight percent (8.00%)
per annum. The Fixed Rate shall in no event exceed fifteen percent (15.00%).

     "Fixed Rate Period" shall mean the period during which the Fixed Rate is in
effect, which shall be the period beginning on the Conversion Date and ending on
the Maturity Date.

<PAGE>

     "Governmental Obligations" shall mean:

        (i) direct obligations of the United States of America for the full and
timely payment of which the full faith and credit of the United States of
America is pledged,

       (ii) obligations issued by a Person controlled or supervised by and
acting as an instrumentality of the United States of America, the full and
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation of the United States of America, and

      (iii) securities or receipts evidencing ownership interests in obligations
or specified portions (such as principal or interest) of obligations described
in clause (i) or (ii) above the full and timely payment of which securities,
receipts or obligations is unconditionally guaranteed by the United States of
America, which obligations, securities or receipts are not subject to redemption
prior to maturity at less than par at the option of anyone other than the holder
thereof.

     "Indenture" shall mean this Indenture as amended or supplemented at the
time in question.

     "Initial Interest Rate" shall mean the initial rate of interest of 2.75%
per annum on the Bonds.

     "Initial Rate Period" shall mean from and including the Original Delivery
Date to and including June 22, 1994.

     "Interest Payment Date" shall mean the first Business Day of each March,
June, September and December commencing on the first Business Day of September,
1994, and ending on the Maturity Date of the Bonds.

     "Investment Obligations" shall mean:

          (a) any Government Obligations;

          (b) any bonds or other obligations of the United States of America
     which as to principal and interest constitute direct obligations of the
     United States of America, or any obligations of subsidiary corporations of
     the United States of America fully guaranteed as to payment by the United
     States of America;

          (c) obligations of the Federal Land Bank;

          (d) obligations of the Federal Home Loan Bank;

          (e) obligations of the Federal Intermediate Credit Bank;

          (f) bonds or obligations issued by any public housing agency or
     municipal corporation in the United States of America, which such bonds or
     obligations are fully secured as to the payment of both principal and
     interest by a pledge of annual contributions under an annual contributions
     contract or contracts with the United States government, or project notes
     issued by any public housing agency, urban renewal agency, or municipal
     corporation in the United States of America which are fully secured as to
     payment of both principal and

<PAGE>

     interest by a requisition, loan, or payment agreement with the United
     States government;

          (g) interest-bearing savings accounts (including that of the Trustee),
     interest-bearing certificates of deposit or interest-bearing time deposits
     or any other investments constituting direct obligations of any bank which
     has deposits insured by the Federal Deposit Insurance Corporation; provided
     that such accounts, certificates of deposits, time deposits, or investments
     are either (a) insured by the Federal Deposit Insurance Corporation, or (b)
     secured by the deposit with any national or state bank located within the
     State of any Government Obligation;

          (h) short term obligations of corporations organized under the laws of
     any state with assets exceeding $500,000,000 if (i) such obligations are
     rated within the two (2) highest categories established by Moody's and S&P
     and which mature no later than one hundred eighty (180) days from the date
     of purchase and (ii) the purchases do not exceed ten (10%) percent of such
     corporation's outstanding obligations;

          (i) money market mutual funds registered under the Investment Company
     Act of 1940, as amended, provided that the portfolio of any such money
     market fund is limited to Government Obligations and to agreements to
     purchase Government Obligations; and

          (j) repurchase agreements with respect to obligations included in
     subsections (a) through (i) above and any other investments to the extent
     at the time permitted by then applicable law for the investment of public
     funds.

     "Issuer" shall mean the Village of Walden Industrial Development Agency, a
corporate governmental agency, constituting a public benefit corporation and
existing pursuant to the constitution and laws of the State including the Act.

     "Letter of Credit" shall mean the irrevocable direct pay letter of credit
dated June 17, 1994, in the amount of $7,875,000, issued by the Bank, including
any extensions thereof.

     "Sale Agreement" shall mean the Sale Agreement of even date herewith
between the Issuer and the Company and any amendments or supplements thereof
permitted by this Indenture.

     "Majority of the Bondholders" shall mean the owners of a majority of the
aggregate principal amount of the Outstanding Bonds.

     "Maturity Date" shall mean the first Business Day of December, 2006.

     "Moody's" shall mean Moody's Investors Service, Inc. a Delaware
corporation, its successors and 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 Trustee, with the consent
of the Company and the Credit Facility Issuer.

     "Note" shall mean the promissory note given by the Company pursuant

<PAGE>

the provisions of the Sale Agreement, substantially in the form attached
thereto.

     "Optional Tender Notice" shall mean a notice from the owner of a Bond to
the Tender Agent in the form attached to the Bond as Exhibit A.

     "Original Delivery Date" shall mean June 17, 1994.

     "Outstanding" in connection with Bonds shall mean, as of the time in
question, all Bonds authenticated and delivered under the Indenture, except:

        (i) Bonds theretofore canceled or required to be cancelled under Section
     212 hereof;

       (ii) Bonds which are deemed to have been paid in accordance with Article
     XIV hereof; and

      (iii) Bonds in substitution for which other Bonds have been authenticated
     and delivered pursuant to Article II hereof.

In determining whether the owners of a requisite aggregate principal amount of
Bonds Outstanding have concurred in any request, demand, authorization,
direction, notice, consent or waiver under the provisions hereof, Bonds which
are held by or on behalf of the Company (unless all of the outstanding Bonds are
then owned by the Company) or an Affiliate of the Company (as defined below)
shall be disregarded for the purpose of any such determination. For the purpose
of this paragraph, an "Affiliate" of any specified entity shall mean any other
entity directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified entity and "control", when used with
respect to any specific entity, shall mean the power to direct the management
and policies of such entity, 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.

     "Payments Account" shall mean the account of that name established in the
Bond Fund pursuant to Section 502 hereof.

     "Placement Agent" shall mean the securities dealer, bank or trust company
which is designated by the Company with the consent of the Credit Facility
Issuer and which will agree to establish the Preliminary Fixed Rate and to use
its best efforts to arrange for the sale of Tendered Bonds on the Conversion
Date, all as more particularly described in Section 202(e) hereof.

     "Pledge Agreement" shall mean the Pledge Agreement of even date herewith by
the Company to the Bank, and any amendments or supplements thereof.

     "Pledged Revenues" means and shall include the payments required to be made
by the Company under the Sale Agreement except payments to be made to the
Trustee for services rendered as Trustee under the Indenture and as Bond
Registrar and paying agent for the Bonds and except for expenses,
indemnification and other payments required to be made pursuant to Sections 7.5
and 7.6 of the Sale Agreement.

<PAGE>

     "Principal Office" of the Trustee or Bond Registrar shall mean the office
at which, at the time in question, its corporate trust business is principally
conducted.

     "Prior Bonds" means the $7,500,000 Village of Walden Industrial Development
Agency (Spence Engineering Company Project), Series 1984 bonds.

     "Prior Trustee" means First Union National Bank, as trustee under a Trust
Indenture dated as of December 1, 1984 between Village of Walden Industrial
Development Agency and First Union National Bank.

     "Private Placement Memorandum" shall mean the Private Placement Memorandum
dated June 17, 1994, relating to the Bonds.

     "Regular Record Date" shall mean:

        (i) in respect of any Interest Payment Date during the Variable Rate
     Period, the close of business on the Business Day immediately preceding
     each such Interest Payment Date, and

       (ii) in respect of any Interest Payment Date during the Fixed Rate
     Period, the fifteenth (15th) day (whether or not a Business Day) of the
     calendar month immediately preceding each such Interest Payment Date.

     "Reimbursement Agreement" shall mean the Letter of Credit, Reimbursement
and Guaranty Agreement of even date herewith by and among the Company, Watts
Industries, Inc., as guarantor, the Company, and the Bank, as the same may be
amended from time to time and filed with the Trustee, and any agreement of the
Company with a Credit Facility Issuer setting forth the obligations of the
Company to such Credit Facility Issuer arising out of any payments under a
Credit Facility and which provides that it shall be deemed to be a Reimbursement
Agreement for the purpose of this Indenture.

     "Remarketing Account" shall mean the account of that name established in
the Bond Purchase Fund pursuant to Section 302 hereof.

     "Remarketing Agent" shall mean First Union National Bank of North Carolina
and its successors as provided in Section 1201 hereof.

     "Remarketing Agreement" shall mean the Remarketing Agreement of even date
herewith between the Company and the Remarketing Agent and any amendments and
supplements thereof.

     "Requisite Bondholders" shall mean the owners of more than two-thirds
(2/3rds) in aggregate principal amount of the Outstanding Bonds.

     "Responsible Officer" when used with respect to the Trustee shall mean the
chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee of the board of directors, the
president, any vice president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
trust officer or assistant trust officer, the controller and any assistant
controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers of banking
institutions with trust powers and also shall mean,

<PAGE>

with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.

     "Revenues" shall mean:

        (i) all amounts payable to the Trustee with respect to the principal or
     redemption price of, or interest on the Bonds (a) by the Company under the
     Note, and (b) by the Credit Facility Issuer under a Credit Facility, and

       (ii) investment income with respect to any moneys held by the Trustee in
     the Bond Fund.

     "Security interest" or security interests" refers to the security interests
created herein and in the Security Instruments and shall have the meaning set
forth in the Uniform Commercial Code.

     "S&P" shall mean Standard & Poor's Corporation, a New York corporation, its
successors and 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 Trustee, with the consent of the
Company and the Credit Facility Issuer.

     "Special Record Date" shall mean for purpose of payment of Defaulted
Interest on the Bonds, the date fixed by the Trustee pursuant to Section 208
hereof.

     "State" shall mean the State of New York.

     "Subsidiary" shall mean any corporation, association or other business
entity of which more than fifty percent (50%) of the issued and outstanding
stock or equivalent thereof having ordinary voting power is, at the time at
which any determination is being made, owned or controlled by the Company or by
one or more Subsidiaries or other affiliates of the Company.

     "Tender Agent" shall mean The First National Bank of Boston and its
successors as provided in Section 1202 hereof.

     "Tender Agency Agreement" shall mean the Tender Agency Agreement of even
date herewith among the Company, the Trustee and the Tender Agent.

     "Tendered Bonds" shall mean those Bonds tendered or deemed tendered by the
owners for purchase pursuant to an Optional Tender Notice or on the Conversion
Date.

     "Trustee" shall mean The First National Bank of Boston and its successor in
the trust hereunder.

     "Undelivered Bond" shall mean:

        (i) any Bond for which an Optional Tender Notice has been given pursuant
     to Section 203 hereof and which has not been delivered to the Tender Agent
     on the date specified for purchase and

       (ii) any Bond which has not been delivered to the Trustee for

<PAGE>

     redemption or purchase on any mandatory redemption or purchase date or the
     Conversion Date; provided that in either case the Trustee has on hand and
     available on such date funds sufficient to purchase or redeem said Bond.

     "Variable Rate" shall mean a variable interest rate established after the
Initial Rate Period as the rate of interest determined by the Remarketing Agent
on and as of each Determination Date as the minimum rate of interest necessary,
in the judgment of the Remarketing Agent, taking into account market conditions
prevailing on the Determination Date, to enable the Remarketing Agent to arrange
for the sale of all of the Bonds on the Determination Date in the secondary
market at a price equal to the principal amount thereof (plus interest accrued
to the date of settlement). If the Remarketing Agent fails to certify such rate,
the Variable Rate for the next succeeding Calculation Period or Periods until
thereafter certified by the Remarketing Agent shall remain the same as that most
recently established and certified by the Remarketing Agent until thereafter
certified by the Remarketing Agent or adjusted as set forth in the next
succeeding sentence. In the event the Remarketing Agent fails to certify such
rate for four (4) consecutive Calculation Periods, such rate for each
Calculation Period thereafter (if none is certified by the Remarketing Agent)
shall be ninety percent (90%) of the yield for United States Treasury bills
maturing approximately thirty (30) days after the Determination Date for such
Calculation Period as published by The Wall Street Journal on such Determination
Date (or the next Business Day on which The Wall Street Journal is published if
not published on the Determination Date) (or, if The Wall Street Journal is no
longer published, then any reasonably equivalent financial publication selected
by the Remarketing Agent); provided that if during the Variable Period the
Determination Date at the end of each such Calculation Period is a Regular
Record Date, such Calculation Period will extend until the Business Day
following such Determination Date. A Bondholder may request the Variable Rate in
effect from time to time with respect to the Bonds from the Trustee or the
Remarketing Agent. If, for any reason, the Variable Rate is not determined as
described above or is held to be invalid or unenforceable by a court of
competent jurisdiction for any period, the interest rate for each such period
shall be equal to eight percent (8.00%) per annum. The Variable Rate shall not
be a rate in excess of fifteen percent (15.00%) per annum.

     "Variable Rate Period" shall mean that period during which a Variable Rate
is in effect on the Bonds.

     "Variable Rate Purchase Date" shall mean while the Bonds bear interest at
the Variable Rate, any Business Day (prior to and including the date which is
the tenth day preceding the Conversion Date) on which the Bonds may be tendered
for purchase at the option of the owner thereof in accordance with Section 203
hereof.

     Section 102.   Rules of Construction.

     (a) Words of the masculine gender shall be deemed and construed to include
correlative words of the feminine and neuter genders. Unless the context shall
otherwise indicate, the words "Bond, "owner", "Bondholder", "Bondholder of
Record" and "person" shall include the plural as well as the singular number;
the word "person" shall include any individual, corporation, partnership, joint
venture, association, joint-stock company,

<PAGE>

trust, unincorporated organization or government or any agency or political
subdivision thereof; and the word "Bondholder" when used herein with respect to
the Bonds shall mean the registered owner of any of the Bonds.

     (b) Words importing the redemption or calling for redemption of the Bonds
shall not be deemed to refer to or connote payment of Bonds at their stated
maturity.

     (c) The Table of Contents, captions and headings in this Indenture are for
convenience only and in no way limit the scope or intent of any provision or
section of this Indenture.

     (d) All references herein to particular articles or sections are references
to articles or sections of this Indenture unless some other reference is
indicated.

     (e) All references herein to the Code or the 1954 Code or any particular
provision or section thereof shall be deemed to refer to any successor, or
successor provision or section, thereof, as the case may be.

     (f) All references herein to time shall be Charlotte, North Carolina time.

                                   ARTICLE II

                                    THE BONDS

     Section 201.   Amount, Terms, and Issuance of the Bonds.

     (a) The Bonds shall be limited to $7,500,000 in aggregate principal amount
and shall contain substantially the terms recited in the form of Bond above and
as set forth in this Indenture. No Bonds may be issued under this Indenture
except in accordance with this Article II. No additional bonds shall be issued
under this Indenture.

     (b) The Issuer may cause a copy of the text of the opinion of Bond Counsel
delivered in connection with the issuance of the Bonds to be printed on any of
the Bonds. The Bonds may bear such endorsement or legend satisfactory to the
Trustee as may be required to conform to usage or law with respect thereto,
including the imposition of CUSIP or other identifying numbers.

     (c) Upon satisfaction of the conditions set forth in Section 213 hereof,
the Issuer shall issue the Bonds, and the Trustee shall, at the Issuer's
request, authenticate the Bonds and deliver them as specified in the request.

     Section 202.   Designation, Denominations, Maturity Date and Interest
                    Rates of the Bonds.

     (a) Designation, Denominations, Maturity Date. The Bonds shall be
designated "$7,500,000 Village of Walden Industrial Development Agency
Industrial Development Revenue Refunding Bonds (Spence Engineering Company
Project), Series 1994." The Bonds shall be issuable as fully registered Bonds in
the denominations of $100,000 or any integral multiple of $5,000 in excess
thereof; provided that if less than One Hundred Thousand Dollars

<PAGE>

($100,000) principal amount of Bonds is outstanding one Bond shall be issued in
such smaller denomination; and provided further, that subsequent to the initial
issuance of the Bonds, replacement or substitution Bonds or Bonds issued in
exchange in accordance with the provisions of Section 205 hereof may be issued
in denominations of $5,000 and integral multiples thereof. All Bonds shall bear
the date of their authentication, shall bear interest from the most recent date
to which interest has been paid or duly provided for, or, if authenticated on an
Interest Payment Date, from that date, or, if no interest has been paid or duly
provided for, from the date of authentication, and shall mature, subject to
prior redemption as provided in Article VII hereof, on the first Business Day of
December, 2006. The Bonds shall be numbered from "1" consecutively upwards
prefixed by the letter "R".

     (b) Interest Rates. The Bonds shall bear interest at the applicable rate
provided below. On each Interest Payment Date, interest accrued through the day
immediately preceding such Interest Payment Date shall be payable. While the
Bonds bear interest at a Variable Rate interest on the Bonds shall be computed
on the basis of a year of three hundred sixty-five (365) or three hundred
sixty-six (366) days, as applicable, for the number of days actually elapsed.
From and including the Conversion Date, and thereafter, interest on the Bonds
shall be computed on the basis of a three hundred sixty (360) day year for the
number of days actually elapsed.

     (c) Initial Interest Rate. For the Initial Rate Period, the Bonds shall
bear interest at the Initial Interest Rate.

     (d) Variable Rate. Following the Initial Rate Period and until the
Conversion Date, the Bonds shall bear interest at the Variable Rate. During the
Variable Rate Period, the Remarketing Agent shall determine the interest rate
for the Bonds on each Determination Date. The Remarketing Agent shall give
notice by telephone, telecopier, telex, telegram or other telecommunication
device, and upon request shall confirm in writing, on the Determination Date to
the Trustee and the Company of the interest rate to be in effect for the
following Calculation Period. The determination of the Variable Rate by the
Remarketing Agent shall be conclusive and binding upon the Bondholders, the
Issuer, the Company, the Trustee, the Tender Agent and the Remarketing Agent.
Any owner may request the Variable Rate in effect from time to time with respect
to the Bonds from the Trustee or the Remarketing Agent.

     (e) Fixed Rate; Conversion to Fixed Rate.

          (1) The Company has a one-time option to convert the interest rate
     payable on the Bonds from the Variable Rate to the Fixed Rate effective on
     an Interest Payment Date following compliance by the Company with the
     provisions of this Section 202(e). The Bonds shall be subject to mandatory
     tender for purchase by the Owners thereof on the Conversion Date. To
     exercise the option to convert, the Company shall deliver or mail by first
     class mail (i) a notice to the Trustee and the Credit Facility Issuer with
     respect to the determination of the Company to convert the interest rate on
     the Bonds from the Variable Rate to the Fixed Rate, which notice shall be
     delivered to the Trustee at least thirty (30) but not more than forty-five
     (45) days prior to the Conversion Date, and (ii) the opinion of Bonds
     Counsel described in Section 202(f) hereof. The Trustee shall then deliver
     or mail by first class mail a notice in substantially the form

<PAGE>

     attached hereto as Exhibit B at least twenty (20) days but not more than
     thirty (30) days prior to the Conversion Date to the Owner of each Bond at
     the address shown on the registration books of the Issuer. Any notice given
     by the Trustee as provided in this Section shall be conclusively presumed
     to have been duly given, whether or not the Owner receives the notice.
     Failure to mail any such notice, or the mailing of defective notice, to any
     Owner, shall not affect the proceeding for purchase as to any Owner to whom
     proper notice is mailed. Said notice shall state, among other things, (1)
     the Conversion Date, (2) the name and address of the placement agent which
     has agreed to use its best efforts to arrange for the sale of any bonds to
     be tendered or deemed tendered for purchase on the Conversion Date (herein
     called the "Placement Agent"), (3) that after the seventeenth (17th) day
     preceeding the Conversion Date, the owner will not be entitled to deliver
     an Optional Tender Notice and that after tenth (10th) day preceding the
     Conversion Date, the owner will not be entitled to tender this Bond for
     purchase as described below, (4) that this Bond will be deemed tendered for
     purchase on the Conversion Date, (5) that in order to receive payment of
     the purchase price of any Bond which is deemed to have been tendered, the
     registered owner of such Bond must deliver such Bond to the office of the
     Tender Agent before 10 a.m. Eastern time on the Conversion Date specifying
     such address, and (6) that interest on any Bond will be payable only to
     (but not including) the Conversion Date.

          As described above, Owners of Bonds shall be required to tender their
     Bonds on the Conversion Date to the Tender Agent for purchase at the
     purchase price, and any such Bonds not so tendered on the Conversion Date
     ("Undelivered Bonds"), for which there has been irrevocably deposited in
     trust with the Trustee an amount of moneys sufficient to pay the Purchase
     Price of the Untendered Bonds, shall be deemed to have been tendered and
     purchased pursuant to this Section 202(e). IN THE EVENT OF A FAILURE BY AN
     OWNER OF BONDS TO TENDER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID
     OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO
     ACCRUE SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR
     SUCH UNTENDERED BONDS, AND ANY UNTENDERED BONDS SHALL NO LONGER BE ENTITLED
     TO THE BENEFITS OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE
     PURCHASE PRICE THEREFOR.

          (2) On or before the proposed Conversion Date, the Placement Agent
     shall determine the Fixed Rate as of such date in the manner described in
     subsection (4) below and shall notify the Trustee and the Company of the
     Fixed Rate by telephone, telecopier, telex, telegram or other
     telecommunication device and upon request, shall confirm such notice in
     writing.

          (3) Any owner of Bonds to be converted to a Fixed Rate shall be deemed
     to have tendered its Bonds to the Tender Agent. Said owner shall not be
     entitled to any payment (including any interest to accrue subsequently to
     the Conversion Date) other than the purchase price for such Bonds which
     shall be equal to the unpaid principal amount of such Bonds, and any such
     Bonds shall no longer be entitled to the benefits of this Indenture, except
     for the purpose of payment of the purchase price therefor and interest
     payable on the Conversion Date. Payment of the purchase price of any such
     Bonds shall be made only upon the presentment and surrender of such Bonds
     to the Tender Agent. Upon

<PAGE>

     request, the Trustee shall provide the Tender Agent with the address set
     forth on the Bond Register for such owner. The Trustee shall notify the
     Bond Registrar of all Bonds with respect to which the Trustee has not
     received Optional Retention Notices, which Bonds shall be deemed to be
     tendered for purchase on the Conversion Date. In the case of any Bond
     deemed tendered, the Issuer shall cause to be executed, and the Trustee
     shall authenticate and deliver to the new owner as provided in Section 301
     hereof a new Bond of like date and tenor in lieu of and in substitution for
     such Bond deemed to be tendered.

          (4) On or before the Conversion Date, the Fixed Rate shall be the
     interest rate per annum which, in the sole judgment of the Placement Agent,
     taking into account prevailing financial market conditions, would be the
     minimum interest rate required to sell such Bonds on the Conversion Date at
     a price equal to the 100% of the principal amount thereof. The Fixed Rate
     shall be determined by the Placement Agent on or before the Conversion
     Date, and the Placement Agent shall notify the Trustee and the Company
     thereof by telephone or such other manner as may be appropriate by not
     later than 2:00 p.m., Eastern time, on the Conversion Date, which notice
     shall be promptly confirmed in writing.

     (f) Condition to Conversion; Additional Notices.

          (1) As a condition to the giving of notice as provided in Section
     202(e) above, the Company shall provide the Trustee with an opinion of Bond
     Counsel to the effect that the proposed conversion of the interest rate on
     the Bonds will not cause the interest on the Bonds to be includable in the
     gross income of the owners thereof for federal income tax purposes.

          (2) The delivery by the Company to the Trustee of a letter from Bond
     Counsel confirming the opinion required prior to the notification described
     above on such Conversion Date is a condition precedent to any such
     Conversion. In the event that the Company fails to deliver to the Trustee
     the letter of Bond Counsel referred to in the preceding sentence, such
     Conversion shall not take effect, and the Bonds shall continue to bear
     interest at the Variable Rate.

          (3) The Trustee shall provide the Tender Agent with a copy of any
     notice delivered to the owners of the Bonds pursuant to Section 202 hereof.

     Section 203.   Optional Tender Provisions of the Bonds.

     (a) While the Bonds bear interest at the Variable Rate, any Bond or portion
thereof in an authorized denomination (other than a Bond registered in the name
of the Company) shall be purchased on the demand of the owner thereof, on any
Business Day at a purchase price equal to one hundred percent (100%) of the
principal amount thereof plus interest accrued to the date of purchase, if the
owner of such Bond delivers to the Tender Agent at its address filed with the
Trustee an Optional Tender Notice at least seven (7) days prior to the Variable
Rate Purchase Date specified in such Notice.

     (b) Any Optional Tender Notice delivered pursuant to the preceding
subsection shall automatically constitute: (1) an irrevocable offer to

<PAGE>

sell such bond on the Variable Rate Purchase Date at a price equal to one
hundred percent (100%) of the principal amount of such Bond plus interest
accrued to the Variable Rate Purchase Date; and (2) an irrevocable authorization
and instruction to the Bond Registrar to effect transfer of such Bond to the
purchaser thereof on the Variable Rate Purchase Date. No purchase of Bonds
pursuant to the provisions of this Section 203 shall be deemed a redemption
thereof.

     (c) Any owner who delivers an Optional Tender Notice pursuant to this
Section 203 shall deliver such Bond to the Tender Agent, at its address filed
with the Trustee, not less than five (5) days prior to the Variable Rate
Purchase Date specified in the aforesaid Optional Tender Notice; provided,
however, that any Bond owner which is an investment company registered under the
Investment Company Act of 1940 may deliver Bonds owned by it to the Tender Agent
at its address filed with the Trustee, at or prior to 10:00 a.m. on the Variable
Rate Purchase Date. All Bonds delivered to the Tender Agent pursuant to this
Section 203 must be duly endorsed for transfer in blank in form satisfactory to
the Trustee.

     (d) If a Bondholder who gives the Optional Tender Notice shall fail to
deliver the Bond or Bonds identified in the Optional Tender Notice to the Tender
Agent at or prior to 10:00 a.m. on the Variable Rate Purchase Date, such
Undelivered Bond shall be purchased and shall cease to accrue interest on such
Variable Rate Purchase Date and the owner thereof shall thereafter be entitled
only to payment of the purchase price therefor and not to the benefits of this
Indenture, and the Issuer, to the extent permitted by law, shall execute and the
Trustee or the Authenticating Agent shall authenticate and deliver a substitute
Bond or Bonds in lieu of the Undelivered Bond and the Bond Registrar shall
register such Bond in the name of the purchaser or purchasers thereof pursuant
to Section 205 hereof. The Tender Agent shall notify the Trustee and the Bond
Registrar of any Undelivered Bonds. The Trustee shall (1) notify the Remarketing
Agent of such Undelivered Bond and (2) place a stop transfer against such
Undelivered Bonds until the Undelivered Bonds are properly delivered to the
Tender Agent. Payment of the purchase price of any such Undelivered Bonds shall
be made only upon the presentment and surrender of such Bonds to the Tender
Agent. Upon notice of such delivery, the Bond Registrar shall make any necessary
adjustment to the Bond Register.

     (e) Notwithstanding anything to the contrary contained herein, the rights
of the owners to tender Bonds pursuant to this Section 203 shall cease
immediately and without further notice from and including the date payment of
the Bonds is accelerated following an Event of Default pursuant to Article IX
hereof.

     Section 204.   Registered Bonds Required; Bond Registrar and Bond
                    Register.

     (a) All Bonds shall be issued in fully registered form. The Bonds shall be
registered upon original issuance and upon subsequent transfer or exchange as
provided in this Indenture.

     (b) The Issuer shall designate one or more persons to act as "Bond
Registrar" for the Bonds, provided that the Bond Registrar appointed for the
Bonds shall be either the Trustee or a person which would meet the requirements
for qualification as a successor trustee imposed by Section 1014 hereof. The
Issuer hereby appoints The First National Bank of Boston

<PAGE>

as its Bond Registrar in respect of the Bonds. Any person other than the Trustee
undertaking to act as Bond Registrar shall first execute a written agreement, in
form satisfactory to the Trustee, to perform the duties of a Bond Registrar
under this Indenture, which agreement shall be filed with the Trustee and the
Tender Agent.

     (c) The Bond Registrar shall act as registrar and transfer agent for the
Bonds. There shall be kept at an office of the Bond Registrar a register (herein
sometimes referred to as the "Bond Register") in which, subject to such
reasonable regulations as the Issuer, the Trustee or the Bond Registrar may
prescribe, there shall be provisions for the registration of the Bonds and for
the registration of transfers of the Bonds. The Issuer shall cause the Bond
Registrar to designate, by a written notification to the Trustee, a specific
office location (which may be changed from time to time, upon similar
notification) at which the Bond Register is kept. In the absence of a specific
designation by the Bond Registrar, the principal corporate trust office of the
Trustee in Canton, Massachusetts shall be deemed such office in respect of the
Bonds for which the Trustee is acting as Bond Registrar.

     Section 205.   Transfer and Exchange.

     (a) Upon surrender for transfer of any Bond at the office of the Bond
Registrar, the Issuer shall execute and the Trustee or its Authenticating Agent
shall authenticate and deliver in the name of the transferee or transferees, one
or more new fully registered Bonds of authorized denomination for the aggregate
principal amount which the new owner is entitled to receive; provided that if
moneys for the purchase of such Bond have been provided pursuant to a draw under
the Credit Facility, such Bond shall not be transferable to any one other than
the Company or its assignee or pledgee. Except for transfers in connection with
the purchase of Bonds pursuant to Section 203 hereof and the remarketing thereof
pursuant to Article III, which shall be effected at the office of the Tender
Agent in Canton, Massachusetts, Bonds shall be surrendered for transfer at the
principal corporate trust office of the Trustee in Canton, Massachusetts. Also,
the Issuer shall execute and the Trustee or its Authenticating Agent shall
authenticate and deliver Bonds in lieu of Undelivered Bonds.

     (b) Bonds may be exchanged for other Bonds of any other authorized
denomination, of a like aggregate principal amount, upon surrender of the Bonds
to be exchanged at the principal corporate trust office of the Bond Registrar or
Trustee; provided, however, that in connection with the purchase of Bonds
tendered for purchase and the remarketing thereof pursuant to Article III
hereof, Bonds may be exchanged at the principal office of the Tender Agent, or
any office of any agent designated by, the Trustee. Whenever any Bonds are so
surrendered for exchange, the Issuer shall execute, and the Trustee or its
Authenticating Agent shall authenticate and deliver, the Bonds which the
Bondholder making the exchange is entitled to receive.

     (c) All Bonds presented for transfer, exchange, redemption or payment (if
so required by the Issuer, the Bond Registrar or the Trustee) shall be
accompanied by a written instrument or instruments of transfer or authorization
for exchange, in form satisfactory to the Bond Registrar, which may include a
signature guarantee, duly executed by the owner or by his attorney duly
authorized in writing.

<PAGE>

     (d) No service charge shall be made to a Bondholder for any exchange or
transfer of Bonds, but the Issuer or the Bond Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto.

     (e) Except in connection with the purchase of Bonds pursuant to Section 203
hereof and the remarketing thereof pursuant to Article III hereof, neither the
Issuer nor any Bond Registrar on behalf of the Issuer shall be required to
issue, transfer or exchange any Bond selected for redemption in whole or in
part.

     (f) New Bonds delivered upon transfer or exchange shall be valid
obligations of the Issuer, evidencing the same debt as the Bond surrendered,
shall be secured by this Indenture and shall be entitled to all of the security
and benefits hereof to the same extent as the Bonds surrendered;

     Section 206.   Execution.

     (a) The Bonds shall be executed by the manual or facsimile signature of the
Chairman, the seal of the Issuer shall be affixed, imprinted, lithographed or
reproduced thereon and the same shall be attested by the manual or facsimile
signature of the Clerk.

     (b) Bonds executed as above provided may be issued and shall, upon request
of the Issuer, be authenticated by the Trustee or the Authenticating Agent,
notwithstanding that any officer signing such Bonds or whose facsimile signature
appears thereon shall have ceased to hold office at the time of issuance or
authentication or shall not have held office at the date of the Bond.

     Section 207.   Authentication; Authenticating Agent.

     (a) No Bond shall be valid for any purpose until the Trustee's Certificate
of Authentication thereon shall have been duly executed as provided in this
Indenture, and such authentication shall be conclusive proof that such Bond has
been duly authenticated and delivered under this Indenture and that the owner
thereof is entitled to the benefit of the trust hereby created subject to the
provisions of Section 203(d) and Article XIV hereof.

     (b) If the Bond Registrar is other than the Trustee, the Trustee may
appoint the Bond Registrar as an Authenticating Agent with the power to act on
the Trustee's behalf and subject to its direction in the authentication and
delivery of Bonds in connection with transfers and exchanges under Section 205
hereof, and the authentication and delivery of Bonds by an Authenticating Agent
pursuant to this Section shall, for all purposes of this Indenture, be deemed to
be the authentication and delivery "by the Trustee". The Trustee shall, however,
itself authenticate all Bonds upon their initial issuance. The Authenticating
Agent may authenticate Bonds in substitution for Undelivered Bonds. The
Authenticating Agent shall be entitled to reasonable compensation from the
Company for its services.

     (c) Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to the

<PAGE>

corporate trust business of any Authenticating Agent, shall be the successor of
the Authenticating Agent hereunder, if such successor corporation is otherwise
eligible as a Bond Registrar under Section 204 hereof, without the execution or
filing of any further document on the part of the parties hereto or the
Authenticating Agent or such successor corporation.

     (d) Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee, the Issuer, the Remarketing Agent and the
Company. The Trustee may at any time terminate the agency of any Authenticating
Agent by giving written notice of termination to such Authenticating Agent, the
Issuer and the Company. Upon receiving such a notice of resignation or upon such
a termination, or in case at any time any Authenticating Agent shall cease to be
eligible under this Section, the Trustee shall promptly appoint a successor
Authenticating Agent, shall give written notice of such appointment to the
Issuer and the Company, and shall mail notice of such appointment to all owners
of Bonds as the names and addresses of such owners appear on the Bond Register.

     Section 208.   Payment of Principal and Interest; Interest Rights
                    Preserved.

     (a) The principal and redemption price of any Bond shall be payable, upon
surrender of such Bond, at the office of the Trustee or other paying agent
appointed pursuant to this Indenture. Interest on each Interest Payment Date
shall be payable by check, mailed on the Interest Payment Date to the address of
the person entitled thereto on the Regular Record Date or, if applicable, the
Special Record Date, as such address shall appear in the Bond Register. While
the Bonds bear interest at a Variable Rate, Interest shall also be payable by
wire transfer to the account of a member bank of the Federal Reserve System of
any owner of Bonds in the aggregate principal amount of $1,000,000 or more at
the written request (identifying such account by number) of such owner received
by the Trustee on or prior to the Regular Record Date or Special Record Date.

     (b) Interest on any Bond which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the person in whose
name that Bond is registered at the close of business on the Regular Record Date
for such interest.

     (c) Any interest on any Bond which is payable, and is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the owner of such Bonds on the
relevant Regular Record Date solely by virtue of such registered owner having
been such record owner on the Regular Record Date, and such Defaulted Interest
shall be paid, pursuant to Section 911 hereof, to the person in whose name the
Bond is registered at the close of business on a Special Record Date to be fixed
by the Trustee, such date to be not more than fifteen (15) nor less than ten
(10) days prior to the date of proposed payment. The Trustee shall cause notice
of the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first class postage prepaid, to each Bondholder, at its
address as it appears in the Bond Register, not less than ten (10) days prior to
such Special Record Date.

     (d) Subject to the foregoing provisions of this Section 208, each Bond
delivered under this Indenture, upon transfer of or exchange for or in

<PAGE>

lieu of any other Bond shall carry the rights to interest accrued and unpaid,
and to accrue, as such other Bond.

     All payments of principal and redemption price of and interest on the
Bonds, whether upon redemption, acceleration, maturity or otherwise, shall be
made first, pursuant to draws under the Credit Facility in accordance with its
terms on the dates when due; second, from other Available Moneys on deposit with
the Trustee and not held in trust for the benefit of the owners of the Bonds
pursuant to the provisions of Article XIV hereof; and then from other collected
funds available to the Trustee hereunder for such payments.

     Section 209.   Persons Deemed Owners.

     The Issuer, the Trustee, the Bond Registrar and the Authenticating Agent
may deem and treat the person in whose name any Bond is registered as the
absolute owner thereof (whether or not such Bond shall be overdue and
notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Issuer, the Trustee, the Bond Registrar or the
Authenticating Agent) for the purpose of receiving payment of or on account of
the principal of (and premium, if any, on), and (subject to Section 208 hereof)
interest on such Bond, and for all other purposes, and neither the Issuer, the
Trustee, the Bond Registrar, nor the Authenticating Agent shall be affected by
any notice to the contrary. All such payments so made to any such registered
owner, or upon his order, shall be valid and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for moneys payable
upon any such Bond.

     Section 210.   Mutilated, Destroyed, Lost, Stolen or Undelivered
                    Bonds.

     (a) If any Bond shall become mutilated, the Issuer shall execute, and the
Trustee or its Authenticating Agent shall thereupon authenticate and deliver, a
new Bond of like tenor and denomination in exchange and substitution for the
Bond so mutilated, but only upon surrender to the Trustee of such mutilated Bond
for cancellation, and the Issuer and the Trustee may require reasonable
indemnity therefor. If any Bond shall be reported lost, stolen or destroyed,
evidence as to the loss, theft or destruction thereof shall be submitted to the
Issuer and the Trustee; and if such evidence shall be satisfactory to both and
indemnity satisfactory to both shall be given, the Issuer shall execute, and
thereupon the Trustee or its Authenticating Agent shall authenticate and
deliver, a new Bond of like tenor and denomination. The cost of providing any
substitute Bond under the provisions of this Section shall be borne by the
Bondholder for whose benefit such substitute Bond is provided. If any such
mutilated, lost, stolen or destroyed Bond shall have matured or be about to
mature, the Issuer may, with the consent of the Trustee, pay to the owner the
principal amount of such Bond upon the maturity thereof and the compliance with
the aforesaid conditions by such owner, without the issuance of a substitute
Bond therefor.

     (b) The Issuer shall execute and the Trustee or its Authenticating Agent
shall authenticate and deliver a substitute Bond in lieu of each Undelivered
Bond.

     (c) Every substituted Bond issued pursuant to this Section 210 shall
constitute an additional contractual obligation of the Issuer, whether or

<PAGE>

not the Bond alleged to have been destroyed, lost or stolen shall be at any time
enforceable by anyone, and shall be entitled to all of the benefits of this
Indenture equally and proportionately with any and all other Bonds duly issued
hereunder.

     (d) All Bonds shall be held and owned upon the express condition that the
foregoing provisions are, to the extent permitted by law, exclusive with respect
to the replacement or payment of mutilated, destroyed, lost, stolen or
Undelivered Bonds and shall preclude any and all other rights or remedies.

     Section 211.   Temporary Bonds.

     Pending preparation of definitive Bonds, or by agreement with the
purchasers of all Bonds, the Issuer may issue, and, upon its request, the
Trustee shall authenticate, in lieu of definitive Bonds one or more temporary
printed or typewritten Bonds of substantially the tenor recited above in any
denomination authorized under Section 202 hereof. Upon request of the Issuer,
the Trustee shall authenticate definitive Bonds in exchange for and upon
surrender of an equal principal amount of temporary Bonds. Until so exchanged,
temporary Bonds shall have the same rights, remedies and security hereunder as
definitive Bonds.

     Section 212.   Cancellation of Surrendered Bonds.

     Bonds surrendered for payment, redemption, transfer or exchange and Bonds
surrendered to the Trustee by the Issuer or by the Company for cancellation
shall be cancelled by the Trustee and a certificate evidencing such cancellation
shall be furnished by the Trustee to the Issuer and the Company. Bonds purchased
pursuant to Section 203 hereof shall not be surrendered Bonds and, unless
otherwise specifically provided in this Indenture, shall be Outstanding Bonds.

     Section 213.   Conditions of Issuance.

     (a) Prior to or simultaneously with the authentication and delivery of the
Bonds by the Trustee, the Trustee shall have received notice that the conditions
for the issuance of the Letter of Credit as set forth in Article VII of the
original Reimbursement Agreement have been satisfied and there shall be filed
with the Trustee such documents, certificates and opinions as Trustee may
require, including, the following:

          (1) A copy, certified by the Secretary, of the resolution of the
     Issuer authorizing the issuance of the Bonds, awarding the Bonds and
     directing the authentication and delivery of the Bonds to or upon the order
     of the purchaser(s) therein named upon payment of the purchase price
     therein set forth.

          (2) Executed counterparts of this Indenture, the Sale Agreement, the
     Note (endorsed without recourse by the Issuer to the Trustee), the Letter
     of Credit, the Reimbursement Agreement, the Tender Agency Agreement and the
     Remarketing Agreement.

          (3) An opinion of Counsel to the Issuer, to the effect that the
     execution and delivery of the Sale Agreement and this Indenture have been
     duly authorized by the Issuer, the Sale Agreement and this Indenture have
     been duly executed by the Issuer and that, assuming

<PAGE>

     proper authorization and execution of this Indenture by the Trustee and of
     the Sale Agreement by the Company, the Sale Agreement and this Indenture
     are the valid and binding agreements of the Issuer enforceable in
     accordance with their respective terms, subject to the qualification that
     enforceability thereof may be limited by bankruptcy, insolvency,
     reorganization, moratorium or similar laws affecting enforcement of
     creditors' rights generally and by the exercise of judicial discretion in
     accordance with general equitable principles.

          (4) An opinion of Counsel to the Company to the effect that the
     execution and delivery of the Sale Agreement, the Note, the Reimbursement
     Agreement, the Remarketing Agreement and the Tender Agency Agreement have
     been duly authorized by the Company, that the Sale Agreement, the Note, the
     Reimbursement Agreement, the Remarketing Agreement and the Tender Agency
     Agreement have been duly executed and delivered by the Company, and that
     the Sale Agreement, the Note, the Reimbursement Agreement, the Remarketing
     Agreement and the Tender Agency Agreement, assuming due authorization,
     execution and delivery thereof by the other parties thereto, if any, are
     valid, binding and enforceable against the Company in accordance with their
     terms, subject to the qualification that enforceability thereof may be
     limited by bankruptcy, insolvency, reorganization, moratorium or similar
     laws affecting enforcement of creditors' rights generally and by the
     exercise of judicial discretion in accordance with general equitable
     principles.

          (5) An opinion of Counsel to the Company to the effect that copies of
     such instruments and financing statements (described in such opinion) as
     are necessary have been recorded and filed in the manner and places
     required by State law with the effect that (i) the lien on this Indenture
     has been perfected and creates, as to the rights of the Issuer under the
     Sale Agreement assigned under this Indenture, a valid security interest;
     and (ii) that the Issuer's endorsement and pledge of the Note to the
     Trustee and the Trustee's possession thereof creates a valid, perfected,
     first priority security interest in the Note, subject to no equal or prior
     liens.

          (6) An opinion of Counsel to the Issuer, to the effect that the
     issuance of the Bonds and the execution of this Indenture have been duly
     and validly authorized by the Issuer, that all conditions precedent to the
     delivery of the Bonds have been fulfilled and that the Bonds and this
     Indenture are valid and binding agreements of the Issuer enforceable in
     accordance with their terms, subject to the qualification that
     enforceability thereof may be limited by bankruptcy, insolvency,
     reorganization, moratorium or similar laws affecting enforcement of
     creditors' rights generally and by the exercise of judicial discretion in
     accordance with general equitable principles.

          (7) A written request and authorization of the Issuer addressed to the
     Trustee directing the Trustee to authenticate and deliver the Bonds.

          (8) Such other documents as the Trustee may reasonably require.

          (9) A favorable opinion of Bond Counsel as to the tax-exempt

<PAGE>

     status of interest on the Bonds.

     (b) When the documents mentioned in paragraphs (1) through (9) of
subsection (a) of this Section shall have been filed with the Trustee and when
the Bonds shall have been executed as required by this Indenture, the Trustee
shall authenticate the Bonds and deliver them to or upon the order of the
purchaser(s) named in the resolution mentioned in paragraph (1) thereof, but
only upon payment to the Trustee for the account of the Issuer of the purchase
price of the Bonds. The Trustee shall be entitled to rely conclusively upon such
resolution or resolutions, or document approved thereby, as to the name of the
purchasers and the amount of such purchase price.

     (c) Simultaneously with the delivery of the Bonds, the Trustee shall apply
the proceeds of the Bonds in accordance with Article IV of this Indenture.

                                   ARTICLE III

                   PURCHASE AND REMARKETING OF TENDERED BONDS

     Section 301.   Remarketing of Tendered Bonds.

     (a) Not later than the close of business on the date the Tender Agent
receives an Optional Tender Notice, the Tender Agent shall notify the
Remarketing Agent and the Company by telephone, telex or telecopier, confirmed
in writing if requested, specifying the Variable Rate Purchase Date.

     (b) Not later than the close of business on the ninth (9th) day prior to
the Conversion Date, the Trustee shall notify the Placement Agent and the
Company by telephone, telex or telecopier, confirmed in writing if requested,
specifying the aggregate principal amount of Bonds deemed tendered for mandatory
purchase on the Conversion Date.

     (c) Except as provided in subsection (d) below and Section 305 hereof, upon
receipt by the Remarketing Agent of notice from the Tender Agent pursuant to
Section 301(a) hereof and by the Placement Agent of notice from the Trustee
pursuant to Section 301(b) hereof, the Remarketing Agent or the Placement Agent,
as the case may be, shall use its best efforts to arrange for the sale, at par
plus accrued interest, if any, of such Bonds tendered or deemed tendered for
settlement on the Variable Rate Purchase Date or the Conversion Date,
respectively. At or before 4:00 p.m. on the Business Day immediately preceding
the Variable Rate Purchase Date or the Conversion Date, the Remarketing Agent or
the Placement Agent, respectively, shall give notice by telephone, telecopier or
telex, promptly confirmed in writing if requested, to the Trustee and the Tender
Agent specifying the principal amount of such Bonds, if any, placed by it and to
the Trustee the names, addresses and social security numbers or other tax
identification numbers of the proposed purchasers thereof.

     (d) Notwithstanding the provisions of subsection (c) above, any Bond
purchased pursuant to the terms of this Indenture from the date notice of
redemption or conversion is given shall not be remarketed except to a buyer who
agrees at the time of such purchase to tender such Bond for redemption or
purchase on the redemption or purchase date.

<PAGE>

     (e) During the Variable Rate Period, the Remarketing Agent shall continue
to use its best efforts to arrange for the sale, at the best price available,
but not less than the principal amount thereof plus accrued interest, of any
Bonds purchased with moneys advanced under the Credit Facility pursuant to
Section 302(a)(2) hereof; provided that Bonds purchased with moneys advanced
under the Credit Facility shall not be released for delivery to the purchasers
unless the Credit Facility has been reinstated by the sum of (a) the amount
drawn thereunder to pay the purchase price for such Bonds and (b) interest on
such portion for 120 days at a maximum rate of 15%, and the Trustee has received
the executed reinstatement certificate required to be delivered by such Credit
Facility Issuer. The Trustee agrees to advise the Tender Agent immediately upon
receipt of such reinstatement certificate.

     Section 302.   Purchase of Bonds Delivered to the Tender Agent.

     (a) There is hereby established with the Tender Agent a Bond Purchase Fund
out of which the purchase price for Bonds tendered for purchase on a Variable
Rate Purchase Date, the Conversion Date or on such other date on which Bonds are
remarketed shall be paid. There are hereby established in the Bond Purchase Fund
two separate and segregated accounts, to be designated the "Remarketing Account"
and the "Bank Account". Funds received from purchasers of Tendered Bonds (other
than the Company or the Credit Facility Issuer) shall be deposited by the
Remarketing Agent or the Placement Agent, as the case may be, in the Remarketing
Account. At or prior to 10:00 a.m. on each Variable Rate Purchase Date or the
Conversion Date, the Remarketing Agent or the Placement Agent, as the case may
be, shall deliver to the Tender Agent for deposit in the Remarketing Account of
the Bond Purchase Fund immediately available funds, payable to the order of the
Tender Agent, in an amount equal to the purchase price of the Bonds to be
delivered to the Tender Agent that have been remarketed by the Remarketing Agent
or placed by the Placement Agent as specified in the notice delivered pursuant
to Section 301(c) hereof. Funds, if any, drawn by the Trustee under the Credit
Facility pursuant to Section 302(b) below in an amount equal to the aggregate
purchase price of Bonds tendered for purchase less the amount available in the
Remarketing Account shall, at the direction of the Trustee, be delivered by the
Credit Facility Issuer to the Tender Agent for deposit in the Bank Account of
the Bond Purchase Fund. On each Variable Rate Purchase Date and on the
Conversion Date, the Tender Agent shall effect the purchase, but only from the
funds listed below, of such Bonds from the owners thereof at a purchase price
equal to the principal amount thereof, plus interest accrued, if any, to the
date of purchase and such payment shall be made in immediately available funds.
Funds from the payment of such purchase price shall be derived from the
following sources in the order of priority indicated:

          (1) proceeds of the remarketing of such Bonds pursuant to Section
     301(c) hereof which constitute Available Moneys.

          (2) moneys furnished by the Trustee to the Tender Agent representing
     proceeds of a drawing by the Trustee under the Credit Facility; and

          (3) any other moneys available for such purposes.

     (b) The Tender Agent shall advise the Trustee by telex or telecopier

<PAGE>

and shall advise the Credit Facility Issuer and the Company by telephone, in
each case, no later than 10:30 a.m. on each Variable Rate Purchase Date or the
Conversion Date, as the case may be, of the amount of any drawing under the
Credit Facility necessary to make timely payments hereunder. The Trustee shall
promptly (and in no event later than 11:00 a.m.) take all action necessary to
draw on the Credit Facility the specified amount. All amounts received by the
Trustee from a drawing under the Credit Facility shall be transferred to the
Tender Agent and held by the Tender Agent in the Bank Account pending
application of such moneys as provided in this Article III. The Trustee shall
provide to the Tender Agent the funds referred to in paragraph (2) of Section
302(a) prior to the time the Tender Agent is required to apply such funds to
effect the purchase of Bonds and shall notify the Tender Agent promptly after
receipt of notice from the Credit Facility Issuer reinstating the Credit
Facility. The Remarketing Agent shall deliver funds from the sale of Bonds held
by the Credit Facility Issuer as pledgee of the Company pursuant to Section
301(e) hereof to the Tender Agent for deposit in the Remarketing Account, which
funds shall be promptly paid by the Tender Agent on behalf of the Company to the
Credit Facility Issuer as reimbursement under the Reimbursement Agreement. The
Tender Agent shall notify the Trustee of any such reimbursement, and the Trustee
shall promptly deliver to the Credit Facility Issuer any reinstatement
certificate and the form of transfer certificate required by the Credit
Facility.

     Section 303.   Delivery of Purchased Bonds.

     (a) Bonds purchased shall be delivered as follows:

          (1) Bonds placed by the Remarketing Agent or the Placement Agent
     pursuant to Section 301 hereof shall be delivered by the Tender Agent to
     the Remarketing Agent or the Placement Agent, as the case may be, on behalf
     of the purchasers thereof.

          (2) Bonds purchased with moneys described in Section 302(a)(2) shall
     be delivered to the Credit Facility Issuer as pledgee of the Company
     pursuant to the terms of the Reimbursement Agreement and the Pledge
     Agreement or the Credit Facility Issuer designee.

     (b) Except as otherwise set forth herein, Bonds delivered as provided in
this Section 303 shall be registered by the Bond Registrar in the manner
directed by the recipient thereof.

     (c) In the event that any Bond to be delivered to the Tender Agent is not
delivered by the owner thereof properly endorsed for transfer on or prior to the
Variable Rate Purchase Date or the Conversion Date, as the case may be, and
there has been irrevocably deposited with the Tender Agent an amount sufficient
to pay the purchase price thereof, which amount may be held by the Tender Agent
in a non-interest bearing account, the Issuer shall execute and the Trustee or
its Authenticating Agent shall authenticate and deliver a substitute Bond in
lieu of the Undelivered Bond and the Bond Registrar shall register such Bond in
the name of the purchaser thereof. Thereafter, interest on such Undelivered Bond
shall cease to accrue, and the holder thereof shall be entitled only to payment
of the purchase price therefor and not to the benefits of the Indenture.

     (d) Notwithstanding the foregoing, Bonds purchased with funds identified in
Section 302(a)(2) hereof shall be held by the Credit Facility

<PAGE>

Issuer or the Tender Agent and shall not be delivered to subsequent purchasers
thereof or any other person until the Trustee has notified the Tender Agent that
the Credit Facility has been reinstated to the extent of the purchase price of
such Bonds and interest thereon.

     Section 304.   Delivery of the Proceeds of the Sale of Remarketed
                    Bonds.

     The proceeds of the placement of the Bonds by the Remarketing Agent of any
Bonds delivered to the Tender Agent or by the Placement Agent of Bonds on the
Conversion Date shall be paid first, to the tendering Bondholders of such Bonds;
second, to the Credit Facility Issuer, to the extent of any amounts drawn under
the Credit Facility in connection with the payment of the purchase price for
such Bonds and not reimbursed to the Credit Facility Issuer as of the time of
sale of such Bonds; and third, to the Company.

     Section 305.   No Remarketing After Certain Events.

     Anything in this Indenture to the contrary notwithstanding, there shall be
no remarketing of Bonds pursuant to this Article III after the Conversion Date
or the principal of the Bonds shall have been accelerated pursuant to Section
902 hereof.

                                   ARTICLE IV

                            REFUNDING OF PRIOR BONDS

     Section 401.   Refunding of Prior Bonds.

     The proceeds of the sale of the Bonds shall be held in trust by the Trustee
and paid by the Trustee immediately to the holders of the Prior Bonds to pay in
full the outstanding principal amount of the Prior Bonds. Simultaneously with
such payment by the Trustee, the Company shall pay all additional amounts
sufficient to pay interest on the Prior Bonds to the date of redemption thereof
and to pay directly all fees, charges and expenses of the holders, the Paying
Agent and Registrar for the Prior Bonds and the Prior Trustee on the date of
delivery of the Bonds. Following such payments, the Trustee shall receive from
the Prior Trustee a certificate to the effect that the Prior Bonds have been
redeemed and paid in full and evidence that the Prior Bonds have been cancelled.

                                    ARTICLE V

                        REVENUES AND APPLICATION THEREOF

     Section 501.   Revenues to be Paid Over to Trustee.

     The Issuer has caused the Revenues to be paid directly to the Trustee. If,
notwithstanding these arrangements, the Issuer receives any payments on account
of the Note or a Credit Facility with respect to the principal or redemption
price of or interest on the Bonds, the Issuer shall immediately pay over the
same to the Trustee to be held as Revenues.

     Section 502.   The Bond Fund.

<PAGE>

     (a) There is hereby established with the Trustee a special fund to be
designated "Village of Walden Industrial Development Agency Industrial
Development Revenue Refunding Bonds (Spence Engineering Company Project), Series
1994 Bond Fund" (the "Bond Fund"), the moneys in which, in accordance with
Section 502(c) hereof, the Trustee shall apply to (1) the principal or
redemption price of Bonds as they mature or become due, upon surrender thereof,
and (2) the interest on Bonds as it becomes payable. There are hereby
established with the Trustee within the Bond Fund two separate and segregated
accounts, to be designated the "Payments Account" and the "Credit Facility
Account".

     (b) There shall be deposited into the various accounts of the Bond Fund
from time to time the following:

          (1) into the Payments Account, (A) all payments of principal or
     redemption price (including premium) of or interest on the Note, and (B)
     all other moneys received by the Trustee under and pursuant to the
     provisions of this Indenture or any of the provisions of the Note or the
     Sale Agreement, when accompanied by written directions from the person
     depositing such moneys that such moneys are to be paid into such account of
     the Bond Fund. All amounts deposited in the Payments Account shall be
     segregated and held, with the earnings thereon, separate and apart from
     other funds in the Bond Fund until such amounts become Available Moneys. At
     such time as funds deposited in the Payments Account become Available
     Moneys, they may be commingled with other Available Moneys in the Payments
     Account; and

          (2) into the Credit Facility Account, all moneys drawn by the Trustee
     under the Credit Facility to pay principal or redemption price (excluding
     any premium) of the Bonds and interest on the Bonds.

     (c) Except as provided in Section 911 hereof, moneys in the Bond Fund shall
be used solely for the payment of the principal or redemption price of the Bonds
and interest on the Bonds from the following sources but only in the following
order of priority;

          (1) moneys held in the Credit Facility Account, provided that in no
     event shall moneys held in the Credit Facility Account be used to pay any
     amounts due on Bonds which are held by or for the Company, including
     without limitation, Bonds pledged to the Credit Facility Issuer, or to pay
     any portion of the redemption premiums required pursuant to Section
     701(a)(2) hereof; and

          (2) moneys held in the Payments Account to the extent such amounts
     qualify as Available Moneys (except with respect to moneys paid on Bonds
     that are held by or for the Company, including without limitation, Bonds
     pledged to the Credit Facility Issuer, which moneys need not qualify as
     Available Moneys).

     (d) Not later than 10:00 a.m. on the third (3rd) Business Day preceding the
date on which principal or redemption price of or interest on the Bonds is due
and payable (the "Payment Date"), the Trustee shall have notified the Company
and the Credit Facility Issuer of the amounts of principal and interest due on
the Bonds on the Payment Date. Not later than 11:00 a.m. on each Payment Date,
the Trustee shall present a draft or drafts under the Credit Facility in the
amounts due and payable on the Bonds. Such funds shall be wired by the Bank to
be deposited in the Credit

<PAGE>

Facility Account and payments due under the Bonds shall be made by the Trustee
in accordance with Section 208 and Section 502(c) hereof. Following such payment
to the Bondholders, the Trustee shall, on behalf of the Company, promptly pay
moneys on deposit in the Payments Account in an amount equal to the amounts of
such drawing or drawings to the Bank as reimbursement to the Bank under the
terms of the Reimbursement Agreement. If no amounts are owed by the Company to
the Credit Facility Issuer under the Reimbursement Agreement, any amounts
remaining in the Payments Account on the Business Day immediately following a
Payment Date shall be paid to the Company upon request with the consent of the
Credit Facility Issuer.

     (e) Except as provided in the following sentence, the Bond Fund shall be
depleted at least once each year, except for a reasonable carryover amount (not
to exceed the greater of one year's earnings on the Bond Fund or one-twelfth
(1/12th) of annual debt service). Any money deposited in the Bond Fund shall be
spent within a thirteen (13) month period beginning on the date of deposit, and
any amount received from investment of money held in the Bond Fund shall be
spent within a one (1) year period beginning on the date of receipt. Any amounts
remaining in the Bond Fund after payment in full of the principal or redemption
price of and interest on the Bonds (or provisions for payment thereof) shall be
paid to the Company at the written request of the Company therefor or as
otherwise required by law; provided, that if any payments have been received by
the Trustee from the Credit Facility in connection with such payment of the
Bonds, any remaining amounts shall be paid to the Credit Facility Issuer to the
extent of such payments.

     Section 503.   Revenues to Be Held for All Bondholders; Certain
                    Exceptions.

     Revenues shall, until applied as provided in this Indenture, be held by the
Trustee in trust for the benefit of the owners of all Outstanding Bonds, except
that any portion of the Revenues representing principal or redemption price of
any Bonds, and interest on any Bonds previously matured or called for redemption
in accordance with Article VII of this Indenture, shall be held for the benefit
of the owners of such Bonds only.

     Section 504.   Rebate Fund.

     In the event that the Company provides for the deposit of amounts from time
to time for rebate to the United States of America pursuant to the Sale
Agreement, the Trustee is hereby authorized to create a special fund to be
designated as the Rebate Fund. The Rebate Fund shall be held separate and apart
from all other funds under this Indenture and shall not be subject to the lien
and pledge granted hereunder for the benefit of Bondholders. The Trustee shall
remit money deposited in the Rebate Fund to the United States of America or
otherwise as directed in writing by the Company. All moneys deposited in the
Rebate Fund shall be held and invested at the sole direction of the Company. In
making investments hereunder, or in selling or disposing of investments as
required hereby, the Trustee shall have no duty or responsibility to
independently verify compliance with Sections 148(d) and 148(f) of the Code and
the regulations promulgated thereunder and the Trustee shall be fully protected
in relying solely upon the written directions of the Company as aforesaid. Under
no circumstances whatsoever shall the Trustee be liable to the Issuer, the
Company or any holder for any loss of tax-exempt status of the Bonds, or any
claims, demands, damages, liabilities, losses, costs or expenses

<PAGE>

resulting therefrom or in any way connected therewith, so long as the Trustee
acts only in accordance with the written directions of the Company as provided
hereunder. The Trustee shall not be responsible for any losses in the investment
of money in the Rebate Fund made at the direction of the Company.

                                   ARTICLE VI

                      DEPOSITARIES OF MONEYS, SECURITY FOR
              DEPOSITS AND INVESTMENT OF FUNDS; THE CREDIT FACILITY

     Section 601.   Security for Deposits.

     All moneys deposited with the Trustee under the provisions of this
Indenture or the Sale Agreement shall be held in trust and applied only in
accordance with the provisions of this Indenture and the Sale Agreement and
shall not be subject to lien (other than the lien created hereby) or attachment
by any creditor of the Trustee, the Issuer or the Company.

     Section 602.   Investment of Moneys.

     (a) At the request and the direction of the Company (confirmed in writing),
moneys held for the credit of the Bond Fund (including any amount therein) shall
be invested and reinvested by the Trustee in Investment Obligations which shall
mature not later than the respective dates when the moneys held for the credit
of said funds will be required for the purposes intended, provided that moneys
held in the Credit Facility Account of the Bond Fund shall be invested and
reinvested by the Trustee only in Governmental Obligations which shall mature
not later than the date on which such moneys will be required to be paid;
provided further that such investment shall only be made at the direction of the
Company. The Trustee shall be entitled to rely on instruction from the Company.
In making investments hereunder, or in selling or disposing of investments as
required hereby, the Trustee shall have no duty or responsibility to
independently verify compliance with Sections 148(d) and 148(f) of the Code and
the regulations promulgated thereunder and the Trustee shall be fully protected
in relying solely upon the written directions of the Company as aforesaid. Under
no circumstances whatsoever shall the Trustee be liable to the Issuer, the
Company or any holder for any loss of tax-exempt status of the Bonds, or any
claims, demands, damages, liabilities, losses, costs or expenses resulting
therefrom or in any way connected therewith, so long as the Trustee acts only in
accordance with the written directions of the Company as provided hereunder.

     (b) Obligations so purchased as an investment of moneys in any such fund or
account shall be deemed at all times to be a part of such fund or account, and
the interest accruing thereon and any profit realized from such investment shall
be credited to such fund or account, and any loss resulting from such investment
shall be charged to such fund or account. The Trustee shall sell at market price
or present for redemption any obligation so purchased whenever it shall be
necessary so to do in order to provide cash to meet any payment or transfer from
any such fund or account. Neither the Trustee nor the Issuer shall be liable or
responsible for loss resulting from any such investment or the sale of any such
investment made pursuant to the terms of this Section.

<PAGE>

     (c) For the purpose of the Trustee's determination of the amount on deposit
to the credit of any such fund or account, obligations in which moneys in such
fund or account have been invested shall be valued at the lower of cost or
market.

     (d) The Trustee may make any and all investments permitted by this Section
through its own bond or investment department, unless otherwise directed in
writing by the Company Representative.

     Section 603.   The Credit Facility.

     (a) Initial Letter of Credit.

          (1) The Letter of Credit shall be a direct pay letter of credit and
     shall provide for direct payments to or upon the order of the Trustee as
     hereinafter set forth and shall be the irrevocable obligation of the Bank
     to pay to or upon the order of the Trustee, upon request and in accordance
     with the terms thereof, an amount of up to $7,875,000 of which (A)
     $7,500,000 shall support the payment of principal of the Bonds when due and
     that portion of the purchase price corresponding to principal of Tendered
     Bonds not remarketed on any Variable Rate Purchase Date or sold on the
     Conversion Date, and (B) $375,000 shall support the payment of up to one
     hundred twenty (120) days' interest at a maximum rate of fifteen percent
     (15%) per annum on the Bonds when due and that portion of the purchase
     price corresponding to interest on Tendered Bonds not remarketed on any
     Variable Rate Purchase Date or sold on the Conversion Date.

          (2) The Letter of Credit shall terminate automatically on the earliest
     of (A) the date on which a drawing under the Letter of Credit has been
     honored upon the maturity or acceleration of the Bonds or redemption of all
     the Bonds, (B) the day on which the Credit Facility Issuer receives the
     notice of the conversion following the Conversion Date, (C) the date on
     which the Bank receives notice from the Trustee that an Alternate Credit
     Facility is substituted for the Letter of Credit and is in effect, (D) the
     date on which the Bank receives notice from the Trustee that there are no
     longer any Bonds Outstanding and (E) the Stated Termination Date described
     in the Letter of Credit as it may be extended pursuant to the terms
     thereof.

          (3) The Bank's obligation under the Letter of Credit may be reduced to
     the extent of any drawing thereunder, subject to reinstatement as provided
     therein. The Letter of Credit shall provide that, with respect to a drawing
     by the Trustee solely to pay interest on the Bonds on any Interest Payment
     Date, if the Trustee shall not have received from the Bank within ten (10)
     days from the date of such drawing a notice by telecopier, by telex or in
     writing that the Bank has not been reimbursed, the Trustee's right to draw
     under the Letter of Credit with respect to the payment of interest shall be
     reinstated on or before the eleventh (11th) day following such drawing in
     an amount equal to such drawing. With respect to any other drawing by the
     Trustee, the amount available under the Letter of Credit for payment of the
     purchase price of the Bonds and interest on the Bonds shall be reinstated
     in an amount equal to any such drawing but only to the extent that the Bank
     is reimbursed in accordance with the terms of the Reimbursement Agreement
     for the amounts so drawn.

<PAGE>

          (4) The Letter of Credit shall provide that if, in accordance with the
     terms of the Indenture, the Bonds shall become or be declared immediately
     due and payable pursuant to any provision of the Indenture, the Trustee
     shall be entitled to draw on the Letter of Credit to the extent that the
     amounts are available thereunder to pay the aggregate principal amount of
     the Bonds then Outstanding plus an amount of interest not to exceed one
     hundred twenty (120) days.

          (5) Upon the termination of the Letter of Credit, the Trustee shall
     return the Letter of Credit to the Bank.

     (b) Expiration. Unless an Alternate Credit Facility has been provided in
accordance with Section 603(c) hereof at least thirty (30) days before the
Interest Payment Date immediately preceding the fourteenth (14th) day prior to
the expiration date of a Credit Facility, the Trustee shall call the Bonds for
redemption in accordance with the Section 701(c)(2) hereof. If at any time there
shall cease to be any Bonds Outstanding hereunder, the Trustee shall promptly
surrender the then current Credit Facility to the Credit Facility Issuer for
cancellation. The Trustee shall comply with the procedures set forth in the
Credit Facility relating to the termination thereof.

     (c) Alternate Credit Facilities. While the Bonds bear interest at the
Variable Rate, the Company may, at its option, provide for the delivery to the
Trustee of an Alternate Credit Facility. The Alternate Credit Facility shall
have terms in all respects material to the owners of the Bonds the same as the
Credit Facility being replaced and shall be in form acceptable to the Trustee
and the Tender Agent. On or prior to the date of delivery of an Alternate Credit
Facility to the Trustee, the Company shall furnish to the Trustee:

          (1) an opinion of Counsel stating that the delivery of such Alternate
     Credit Facility to the Trustee is authorized under this Indenture and
     complies with the terms hereof and that such Alternate Credit Facility is
     enforceable against the Credit Facility Issuer thereof in accordance with
     its terms, and

          (2) if the Bonds are rated by Moody's or S&P, written evidence (or
     such other evidence satisfactory to the Trustee) from Moody's, if the Bonds
     are rated by Moody's, and from S&P, if the Bonds are 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 then current Credit Facility will not, by
     itself, result in:

               (A) a permanent withdrawal of its rating of the Bonds, or

               (B) a reduction of the then current rating of the Bonds,

     or if the Bonds are not rated by Moody's or S&P, written evidence (or such
     other evidence satisfactory to the Trustee in its sole discretion) that
     obligations substantially equivalent in term to the term of the proposed
     Alternate Letter of Credit of the bank or institution issuing the proposed
     Alternate Credit Facility are rated by Moody's or S&P in the same category
     as the obligations of substantially equivalent term of the bank or
     institution which issued the Credit Facility being replaced; provided,
     however, if the Company

<PAGE>

     provides the Trustee with an opinion of Bond Counsel that a change in the
     then current rating on the Bonds or a change in the Credit Facility Issuer
     to a bank or institution the obligations of which are rated in a different
     category than those obligations of equivalent term of the issuer of the
     Credit Facility being replaced will not adversely affect the exclusion of
     the interest on the Bonds from gross income from federal tax purposes, then
     such evidence need not be provided, but the Company shall instead provide
     the Trustee with written evidence (or such other evidence as shall be
     satisfactory to the Trustee) that the commercial paper of the bank or
     institution issuing the proposed Alternate Credit Facility is rated P-3 or
     higher by Moody's or A-3 or higher by S&P.

The Trustee shall then accept such Alternate Credit Facility and surrender the
previously held Credit Facility to the previous Credit Facility Issuer for
cancellation promptly on or before the fifteenth (15th) day after the Alternate
Credit Facility becomes effective, but not later than the fifteenth (15th) day
following the last Interest Payment Date covered by the Credit Facility to be
cancelled.

     (d) Notices of Substitution or Replacement of Credit Facility.

          (1) The Trustee shall, at least twenty (20) days prior to the proposed
     replacement of a Credit Facility with an Alternate Credit Facility, give
     notice thereof by mail to the owners of the Bonds, which notice shall
     include the identity of the issuer thereof and the rating, if any, to be
     assigned to the Bonds by Moody's or S&P following the effective date of
     such Alternate Credit Facility or, if the Bonds are not then rated by
     Moody's or S&P, then the rating assigned by Moody's or S&P to the
     obligations substantially equivalent in term to the term of the proposed
     Alternate Credit Facility of the Issuer of such Alternate Credit Facility.

          (2) The Trustee shall promptly give notice of any replacement of the
     Credit Facility to the Issuer, the Tender Agent and the Remarketing Agent.

                                   ARTICLE VII

                       REDEMPTION OR PURCHASE OF THE BONDS

     Section 701.   Redemption or Purchase Dates and Prices.

     The Bonds shall be subject to redemption, and, in certain instances, to
purchase, prior to maturity in the amounts, at the times and in the manner
provided in this Article VII. Payments of the redemption price or the purchase
price of any Bond shall be made only upon the surrender to the Trustee or its
agent, as directed, of any Bond so redeemed or purchased.

     (a)  Optional Redemption

          (1) Optional Redemption During Variable Rate Period. While the Bonds
     bear interest at the Variable Rate, the Bonds shall be subject to
     redemption, upon the written direction of the Issuer, given at the request
     of the Company, on any Interest Payment Date and on the Conversion Date in
     whole or in part, at a redemption price of one

<PAGE>

     hundred percent (100%) of the principal amount thereof, without premium,
     plus interest accrued to the redemption date.

          (2) Optional Redemption With Premium During Fixed Rate Period. While
     the Bonds bear interest at the Fixed Rate, the Bonds shall be subject to
     redemption upon the written direction of the Issuer, given at the request
     of the Company, in whole or in part, on any Interest Payment Date occurring
     on or after the dates set forth below, at the redemption prices (expressed
     as percentages of principal amount to be redeemed) set forth below plus
     interest accrued to the redemption date as follows:

         Commencement of
         Redemption Period             Redemption Price

         The Business Day four         103% declining by 1/2% on each
         (4) years from the            succeeding anniversary of the first
         Conversion Date               day of the redemption period until
                                       reaching 100% and thereafter at
                                       100%

     (b) Extraordinary Optional Redemption Due to Casualty or Eminent Domain.

          (1) The Bonds may be redeemed as a whole or in part by the Issuer at
     any time at the written direction of the Company, at a redemption price
     equal to one hundred percent (100%) of the principal amount thereof plus
     interest accrued thereon to the redemption date, without premium, under any
     of the following conditions, the existence of which shall be certified to
     the Trustee by the Company Representative:

               (A) The Project shall have been damaged or destroyed to such
          extent that the amount of Net Proceeds of insurance exceeds $500,000
          and the Company elects not to rebuild the Project or fails to so elect
          within ninety (90) days of receipt by the Trustee of such Net
          Proceeds; or

               (B) Title to, or the temporary use of, all of the Project or any
          substantial portion thereof shall have been taken by Eminent Domain
          and the amount of Net Proceeds from such taking exceeds $500,000 and
          the Company elects not to replace the property so taken or fails so to
          elect within ninety (90) days of receipt by the Trustee of such Net
          Proceeds.

          (2) Such redemption shall occur on the next Interest Payment Date
     occurring not less than thirty (30) days following the expiration of such
     90-day period referred to in paragraph (1) of this Section 701(b).

     (c) Mandatory Redemption.

          (1) Determination of Taxability. The Bonds shall be subject to
     mandatory redemption in whole on any date at a redemption price equal to
     one hundred percent (100%) of the principal amount thereof plus accrued
     interest to the redemption date which shall not be more than one hundred
     eighty (180) days following the receipt by the Trustee of

<PAGE>

     a written notice of a Determination of Taxability.

          (2) Failure to Provide Alternate Credit Facility. The Bonds shall be
     subject to mandatory redemption during the Variable Rate Period at one
     hundred percent (100%) of the principal amount thereof, without premium,
     plus interest accrued, if any, thereon to the date of redemption, on the
     Interest Payment Date occurring closest to but not after fifteen (15) days
     prior to the date of expiration of the then current Credit Facility, unless
     an Alternate Credit Facility has been provided in accordance with Article
     VI hereof.

     (d) Mandatory Purchase on Conversion Date. The Bonds shall be subject to
mandatory purchase in whole on the Conversion Date at a purchase price equal to
one hundred percent (100%) of the principal amount thereof, without premium,
plus interest accrued, if any, thereon to the date of purchase, on the
Conversion Date.

     Section 702.   Company to Direct Optional Redemption.

     The Issuer shall direct the Trustee in writing to call Bonds for optional
redemption when and only when it shall have been notified by the Company to do
so and the Company has notified the Trustee in writing that the Company has made
or intends to make a corresponding prepayment under the Note. Such direction
from the Issuer to the Trustee shall be given at least forty-five (45) days but
not more than sixty (60) days prior to the redemption date or such shorter
period as shall be acceptable to the Trustee. So long as a Credit Facility is
then held by the Trustee, the Trustee shall only call Bonds for optional
redemption if it has Available Moneys in the Payments Account of the Bond Fund
or has been notified by the Credit Facility Issuer that it will receive moneys
pursuant to the Credit Facility, in the aggregate, sufficient to pay the
redemption price of the Bonds to be called for redemption, plus accrued interest
thereon.

     Section 703.   Selection of Bonds to be Called for Redemption.

     Except as otherwise provided herein or in the Bonds, if less than all the
Bonds are to be redeemed, the particular Bonds to be called for redemption shall
be selected in the following order of priority: first, Bonds pledged to the Bank
pursuant to the Pledge Agreement, second, Bonds owned by the Company and third,
Bonds selected by any random or other method determined by the Trustee in its
sole discretion to be fair and reasonable. The Trustee shall treat any Bond of a
denomination greater than One Hundred Thousand Dollars ($100,000) as
representing that number of separate Bonds each of the denomination of the
minimum denomination of One Hundred Thousand Dollars ($100,000) or any integral
multiple of Five Thousand Dollars ($5,000) in excess thereof as the Trustee
shall so determine.

     Section 704.   Notice of Redemption or Purchase.

     (a) When required to redeem or purchase Bonds under any provision of this
Article VII, or when directed to do so by the Issuer, the Trustee shall cause
notice of the redemption or purchase to be given not more than sixty (60) days
and not less than twenty (20) days prior to the redemption or purchase date by
mailing a copy of all notices of redemption or purchase by first class mail,
postage prepaid, to all registered owners of Bonds to be redeemed or purchased
at their addresses shown on the Bond Register.

<PAGE>

Failure to mail any such notice or defect in the mailing thereof in respect of
any Bond shall not affect the validity of the redemption or purchase of any
other Bond. Notices of redemption or purchases shall also be mailed to the
Remarketing Agency and the Credit Facility Issuer, if any. Any such notice shall
be given in the name of the Issuer, shall identify the Bonds to be redeemed or
purchased (and, in the case of partial redemption or purchase of any Bonds, the
respective principal amounts thereof to be redeemed or purchased), shall specify
the redemption or purchase date, and shall state that on the redemption or
purchase date, the redemption or purchase price of the Bonds called for
redemption or purchase will be payable at the principal corporate trust office
of the Trustee, or in the case of mandatory redemptions or purchases pursuant to
Section 701(c)(2) or 701(d) hereof at the office of the Trustee's Paying Agent,
if any, and that from that date interest will cease to accrue. The Trustee may
use "CUSIP" numbers in notices of redemption or purchase as a convenience to
Bondholders, provided that any such notice shall state that no representation is
made as to the correctness of such numbers either as printed on the Bonds or as
contained in any notice of redemption or purchase and that reliance may be
placed only on the identification numbers containing the prefix established
under the Indenture.

     (b) With respect to any notice of redemption or purchase of Bonds in
accordance with Section 701(c)(2) hereof, such notice shall also specify the
date of the expiration of the term of the Credit Facility.

     (c) After the Conversion Date, if at the time of mailing of notice of any
optional redemption the Issuer shall not have deposited with the Trustee moneys
sufficient to redeem all the Bonds called for redemption, such notice may state
that it is conditional on the deposit of Available Moneys with the Trustee not
later than the redemption date, and such notice shall be of no effect unless
such moneys are so deposited.

     (d) Upon redemption of less than all of the Bonds, the Trustee shall
furnish to the Credit Facility Issuer a notice in the form specified by the
Credit Facility Issuer to reduce the coverage provided by the Credit Facility
and upon redemption of all of the Bonds, the Trustee shall surrender the Credit
Facility to the Credit Facility Issuer for cancellation.

     (e) Purchases under Section 701(d) hereof shall be in accordance with
Section 202(e) hereof.

     Section 705.   Bonds Redeemed or Purchased in Part.

     Any Bond which is to be redeemed or purchased only in part shall be
surrendered at a place stated in the notice provided for in Section 704 hereof
(with due endorsement by, or a written instrument of transfer in form
satisfactory to the Trustee duly executed by, the owner thereof or his attorney
duly authorized in writing) and the Issuer shall execute and the Trustee or its
Authenticating Agent shall authenticate and deliver to the owner of such Bond
without service charge, a new Bond or Bonds, of any authorized denomination as
requested by such owner in an aggregate principal amount equal to and in
exchange for the unredeemed and unpurchased portion of the principal of the Bond
so surrendered.

<PAGE>

                                  ARTICLE VIII

                       PARTICULAR COVENANTS AND PROVISIONS

     Section 801.   Covenant to Pay the Bonds; Bonds Limited Obligations of
                    the Issuer.

     (a) The Issuer covenants that it will promptly pay the principal of and
interest on and other amounts payable under the Bonds at the places, on the
dates and in the manner provided herein and in the Bonds according to the true
intent and meaning thereof. Such principal and interest and other amounts are
payable solely from the payments made by the Company on the Note and other
Revenues.

     (b) The Issuer shall not in any event be liable for the payment of the
principal of or interest on the Bonds, or for the performance of any pledge,
mortgage, obligation or agreement of any kind whatsoever which may be undertaken
by the Issuer, and neither the Bonds nor any of the agreements or obligations of
the Issuer shall be construed to constitute an indebtedness of the Issuer within
the meaning of any constitutional or statutory provision whatsoever. The Bonds
and the interest thereon shall never constitute an indebtedness or a charge
against the general credit of the Issuer within the meaning of any
constitutional provision or statutory limitation and shall never constitute nor
give rise to any pecuniary liability of the Issuer, but shall be limited
obligations of the Issuer payable solely from the revenues and other funds
pledged therefor and shall not be payable from any other assets or funds of the
Issuer, and neither the faith and credit nor the taxing power of the State or
any political subdivision or any agency thereof is pledged to the payment of the
principal of or the interest on the Bonds.

     Section 802.   Covenants to Perform Obligations Under this Indenture.

     The Issuer covenants that it will faithfully perform at all times any and
all covenants, undertakings, stipulations and provisions contained in this
Indenture, in the Bonds executed and delivered hereunder and in all proceedings
of the Issuer pertaining thereto and will faithfully observe and perform at all
times any and all covenants, undertakings, stipulations and provisions of the
Sale Agreement on its part to be observed or performed. The Issuer covenants
that it is duly authorized under the Constitution and laws of the State,
including particularly and without limitation the Act, to issue the Bonds
authorized hereby and to enter into this Indenture, to endorse the Note to the
Trustee, to pledge the payments on the Note and other Revenues in the manner and
to the extent herein set forth, and to assign its interest in the Note and the
Sale Agreement to the Trustee; and that all action on its part for the issuance
of the Bonds issued hereunder and the execution and delivery of this Indenture
has been duly and effectively taken; and that the Bonds in the hands of the
owners thereof are and will be the valid and binding obligations of the Issuer
according to the tenor and import thereof.

     Section 803.   Covenant to Perform Obligations Under the Sale
                    Agreement.

     Subject to the provisions of Section 804 of this Article, the Issuer
covenants and agrees that it will not suffer, permit or take any action or do
anything or fail to take any action or fail to do anything which may result in
the termination or cancellation of the Sale Agreement so long as

<PAGE>

any Bond is Outstanding; that it will punctually fulfill its obligations and
will require the Company to perform punctually its duties and obligations under
the Sale Agreement; that it will not execute or agree to any change, amendment
or modification of or supplement to the Sale Agreement or this Indenture except
by a supplement or an amendment duly executed by the Issuer and the Company with
the approval of the Trustee and upon the further terms and conditions set forth
in Article XIII of this Indenture; that it will not agree to any abatement,
reduction, abrogation, waiver, diminution or other modification in any manner or
to any extent whatsoever of the obligation of the Company to pay the Note and to
meet its other obligations as provided in the Sale Agreement; and that it will
promptly notify the Trustee in writing of any actual or alleged Event of Default
under the Sale Agreement, whether by the Company or the Issuer, and will further
notify the Trustee at least thirty (30) days before the proposed date of
effectiveness of any proposed termination or cancellation of the Sale Agreement.

     Section 804.   Trustee May Enforce the Issuer's Rights Under the Sale
                    Agreement.

     The Sale Agreement, a duly executed counterpart of which has been filed
with the Trustee, sets forth the covenants and obligations of the Issuer and the
Company, including a provision in Section 12.9 thereof that subsequent to the
issuance of the Bonds and prior to Payment of the Bonds (as defined in the Sale
Agreement) the Sale Agreement and the Note may not be effectively amended,
changed, modified, altered or terminated except as provided in Article XIII of
this Indenture, and reference is hereby made to the Sale Agreement for a
detailed statement of said covenants and obligations of the Company under the
Sale Agreement, and the Issuer agrees that the Trustee, subject to the
provisions of the Sale Agreement and this Indenture reserving certain rights to
the Issuer and respecting actions by the Trustee in its name or in the name of
the Issuer, may enforce all rights of the Issuer and all obligations of the
Company under and pursuant to the Sale Agreement for and on behalf of the
Bondholders whether or not the Issuer is in default hereunder.

     Section 805.   Covenant Against Arbitrage.

     The Issuer covenants and agrees that it will not make or authorize any use,
and directs the Trustee not to make or permit any use, of the proceeds of the
Bonds which would cause any Bond to be an "arbitrage bond" within the meaning of
Section 148 of the Code and the applicable regulations promulgated from time to
time thereunder, and further covenants that it will observe and not violate the
requirements of Section 148 of the Code and any such applicable regulations to
the extent necessary so that the interest on the Bonds will not cease to be
excluded from the gross income of the recipients thereof for federal income tax
purposes by reason of such use of proceeds; provided that neither the Issuer nor
the Trustee shall be liable for any investment of moneys under this Indenture
made at the direction of the Company Representative.

     Section 806.   Inspection of the Bond Register.

     At reasonable times and upon reasonable regulations established by the Bond
Registrar, the Bond Register may be inspected and copied by and at the expense
of the Company or any Bondholder.

<PAGE>

     Section 807.   Priority of Pledge and Security Interest.

     The pledge herein made of the Trust Estate and the security interest
created herein with respect thereto constitutes a first and prior pledge of, and
a security interest in, the Trust Estate. Said pledge and security interest
shall at no time be impaired directly or indirectly by the Issuer or the
Trustee, and the Trust Estate shall not otherwise be pledged and, except as
provided herein and in the Sale Agreement, no persons shall have any rights with
respect thereto.

     Section 808.   Insurance and Condemnation Proceeds.

     Reference is hereby made to Sections 6.4 and 6.5 of the Sale Agreement
whereunder it is provided that under certain circumstances the respective Net
Proceeds of insurance and condemnation awards (or Net Proceeds from a sale in
lieu of condemnation) are to be paid to the Trustee and deposited in separate
trust accounts (but not in the Bond Fund) and to be disbursed and paid out as
therein provided. The Trustee hereby accepts and agrees to perform the duties
and obligations as therein specified.

                                   ARTICLE IX

                              DEFAULT AND REMEDIES

     Section 901.   Defaults.

     Each of the following events is hereby declared to be an "Event of
Default":

     (a) Payment of interest on any of the Bonds shall not be made when the same
shall become due; or

     (b) Payment of the principal or redemption price of any of the Bonds shall
not be made when the same shall become due, whether at maturity or upon call for
redemption or otherwise; or

     (c) An "Event of Default" under the Sale Agreement shall have occurred and
not have been waived; or

     (d) The Trustee receives written notice from the Credit Facility Issuer
that an Event of Default under the Reimbursement Agreement has occurred and has
not been waived; or

     (e) The Trustee receives notice by telecopier, by telex or in writing from
the Credit Facility Issuer that the Credit Facility Issuer has not been
reimbursed for a drawing thereon on or before the close of business on the tenth
(10th) calendar day following a drawing under such Credit Facility to pay
interest on the Bonds and that the interest portion of the Letter of Credit will
not be reinstated for the amount so drawn; or

     (f) Payment of the purchase price of any Bond tendered pursuant to Section
203 hereof is not made when payment is due; or

     (g) The Issuer shall fail to duly and punctually perform any of the
covenants, conditions, agreements and provisions contained in the Bonds or in
this Indenture on the part of the Issuer to be performed other than as

<PAGE>

referred to in the preceding subsections of this Section;

provided, however, that no failure specified in subsections (c) or (g) of this
Section 901 shall constitute an Event of Default until written notice specifying
such failure and requiring the same to be remedied shall have been given to the
Company and the Issuer by the Trustee, which may give notice in its discretion
and shall give such notice at the written direction of the owners of not less
than twenty-five percent (25%) in aggregate principal amount of Bonds
Outstanding, and the Company and the Issuer shall have had thirty (30) days
after receipt of such notice to correct said failure and shall not have
corrected said failure within the applicable period.

     Section 902.   Acceleration and Annulment Thereof.

     (a) Subject to the requirement that the consent of the Credit Facility
Issuer to any acceleration must be obtained in the case of an Event of Default
described in subsections (c) or (g) of Section 901 hereof, upon the occurrence
of an Event of Default, the Trustee may, and upon (1) the written request of the
Credit Facility Issuer, or (2) the occurrence of an Event of Default described
in subsection (a), (b), (d), (e) or (f) of Section 901 hereof, the Trustee
shall, by notice to the Issuer, declare the entire unpaid principal of and
interest on the Bonds due and payable; and upon such declaration, the said
principal, together with interest accrued thereon, shall become payable
immediately, without penalty or premium, at the place of payment provided
therein, anything in the Indenture or in the Bonds to the contrary
notwithstanding. The Trustee shall not be permitted to request receipt of
indemnity to its satisfaction prior to such declaration of acceleration. Upon
the occurrence of any acceleration hereunder, the Trustee shall immediately
exercise such rights as it may have as the owner of the Note to declare all
payments thereunder to be due and payable immediately, and to the extent it has
not already done so, shall immediately draw upon the Credit Facility to the
extent permitted by the terms thereof. Interest on the Bonds shall cease to
accrue upon receipt by the Trustee of funds drawn under the Credit Facility.

     (b) Immediately after any acceleration because of the occurrence of an
Event of Default under Sections 901(a), (b), (d), (e), (f) or (g), the Trustee
shall (immediately, and in no event within two Business Days thereafter) notify
in writing the Issuer, the Company and the Credit Facility Issuer of the
occurrence of such acceleration. Within five (5) days of the occurrence of any
acceleration hereunder, the Trustee shall notify by first class mail, postage
prepaid, the owners of all Bonds Outstanding of the occurrence of such
acceleration.

     (c) If, after the principal of the Bonds has become due and payable, all
arrears of interest upon the Bonds are paid by the Issuer, and the Issuer also
performs all other things in respect to which it may have been in default
hereunder and pays the reasonable charges of the Trustee and the Bondholders,
including reasonable attorneys' fees, then, and in every such case, the Credit
Facility Issuer or a Majority of the Bondholders by written notice to the Issuer
and to the Trustee, may annul such acceleration and its consequences, and such
annulment shall be binding upon the Trustee and upon all owners of Bonds issued
hereunder; provided, however, that the Trustee shall not annul any declaration
without the written consent of the Credit Facility Issuer unless such
acceleration has resulted from the failure of the Credit Facility Issuer to
honor a proper

<PAGE>

draw for payment under the Credit Facility. Notwithstanding the foregoing, the
Trustee shall not annul any acceleration which has resulted from an Event of
Default which has resulted in a drawing under the Credit Facility under Section
901(e) hereof unless the Credit Facility has been reinstated in accordance with
its terms to an amount equal to the principal amount of the Bonds Outstanding
plus one hundred twenty (120) days' interest accrued thereon, and the Trustee
has received written notice of such reinstatement from the Credit Facility
Issuer. The Trustee shall forward a copy of any notice from Bondholders received
by it pursuant to this paragraph to the Company. Immediately upon such
annulment, the Trustee shall cancel, by notice to the Company, any demand for
payment of the Note made by the Trustee pursuant to this Section 902.

     Section 903.   Other Remedies.

     If any Event of Default occurs and is continuing, the Trustee, before or
after the principal of the Bonds becomes immediately due and payable, may
enforce each and every right granted to it as the owner of the Note and under
the Sale Agreement and any supplements or amendments thereto. In exercising such
rights and the rights given the Trustee under this Article IX, the Trustee shall
take such action as, in the judgment of the Trustee applying the standards
described in Section 1001 hereof, would best serve the interests of the
Bondholders.

     Section 904.   Legal Proceedings by the Trustee.

     (a) If any Event of Default has occurred and is continuing, the Trustee in
its discretion may, and upon the written request of the Credit Facility Issuer
or the owners of not less than twenty-five percent (25%) in aggregate principal
amount of the Outstanding Bonds and receipt of indemnity to its satisfaction
shall, in its own name:

          (1) By mandamus, or other suit, action or proceeding at law or in
     equity, enforce all rights of the Bondholders hereunder;

          (2) Bring suit upon the Bonds, the Credit Facility (but only to the
     extent the Credit Facility Issuer shall have wrongfully dishonored drawings
     made in strict conformity with the terms hereof) and the Note; and

          (3) By action or suit in equity seek to enjoin any acts or things
     which may be unlawful or in violation of the rights of the Bondholders.

     (b) If an Event of Default under Section 901(c) occurs and is continuing,
the Trustee in its discretion may, and upon the written request of the owners of
not less than twenty-five percent (25%) in aggregate principal amount of the
Outstanding Bonds and receipt of indemnity to its satisfaction shall, enforce
each and every right granted to it under the Sale Agreement or as owner of the
Note.

     Section 905. Discontinuance of Proceedings by the Trustee.

     If any proceeding commenced by the Trustee on account of any Event of
Default is discontinued or is determined adversely to the Trustee, then the
Company, the Credit Facility Issuer, the Issuer, the Trustee and the Bondholders
shall be restored to their former positions and rights

<PAGE>

hereunder as though no proceedings had been commenced.

     Section 906.   Credit Facility Issuer or Bondholders May Direct
                    Proceedings.

     Anything to the contrary in this Indenture notwithstanding, either the
Credit Facility Issuer if a Credit Facility is in effect (and no default has
occurred and is continuing under the Credit Facility), or a Majority of the
Bondholders, if there is no Credit Facility in effect, shall have the right,
after furnishing indemnity satisfactory to the Trustee, to direct the method and
place of conducting all remedial proceedings by the Trustee hereunder, provided
that such direction shall not be in conflict with any rule of law or with this
Indenture or unduly prejudice the rights of minority Bondholders.

     Section 907.   Limitations on Actions by the Bondholders.

     (a) No Bondholder shall have any right to bring suit on the Credit
Facility. No Bondholder shall have any right to pursue any other remedy
hereunder unless:

          (1) the Trustee shall have been given written notice of an Event of
     Default;

          (2) the owners of not less than twenty-five percent (25%) in aggregate
     principal amount of the Outstanding Bonds shall have requested the Trustee,
     in writing, to exercise the powers hereinabove granted or to pursue such
     remedy in its or their name or names;

          (3) the Trustee shall have been offered indemnity satisfactory to it
     against costs, expenses and liabilities, except that no offer of
     indemnification shall be required for a declaration of acceleration under
     Section 902 hereof or for a drawing under the Credit Facility;

          (4) the Trustee shall have failed to comply with such request within a
     reasonable time; and

          (5) prior to the Conversion Date, the Credit Facility Issuer has
     failed to honor a proper draw request under the Credit Facility.

     (b) Notwithstanding the foregoing provisions of subsection (a) of this
Section 907 or any other provision of this Indenture, the obligation of the
Issuer shall be absolute and unconditional to pay hereunder, but solely from the
Revenues and other funds pledged under this Indenture, the principal or
redemption price of, and interest on, the Bonds to the respective owners thereof
on the respective due dates thereof, and nothing herein shall affect or impair
the right of action, which is absolute and unconditional, of such owners to
enforce such payment.

     Section 908.   Trustee May Enforce Rights Without Possession of the
                    Bonds.

     All rights under this Indenture and the Bonds may be enforced by the
Trustee without the possession of any Bonds or the production thereof at the
trial or other proceedings relative thereto, and any proceedings instituted by
the Trustee shall be brought in its name for the ratable benefit of the owners
of the Bonds.

<PAGE>

     Section 909.   Remedies Not Exclusive.

     No remedy herein conferred is intended to be exclusive of any other remedy
or remedies, and each remedy is in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.

     Section 910.   Delays and Omissions Not to Impair Rights.

     No delays or omission in respect of exercising any right or power accruing
upon any default shall impair such right or power or be a waiver of such
default, and every remedy given by this Article IX may be exercised from time to
time and as often as may be deemed expedient.

     Section 911.   Application of Moneys in the Event of Default.

     (a) Any moneys received by the Trustee under this Article IX shall be
applied in the following order; provided that any moneys received by the Trustee
from a drawing under the Credit Facility shall be applied to the extent
permitted by the terms thereof only as provided in paragraph (3) below with
respect to the principal of, and interest accrued on, Bonds other than Bonds
held by or for the Company:

          (1) To the payment of the reasonable costs of the Trustee, including
     counsel fees and any disbursements of the Trustee with interest thereon at
     the per annum rate equal to the "Prime" or "Base" rate of the Credit
     Facility Issuer; and

          (2) To the payment of reasonable costs and expenses of the Issuer,
     including counsel fees, incurred in connection with the Event of Default;
     and

          (3) To the payment of principal or redemption price (as the case may
     be) and interest on the Bonds, and in case such moneys shall be
     insufficient to pay the same in full, then to payment of principal or
     redemption price and interest ratably, without preference or priority of
     one over another or of any installment of interest over any other
     installment of interest.

     (b) The surplus, if any, shall be paid to the Company or the person
lawfully entitled to receive the same as a court of competent jurisdiction may
direct; provided that, if the Trustee has received payments on the Credit
Facility following the Event of Default, the surplus shall be paid to the Credit
Facility Issuer to the extent of such payments to the extent the Credit Facility
Issuer has not been reimbursed for such payments and its fees and expenses
related thereto.

     Section 912.   Trustee and Bondholders Entitled to All Remedies Under
                    the Act.

     It is the purpose of this Article IX to provide such remedies to the
Trustee and the Bondholders as may be lawfully granted under the provisions of
the Act, but should any remedy herein granted be held unlawful, the Trustee and
the Bondholders shall nevertheless be entitled to every remedy provided by the
Act. It is further intended that, insofar as lawfully possible, the provisions
of this Article shall apply to and be binding upon

<PAGE>

any trustee or receiver appointed under applicable law.

     Section 913.   Trustee May File Claim in Bankruptcy.

     (a) In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relating to the Issuer, the Company or any other
obligor upon the Sale Agreement or the Bonds or to property of the Issuer, the
Company, or such other obligor or the creditors of any of them, the Trustee
(irrespective of whether the principal of the Bonds shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment on
the Note of an amount equal to overdue principal or interest or additional
interest) shall be entitled and empowered, by intervention in such proceedings
or otherwise;

          (1) to file and prove a claim for the whole amount of principal and
     interest owing and unpaid in respect of the Bonds and to file such other
     papers or documents as may be necessary or advisable in order to have the
     claims of the Trustee (including any claim for the reasonable compensation,
     expenses, disbursements and advances of the Trustee, its agents and
     counsel) and of the Bondholders allowed in such judicial proceeding; and

          (2) to collect and receive any moneys or other property payable or
     deliverable on any such claims and to distribute the same;

and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by the
Bondholders to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Bondholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 911 hereof.

     (b) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept, or adopt on behalf of the Bondholders, any
plan of reorganization, arrangement, adjustment or composition affecting the
Bonds or the rights of any Bondholder thereof, or to authorize the Trustee to
vote in respect of the claim of the Bondholders in any such proceeding.

     (c) All moneys received by the Trustee pursuant to any right given or
action taken under this Indenture shall, after payment of the costs and expenses
of the proceedings resulting in the collection of such moneys and the fees and
expenses of the Trustee, be deposited in the Bond Fund and applied to the
payment of the principal of, redemption premium, if any, and interest then due
and unpaid on the Bonds in accordance with the provisions of this Indenture.

     Section 914.   Receiver.

     Upon the occurrence of an Event of Default and upon the filing of a suit or
other commencement of judicial proceedings to enforce the rights of the Trustee
and of the Bondholders under this Indenture, the Trustee shall be entitled, as a
matter of right, to the appointment of a receiver or

<PAGE>

receivers of the amounts payable on the Note or otherwise under the Sale
Agreement and assigned to the Trustee under this Indenture pending such
proceedings, with such powers as the court making such appointment shall confer,
whether or not any such amounts payable shall be deemed sufficient ultimately to
satisfy the Bonds.

                                    ARTICLE X

                             CONCERNING THE TRUSTEE

     Section 1001.  Acceptance of the Trusts.

     The Trustee hereby represents and warrants to the Issuer (for the benefit
of the Company and the Bondholders as well as the Issuer) that it is a national
banking association and that it is duly authorized under the laws of the United
States of America to accept and execute trusts of the character herein set out.

     The Trustee accepts and agrees to execute the trusts imposed upon it by
this Indenture, but only upon the terms and conditions set forth in this Article
and subject to the provisions of this Indenture including the following express
terms and conditions, to all of which the parties hereto and the Bondholders
agree:

     (a) Except during the continuance of an Event of Default, the Trustee
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture, and no implied covenants or obligations shall be read
into this Indenture against the Trustee.

     (b) In case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.

     (c) The Trustee may execute any of the trusts or powers hereof and perform
any of its duties by or through attorneys, agents, receivers or employees and it
shall not be responsible for any misconduct or negligence of any such attorney,
agent or receiver appointed by it upon due care, and shall be entitled to act
upon the opinion or advice of its counsel concerning all matters of trust hereof
and the duties hereunder, and may in all cases be reimbursed hereunder for
reasonable compensation paid to all such attorneys, agents, receivers and
employees as may reasonably be employed in connection with the trust hereof. The
Trustee may conclusively rely upon an opinion of counsel and shall not be
responsible for any loss or damage resulting from any action or non-action by it
taken or omitted to be taken in good faith in reliance upon such opinion of
counsel.

     (d) Except as is specifically provided in Section 1019 with respect to the
filing of continuation statements, the Trustee shall not be responsible for any
recital herein, or in the Bonds (except in respect to the authentication
certificate of the Trustee endorsed on the Bonds), or for insuring the Trust
Estate or any part of the Project or collecting any insurance moneys, or for the
validity of the execution hereof by the Issuer or of any supplements hereto or
instruments of further assurance, or for the sufficiency of the security for the
Bonds; and the Trustee shall not be

<PAGE>

bound to ascertain or inquire as to the performance or observance of any
agreements or conditions on the part of the Issuer or on the part of the Company
under the Sale Agreement, except as hereinafter set forth; but the Trustee may
require of the Issuer or the Company full information and advice as to the
performance of the agreements and conditions aforesaid and as to the condition
of the Trust Estate.

     (e) The Trustee shall not be liable in connection with the performance or
non-performance of its duties under this Indenture except for its own grossly
negligent action, its own grossly negligent failure to act, or its own willful
misconduct, except that:

          (1) this subsection shall not be construed to limit the effect of
     subsection (a) of this Section 1001;

          (2) The Trustee shall not be liable for any error of judgment made in
     good faith by a Responsible Officer or Officers of the Trustee unless it
     shall be proved that the Trustee was grossly negligent in ascertaining the
     pertinent facts; and

          (3) 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 a Majority of the Bondholders relating to the time, method and place of
     conducting any proceeding for any remedy available to the Trustee, or
     exercising any trust or power conferred upon the Trustee under this
     Indenture.

     (f) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee, including without limitation
Sections 1003 and 1004 hereof, shall be subject to the provisions of this
Section 1001.

     Section 1002.  Trustee to Give Notice.

     (a) The Trustee shall not be required to take notice or be deemed to have
notice of any default hereunder, except failure by the Issuer to cause to be
made any of the payments to the Trustee required to be made by Article V or
failure by the Issuer or the Company to file with the Trustee any document
required by this Indenture or the Sale Agreement to be so filed, unless the
Trustee shall be notified of such default by the Issuer or by the holders of 25%
in aggregate principal amount of Bonds then Outstanding or unless a responsible
corporate trust officer of the Trustee charged with the responsibility for the
management of the trusts conferred by this Indenture shall have actual knowledge
of such default.

     (b) If a responsible trust officer of the Trustee charged with the
responsibility for the management of the trusts conferred by this Indenture
shall have actual knowledge of any Event of Default continuing hereunder, the
Trustee shall give to all Bondholders and to the Credit Facility Issuer written
notice of all such defaults within thirty (30) days after receipt of such
information.

     (c) Promptly upon receipt of notice of the occurrence of a Determination of
Taxability, the Trustee shall give notice thereof to the Company, the Issuer,
the Bondholders and former Bondholders and to the Credit Facility Issuer.

<PAGE>

     Section 1003.  Trustee Entitled to Indemnity.

     (a) The Company shall indemnify the Trustee its officers, directors and
employees against any loss, liability or expense incurred by it arising out of
or in connection with the acceptance or administration of its duties under this
Indenture, except as set forth in subsection (b) below. The Trustee shall notify
the Company promptly of any claim for which it may seek indemnity. Except where
the Company is the claimant, the Company shall have full and sole right to
defend the claim, and the Trustee shall cooperate in the defense. If the Trustee
engages separate counsel, the Trustee shall pay all fees and expenses of such
counsel and the Company shall no longer have the obligation to indemnify the
Trustee; provided, however that the Trustee shall have the right to retain
separate counsel, with the fees and expenses to be paid by the Company, if
representation of the Trustee would be inappropriate due to an actual conflict
of interest, as reasonably determined by either party, between the Trustee and
the Company. The Company shall not be responsible for any settlement reached
without the Company's consent.

     (b) The Company shall not be obligated to reimburse any expense or to
indemnify against any loss or liability incurred by the Trustee through its
gross negligence, willful misconduct or bad faith.

     (c) To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the lien of the Trustee for the benefit of
the owners of the Bonds on all money or property held or collected by the
Trustee, except for amounts drawn under the Credit Facility [and money and
property held in the Rebate Fund], as to which the Trustee shall have no such
lien. Such obligations shall survive the satisfaction and discharge of this
Indenture.

     (d) When the Trustee incurs expenses or renders services after an Event of
Default, the expenses and compensation for the services are intended to
constitute expenses of administration under any applicable bankruptcy law.

     (e) The Trustee may begin suit, or appear in and defend suit, or do
anything else in its judgment proper to be done by it as such Trustee, without
indemnity under paragraph (a) above, and in such case the Issuer shall reimburse
the Trustee from funds available therefor under the Sale Agreement for all costs
and expenses, outlays and counsel fees and other reasonable disbursements
properly incurred in connection therewith; provided, however, that the Trustee
shall:

          (1) make all payments hereunder of principal and redemption price of
     and interest on the Bonds and of the purchase price of Bonds tendered at
     the option of the owners thereof or purchased by the Company in lieu of
     redemption,

          (2) accelerate the Bonds when required to do so hereunder other than
     at the direction of the Bondholders, and

          (3) draw on the Credit Facility when required to do so hereunder,

each without the necessity of the Bondholders providing security or indemnity to
the Trustee. If the Issuer shall fail to make reimbursement,

<PAGE>

the Trustee may reimburse itself from any moneys in its possession under the
provisions of this Indenture other than moneys drawn under the Credit Facility
and shall be entitled with respect thereto to a preference over the Bonds.

     Section 1004.  Trustee Not Responsible for Insurance, Taxes,
                    Execution of this Indenture, Acts of the Issuer or
                    Application of the Moneys Applied in Accordance with this
                    Indenture.

     (a) The Trustee shall not be under any obligation to effect or maintain
insurance or to renew any policies of insurance or to inquire as to the
sufficiency of any policies of insurance carried by the Company, or to report,
or make or file claims or proof of loss for, any loss or damage insured against
or which may occur, or to keep itself informed or advised as to the payment of
any taxes or assessments, or to require any such payment to be made. The Trustee
shall have no responsibility in respect of the validity, sufficiency, due
execution or acknowledgment of this Indenture or any supplements thereto or
instruments of further assurance or the validity or sufficiency of the security
provided hereunder or in respect of the validity of the Bonds or the due
execution or issuance thereof. The Trustee shall not be under any obligation to
see that any duties herein imposed upon any party other than itself, or any
covenants herein contained on the part of any party other than itself to be
performed, shall be done or performed, and the Trustee shall be under no
liability for failure to see that any such duties or covenants are so done or
performed.

     (b) The Trustee shall not be liable or responsible because of the failure
of the Issuer or of any of its employees or agents to make any collections or
deposits or to perform any act herein required of the Issuer or because of the
loss of any moneys arising through the insolvency or the act or default or
omission of any other depositary in which such moneys shall have been deposited
under the provisions of this Indenture. The Trustee shall not be responsible for
the application of any of the proceeds of the Bonds or any other moneys
deposited with it and paid out, withdrawn or transferred hereunder if such
application, payment, withdrawal or transfer shall be made in accordance with
the provisions of this Indenture. The Trustee shall not be responsible or liable
for any loss suffered in connection with any investment of funds made by it in
accordance with Section 602.

     (c) The permissive right of the Trustee to do things enumerated in this
Indenture shall not be construed as a duty, and the Trustee shall not be
answerable for other than its gross negligence or willful misconduct. The
immunities and exemptions from liability of the Trustee hereunder shall extend
to its directors, officers, employees and agents.

     Section 1005.  Compensation.

     Subject to the provisions of any agreement relating to the compensation of
the Trustee, the Issuer shall cause the Company to pay to the Trustee as
Administrative Expenses its reasonable fees, charges and out-of-pocket expenses
in accordance with Section 7.5 of the Sale Agreement. In computing the Trustee's
compensation, the parties shall not be limited by any law on the compensation of
an express trust. If the Company shall fail to make any payment required by this
Section 1005, the Trustee may, but shall be under no obligation to, make such
payment from

<PAGE>

any moneys in its possession under the provisions of this Indenture and shall be
entitled to a preference therefor over the Bonds hereunder; provided that no
payments under this Section 1005 shall be made with moneys drawn under the
Credit Facility.

     Section 1006.  Trustee to Preserve Records.

     All records and files pertaining to the Project in the custody of the
Trustee shall be open at all reasonable times to the inspection of the Issuer,
the Credit Facility Issuer and the Company and their agents and representatives.

     Section 1007.  Trustee May Be a Bondholder.

     The institution acting as Trustee under this Indenture, and its directors,
officers, employees or agents, may in good faith buy, sell, own, hold and deal
in the Bonds issued under and secured by this Indenture, and may join in the
capacity of a Bondholder in any action which any Bondholder may be entitled to
take with like effect as if such institution were not the Trustee under this
Indenture. To the extent permitted by law, such institution may also receive
tenders and purchase in good faith Bonds from itself, including any department,
affiliate or subsidiary, with like effect as if it were not the Trustee.

     Section 1008.  Trustee Not Responsible for Recitals.

     The recitals, statements and representations contained herein and in the
Bonds shall be taken and construed as made by and on the part of the Issuer and
not by the Trustee, and the Trustee shall not be under any responsibility for
the correctness of the same.

     Section 1009.  No Trustee Responsibility for Recording or Filing.

     The Trustee shall not be under any obligation to see to the recording or
filing of this Indenture, the Sale Agreement, any financing statements or any
other instrument or otherwise to the giving to any person of notice of the
provisions hereof or thereof.

     Section 1010.  Trustee May Require Information.

     Except for the obligations of the Trustee under Section 902 and the
obligations of the Trustee to make payments on the Bonds when due and to draw
under the Credit Facility as required hereunder, anything contained in this
Indenture to the contrary notwithstanding, the Trustee shall have the right, but
shall not be required, to demand, as a condition of any action by the Trustee in
respect of the authentication of any Bonds, the withdrawal of any cash, the
release of any property, or any action whatsoever within the purview of this
Indenture, any showings, certificates, opinions, appraisals or other
information, or evidence of corporate authority, in addition to that required by
the terms hereof.

     Section 1011.  Trustee May Rely on Certificates.

     The Trustee shall be protected and shall incur no liability in acting or
proceeding, or in not acting or not proceeding, in good faith and in accordance
with the terms of this Indenture, upon any ordinance, resolution, order, notice,
request, consent, waiver, certificate,

<PAGE>

statement, instrument, opinion, affidavit, requisition, bond or other paper or
document which it shall in good faith believe to be genuine and to have been
adopted or signed by the proper board or person or to have been prepared and
furnished pursuant to any of the provisions of the Sale Agreement or this
Indenture, or upon the written opinion of any attorney, engineer, accountant or
other expert believed by it to be qualified in relation to the subject matter,
and the Trustee shall not be under any duty to make any investigation or inquiry
as to any statements contained or matters referred to in any such instrument.
Any action taken by the Trustee pursuant to this Indenture upon the request or
authority or consent of any person who at the time of making such request or
giving such authority or consent is the owner of any Bond shall be conclusive
and binding upon all future owners of the same Bond and upon Bonds issued in
exchange therefor or in place thereof.

     Section 1012.  Trustee Bond.

     The Trustee shall not be required to give any bond or surety in respect to
the execution of its rights and obligations hereunder.

     Section 1013.  Segregation of Funds; Interests:

     All moneys received by the Trustee shall, until used or applied or invested
as herein provided, be held in trust in the manner and for the purposes for
which they were received but need not be segregated from other funds except to
the extent required by this Indenture or law. The Trustee shall not be under any
liability for interest on any moneys received hereunder.

     Section 1014.  Qualification of the Trustee.

     There shall at all times be a Trustee hereunder which shall be an
association or a corporation organized and doing business under the laws of the
United States of America or of any state, authorized under such laws and the
applicable laws of the State to exercise corporate trust powers and act as Bond
Registrar hereunder, having a combined capital and surplus of at least One
Hundred Million Dollars ($100,000,000), and subject to supervision or
examination by federal or state authority. If such association or corporation is
not a commercial bank or trust company, it shall also have a rating by Moody's
(if the Bonds are then rated by Moody's) of BAA 3/P3 or higher, or by S&P (if
the Bonds are then rated by S&P) of Baa/A3 or higher or shall otherwise be
approved in writing by Moody's or S&P, as the case may be. If such association
or corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section 1014, the combined capital and surplus of such
association or corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 1014, it shall resign immediately in the manner and
with the effect specified in Section 1015 hereof.

     Section 1015.  Resignation and Removal of the Trustee.

     (a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 1016

<PAGE>

hereof.

     (b) The Trustee may resign at any time by giving written notice thereof to
the Issuer and the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within thirty (30) days
after the giving of such notice of resignation, the retiring Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

     (c) The Trustee may be removed at any time by an instrument or instruments
in writing to the Trustee, with copies to the Issuer and the Company, signed by
a Majority of the Bondholders or by their attorneys, legal representatives or
agents and delivered to the Trustee, the Issuer and the Company (such
instruments to be effective only when received by the Trustee).

     (d) If at any time:

          (1) the Trustee shall cease to be eligible under Section 1014 hereof,
     and shall fail to resign after written request therefor by the Company or
     by a Majority of the Bondholders, or

          (2) the Trustee shall become incapable of acting or shall be adjudged
     a bankrupt or insolvent or a receiver of the Trustee or of its property
     shall be appointed or any public officer shall take charge or control of
     the Trustee or of its property or affairs for the purpose of
     rehabilitation, conservation or liquidation,

then, in any such case, the Issuer or the Company may remove the Trustee, or any
Bondholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor.

     (e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Issuer
with the approval of the Company shall promptly appoint a successor. If no
successor Trustee shall have been so appointed by the Issuer and approved by the
Company or a Majority of the Bondholders and accepted appointment in the manner
hereinafter provided, any Bondholder, if he has been a bona fide owner of a Bond
for at least six (6) months, may petition any court of competent jurisdiction
for the appointment of a successor Trustee.

     (f) The Issuer shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to each Bondholder.
Each notice shall include the name and address of the principal corporate trust
office of the successor Trustee.

     Section 1016.  Successor Trustee.

     (a) Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to its predecessor, and also to the Issuer and the Company, an
instrument in writing accepting such appointment hereunder, and thereupon and
upon transfer of the Credit Facility to the successor Trustee such successor
Trustee without any further act, shall become fully vested with all the rights,
immunities, powers and trusts, and subject to all the duties and obligations, of
its predecessors; but such predecessor shall,

<PAGE>

nevertheless, on the written request of its successor or of the Issuer and upon
payment of the expenses, charges and other disbursements of such predecessor
which are payable pursuant to the provisions of Section 1005 hereof, execute and
deliver an instrument transferring to such successor Trustee all the rights,
immunities, powers and trusts of such predecessor hereunder; and every
predecessor Trustee shall deliver all property and moneys held by it hereunder
to its successor, subject, nevertheless, to its preference, if any, provided for
in Sections 1003 and 1005 hereof. Should any instrument in writing from the
Issuer be required by any successor Trustee for more fully and certainly vesting
in such Trustee the rights, immunities, powers and trusts hereby vested or
intended to be vested in the predecessor Trustee, any such instrument in writing
shall and will, on request, be executed, acknowledged and delivered by the
Issuer. The resignation of any Trustee and the instrument or instruments
removing any Trustee and appointing a successor hereunder, together with all
other instruments provided for in this Article, shall be filed and/or recorded
by the successor Trustee in each recording office where this Indenture and the
Financing Statements have been filed and/or recorded.

     (b) Notwithstanding any of the foregoing provisions of this Article, any
bank or trust company having power to perform the duties and execute the trusts
of this Indenture and otherwise qualified to act as Trustee hereunder with or
into which the bank or trust company acting as Trustee may be merged or
consolidated, or to which the assets and business of such bank or trust company
may be sold, shall be deemed the successor of the Trustee.

     Section 1017.  Co-Trustee.

     It is the purpose of this Indenture that there shall be no violation of any
law of any jurisdiction denying or restricting the right of certain banking
corporations or associations to transact business as trustee as contemplated
herein in such jurisdiction. It is recognized that in case of litigation under
this Indenture and in particular in case of the enforcement of the security
interest contained in this Indenture upon the occurrence of an Event of Default,
it may be necessary that the Trustee appoint an additional individual or
institution as a separate Trustee or Co-Trustee, which shall be satisfactory to
the Company. The following provisions of this Section 1017 are adapted to these
ends:

     (a) In the event of the incapacity or lack of authority of the Trustee by
reason of any present or future law of any jurisdiction to exercise any of the
rights, powers and trusts herein granted to the Trustee or to hold title to or a
security interest in the Trust Estate or to take any other action which may be
necessary or desirable in connection therewith, each and every remedy, power,
right, claim, demand, cause of action, immunity, estate, title, interest and
lien expressed or intended by this 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 Trustee or Co-Trustee but only to the extent necessary to enable
the separate Trustee or Co-Trustee to exercise such rights, powers and trusts,
and every covenant and obligation necessary to the exercise thereof shall run to
and be enforceable by such separate Trustee or Co-Trustee.

     (b) Should any deed, conveyance or instrument in writing from the Issuer be
required by the separate Trustee or Co-Trustee so appointed by the Trustee in
order to more fully and certainly vest in and confirm to it

<PAGE>

such properties, rights, powers, trusts, duties and obligations any and all such
deeds, conveyances and instruments shall, on request, be executed, acknowledged
and delivered by the Issuer. In case any separate Trustee or Co-Trustee or a
successor to either, shall die, be dissolved, become incapable of action, resign
or be removed, all the estates, properties, rights, powers, trusts, duties and
obligations of such separate Trustee 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 Trustee or Co-Trustee.

     Section 1018.  Notice to Moody's or S&P.

     At any time during which the Bonds are rated by Moody's or S&P, the Trustee
shall notify Moody's or S&P, as applicable, promptly of:

     (a) any change in the Trustee,

     (b) the expiration or termination of the Credit Facility during the
Variable Rate Period unless an Alternate Credit Facility is provided to the
Trustee in accordance with the terms of this Indenture,

     (c) a change in the interest rate borne by the Bonds from a Variable Rate
to a Fixed Rate,

     (d) the payment of all of the Bonds, or

     (e) any material change to this Indenture, the Sale Agreement, the
Reimbursement Agreement, the Credit Facility or the Remarketing Agreement.

     Section 1019.  Filing of Certain Continuation Statements.

     From time to time, the Trustee shall file or cause to be filed continuation
statements for the purpose of continuing without lapse the effectiveness of (i)
those Financing Statements which shall have been filed at or prior to the
issuance of the Bonds in connection with the Issuer's assignment to the Trustee
of the Trust Estate pursuant to the authority of the Uniform Commercial Code of
the State of New York, and (ii) any previously filed continuation statements
which shall have been filed as herein required. The Issuer and the Company shall
sign and deliver to the Trustee or its designee such continuation statements as
may be requested of it from time to time by the Trustee. Upon the filing of any
such continuation statement the Trustee shall immediately notify the Issuer that
the same has been accomplished.

                                   ARTICLE XI

                   EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS
                       AND PROOF OF OWNERSHIP OF THE BONDS

     Section 1101.  Execution of Instruments by the Bondholders and Proof
                    of Ownership of the Bonds.

     (a) Any request, direction, consent or other instrument in writing required
or permitted by this Indenture to be signed or executed by a Bondholder may be
signed or executed by the Bondholder or its attorneys or legal representatives.
Proof of the execution of any such instrument and

<PAGE>

of the ownership of the Bonds shall be sufficient for any purpose of this
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:

          The fact and date of the execution by any person of any such
     instrument may be proved by the verification of any officer in any
     jurisdiction who, by the laws thereof, has power to take affidavits within
     such jurisdiction, to the effect that such instrument was subscribed and
     sworn to before him, or by an affidavit of a witness to such execution, and
     where such execution is by an officer of a corporation or association or a
     member of a partnership on behalf of such corporation, association or
     partnership, such verification or affidavit shall also constitute
     sufficient proof of his authority.

     (b) Nothing contained in this Section 1101 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 may be sufficient. Any request
or consent of a Bondholder shall bind every future owner of the Bond(s) to which
such request or consent pertains or any Bond(s) issued in lieu thereof in
respect of anything done by the Trustee pursuant to such request or consent.

     (c) Notwithstanding any of the foregoing provisions of this Section 1101,
the Trustee shall not be required to recognize any person as an owner of Bonds
or to take any action at its request unless the Bonds shall be deposited with
it.

     Section 1102.  Preservation of Information.

     The Trustee shall preserve in the Bond Register, in as current a form as is
reasonably practicable, the name and address of each Bondholder received by the
Trustee in its capacity as Bond Registrar.

                                   ARTICLE XII

                           THE REMARKETING AGENT; THE
                        TENDER AGENT; THE PLACEMENT AGENT

     Section 1201.  The Remarketing Agent.

     (a) The Issuer hereby appoints First Union National Bank of North Carolina,
with its corporate office in Charlotte, North Carolina, as Remarketing Agent
under this Indenture. The Remarketing Agent and any successor Remarketing Agent,
by written instrument delivered to the Issuer, the Trustee and the Company,
shall accept the duties and obligations imposed on it under this Indenture and
the Remarketing Agreement.

     (b) In addition to the other obligations imposed on the Remarketing Agent
hereunder, the Remarketing Agent shall agree to keep such books and records in
connection with its activities as Remarketing Agent hereunder as shall be
consistent with prudent industry practice and make such books and records
available for inspection by the Issuer, the Trustee, the Credit Facility Issuer
and the Company at all reasonable times.

     (c) The Remarketing Agent shall at all times be a member of the

<PAGE>

National Association of Securities Dealers, Inc. and registered as a Municipal
Securities Dealer under the Securities Exchange Act of 1934, as amended, or a
national banking association or a bank or a trust company, in each case
authorized by law to perform its obligations hereunder.

     (d) If at any time the Remarketing Agent is unable or unwilling to act as
Remarketing Agent, the Remarketing Agent, upon thirty (30) Business Days' prior
written notice to the Issuer, the Trustee, the Tender Agent and the Company, may
resign. The Remarketing Agent may be removed at any time by the Company with the
consent of the Issuer, by written notice signed by the Company delivered to the
Trustee, the Remarketing Agent, the Credit Facility Issuer and the Tender Agent.
Upon resignation or removal of the Remarketing Agent, the Company, with the
consent of the Issuer, shall appoint a substitute Remarketing Agent meeting the
qualifications of Section 1201(c) above.

     (e) In the event that the Company shall fail to appoint a successor
Remarketing Agent, upon the resignation or removal of the Remarketing Agent or
upon its dissolution, insolvency or bankruptcy, the Trustee may, but is not
required to, appoint a Remarketing Agent or itself act as Remarketing Agent
until the appointment of a successor Remarketing Agent in accordance with this
Section 1201; provided, however, that the Trustee, in its capacity as
Remarketing Agent, shall not be required to sell Bonds or determine the interest
rate on the Bonds pursuant to Section 202 hereof.

     Section 1202.  The Tender Agent.

     (a) The Issuer hereby appoints as Tender Agent under this Indenture The
First National Bank of Boston, which agent has a corporate trust office at
Canton, Massachusetts. The Tender Agent and any successor Tender Agent, by
written instrument delivered to the Issuer, the Trustee and the Company, shall
accept the duties and obligations imposed on it under this Indenture.

     (b) The Tender Agent shall at all times be a member of the National
Association of Securities Dealers, Inc. having a capitalization of at least
Fifteen Million Dollars ($15,000,000) and a rating by Moody's (if the Bonds are
then rated by Moody's) of BAA 3/P3 or higher, or a national banking association
or a bank or a trust company having capital and surplus of at least $50,000,000,
in each case authorized by law to perform its obligations hereunder.

     (c) If at any time the Tender Agent is unable or unwilling to act as Tender
Agent, the Tender Agent, upon sixty (60) days' prior written notice to the
Issuer, the Trustee, the Remarketing Agent and the Company, may resign;
provided, however, that in no case shall such resignation become effective until
the appointment of a successor Tender Agent. The Tender Agent may be removed at
any time by the Company with the consent of the Issuer, by written notice signed
by the Company delivered to the Trustee, the Remarketing Agent, the Credit
Facility Issuer and the Tender Agent; provided, however, that in no case shall
such removal become effective until the appointment of a successor Tender Agent.
Upon resignation or removal of the Tender Agent, the Company, with the consent
of the Issuer, shall appoint a substitute Tender Agent meeting the
qualifications of Section 1202(b) above.

     (d) In the event that the Company shall fail to appoint a successor Tender
Agent, upon the resignation or removal of the Tender Agent or upon

<PAGE>

its dissolution, insolvency or bankruptcy, the Trustee may at its discretion,
but is not required to, act as Tender Agent until the appointment of a successor
Tender Agent in accordance with this Section 1202.

     Section 1203.  The Placement Agent.

     The Placement Agent shall be a member of the National Association of
Securities Dealers, Inc. and registered as a Municipal Securities Dealer under
the Securities Exchange Act of 1934, as amended, or a national banking
association or a bank or trust company, in each case authorized by law to
perform its obligations described in Section 202(e) hereof.

     Section 1204.  Notices.

     The Trustee shall, within thirty (30) days of the resignation or removal of
the Remarketing Agent or the Tender Agent or the appointment of the Placement
Agent or a successor Remarketing Agent or Tender Agent, give notice thereof by
first class mail, postage prepaid, to the owners of the Bonds.

                                  ARTICLE XIII

                           AMENDMENTS AND SUPPLEMENTS

     Section 1301.  Amendments and Supplements Without the Bondholders'
                    Consent.

     This Indenture may be amended or supplemented at any time and from time to
time, without the consent of the Bondholders, but with the consent of the Credit
Facility Issuer, if a Credit Facility is in effect (and no default has occurred
and is continuing under the Credit Facility), by a supplemental indenture
authorized by the Issuer filed with the Trustee, for one or more of the
following purposes:

     (a) to add additional covenants of the Issuer or to surrender any right or
power herein conferred upon the Issuer;

     (b) for any purpose not inconsistent with the terms of this Indenture or to
cure any ambiguity or to correct or supplement any provision contained herein or
in any supplemental indenture which may be defective or inconsistent with any
other provision contained herein or in any supplemental indenture, or to make
such other provisions in regard to matters or questions arising under this
Indenture which shall not adversely affect the interests of the owners of the
Bonds or the Company;

     (c) to permit the Bonds to be converted during the Variable Rate Period to
certificateless securities or securities represented by a master certificate
held in trust, ownership of which, in either case, is evidenced by book entries
on the books of the Bond Registrar, for any period of time;

     (d) to permit the appointment of a Co-Trustee under this Indenture;

     (e) to modify, eliminate or add to the provisions of this Indenture to such
extent as shall be necessary to effect the qualification of this Indenture under
the Trust Indenture Act of 1939, or under any similar

<PAGE>

federal statute hereafter enacted, and to add to this Indenture such other
provisions as may be expressly permitted by the Trust Indenture Act of 1939;

     (e) except as otherwise provided in Section 1302 hereof, to modify,
eliminate or add to the provisions of this Indenture to such extent as shall be
necessary to obtain a rating of the Bonds from Moody's or S&P ;

     (f) to amend the administrative provisions hereof to accommodate the
provisions of an Alternate Credit Facility; and

     (g) to amend the provisions hereof to reflect the obligation of the
Trustee, the Issuer or the Company to disclose information regarding the Bonds,
the Project, the Issuer, the Company or the issuer of the Letter of Credit as
shall be required or recommended to be disclosed in accordance with applicable
regulations or guidelines established by, among others, the American Bankers
Association Corporate Trust Committee.

     Section 1302.  Amendments With the Bondholders' and the Credit
                    Facility Issuer's Consent.

     (a) This Indenture may be amended from time to time, except with respect
to:

          (1) the principal, redemption price, purchase price, or interest
     payable upon any Bonds,

          (2) the Interest Payment Dates, the dates of maturity or the
     redemption or purchase provisions of any Bonds, and

          (3) this Article XIII,

by a supplemental indenture consented to by the Credit Facility Issuer if a
Credit Facility is in effect (and no default has occurred and is continuing
under the Credit Facility) and by the Company and approved by a Majority of the
Bondholders which would be affected by the action proposed to be taken.

     (b) This Indenture may be amended with respect to the matters enumerated in
paragraphs (1) through (3) of subsection (a) of this Section with the unanimous
consent of all Bondholders, the Credit Facility Issuer if a Credit Facility is
in effect (and there is no default has occurred and is continuing under the
Credit Facility), the Company and the Issuer.

     Notwithstanding the foregoing, the Issuer and the Trustee and, during the
Variable Rate Period, the Credit Facility Issuer if the Credit Facility is in
effect (and no default has occurred and is continuing under the Credit
Facility), may amend the Indenture to such extent as may be necessary to obtain
a rating of the Bonds from Moody's or S&P without providing the opinion of Bond
Counsel specified in paragraph (2) above.

     Section 1303.  Supplemental Indentures Affecting the Rights of the
                    Credit Facility Issuer.

     Anything herein to the contrary notwithstanding, a supplemental indenture
under this Article XIII which in the judgment of the Credit Facility Issuer if a
Credit Facility is in effect (and no default has

<PAGE>

occurred and is continuing under the Credit Facility) adversely affects the
rights of the Credit Facility Issuer shall not become effective unless or until
the Credit Facility Issuer shall have consented to the execution and delivery
thereof.

     Section 1304.  Amendment of the Sale Agreement.

     (a) The Company, the Trustee and, during the Variable Rate Period, the
Credit Facility Issuer if a Credit Facility is in effect (and no default has
occurred and is continuing under the Credit Facility), may amend the Sale
Agreement; provided that prior to making any amendment, the Company shall
provide the Trustee and the Credit Facility Issuer with:

          (1) a copy of the proposed amendment and

          (2) an opinion of Bond Counsel to the effect that such amendment or
     supplement will not adversely affect the exclusion of the interest on the
     Bonds from the gross income of the recipients thereof for federal income
     tax purposes and unless the Trustee shall have otherwise given its consent
     to such amendment or supplement, to the further effect that such amendment
     or supplement will not otherwise adversely affect the interests of the
     Bondholders.

Notwithstanding the foregoing, the Issuer, the Company, the Trustee, and, during
the Variable Rate Period, the Credit Facility Issuer if a Credit Facility is in
effect (and no default has occurred and is continuing under the Credit
Facility), may amend the Sale Agreement to such extent as may be necessary to
obtain a rating of the Bonds from Moody's or S&P without providing the opinion
of Bond Counsel specified in paragraph (2) above.

     (b) If the Company proposes to amend the Sale Agreement in such a manner as
would adversely affect the interests of the Bondholders, the Trustee shall
notify Bondholders of the proposed amendment and may consent thereto with the
consent of at least a Majority of the Bondholders which would be affected by the
action proposed to be taken; provided, that the Trustee shall not, without the
unanimous consent of the owners of all Bonds then Outstanding, consent to any
amendment which would:

          (1) decrease the amounts payable on the Note,

          (2) change the due date of principal of or interest on the Note or
     change any of the prepayment provisions of the Note, or

          (3) change Section 5.6 of the Sale Agreement.

     Section 1305.  Amendment of the Sale Agreement Requiring the Consent
                    of the Credit Facility Issuer.

     Anything herein to the contrary notwithstanding, any amendment, change or
modification of the Sale Agreement which in the judgment of the Credit Facility
Issuer affects the rights of the Credit Facility Issuer shall not become
effective unless or until the Credit Facility Issuer shall have consented to the
execution and deliver of such amendment, change or modification.

     Section 1306.  Amendment of the Credit Facility.

<PAGE>

     The initial Credit Facility may be amended to such extent as shall be
necessary to obtain a rating of the Bonds from Moody's or S&P provided that such
amendment or supplement will not adversely affect the interests of the
Bondholders. The Trustee shall notify the Bondholders and the Issuer of any
proposed amendment of the Credit Facility which would adversely affect the
interests of the Bondholders and may consent thereto with the consent of the
Issuer, which consent shall not be unreasonably withheld, and at least a
Majority of the Bondholders which would be affected by the action proposed to be
taken; provided, that the Trustee shall not, without the unanimous consent of
the owners of all Bonds then Outstanding, consent to any amendment which would
decrease the amount payable under the Credit Facility or reduce the term of the
Credit Facility.

     Section 1307.  Trustee Authorized to Join in Amendments and
                    Supplements; Reliance on Counsel.

     The Trustee is authorized to join with the Issuer in the execution and
delivery of any supplemental indenture or amendment permitted by this Article
XIII and in so doing shall be fully protected by an opinion of Counsel that such
supplemental indenture or amendment is so permitted and has been duly authorized
by the Issuer and that all things necessary to make it a valid and binding
agreement have been done; provided that certain amendments may, by agreement
between the Trustee and the Credit Facility Issuer, require the prior consent of
the Credit Facility Issuer.

                                   ARTICLE XIV

                           DEFEASANCE; OTHER PAYMENTS

     Section 1401.  Defeasance.

     (a) When the principal or redemption price (as the case may be) of, and
interest on all Bonds issued hereunder have been paid, including without
limitation the purchase price for Bonds tendered under Section 202 hereof, or
provision has been made for payment of the same, together with the compensation
of the Trustee and all other sums payable hereunder by the Issuer, the right,
title and interest of the Trustee in and to the Trust Estate and the security
interests shall thereupon cease, and the Trustee, on written demand of the
Issuer, shall release this Indenture and the security interests and shall
execute such documents to evidence such release as may be reasonably required by
the Issuer and shall turn over to the Company or to such person, body or
authority as may be entitled to receive the same all balances then held by it
hereunder; provided, that, if any payments have been received by the Trustee
from the Credit Facility in connection with such release, such balances shall be
paid to the Credit Facility Issuer to the extent of such payments. If payment or
provision therefor is made with respect to less than all of the Bonds, the
particular Bonds (or portion thereof) for which provision for payment shall have
been considered made shall be selected by lot by the Trustee and thereupon the
Trustee shall take similar action for the release of this Indenture with respect
to such Bonds. Notwithstanding anything to the contrary contained herein, Bonds
purchased at the option of the owners thereof with moneys held by the Trustee
pursuant to this Article XIV shall not be remarketed but shall be cancelled by
the Trustee.

     (b) Provision for the payment of Bonds shall be deemed to have been

<PAGE>

made when the Trustee holds in the Bond Fund, in trust and irrevocably set aside
exclusively for such payment, (1) moneys sufficient to make such payment
provided that if a Credit Facility is then held by the Trustee, such moneys
shall constitute Available Moneys or (2) noncallable Governmental Obligations
maturing as to principal and interest in such amounts and at such times as will
provide sufficient moneys without reinvestment to make such payment; provided
that the Trustee shall have received an opinion of Bond Counsel to the effect
that such deposit will not affect the exclusion of the interest on any of the
Bonds from the gross income of the recipients thereof for federal income tax
purposes (e.g. by causing any of the Bonds to be classified as an "arbitrage
bond" within the meaning of Section 148 of the Code), and provided further, that
if a Credit Facility is then held by the Trustee, such Governmental Obligations
shall have been on deposit with the Trustee in a separate and segregated account
for a period of three hundred sixty-seven (367) days during and prior to which
no Event of Bankruptcy has occurred or which Governmental Obligations were
purchased with Available Moneys.

     (c) No Bonds in respect of which a deposit under subsection (b) above has
been made shall be deemed paid within the meaning of this Article unless the
Trustee is satisfied that the amounts deposited are sufficient to make all
payments that might become due on the Bonds, including purchase price payments
for Bonds tendered at the option of the owners or purchased by the Company in
lieu of redemption, if any. Notwithstanding the foregoing, no delivery to the
Trustee under this subsection (c) shall be deemed a payment of any Bonds which
are to be redeemed prior to their stated maturity until such Bonds shall have
been irrevocably called or designated for redemption on a date thereafter on
which such Bonds may be redeemed in accordance with the provisions of this
Indenture or the Issuer shall have given the Trustee, in form satisfactory to
the Trustee, irrevocable instructions to give notice of redemption. Neither the
obligations nor moneys deposited with the Trustee pursuant to this Section shall
be withdrawn or used for any purpose other than, and shall be segregated and
held in trust for, the payment of the principal of, redemption price of,
purchase price if applicable of, and interest on the Bonds with respect to which
such deposit has been made. In the event that such moneys or obligations are to
be applied to the payment of principal or redemption price of any Bonds more
than sixty (60) days following the deposit thereof with the Trustee, the Trustee
shall mail a notice stating that such moneys or obligations have been deposited
and identifying the Bonds for the payment of which such moneys or obligations
are being held to all owners of such Bonds at their addresses shown on the Bond
Register.

     (d) Anything in Article XIV to the contrary notwithstanding, if moneys or
Governmental Obligations have been deposited or set aside with the Trustee
pursuant to this Article for the payment of the principal or redemption price,
including purchase price if applicable, of the Bonds and the interest thereon
and the principal or redemption price, including purchase price if applicable,
of such Bonds and such moneys or Governmental Obligations do not constitute
Available Moneys, no amendment to the provisions of this Article shall be made
without the consent of the owner of each of the Bonds affected thereby.

     (e) Notwithstanding the foregoing, those provisions relating to the
purchase of Bonds upon the demand of any Bondholders, the maturity of Bonds,
interest payments and dates thereof, and the dates, premiums and notice
requirements for optional and mandatory redemption or purchase and

<PAGE>

the Trustee's remedies with respect thereto, and provisions relating to
exchange, transfer and registration of Bonds, replacement of mutilated,
destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds,
non-presentment of Bonds, the holding of moneys in trust and repayments to the
Company or the Credit Facility Issuer from the Bond Fund and the duties of the
Trustee in connection with all of the foregoing and the fees, expenses and
indemnities of the Trustee, shall remain in effect and shall be binding upon the
Trustee, the Issuer, the Company and the Bondholders notwithstanding the release
and discharge of the lien of this Indenture until payment in full of all
outstanding Bonds.

     Section 1402.  Deposit of Funds for Payment of the Bonds.

     If the principal or redemption price of any Bonds become due, either at
maturity or by call for redemption or otherwise, together with all interest
accruing thereon to the due date, has been paid or provision therefor made in
accordance with Section 1401 hereof, all interest on such Bonds shall cease to
accrue on the due date and all liability of the Issuer with respect to such
Bonds shall likewise cease, except as hereinafter provided. Thereafter the
owners of such Bonds shall be restricted exclusively to the funds so deposited
for any claim of whatsoever nature with respect to such Bonds, and the Trustee
shall hold such funds in trust for such owners.

     Section 1403.  Effect of Purchase of the Bonds.

     No purchase of Bonds pursuant to Section 303 hereof shall be deemed to be a
payment or redemption of such Bonds or any portion thereof and such purchase
will not operate to extinguish or discharge the indebtedness evidenced by such
Bonds.

                                   ARTICLE XV

                            MISCELLANEOUS PROVISIONS

     Section 1501.  Covenants of the Issuer to Bind its Successors.

     In the event of the dissolution of the Issuer, all of the covenants,
stipulations, obligations and agreements contained in this Indenture by or in
behalf of or for the benefit of the Issuer shall bind or inure to the benefit of
the successor or successors of the Issuer from time to time and any officer,
board, commission, authority, agency or instrumentality to whom or to which any
power or duty affecting such covenants, stipulations, obligations and agreements
shall be transferred by or in accordance with law, and the term "Issuer" as used
in this Indenture shall include such successor or successors.

     Section 1502.  Notices.

     (a) Any notice, demand, direction, request or other instrument authorized
or required by this Indenture to be given or filed with the Issuer, the Trustee,
the Company or the Credit Facility Issuer shall be in writing and shall be
deemed given or filed for all purposes of this Indenture when delivered by hand
delivery or mailed by first class mail, postage prepaid, registered or certified
mail, addressed as follows:

<PAGE>

     (1) If to the Issuer, to:  Village of Walden
                                Industrial Development Agency
                                8 Scofield Street
                                Walden, NY 12586
                                (Attention Chairman)

         with a copy to:        Richard J. Drake
                                Drake, Sommers, Loeb, Tarshis & Catania,
                                P.C.
                                One Corwin Court
                                P.O. Box 1479
                                Newburgh, NY 12550

     (2) If to the Company, to: Spence Engineering
                                Company, Inc. c/o Watts Regulator Co.
                                815 Chestnut Street
                                North Andover, MA 01845
                                (Attention: William C. McCartney,
                                Corporate Controller); and

         with a copy to:        John R. LeClaire, P.C.
                                Goodwin, Procter & Hoar
                                Exchange Place
                                Boston, MA  02109

     (3) If to the Trustee, to: The First National Bank of Boston
                                150 Royall Street, Mail Stop 45-02-15
                                Canton, MA 02021
                                Attn:  Corporate Trust Division

     (4) If to the Credit Facility
         Issuer, to:            First Union National Bank of North
                                Carolina
                                301 South College Street
                                T-7
                                Charlotte, NC 28288
                                Attention: International Operations
                                CORP-10.

and if sent by telegraph, telegram or telecopy, addressed as above, at the time
and date appearing on the report of delivery. Notwithstanding the foregoing, the
delivery of Bonds or Optional Tender Notices to the Trustee or Tender Agent if
made by telegraph, telegram or telecopy, must be made by delivery of the hard
copy by overnight delivery on the date of delivery of such telegraph, telegram
or telecopy and shall not be effective until actual receipt thereof by the
Trustee or the Tender Agent, as the case may be.

     (b) A duplicate copy of each notice or other communication given hereunder
by either the Issuer or Trustee to the other shall also be given to the Company.

     (c) All documents received by the Trustee under the provisions of this
Indenture, or photographic copies thereof, shall be retained in its possession
until this Indenture shall be released in accordance with the provisions of the
Indenture, subject at all reasonable times to the inspection of the Issuer and
the Bondholders and the agents and

<PAGE>

representatives thereof.

     (d) The Issuer, the Trustee, the Company and the Credit Facility Issuer
may, by notice given hereunder, designate any further or different addresses to
which subsequent notices, certificates or other communications shall be sent.

     Section 1503.  Trustee as the Paying Agent and the Bond Registrar.

     The Trustee is hereby designated and agrees to act as payment agent and
Bond Registrar for and in respect of the Bonds and any amounts received under
the Credit Facility or the Sale Agreement.

     Section 1504.  Rights Under this Indenture.

     Except as herein otherwise expressly provided, nothing in this Indenture
expressed or implied is intended or shall be construed to confer upon any
person, firm or corporation other than the parties hereto, the Company and the
owners of the Bonds issued under and secured by this Indenture, any rights under
this Indenture or any provisions hereof, this Indenture and all its provisions
being intended to be and being for the sole and exclusive benefit of the parties
hereto, the Company and the owners from time to time of the Bonds issued
hereunder.

     Section 1505.  Form of Certificates and Opinions.

     Except as otherwise provided in this Indenture, any request, notice,
certificate or other instrument from the Issuer or the Company to the Trustee
shall be deemed to have been signed by the proper party or parties if signed by
the Issuer Representative or the Company Representative, respectively, and the
Trustee may accept and rely upon a certificate signed by the Issuer
Representative as to any action taken by the Issuer and by the Company
Representative as to any action taken by the Company.

     Section 1506.  Severability.

     In case any one or more of the provisions of this 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 this Indenture
or of the bonds, but this Indenture and the Bonds shall be construed and
enforced as if such illegal or invalid provision had not been contained therein.
In case any covenant, stipulation, obligation or agreement of the Issuer
contained in this Indenture or in the Bonds shall for any reason be held to be
in violation of law, then such covenant, stipulation, obligation or agreement of
the Issuer shall be enforced to the full extent permitted by law.

     Section 1507.  Covenants of the Issuer Not Covenants of Officials
                    Individually.

     All covenants, stipulations, obligations and agreements of the Issuer
contained in this Indenture shall be deemed to be covenants, stipulations,
obligations and agreements of the Issuer to the full extent permitted by the
Constitution and laws of the State. No covenant, stipulation, obligation or
agreement contained herein shall be deemed to be a covenant, stipulation,
obligation or agreement of any present or future officer, member, agent or
employee of the Issuer in his individual capacity, and no

<PAGE>

officer of the Issuer 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. No officer, agent or employee of the Issuer shall incur any
personal liability in acting or proceeding or in not acting or not proceeding in
accordance with the terms of this Indenture.

     Section 1508.  State Law Governs.

     This Indenture shall be governed by and construed in accordance with the
laws of the State.

     Section 1509.  Payments Due on Days Other Than Business Days.

     In any case where the date of maturity of interest on or principal of the
Bonds or the date fixed for redemption of the Bonds shall be in the city of
payment a day other than a Business Day, then payment of interest or principal
need not be made on such date but may be made 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, provided that interest shall accrue for the period of
any such extension.

<PAGE>

     Section 1510.  Execution in Counterparts.

     This Indenture may be executed in multiple counterparts, each of which
shall be regarded for all purposes as an original, and such counterparts shall
constitute but one and the same instrument, and no one counterpart of which need
be executed by all parties.

     IN WITNESS WHEREOF, the VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT AGENCY has
caused this Indenture to be executed in its name and on its behalf by the
Chairman or Vice Chairman of the Issuer, the official seal of the Issuer to be
impressed hereon and the same to be attested by the Secretary or Assistant
Secretary of the Issuer; and the Trustee has caused this Indenture to be
executed in its name and on its behalf by an authorized officer, its corporate
seal to be impressed hereon and the same to be attested by a responsible
officer, all as of the date and year first above written.

                                   VILLAGE OF WALDEN INDUSTRIAL DEVELOPMENT
                                   AGENCY

                                   By: /s/ Mathew R. Steichen
                                       Chairman, Mathew R. Steichen

Attest:

By: /s/ John Bruce Seguin
    Secretary, John Bruce Seguin

                                   THE FIRST NATIONAL BANK OF BOSTON, as
                                      Trustee

<PAGE>

                                   By: /s/ James E. Schultz
                                       Its: Senior Account Administrator

Attest:

By: /s/ (Signature)
    Assistant Cashier<PAGE>

                                  EXHIBIT 10.10

                                 LOAN AGREEMENT

                                     between

              HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY

                                       and

                              LESLIE CONTROLS, INC.

                                 relating to the

                                   $4,765,000
              Hillsborough County Industrial Development Authority
                 Industrial Development Revenue Refunding Bonds
                  (Leslie Controls, Inc. Project), Series 1994

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

NOTE:         CERTAIN RIGHTS OF THE HILLSBOROUGH COUNTY INDUSTRIAL
              DEVELOPMENT AUTHORITY UNDER THIS LOAN AGREEMENT HAVE BEEN
              ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF,
              THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE FOR THE OWNERS OF THE
              BONDS UNDER A TRUST INDENTURE OF EVEN DATE HEREWITH, AS AMENDED
              OR SUPPLEMENTED FROM TIME TO TIME. INFORMATION CONCERNING SUCH
              SECURITY INTEREST MAY BE OBTAINED FROM THE TRUSTEE AT 150 ROYALL
              STREET, CANTON, MASSACHUSETTS.

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

                            DATED AS OF July 1, 1994

<PAGE>

                                TABLE OF CONTENTS

                                                                       Page

Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1

ARTICLE I           DEFINITIONS AND RULES OF CONSTRUCTION . . . . . .     2

     Section 1.1.   Definitions. . . . . . . . . . . . . . . . . . . .    2
     Section 1.2.   Rules of Construction. . . . . . . . . . . . . . .    7

ARTICLE II          REPRESENTATIONS . . . . . . . . . . . . . . . . .     8

     Section 2.1.   Representations by the Issuer. . . . . . . . . . .    8
     Section 2.2.   Representations, Warranties and Covenants by the
                    Company. . . . . . . . . . . . . . . . . . . . . .   10

ARTICLE III         CONSENT TO ASSIGNMENT. . . . . . . . . . . . . . .   13

     Section 3.1.   Company Consent to Assignment of Agreement and
                    Execution of Indenture . . . . . . . . . . . . . .   13

ARTICLE IV          ISSUANCE OF THE BONDS . . . . . . . . . . . . . .    13

     Section 4.1.   Agreement to Issue the Bonds . . . . . . . . . . .   13
     Section 4.2.   No Third Party Beneficiary . . . . . . . . . . . .   13

ARTICLE V           LOAN BY THE ISSUER TO THE COMPANY; REPAYMENT. . .    14

     Section 5.1.   Loan by the Issuer; Repayment. . . . . . . . . . .   14
     Section 5.2.   No Set-Off . . . . . . . . . . . . . . . . . . . .   14
     Section 5.3.   Prepayments. . . . . . . . . . . . . . . . . . . .   14
     Section 5.4.   Credits Against the Note . . . . . . . . . . . . .   15
     Section 5.5.   Letter of Credit and Reimbursement Agreement . . .   15

ARTICLE VI          OPERATION; TAXES AND UTILITY
                    CHARGES; INSURANCE AND EMINENT DOMAIN . . . . . .    15

     Section 6.1.   Operation of the Project by the Company. . . . . .   15
     Section 6.2.   Taxes and Utility Charges. . . . . . . . . . . . .   15
     Section 6.3.   Insurance. . . . . . . . . . . . . . . . . . . . .   16
     Section 6.4.   Eminent Domain . . . . . . . . . . . . . . . . . .   16
     Section 6.5.   Application of Net Proceeds of Insurance and
                    Eminent Domain . . . . . . . . . . . . . . . . . .   16
     Section 6.6.   Parties to Give Notice . . . . . . . . . . . . . .   17

ARTICLE VII         SPECIAL COVENANTS. . . . . . . . . . . . . . . . .   18

     Section 7.1.   Access to the Project and Inspection . . . . . . .   18
     Section 7.2.   Further Assurances and Corrective Instruments. . .   18
     Section 7.3.   Tax and Arbitrage Covenants; Notice of Event of
                    Taxability . . . . . . . . . . . . . . . . . . . .   18
     Section 7.4.   Recording and Filing; Other Instruments. . . . . .   20
     Section 7.5.   Administrative Expenses. . . . . . . . . . . . . .   20
     Section 7.6.   Indemnity Against Claims . . . . . . . . . . . . .   20
     Section 7.7.   Release and Indemnification. . . . . . . . . . . .   21
     Section 7.8.   Additional Information . . . . . . . . . . . . . .   21
     Section 7.9.   Default Certificates . . . . . . . . . . . . . . .   21
     Section 7.10.  Observe Laws . . . . . . . . . . . . . . . . . . .   22
     Section 7.11.  Election . . . . . . . . . . . . . . . . . . . . .   22
     Section 7.12.  No Warranty of Condition of Suitability by the
                    Issuer . . . . . . . . . . . . . . . . . . . . . .   23
     Section 7.13.  Redemption of Prior Bonds. . . . . . . . . . . . .   23

ARTICLE VIII        ASSIGNMENT, LEASING AND SELLING. . . . . . . . . .   23

     Section 8.1.   Assignment of this Loan Agreement or Lease or
                    Sale of the Project by the Company . . . . . . . .   23
     Section 8.2.   Restrictions on Transfer of the Issuer's Rights. .   24
     Section 8.3.   Assignment by the Issuer . . . . . . . . . . . . .   24

<PAGE>

     Section 8.4.   Merger of Issuer . . . . . . . . . . . . . . . . .   24

ARTICLE IX          EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . .    25

     Section 9.1.   Events of Default Defined. . . . . . . . . . . . .   25
     Section 9.2.   Remedies on Default. . . . . . . . . . . . . . . .   26
     Section 9.3.   Application of Amounts Realized in Enforcement of
                    Remedies . . . . . . . . . . . . . . . . . . . . .   26
     Section 9.4.   No Remedy Exclusive. . . . . . . . . . . . . . . .   27
     Section 9.5.   Agreement to Pay Attorneys' Fees and Expenses. . .   27
     Section 9.6.   Correlative Waivers. . . . . . . . . . . . . . . .   27

ARTICLE X           PREPAYMENTS . . . . . . . . . . . . . . . . . . .    27

     Section 10.1.  Optional Prepayments . . . . . . . . . . . . . . .   27
     Section 10.2.  Mandatory Prepayments. . . . . . . . . . . . . . .   28
     Section 10.3.  Other Mandatory Prepayments. . . . . . . . . . . .   28

ARTICLE XI          REBATE PROVISIONS . . . . . . . . . . . . . . . .    29

     Section 11.1.  Creation of the Rebate Fund. . . . . . . . . . . .   29

ARTICLE XII         MISCELLANEOUS. . . . . . . . . . . . . . . . . . .   29

     Section 12.1.  References to the Bonds Ineffective After Bonds
                    Paid . . . . . . . . . . . . . . . . . . . . . . .   29
     Section 12.2.  No Implied Waiver. . . . . . . . . . . . . . . . .   29
     Section 12.3.  Issuer Representative. . . . . . . . . . . . . . .   29
     Section 12.4.  Company Representative . . . . . . . . . . . . . .   30
     Section 12.5.  Notices. . . . . . . . . . . . . . . . . . . . . .   30
     Section 12.6.  If Payment or Performance Date Is Other Than a
                    Business Day . . . . . . . . . . . . . . . . . . .   31
     Section 12.7.  Binding Effect . . . . . . . . . . . . . . . . . .   31
     Section 12.8.  Severability . . . . . . . . . . . . . . . . . . .   31
     Section 12.9.  Amendments, Changes and Modifications. . . . . . .   31
     Section 12.10. Execution in Counterparts. . . . . . . . . . . . .   31
     Section 12.11. Applicable Law . . . . . . . . . . . . . . . . . .   31
     Section 12.12. No Charge Against Issuer Credit. . . . . . . . . .   31
     Section 12.13. Issuer Not Liable. . . . . . . . . . . . . . . . .   32
     Section 12.14. Expenses . . . . . . . . . . . . . . . . . . . . .   32
     Section 12.15. Amounts Remaining with the Trustee . . . . . . . .   32

Execution by the Issuer. . . . . . . . . . . . . . . . . . . . . . . .   33

Execution by the Company . . . . . . . . . . . . . . . . . . . . . . .   33

Exhibit A  Promissory Note
Exhibit B  The Project

<PAGE>

                                 LOAN AGREEMENT

     This LOAN AGREEMENT, dated as of July 1, 1994, between the HILLSBOROUGH
COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Issuer"), a public body corporate
and politic and a public instrumentality created pursuant to the laws of the
State of Florida (the "State"), and LESLIE CONTROLS, INC. (the "Company"), a
corporation organized and existing under the laws of the State of New Jersey.

                              W I T N E S S E T H:

     WHEREAS, the Act (as hereinafter defined) authorizes the creation of
industrial development agencies to facilitate the financing of capital projects
comprising an industrial and manufacturing plant; and

     WHEREAS, the Act further authorizes each agency to issue its bonds for the
purpose of carrying out any of its corporate purposes; and

     WHEREAS, pursuant to and in accordance with the provisions of the Act, the
County Commissioners of Hillsborough County, Florida created the Issuer; and

     WHEREAS, the Issuer is authorized and empowered to enter into this Loan
Agreement by the provisions of the Act; and

     WHEREAS, the Issuer has heretofore indicated its willingness to issue
industrial revenue bonds under the Act for the purpose of refunding in whole the
outstanding principal amount of the Issuer's Industrial Development Revenue
Bonds (Leslie Controls, Inc. Project), Series 1986 in the original aggregate
principal amount of $7,200,000 (the "Prior Bonds"), the proceeds of which were
used to finance, in whole or in part, the cost of acquiring, constructing and
installing a certain project in Hillsborough County, Florida (the "Project")
owned and operated by the Company; and

     WHEREAS, to obtain funds for such purposes the Issuer will issue and sell
its Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc.
Project), Series 1994 in the aggregate principal amount of $4,765,000 dated as
of July 1, 1994 (the "Bonds"), under and pursuant to the Act, to be secured by
and contain such terms and provisions as are set forth in that certain Trust
Indenture (the "Indenture") dated as of July 1, 1994 between the Issuer and The
First National Bank of Boston, Boston, Massachusetts, as Trustee (the
"Trustee"), and the proceeds from the sale of the Bonds shall be deposited with
the Trustee and disbursed in the manner and for the purposes set forth herein
and in the Indenture, all as more fully provided herein and therein; and

     WHEREAS, in undertaking the issuance of the Bonds the Issuer has observed
the criteria and requirements established by the Act.

     NOW, THEREFORE, in consideration of the respective representations and
agreements contained herein, the parties hereto, recognizing that in the
performance of the agreements of the Issuer herein contained, any obligation it
may thereby incur for the payment of money shall not be deemed to constitute a
debt, liability or obligation of the Issuer or of the State of Florida or any
political subdivision thereof, except to the extent that the Bonds hereinafter
mentioned shall be a limited obligation of the Issuer, payable solely from
revenues provided therefor under the provisions of this Loan Agreement, the Note
and from the Credit Facility Issuer under a Credit Facility (each as hereinafter
defined) or derived from the exercise of the rights of the Issuer thereunder,
agree as follows:

<PAGE>

                                    ARTICLE I

                      DEFINITIONS AND RULES OF CONSTRUCTION

     Section 1.1.   Definitions.

     In addition to words and terms elsewhere defined in this Loan Agreement or
in the Indenture, the following words and terms shall have the following
meanings:

     "Act" shall mean all applicable provisions of the Constitution and laws of
the State of Florida, including without limitation the Florida Industrial
Development Financing Act, Parts II and III of Chapter 159, Florida Statutes, as
amended from time to time and the resolution of the Board of County
Commissioners of Hillsborough County, Florida adopted on October 27, 1971
organizing the Issuer.

     "Administrative Expenses" shall mean the amounts payable pursuant to
Section 7.5 hereof by the Company to or for the account of the Issuer to provide
for payment of reasonable costs and expenses incurred by the Issuer.

     "Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition, "control",
when used with respect to a 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.

     "Bond" or "Bonds" shall mean the Hillsborough County Industrial Development
Authority Industrial Development Revenue Refunding Bonds (Leslie Controls, Inc.
Project), Series 1994, authorized to be issued pursuant to the Bond Resolution
in accordance with the Indenture in the aggregate principal amount of
$4,765,000, including such Bonds issued in replacement for mutilated, destroyed,
lost or stolen Bonds pursuant to Section 210 of the Indenture.

     "Bond Documents" shall mean collectively the Indenture, the Bonds, this
Loan Agreement, the Note, the Letter of Credit Documents, the Tender Agency
Agreement and the Remarketing Agreement.

     "Bond Resolution" shall mean the resolution adopted by the Issuer on July
25, 1994 authorizing the execution and delivery of the Issuer Documents and the
issuance of the Bonds by the Issuer.

     "Closing Date" means the date of the issuance and delivery of the Bonds.

     "Code" means the Internal Revenue Code of 1986, as amended, including, when
appropriate, the statutory predecessor of the Code, and all applicable
regulations (whether proposed, temporary or final) under that Code and the
statutory predecessor of the Code, and any official rulings and judicial
determinations under the foregoing applicable to the Bonds.

<PAGE>

     "Company" shall mean Leslie Controls, Inc., a New Jersey corporation,
and its successors or assigns and any surviving, resulting or transferee
corporation or other entity.

     "Company Representative" shall mean any one of the persons at the time
designated to act on behalf of the Company by written certificate furnished to
the Issuer and the Trustee containing the specimen signatures of such persons
and signed on behalf of the Company by the President or any duly authorized
officer of the Company.

     "Consistent Basis" shall mean, in reference to the application of Generally
Accepted Accounting Principles, that the accounting principles observed in the
period referred to are comparable in all material respects to those applied in
the preceding period, except as to any changes consented to by the Credit
Facility Issuer.

     "Counsel" shall mean an attorney or firm of attorneys acceptable to the
Trustee, and may, but need not, be counsel to the Issuer or the Company.

     "Credit Facility" shall mean the Letter of Credit or any Alternate Credit
Facility delivered to the Trustee pursuant to Article VI of the Indenture.

     "Credit Facility Issuer" shall mean the Bank with respect to the Letter of
Credit and if applicable the institution issuing any Alternate Credit Facility.

     "Determination of Taxability" shall be defined as and shall be deemed to
have occurred on the first to occur of the following:

        (i)    on the date when the Company files any statement, supplemental
     statement or other tax schedule, return or document (whether pursuant to
     Treasury Regulations Section 1.103-10(b)(2)(vi), as the same may be amended
     or supplemented, or otherwise) which discloses that an Event of Taxability
     shall have in fact occurred;

        (ii)   on the date when any Bondholder or former Bondholder notifies the
     Company or the Trustee that it has received an approving written opinion of
     Bond Counsel to the effect that an Event of Taxability shall have occurred
     unless, within one hundred eighty (180) days after receipt by the Company
     of such notification from the Trustee, any Bondholder or any former
     Bondholder, the Company shall obtain and deliver to the Trustee a favorable
     ruling or determination letter issued to or on behalf of the Company by the
     Commissioner or any District Director of Internal Revenue (or any other
     government official exercising the same or a substantially similar function
     from time to time) to the effect that, after taking into consideration such
     facts as form the basis for the opinion that an Event of Taxability has
     occurred, an Event of Taxability shall not have occurred;

        (iii)  on the date when the Company shall be advised in writing by the
     Commissioner or any District Director of Internal Revenue (or any other
     government official or agent exercising the same or a substantially similar
     function from time to time) that, based upon filings of the Company, or

<PAGE>

     upon any review or audit of the Company, or upon any other ground
     whatsoever, an Event of Taxability shall have occurred;

        (iv)   on the date when the Company shall receive notice in writing from
     any Bondholder or former Bondholder, or from the Trustee, that the Internal
     Revenue Service (or any other government agency exercising the same or a
     substantially similar function from time to time) has assessed as
     includable in the gross income of any Bondholder or former Bondholder the
     interest on such Bondholder's or former Bondholder's Bond due to the
     occurrence of an Event of Taxability;

provided, however, no Determination of Taxability shall be deemed to have
occurred under subparagraph (iii) or (iv) hereof unless the Company has been
afforded the opportunity, at its expense, to contest any such assessment or
unfavorable ruling and, further, no Determination of Taxability shall be deemed
to have occurred until such contest, if made, has been finally determined.

     "Eminent Domain" shall mean the taking of title to, or the temporary use
of, the Project or any part thereof pursuant to eminent domain or condemnation
proceedings, or any voluntary conveyance of any part of the Project during the
pendency of, or as a result of a threat of, such proceedings.

     "Event of Default" or "Default" shall have the meaning set forth in Section
9.1 hereof.

     "Event of Taxability" shall mean a change in law or fact or the
interpretation thereof, or the occurrence or existence of any fact, event or
circumstance (including, without limitation, the issuance of obligations or the
incurring of capital expenditures in excess of those permitted by Section
103(b)(6)(D) of the 1954 Code, or the taking of any action by the Company, or
the failure to take any action by the Company, or the making by the Company of
misrepresentation herein or in any certificate required to be given in
connection with the issuance, sale or delivery of the Bonds) which has the
effect of causing the interest paid or payable on any Bond to become includable
in the gross income of any Bondholder or former Bondholder of any Bond other
than a Bondholder or former Bondholder who is or was a "substantial user" or
"related person" as such terms are used in Section 147(a) of the Code.

     "Financing Statements" means any and all financing statements (including
continuation statements) filed for record from time to time to perfect the
security interests created or assigned hereby or by the Indenture.

     "Generally Accepted Accounting Principles" shall mean those principles of
accounting set forth in pronouncements of the Financial Accounting Standards
Board and its predecessors or pronouncements of the American Institute of
Certified Public Accountants or those principles of accounting which have other
substantial authoritative support and are applicable in the circumstances as of
the date of application, as such principles are from time to time supplemented
and amended.

     "Indenture" shall mean the Trust Indenture of even date herewith by and
between the Issuer and the Trustee, together with any amendments or supplements
thereof permitted thereby.

<PAGE>

     "Issuer" shall mean Hillsborough County Industrial Development Authority
and its successors and assigns.

     "Issuer Documents" shall mean collectively the Indenture and this Loan
Agreement.

     "Issuer Representative" shall mean any one of the persons at the time
designated to act on behalf of the Issuer by written certificate furnished to
the Company and the Trustee containing the specimen signatures of such persons
and signed on behalf of the Issuer by the Chairman.

     "Letter of Credit Documents" shall mean the Letter of Credit, the
Reimbursement Agreement and the Pledge Agreement.

     "Loan Agreement" shall mean this Loan Agreement and any amendments and
supplements thereto permitted by the Indenture.

     "Net Proceeds" means the proceeds received by the Issuer from the sale of
the Bonds including all earnings and profits thereon but excluding any proceeds
deposited in a reasonably required reserve or replacement fund. When used with
respect to any insurance proceeds or award resulting from, or other amount
received in connection with, Eminent Domain, the term "Net Proceeds" shall mean
the gross proceeds from such proceeds, award or other amount, less all expenses
(including attorneys' fees) incurred in the realization thereof.

     "1954 Code" shall mean the Internal Revenue Code of 1954, as amended
through August 15, 1986, and all applicable regulations (whether proposed,
temporary or final) thereunder and any official rulings and determinations under
the foregoing applicable to the Bonds or the Prior Bonds.

     "Note" shall mean the promissory note given by the Company pursuant to
Section 5.4 of this Loan Agreement, substantially in the form of Exhibit "A"
attached hereto.

     "Overdue Rate" shall mean the Prime Rate plus two percent, or the maximum
contract rate permitted by law, whichever is lower.

     "Payment of the Bonds" shall mean payment of (i) the principal of and
interest on the Bonds in accordance with their terms whether through payment at
maturity, upon acceleration or prepayment, (ii) all amounts due as
Administrative Expenses or otherwise, and (iii) any and all other liabilities
and obligations arising under the Indenture and this Loan Agreement, in any
case, in such a manner that all such amounts due and owing with respect to the
Bonds shall have been paid.

     "Permitted Encumbrances" shall mean, as of any particular time, liens for
ad valorem and special assessments, if any, which are not then delinquent or
which are being contested in good faith.

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

     "Prime Rate" shall mean that rate of interest per annum announced by First
Union National Bank of North Carolina at its principal office in

<PAGE>

Charlotte, North Carolina, from time to time to be its prime rate.

     "Project" shall mean the land or buildings and other improvements thereon,
and all machinery, equipment, apparatus, office furnishings and other property
financed in whole or in part with the proceeds of the Prior Bonds, including any
substitutions therefor and any repairs, renewals and replacements thereof from
time to time, including the real property described in Exhibit "B" attached
hereto and by this reference made a part hereof.

     "Rebate Fund" means the Fund of that name created pursuant to Section 504
of the Indenture and described in Section 11.1 hereof.

     "Regulations" shall mean the applicable Treasury Regulations under Sections
103 and 141 through 150 of the Code whether at the time proposed, temporary,
final or otherwise.

     "Reimbursement Agreement" shall mean the Letter of Credit, Reimbursement
and Guaranty Agreement of even date herewith by and among the Company, Watts
Industries, Inc. as guarantor, and the Bank, and any supplements or amendments
thereto.

     "Related Person" means "related person" within the meaning of Section
103(b)(6)(C) of the 1954 Code by reference to Sections 267, 707(b) and 1563(a)
of the 1954 Code, except that fifty percent is substituted for eighty percent in
Section 1563(a).

     "Security interest" or "security interests" shall refer to the security
interests created in the Indenture and shall have the meaning set forth in the
U.C.C.

     "State" shall mean the State of Florida.

     "Tax Regulatory Certificate" shall mean the certificate of the Company,
dated the date of delivery of the Bonds, setting forth certain facts, estimates
and circumstances with respect to the Bonds.

     "Trustee" shall mean the banking institution at the time serving as
Trustee under the Indenture.

     Section 1.2.   Rules of Construction.

     (a)  Words of masculine gender shall be deemed and construed to include
correlative words of the feminine and neuter genders, and words of the neuter
gender shall be deemed and construed to include correlative words of the
masculine and feminine genders.

     (b)  The table of contents, captions and headings in this Loan Agreement
are for convenience only and in no way define, limit or describe the scope or
intent of any provisions or Sections of this Loan Agreement.

     (c)  All references herein to particular Articles or Sections are
references to Articles or Sections of this Loan Agreement unless some other
reference is established.

     (d)  All accounting terms not specifically defined herein shall be
construed in accordance with Generally Accepted Accounting Principles

<PAGE>

applied on a Consistent Basis.

     (e)  All references herein to the Company shall be deemed to refer to
each of the Persons if more than one are described by such term and any
agreement, obligation, duty or liability of the Company shall be a joint and
several agreement, obligation, duty or liability of each of the Persons so
described by such term.

     (f)  Any terms not defined herein but defined in any of the other Bond
Documents shall have the same meaning herein.

                                   ARTICLE II

                                 REPRESENTATIONS

     Section 2.1.   Representations by the Issuer.

     The Issuer makes the following representations as the basis for the
undertakings on its part herein contained:

     (a)  Organization and Authority. The Issuer is a public body corporate
and politic and a public instrumentality created pursuant to the laws of the
State of Florida. The Issuer has all requisite power and authority under the Act
to (i) adopt the Bond Resolution, (ii) issue the Bonds, (iii) use the proceeds
thereof to refund the Prior Bonds, and (iv) enter into, and perform its
obligations under the Issuer Documents.

     (b)  Pending Litigation. There are no actions, suits, proceedings,
inquiries or investigations pending, or to the knowledge of the Issuer
threatened, against or affecting the Issuer in any court or before any
governmental authority or arbitration board or tribunal, which involve the
possibility of materially and adversely affecting the transactions contemplated
by the Issuer Documents or which, in any way, would adversely affect the
validity or enforceability of the Bonds, the Issuer Documents or any agreement
or instrument to which the Issuer is a party and which is used or contemplated
for use in the consummation of the transactions contemplated hereby or thereby
or the ability of the Issuer to perform its respective obligations hereunder and
thereunder.

     (c)  Agreements Are Legal and Authorized. The adoption of the Bond
Resolution, the issuance and sale of the Bonds and the execution and delivery by
the Issuer of the Issuer Documents and the compliance by the Issuer with all of
the provisions of each thereof and of the Bonds (i) are within the purposes,
powers and authority of the Issuer, (ii) have been done in full compliance with
the provisions of the Act, are legal and will not conflict with or constitute on
the part of the Issuer a violation of or a breach of or default under, or result
in the creation of any lien, charge or encumbrance upon any property of the
Issuer (other than as contemplated by this Loan Agreement and the Indenture)
under the provisions of, any charter instrument, by-law, indenture, mortgage,
deed of trust, note agreement or other agreement or instrument to which the
Issuer is a party or by which the Issuer is bound, or any license, judgment,
decree, law, statute, order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Issuer or any of its activities or
properties, and (iii) have been duly authorized by all necessary corporate
action on the part of the Issuer.

<PAGE>

     (d)  Governmental Consents. Neither the nature of the Issuer nor any
of its activities or properties, nor any relationship between the Issuer and any
other person, nor any circumstance in connection with the offer, issue, sale or
delivery of any of the Bonds is such as to require the consent, approval or
authorization of, or the filing, registration or qualification with, any
governmental authority on the part of the Issuer in connection with the
execution, delivery and performance of the Issuer Documents or the offer, issue,
sale or delivery of the Bonds, other than those already obtained, which include
(i) the approval of the Board of County Commissioners, (ii) the compliance with
the information reporting requirements contained in Section 149(e) of the Code,
(iii) the public approval of the issuance of the Bonds contained in Section
147(f) of the Code, and (iv) the filing of Financing Statements perfecting the
security interests created under the Indenture; provided, however, no
representation is made herein as to compliance with the securities or "blue sky"
laws of any jurisdiction.

     (e)  No Defaults. No event has occurred and no condition exists with
respect to the Issuer which would constitute an Event of Default as defined in
this Loan Agreement or the Indenture or which, with the lapse of time or with
the giving of notice or both, would become an Event of Default under this Loan
Agreement or the Indenture. The Issuer is not in default under the Act or under
any charter instrument or by-law.

     (f)  No Prior Pledge. Neither this Loan Agreement nor any of the revenues
pledged under the Indenture have been pledged or hypothecated in any manner or
for any purpose other than as provided in the Indenture as security for the
payment of the Bonds.

     (g)  Nature and Location of Project. The refinancing of the costs of the
Project is in furtherance of the public purpose intended to be served by the Act
and is specifically authorized by the Act. The Project is located wholly within
the geographic limits of the Issuer.

     (h)  Public Hearing and Approval. A public hearing was duly held by the
Hillsborough County Industrial Development Authority on June 15, 1994, upon
reasonable public notice, at which hearing members of the public were afforded
reasonable opportunity to be heard on all matters pertaining to the location and
nature of the Project and the refinancing thereof and to the issuance of the
Bonds. On July 13, 1994, after the above mentioned public hearing, the issuance
of the Bonds was approved by the Hillsborough County Board of County
Commissioners, which is the applicable elected representative of the Issuer.

     (i)  Due Authorization.  By the Bond Resolution the Issuer has authorized
the issuance and sale of the Bonds to provide funds for refunding, by payment
and redemption, the Prior Bonds, and authorized and approved the Issuer's
execution, delivery and performance of the Issuer Documents, the endorsement of
the Note and the other instruments contemplated hereby to be executed and
delivered by the Issuer, which Bond Resolution has not been amended, modified or
rescinded and continues to be in full force and effect.

     (j)  Limited Obligations. Notwithstanding anything herein contained to the
contrary, any obligation the Issuer may hereby incur for the payment of money
shall not be deemed to constitute a debt, liability or obligation

<PAGE>

of the Issuer, Hillsborough County or of the State of Florida or any political
subdivision thereof, except to the extent that the Bonds shall be a limited
obligation of the Issuer payable solely from (i) the revenues hereunder and
under the Note, (ii) revenues derived from the sale of the Bonds, and (iii)
amounts on deposit from time to time in the Bond Fund, subject to the provisions
of this Loan Agreement and the Indenture permitting the application thereof for
the purposes and on the terms and conditions set forth herein and therein.

     (k)  Issuance of Bonds. To accomplish the foregoing, the Issuer proposes
to issue $4,765,000 in aggregate principal amount of its Bonds immediately
following the execution and delivery of this Loan Agreement. The date,
denominations, interest rate, maturity date, redemption provisions and other
pertinent provisions with respect to the Bonds are set forth in the Indenture
(particularly Articles II and III thereof).

     (l)  Validity of Issuer Documents. When duly executed and delivered on
behalf of the Issuer, and assuming the due authorization, execution and delivery
by the Company of this Loan Agreement, and the due authorization, execution and
delivery by the Trustee of the Indenture, each of the Issuer Documents shall
constitute a valid and binding obligation of the Issuer enforceable in
accordance with its terms.

     (m)  Representations and Other Written Statements. Neither the
representations of the Issuer contained in this Loan Agreement or the Indenture
nor any written statement relating to the Issuer furnished by the Issuer in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading.

     Section 2.2.   Representations, Warranties and Covenants by the
                    Company.

     The Company makes the following representations as the basis for the
undertakings on its part herein contained:

     (a)  Corporate Organization and Power.  The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey and is qualified to do business and is in good standing under the
laws of the State.

     (b)  Pending Litigation. There are no proceedings pending, or to the
knowledge of the Company threatened against or affecting the Company in any
court or before any governmental authority or arbitration board or tribunal
which are likely to have a material adverse effect on the ability of the Company
to perform its obligations under this Loan Agreement and the Bond Documents to
which it is a party.

     (c)  Agreements Are Legal and Authorized. The execution and delivery by the
Company of this Loan Agreement, the Note and the Bond Documents to which it is a
party and the compliance by the Company with all of the provisions hereof (and
thereof) (i) are within the corporate power of the Company, (ii) after giving
effect to the redemption of the Prior Bonds will not conflict with or result in
any breach of any of the provisions of, or constitute a default under any
agreement, charter document, by-law or other instrument to which the Company is
a party or by which it may be bound, and

<PAGE>

(iii) have been duly authorized by all necessary corporate action on the part of
the Company.

     (d)  No Defaults. No event has occurred and no condition exists with
respect to the Company that would constitute an Event of Default under this Loan
Agreement, the Note, the Bond Documents to which it is a party or the Indenture
or which, with the lapse of time or with the giving of notice or both, would
become an Event of Default under this Loan Agreement, the Note, the Indenture or
the Bond Documents to which it is a party.

     (e)  Nature and Location of Project.  The Project has been completed in
accordance with the Project Summary (described in Exhibit "B" attached hereto
and made a part hereof), constitutes a "project" within the meaning of the Act
and is located wholly within the geographic limits of the Issuer.

     (f)  Ownership and Operation of Project. The Company presently intends
to operate the Project as a manufacturing facility from the date hereof to the
expiration or sooner termination of this Agreement as provided herein, and as a
"project" within the meaning of the Act.

     (g)  Disclosure Documents. Except as reflected or referenced in the Private
Placement Memorandum dated August 4, 1994 relating to the Bonds, including the
documents incorporated therein by reference (the "Private Placement
Memorandum"), there have been no changes in the assets or liabilities or
financial condition of the Company, other than changes in the ordinary course of
business, which in the aggregate are materially adverse with respect to the
Company's ability to perform its obligations under this Loan Agreement or the
Bond Documents to which it is a party. There were no material liabilities,
contingent or otherwise, of the Company which were not reflected or referenced
in the Private Placement Memorandum, and the Company has not entered into any
commitments or contracts since the date of the Private Placement Memorandum
which are not reflected or referenced in the Private Placement Memorandum, other
than in the ordinary and normal course of its business, which might, in light of
any fact or condition presently known to the Company, have a materially adverse
effect upon the financial condition, operations or business of the Company or
its ability to perform its obligations hereunder or thereunder.

     (h)  Issuance of Private Activity Bonds. The Company has not caused or will
not cause the issuance of "private activity" bonds (as defined in the Code) or
of "industrial development bonds" (as defined in the 1954 Code) on its behalf in
any jurisdiction of the United States during the 30-day period commencing 15
days prior to the issuance of the Bonds.

     (i)  Use of Proceeds of Bonds. The Company shall not permit the proceeds
of the Bonds to be used in any manner, nor shall it make any expenditures with
respect to the Project or perform or permit any act, which would cause the Bonds
to fail to meet the requirements of Section 147(b) of the Code.

     (j)  No Further Approval. No authorization, approval, consent, permit or
license of any regulatory body or authority, not already obtained, is required
on the part of the Company for the valid and lawful execution and delivery of
this Loan Agreement and the Note.

     (k)  Other Events. To the best knowledge of the Company, no event has

<PAGE>

occurred which, with the lapse of time or the giving of notice or both,
would give any creditor of the Company the right to accelerate the maturity
of any of such party's outstanding indebtedness for money borrowed.

     (l)  Certificates and Documents. The certificates and all other
documents delivered and to be delivered by the Company in connection with the
transactions contemplated by this Loan Agreement and the Note and the other Bond
Documents to which it is a party as of their respective dates, taken as a whole,
do not and will not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements herein and therein, in
the light of the circumstances under which they are or will be made, not
misleading. The certificates and all other documents delivered and to be
delivered by the Company or its representatives in connection with the
transactions contemplated by this Loan Agreement and the Note and the Bond
Documents to which it is a party are or will be on the dates on which they are
or will be delivered true and complete in all material respects.

     (m)  Use of Proceeds. All of the proceeds of the sale of the Bonds
will be applied to redeem the principal of the Prior Bonds on the redemption
date thereof. None of the proceeds of the sale of the Bonds will be applied to
pay issuance costs of the Bonds or to pay costs of the refunding.

     (n)  Matters Relating to Tax Exemption.  The Company will not take or
omit to take any action which would impair the exclusion of the interest on
the Bonds from the gross income of the recipients thereof for federal
income tax purposes, and will comply with all of its covenants and
agreements contained in the Tax Regulatory Certificate.

     (o)  Certain Arbitrage Matters. After the expiration of any applicable
temporary period under Section 148(d)(3) of the Code, at no time during any bond
year will the aggregate amount of gross proceeds of the Bonds invested in higher
yielding investments (within the meaning of Section 148(b) of the Code) exceed
one hundred fifty percent (150%) of the debt service on the Bonds for such bond
year and the aggregate amount of gross proceeds of the Bonds invested in higher
yielding investments, if any, will be promptly and appropriately reduced as the
amount of outstanding Bonds are reduced, provided however that the foregoing
shall not require the sale or disposition of any investments in higher yielding
investments if such sale or disposition would result in a loss which exceeds the
amount which would be paid to the United States pursuant to Section 504 of the
Indenture (but for such sale or disposition) at the time of such sale or
disposition if a payment under Section 504 of the Indenture were due at such
time. At no time will any funds constituting gross proceeds of the Bonds be used
in a manner as to constitute failure of compliance with Section 148 of the Code.
The terms "bond year", "gross proceeds", "higher yielding investments", "yield",
and "debt service" have the meanings assigned to them for purposes of Section
148 of the Code.

     (p)  Tax Regulatory Certificate. The Company's Tax Regulatory Certificate
executed and delivered by the Company concurrently with the issuance and
delivery of the Bonds is true, accurate and complete in all material respects as
of the date on which executed and delivered.

<PAGE>

                                   ARTICLE III

                              CONSENT TO ASSIGNMENT

     Section 3.1.   Company Consent to Assignment of Agreement and
                    Execution of Indenture.

     The Company understands that the Issuer, as security for the payment of the
principal of, and the interest on, the Bonds, will assign and pledge to, and
create a security interest in favor of, the Trustee pursuant to the Indenture in
certain of its rights, title and interest in and to this Loan Agreement
including all Pledged Revenues, reserving, however, its rights (a) pursuant to
this Loan Agreement providing that notices, approvals, consents, requests and
other communications be given to the Issuer, (b) to reimbursement and payment of
costs and expenses under this Loan Agreement, and (c) to indemnification and to
exemption from liability, both individual and corporate, as provided under this
Loan Agreement, and the Company hereby agrees and consents to such assignment
and pledge. The Company acknowledges that it has received a copy of the
Indenture and consents to the execution of the same by the Issuer.

                                   ARTICLE IV

                              ISSUANCE OF THE BONDS

     Section 4.1.   Agreement to Issue the Bonds.

     To provide funds for redemption of the Prior Bonds, the Issuer agrees
that it will authorize, sell, issue and deliver the Bonds in the aggregate
principal amount of $4,765,000 in the manner set forth in the Indenture and
cause the proceeds of the Bonds to be applied as provided in the Indenture.

     Section 4.2.   No Third Party Beneficiary.

     It is specifically agreed between the parties executing this Loan Agreement
that it is not intended by any of the provisions of any part of this Loan
Agreement to create in the public or any member thereof, other than as may be
expressly provided herein or as contemplated in the Indenture, a third party
beneficiary hereunder, or to authorize anyone not a party to this Loan Agreement
to maintain a suit for personal injuries or property damage pursuant to the
terms or provisions of this Loan Agreement. The duties, obligations, and
responsibilities of the parties to this Loan Agreement with respect to third
parties shall remain as imposed by law.

                                    ARTICLE V

                  LOAN BY THE ISSUER TO THE COMPANY; REPAYMENT

     Section 5.1.   Loan by the Issuer; Repayment.

     (a)  Upon the terms and conditions of this Loan Agreement, the Issuer
shall lend to the Company the proceeds of the sale of the Bonds. The loan shall
be evidenced by and repayable as set forth in the Note.

     (b)  As consideration for the issuance of the Bonds and the making of the
loan to the Company by the Issuer, the Company will execute and deliver

<PAGE>

this Loan Agreement and the Note, in the form attached as Exhibit "A" hereto,
and the Issuer will endorse the Note without recourse to the order of, and
pledge the Note and assign this Loan Agreement and the Note to, the Trustee, as
the assignee of the Issuer under the Indenture, contemporaneously with the
issuance of the Bonds. The Company shall repay the loan in accordance with the
provisions of the Note and of this Loan Agreement.

     Section 5.2.   No Set-Off.

     The obligation of the Company to make the payments required by the Note
shall be absolute and unconditional. The Company will pay without abatement,
diminution or deduction (whether for taxes or otherwise) all such amounts
regardless of any cause or circumstance whatsoever including, without
limitation, any defense, set-off, recoupment or counterclaim that the Company
may have or assert against the Issuer, the Trustee, any Bondholder or any other
person.

     Section 5.3.   Prepayments.

     The Company may prepay all or any part of the amounts the Note obligates it
to pay as provided in Section 701 of the Indenture with respect to prepayment of
the Bonds. Except as provided in this Section 5.3 and in Sections 10.1, 10.2 and
10.3 hereof, the Company shall not be entitled to prepay the Note or cause the
Bonds to be prepaid. The Company shall prepay all of the amounts it is required
to prepay as provided in Sections 10.2 and 10.3 hereof.

     Section 5.4.   Credits Against the Note.

     To the extent that principal of or interest on the Bonds shall be paid,
there shall be credited against the unpaid principal of or interest on the Note,
as the case may be, an amount equal to the principal of or interest on the Bonds
so paid. If the principal of and interest on and other amounts payable under the
Bonds shall have been paid sufficiently that Payment of the Bonds shall have
occurred, then the Note, ipso facto, shall be deemed to have been paid in full,
the Company's obligations thereon shall be discharged (with the exception of the
obligation of the Company to make certain payments which may subsequently arise
as a result of a Determination of Taxability which shall survive notwithstanding
Payment of the Bonds), and the Note shall be cancelled and surrendered to the
Company.

     Section 5.5.   Letter of Credit and Reimbursement Agreement.

     As a further condition to the Issuer's making the loan hereunder, the
Company shall:

     (a)  cause the Letter of Credit to be issued and delivered to the Trustee
as security for the Bonds. Until the Conversion Date, the Company shall cause a
Credit Facility meeting the requirements of Section 603 of the Indenture to be
maintained with the Trustee; and

     (b)  enter into the Reimbursement Agreement with the Bank in form and
substance satisfactory to the Bank and execute and deliver the other Letter of
Credit Documents required by the Bank.

<PAGE>

                                   ARTICLE VI

                          OPERATION; TAXES AND UTILITY
                      CHARGES; INSURANCE AND EMINENT DOMAIN

     Section 6.1.   Operation of the Project by the Company.

     (a)  The Company shall pay or cause to be paid all costs and expenses of
operation and maintenance of the Project.

     (b)  The Company may, at its own expense, make from time to time any
additions, modifications or improvements to the Project that it may deem
desirable for its business purposes.

     Section 6.2.   Taxes and Utility Charges.

     (a)  The Company shall pay as the same respectively become due, (1) all
taxes, assessments, levies, claims and charges of any kind whatsoever that may
at any time be lawfully assessed or levied against or with respect to the
Project (including, without limiting the generality of the foregoing, any tax
upon or with respect to the income or profits of the Issuer from the Project and
that, if not paid, would become a charge on the payments to be made under this
Loan Agreement or the Note prior to or on a parity with the charge thereon
created by the Indenture and including ad valorem, sales and excise taxes,
assessments and charges upon the Company's interest in the Project), (2) all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep of the Project and (3) all assessments and charges lawfully made by
any governmental body for public improvements that may be secured by a lien on
any portion of the Project.

     (b)  The Company may, at its expense, contest in good faith any such levy,
tax, assessment, claim or other charge. The Issuer and the Trustee, at the
expense of the Company, will cooperate fully in any such permitted contest.

     (c)  The Company shall furnish the Issuer and the Trustee, upon request,
with proof of payment of any taxes, governmental charges, utility charges,
insurance premiums or other charges required to be paid by the Company under
this Loan Agreement.

     Section 6.3.   Insurance.

     Until Payment of the Bonds shall be made, the Company will keep the Project
properly and continuously insured against such risks as are customarily insured
against by businesses of like size and type engaged in the same or similar
manufacturing operations (other than business interruption insurance).

     Section 6.4.   Eminent Domain.

     Unless the Company shall have prepaid the Note pursuant to the provisions
of Article X hereof, in the event that title to, or the temporary use of, the
Project, or any part thereof shall be taken by Eminent Domain, the Company shall
be obligated to continue to make the payments required to be made pursuant to
the Note and the Net Proceeds

<PAGE>

received as a result of such Eminent Domain shall be applied as provided in
Section 6.5(b) hereof.

     Section 6.5.   Application of Net Proceeds of Insurance and Eminent
                    Domain.

     (a)  The Net Proceeds of the insurance carried with respect to the Project
shall be applied by the Company toward extinguishment of the defect or claim or
satisfaction of the liability with respect to which such insurance proceeds may
be paid.

     (b)  The Net Proceeds of the insurance carried with respect to the Project
(excluding the Net Proceeds of any business interruption insurance, which shall
be paid to the Company), and the Net Proceeds resulting from Eminent Domain,
except as hereinafter provided, shall be paid to the Trustee and applied as
follows:

          (1)  If the amount of the Net Proceeds does not exceed $500,000,
     the Net Proceeds shall be paid to the Company and shall be applied to the
     repair, replacement, renewal or improvement of the Project or at the
     Company's election paid to the Trustee and applied as provided in (2)(B)
     below.

          (2)  If the amount of the Net Proceeds exceeds $500,000, the Net
     Proceeds shall be paid to and held by the Trustee as a special trust fund
     and invested in accordance with Section 602 of the Indenture and the
     provisions of Article XI hereof pending receipt of written instructions
     from the Company. At the option of the Company, to be exercised within the
     period of ninety (90) days from the receipt by the Trustee of such Net
     Proceeds, the Company shall advise the Trustee that (A) the Company will
     use the Net Proceeds for the repair, replacement, renewal or improvement of
     the Project (such funds to be delivered by the Trustee to the Company), or
     (B) the Net Proceeds shall be applied to the prepayment of the Bonds as
     provided in Article X hereof. If the Company does not advise the Trustee
     within said period of ninety (90) days that it elects to proceed under
     clause (A) to use such Net Proceeds for the repair, replacement, renewal or
     improvement of the Project, such Net Proceeds shall be applied to the
     repayment of the Bonds pursuant to Article X hereof. Any prepayment
     pursuant to the preceding sentence shall be effected on the next Interest
     Payment Date not less than thirty (30) days after the expiration of said
     period of ninety (90) days without an election by the Company.

Notwithstanding the foregoing, so long as a Credit Facility is in effect, in the
event of any inconsistency between the terms contained in this Agreement and
those contained in the Reimbursement Agreement, the provisions of the
Reimbursement Agreement should be deemed to control in accordance with its
terms.

     (c)  The Company agrees that if it shall elect to use the moneys paid
to the Trustee pursuant to subsection (b)(2) of this Section 6.5 for the repair,
replacement, renewal or improvement of the Project, it will restore the Project,
or cause the same to be done, to a condition substantially equivalent to its
condition prior to the occurrence of the event to which the Net Proceeds were
attributable. To the extent that the Net Proceeds are not sufficient to restore
or replace the Project, the Company shall use

<PAGE>

its own funds to restore or replace the Project. Any balance remaining after any
such application of such Net Proceeds shall be paid to the Company. The Company
shall be entitled to the Net Proceeds of any insurance or resulting from Eminent
Domain relating to property of the Company not included in the Project and not
providing security for the Note or this Loan Agreement.

     Section 6.6.   Parties to Give Notice.

     In case of any material damage to or destruction of all or any part of the
Project, the Company shall give prompt notice thereof to the Issuer, the Credit
Facility Issuer and the Trustee. In case of a taking or proposed taking of all
or any part of the Project or any right therein by Eminent Domain, the Company
shall give prompt notice thereof to the Issuer, the Credit Facility Issuer and
the Trustee. Each such notice shall describe generally the nature and extent of
such damage, destruction, taking loss, proceeding or negotiations.

                                   ARTICLE VII

                                SPECIAL COVENANTS

     Section 7.1.   Access to the Project and Inspection.

     The Trustee and the Issuer shall have the right, at all reasonable times
upon the furnishing of reasonable notice to the Company under the circumstances,
to enter upon the Project Site and to examine and inspect the Project.

     Section 7.2.   Further Assurances and Corrective Instruments.

     Subject to the provisions of the Indenture, the Issuer and the Company
agree that they will, from time to time, execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, such supplements and
amendments hereto and such further instruments as may reasonably be required for
correcting any inadequate or incorrect description of the Project, and for
carrying out the intention or facilitating the performance of this Loan
Agreement.

     Section 7.3.   Tax and Arbitrage Covenants; Notice of Event of
                    Taxability.

     (a)  Notwithstanding any other provision hereof, the Company covenants and
agrees that it shall at all times do and perform all acts and things necessary
or desirable and within its reasonable control in order to assure that interest
paid on the Bonds shall, for the purpose of federal income taxation, not be
included in gross income of the recipients thereof, except in the event that
such recipient is a "substantial user" or "related person" within the meaning of
Section 103(b) of the 1954 Code or Section 147(a) of the Code.

     (b)  Neither the Company nor the Issuer shall take any action or fail to
take any action, and the Company covenants that it will not approve the
Trustee's taking any action or failing to take any action or making any
investment or use of the proceeds of the Bonds, if such action, use or failure
would adversely affect the tax-exempt status of the interest on the

<PAGE>

Bonds under Section 103 of the Code or cause any of the Bonds to be an
"arbitrage bond" within the meaning of Section 148 of the Code and the Treasury
Regulations as the same may be applicable to the Bonds at the time of such
action, investment or use.

     (c)  The Company shall give prompt written notice to the Issuer and the
Trustee of the filing by the Company of any statement, tax schedule, return or
document with the Internal Revenue Service which discloses that an Event of
Taxability shall have occurred and its receipt of any written advice from the
Internal Revenue Service that an Event of Taxability shall have occurred.

     (d)  The Company acknowledges that it has examined, executed and delivered
the Tax Regulatory Certificate and its terms relating to compliance with the
Code and shall comply with the covenants, instructions and guidelines contained
in the Tax Regulatory Certificate. The Company's obligation to make any payments
of Rebate Amounts (as defined in the Tax Regulatory Certificate) required by the
Tax Regulatory Certificate and to prepare and furnish to the Issuer and the
Trustee the statements and forms described therein shall survive payment in full
of the Bonds notwithstanding any provision of this Loan Agreement to the
contrary.

     (e)  The Company and the Issuer will furnish accurate information necessary
to enable Bond Counsel to make any certifications which might be required under
the Regulations.

     (f)  Whenever the Issuer shall be required to file, deliver or execute,
or produce any reports, notices or other documents under the Code or the
Regulations while the Bonds are outstanding, the Company shall furnish or cause
the proper person to furnish in due time to the Issuer, through the attorney for
the Issuer, the completed form of such report, notice or other required document
together with (a) a certification by the Company or other proper person required
to provide information that such document is accurate, and (b) if requested by
the Issuer or if otherwise required herein or in the Indenture, an opinion of
Bond Counsel addressed to the Issuer that the report or other document is not in
violation of any provision of law or of the Issuer Documents or other documents
constituting a part of the transcript of proceedings relating to the issuance of
the Bonds and that such report, notice or other required document meets the
legal requirements for such filing, delivery or execution. In the event of the
failure or refusal of the Company or other proper person to comply with this
provision, the Company agrees to pay the statement for attorney's fees and
administrative time presented by the Issuer for filing, delivering or executing
such report or documents, such statement to be paid within thirty (30) days
after written notice to the Company by the Issuer.

     In order to insure that interest on the Bonds is not and will not become
subject to federal income taxes as a result of failure of the Bonds to satisfy
the requirement of Section 149(e) of the Code, the Company covenants with the
Issuer and the Trustee that it will, on or before the date of issuance of the
Bonds supply to the Issuer and the Trustee all information required under
Internal Revenue Service Form 8038, Information Return for Private Activity Bond
Issues (Form 8038), including without limitation the following:

     (a)  the date of issue, the amount of lendable proceeds of the issue, and
the stated interest rate, term and face amount of each obligation which

<PAGE>

is part of the issue;

     (b)  the name of the applicable elected representative who approved the
issue, or a description of the voter referendum by which the issue was approved;
and

     (c)  a description of any property to be financed from the proceeds of the
issue.

     The Company further covenants that on or before the due date thereof, it
will cause Form 8038 to be completed, executed and filed with the appropriate
office of the Internal Revenue Service.

     Section 7.4.   Recording and Filing; Other Instruments.

     (a)  The Company covenants that it will, at its expense, cause Counsel in
the State to take all steps as are reasonably necessary to render an opinion to
the Issuer and the Trustee not earlier than sixty (60) nor later than thirty
(30) days prior to each anniversary date occurring at five-year intervals after
the issuance of the Bonds to the effect that all financing statements,
continuation statements, notices and other instruments required by applicable
law have been recorded or filed or re-recorded or re-filed in such manner and in
such places required by law in order fully to preserve and protect the rights of
the Trustee in the granting by the Issuer of certain rights of the Issuer,
pursuant to the Indenture, under this Loan Agreement and the Note.

     (b)  The Company and the Issuer shall execute and deliver all instruments
and shall furnish all information and evidence deemed necessary or advisable by
such Counsel to enable him to render the opinion referred to in subsection (a)
of this Section. The Company shall file and re-file and record and re-record or
cause to be filed and re-filed and recorded and re-recorded all instruments
required to be filed and re-filed and recorded or re-recorded pursuant to the
opinion of such Counsel and shall continue or cause to be continued the liens of
such instruments for so long as the Bonds shall be outstanding, except as
otherwise required by this Loan Agreement.

     Section 7.5.   Administrative Expenses.

     The Company shall pay to or for the account of the Issuer within thirty
(30) days after notice thereof all reasonable costs and expenses incurred by the
Issuer in connection with the financing and administration of the Project,
including, without limitation, the costs of administering this Loan Agreement
and the fees and expenses of the Trustee, attorneys, consultants and others.

     Section 7.6.   Indemnity Against Claims.

     (a)  The Company will pay and discharge and will indemnify and hold
harmless the Issuer and the Trustee from (1) any lien or charge upon amounts
payable hereunder by the Company to the Issuer, (2) any taxes, assessments,
impositions and other charges in respect of the Project, and (3) any claim of
any kind or character whatsoever arising from, connected with or in any way
related to the Bonds or the Project except such claims that result from the
gross negligence or willful misconduct of the Issuer or the Trustee.

<PAGE>

     (b)  If any claim of any such lien or charge upon payments, or any such
taxes, assessments, impositions or other charges, are sought to be imposed, the
Issuer or the Trustee, as the case may be, will give prompt notice to the
Company, and the Company shall have the sole right and duty to assume, and shall
assume, the defense thereof, with full power to litigate, compromise or settle
the same in its sole discretion.

     Section 7.7.   Release and Indemnification.

     The Company shall at all times protect and hold the Issuer and its members,
officers, employees and agents harmless against any claims or liability
resulting from any loss or damage to property or any injury to or death of any
person that may be occasioned by any cause whatsoever pertaining to the Bonds,
the Project or the use thereof, including without limitation any lease thereof
or assignment of its interest in this Agreement, such indemnification to include
reasonable expenses and attorneys' fees incurred by the Issuer and its members,
officers, employees, attorneys and agents in connection therewith, provided that
such indemnity shall be effective only to the extent of any loss that may be
sustained by the Issuer, its members, officers, employees, attorneys and agents
in excess of the Net Proceeds received by it or them from any insurance carrier
with respect to such loss and provided further that the benefits of this Section
7.7 shall not inure to any person other than the Issuer and its members,
officers, employees, attorneys and agents. In case any action or proceeding is
brought against the Issuer or any of its members, officers, employees or agents
by reason of any such claim, the affected party shall notify the Company and the
Company shall resist or defend such action or proceeding and control the conduct
thereof; provided, however, that the Issuer shall have the right to retain
separate counsel, with the fees and expenses to be paid by the Company, if
representation of the Issuer would be inappropriate due to an actual conflict of
interest, as reasonably determined by the Issuer or the Company, between the
Issuer and the Company. The Issuer and its members, officers, employees and
agents shall cooperate and join with the Company at the expense of the Company
as may be required in connection with any such action or proceeding. The Company
shall not be responsible for any settlement reached without the Company's
consent.

     Section 7.8.   Additional Information.

     The Issuer and the Trustee are authorized to provide information concerning
the outstanding principal amount and payment history of, and other information
pertaining to, the Bonds or the Note to any agency or regulatory authority of
the State requesting such information.

     Section 7.9.   Default Certificates.

     The Company shall deliver to the Trustee forthwith, upon obtaining
knowledge of any Event of Default hereunder or under the Note, the Indenture, or
the Reimbursement Agreement, a certificate of the Company specifying the nature
and period of existence thereof and what action the Company proposes to take
with respect thereto.

     Section 7.10.  Observe Laws.

     The Company shall observe all applicable laws, regulations and other

<PAGE>

valid requirements of any regulatory authority with respect to its operations at
the Project.

     Section 7.11.  Election.

     The Issuer hereby elects to have the provisions of Sections 144(a)(4) of
the Code apply to the Bonds. In support of this election, the Issuer states as
follows:

     (a)  The name of the Issuer is:

          Hillsborough County Industrial Development Authority

          and its address is:

          c/o Thomas K. Morrison, Esq., Morrison, Morrison & Mills, P.A.,
          Suite 100, 1200 West Platt Street, Tampa, FL  33606.

     (b)  The principal user of the Project will be:

          Leslie Controls, Inc.

          Employer Identification Number:  221063780

     (c)  The Bonds are in the principal amount of $4,765,000, and are to be
issued on August 4, 1994. Except for the Prior Bonds (which will be paid in full
and redeemed within 90 (ninety) days of the date of issuance of the Bonds),
there are no outstanding prior issues the proceeds of which have been or are to
be used primarily with respect to facilities located or to be located in the
County, the principal users of which is or will be the Company or any Related
Persons.

     (d)  There were no "Section 103(b)(6)(d) capital expenditures by the
Issuer," as that term is defined in the Regulations, which were paid or incurred
during the three (3) years preceding the date of issuance of the Prior Bonds to
facilities located in Hillsborough County the principal user of which is or will
be the Company or any Related Person, except as described in the Tax Regulatory
Certificate of the Company.

     (e)  Except for the Bonds and the Prior Bonds, there is no outstanding
issue of qualified small issue bonds (as that term is used in Section
141(e)(1)(D) of the Code) issued on behalf of the Company, the proceeds of which
have been or will be issued primarily with respect to:

          (1)  Any facility located in whole or in part in the County; or

          (2)  Any "contiguous or integrated facility" (within the meaning
     of Section 1.103-10(b)(2)(ii)(e) of the Regulations) with respect to any
     facility located in whole or in part in the County.

     Section 7.12.  No Warranty of Condition of Suitability by the Issuer.

     THE ISSUER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE
CONDITION, TITLE, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OF THE PROJECT
OR THAT IT IS OR WILL BE SUITABLE FOR THE COMPANY'S PURPOSES OR NEEDS.

<PAGE>

     Section 7.13.  Redemption of Prior Bonds.

     The Company hereby undertakes to refund the Prior Bonds on or before
November 1, 1994 pursuant to Section 401 of the Indenture. In connection with
such refunding, the Company or Watts Industries, Inc. shall pay all additional
amounts sufficient to pay the principal of and interest on the Prior Bonds to
the date of redemption thereof and to pay directly all fees, charges and
expenses of the holders of the Prior Bonds and of the Prior Trustee in
connection with the redemption of the Prior Bonds.

                                  ARTICLE VIII

                         ASSIGNMENT, LEASING AND SELLING

     Section 8.1.   Assignment of this Loan Agreement or Lease or Sale of
                    the Project by the Company.

     With the prior written consent of the Credit Facility Issuer, the rights of
the Company under this Loan Agreement may be assigned, and the Project may be
leased or sold as a whole or in part, without the necessity of obtaining the
consent of the Issuer or the Trustee, subject, however, to the following
conditions:

     (a)  without the prior written consent of the Credit Facility Issuer and
the Issuer, no assignment, transfer, sale or lease shall relieve the Company
from primary liability for any of its obligations hereunder, and if any such
assignment, transfer, sale or lease occurs, the Company shall continue to remain
primarily liable for the payments specified herein and in the Note and for
performance and observance of the other agreements on its part herein provided
to be performed and observed by it; and the Company shall also provide the
Trustee with an approving opinion of Bond Counsel to the effect that such
assignment, transfer, sale or lease will not adversely affect the status of
interest on the Bonds for federal tax purposes.

     (b)  the assignee, lessee or purchaser shall assume the obligations of
the Company hereunder to the extent of the interest assigned, leased or sold;
and

     (c)  the Company shall, within thirty (30) days after the delivery thereof,
furnish or cause to be furnished to the Issuer and to the Trustee a true and
complete copy of each such assignment, instrument of transfer, lease or sale
agreement, as the case may be, together with any instrument of assumption.

     Section 8.2.   Restrictions on Transfer of the Issuer's Rights.

     Except for the assignment made pursuant to the Indenture of certain of
its rights under this Loan Agreement and its pledge of the Note, endorsed
without recourse to the order of the Trustee, to the Trustee as security
pursuant to the Indenture, the Issuer will not during the term of this Loan
Agreement sell, assign, transfer or convey any of its interests in this
Loan Agreement or the Note.

     Section 8.3.   Assignment by the Issuer.

<PAGE>

     It is understood, agreed and acknowledged that the Issuer, as security for
payment of the principal of and interest on the Bonds, will grant to the Trustee
pursuant to the Indenture, inter alia, certain of its right, title and interest
in and to this Loan Agreement (reserving certain of its rights, as more
particularly described in the Indenture) and will pledge the Note, endorsed as
aforesaid, to the Trustee as security, and the Company hereby assents to such
assignment and pledge.

     Section 8.4.   Merger of Issuer.

     (a)  Nothing contained in this Loan Agreement shall prevent the
consolidation of the Issuer with, or merger of the Issuer into, or transfer of
title to the Project to, any other political subdivision, provided that:

          (1)  the tax-exempt status of the interest on the Bonds shall not
     be adversely affected thereby, and

          (2)  upon such consolidation, merger or transfer, the due and
     punctual performance and observance of all the agreements and conditions of
     this Loan Agreement to be kept and performed by the Issuer shall be
     expressly assumed in writing by the political subdivision resulting from
     such consolidation or surviving such merger or to which such merger was
     made.

     (b)  Within thirty (30) days after the consummation of any such
consolidation, merger or transfer of title, the Issuer shall give notice
thereof, in reasonable detail to the Company and the Trustee.  The Issuer
promptly shall furnish such additional information with respect to any such
transaction as the Company or the Trustee reasonably may request.

                                   ARTICLE IX

                         EVENTS OF DEFAULT AND REMEDIES

     Section 9.1.   Events of Default Defined.

     The term "Event of Default" or "Default" shall mean any one or more of the
following events:

     (a)  the failure by the Company to pay or cause to be paid when due any
payment of principal of or interest on or other amount payable under the Note.

     (b)  the failure of the Issuer to pay or cause to be paid when due any
payment of principal of or interest on or other amount payable under the Bonds.

     (c)  the failure of the Company to perform any of its obligations under
Section 7.3 hereof.

     (d)  the occurrence of an "Event of Default" or "event of default"
under any of the other Bond Documents.

     (e)  any representation or warranty of the Company contained in
Section 2.2 hereof or in any document, instrument or certificate delivered
pursuant hereto or to the Indenture or in connection with the issuance and

<PAGE>

sale of the Bonds shall be false, misleading or incomplete in any material
respect on the date as of which made.

     (f)  failure by the Company to observe or perform any covenant, condition
or agreement on the part of the Company under the Note or this Loan Agreement,
other than as referred to in the preceding paragraphs of this Section 9.1, for a
period of thirty (30) days after written notice, specifying such failure and
requesting that it be remedied, is given to the Company by the Issuer or the
Trustee.

     (g)  the commencement against the Company of an involuntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or of any action or proceeding for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the Company
or for any substantial part of its property, or for the winding-up or
liquidation of its affairs and the continuance of any such case, action, or
proceeding unstayed and in effect for a period of thirty (30) consecutive days.

     (h)  the commencement by the Company of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or the
consent by it to, or its acquiescence in the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
the making by it of or the consent by it to any assignment for the benefit of
creditors, or the failure of the Company generally to pay its debts as such
debts become due, or the taking of any action by the Company in furtherance of
any of the foregoing.

     Section 9.2.   Remedies on Default.

     (a)  If Payment of the Bonds shall not have been made, whenever any Event
of Default referred to in Section 9.1 hereof shall have happened and shall not
have been waived:

          (1)  The Issuer may, by written notice, declare all installments
     of principal repayable pursuant to the Note for the remainder of the term
     thereof to be immediately due and payable, whereupon the same, together
     with accrued interest thereon as provided for in the Note, shall become
     immediately due and payable without presentment, demand, protest or any
     other notice whatsoever, all of which are hereby expressly waived by the
     Company; provided, however, all such amounts shall automatically be and
     become immediately due and payable without notice upon the occurrence of
     any event described in Section 9.1(g) or 9.1(h) hereof, which notice the
     Company hereby expressly waives.

          (2)  The Issuer may take whatever other action at law or in
     equity may appear necessary or desirable to collect the amounts payable
     pursuant to the Note then due and thereafter to become due, or to enforce
     the performance and observance of any obligation, agreement or covenant of
     the Company under this Loan Agreement or under any of the other Bond
     Documents.

     (b)  In the enforcement of the remedies provided in this Section 9.2, the
Issuer may treat all reasonable expenses of enforcement including,

<PAGE>

without limitation, legal, accounting and advertising fees and expenses, as
additional amounts payable by the Company then due and owing and the Company
agrees to pay such additional amounts upon demand.

     Section 9.3.   Application of Amounts Realized in Enforcement of
                    Remedies.

     Any amounts collected pursuant to action taken under Section 9.2 hereof
shall be paid to the Trustee and applied to the payment of, first, any costs,
expenses and fees incurred by the Issuer and the Trustee as a result of taking
such action; second, to the extent permitted by law, any interest which shall
have accrued on any overdue interest and any accrued interest on any overdue
principal of the Bonds at the rate set forth in the Bonds; third, any overdue
interest on the Bonds; fourth, any overdue principal of the Bonds; fifth, the
outstanding principal balance of the Bonds. If Payment of the Bonds shall have
been made, any remaining moneys shall be applied in accordance with Section
911(b) of the Indenture.

     Section 9.4.   No Remedy Exclusive.

     No remedy herein conferred upon or reserved to the Issuer is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
under this Loan Agreement or now or hereafter existing at law or in equity or by
statute. No delay or omission to exercise any right or power accruing upon the
occurrence of an Event of Default shall impair any such right or power or shall
be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient.

     Section 9.5.   Agreement to Pay Attorneys' Fees and Expenses.

     In connection with any Event of Default, if the Issuer or the Trustee
employs attorneys or incurs other expenses for the collection of amounts payable
hereunder or for the enforcement of the performance or observance of any
covenants or agreements on the part of the Company herein contained, the Company
agrees that it will on demand therefor pay to the Issuer or the Trustee the
reasonable fees of such attorneys and such other reasonable expenses so incurred
by the Issuer or the Trustee.

     Section 9.6.   Correlative Waivers.

     If an event of default under Section 901 of the Indenture shall be cured or
waived and any remedial action by the Trustee rescinded, any correlative default
under this Loan Agreement shall be deemed to have been cured or waived.

                                    ARTICLE X

                                   PREPAYMENTS

     Section 10.1.  Optional Prepayments.

     (a)  The Company is hereby granted, and shall have, the option to prepay
the unpaid principal of the Note in whole or in part in accordance with and as
set forth in Section 701 of the Indenture with respect to the

<PAGE>

prepayment of the Bonds; provided, all prepayments shall be made in immediately
available funds and with interest accrued to the date of prepayment and that any
prepayment of the Note in part shall be applied to unpaid installments of
principal in inverse order of maturity. Any prepayment pursuant to this
subsection (a) shall be made by the Company taking, or causing the Issuer to
take, the actions required (1) for Payment of the Bonds, in the case of
prepayment of the Note in whole, or (2) to effect prepayment of less than all of
the Bonds according to their terms in the case of a partial prepayment of the
Note.

     (b)  In the event of damage, destruction or condemnation of the Project
or any part thereof, the Company may, at its option, pursuant to Section 6.5
hereof and without penalty or premium, prepay the Note in whole or in part;
provided that any such prepayment shall be made in immediately available funds
with the interest accrued to the date of whole or partial prepayment. Any
prepayment pursuant to this subsection (b) shall be made by the Company taking,
or causing the Issuer to take, the actions required for the full or partial
prepayment of the Bond as provided for in subsection (a) hereof.

     (c)  To exercise the option granted in subsection (a) or (b) of this
Section 10.1, the Company shall give written notice to the Issuer and the
Trustee which shall specify therein (1) the date of the intended prepayment of
the Note, which shall not be less than thirty (30) nor more than sixty (60) days
from the date the notice is mailed and (2) the principal amount of the Note to
be prepaid. When given, such notice shall be irrevocable by the Company.

     Section 10.2.  Mandatory Prepayments.

     (a)  In the event of a Determination of Taxability, the Company shall,
(1) on a date selected by the Company not more than one hundred eighty (180)
days following the date of the Determination of Taxability, prepay the entire
unpaid principal balance of the Note in full and interest thereon, without
premium, as provided therein. Immediately upon the occurrence of a Determination
of Taxability, the Company shall notify the Issuer and the Trustee of the date
selected for payment pursuant to this Section 10.2.

     (b)  In the event any Credit Facility is not renewed and an Alternate
Credit Facility has not been provided in accordance with Section 603 of the
Indenture, the Company shall on or before the Interest Payment Date occurring
closest to but not after fifteen (15) days prior to the expiration date of the
then current Credit Facility, prepay the entire unpaid principal balance of the
Note in full. The Company shall promptly notify the Issuer and the Trustee of
the date selected for such payment.

     Section 10.3.  Other Mandatory Prepayments.

     The amounts required to be applied to the prepayment of the Note by
Sections 5.3 and 6.5 hereof shall be applied by the Company to prepay, together
with accrued interest, all or a portion of the unpaid principal of the Note.
Such prepayment shall be made by the Company taking, or causing the Issuer to
take, the actions required (a) for payment of the Bonds, whether by redemption
prior to the maturity or by payment at maturity, or (b) to effect the purchase,
redemption or payment at maturity of less than all of the installments of
principal of the Bonds in inverse order of their

<PAGE>

maturities.

                                   ARTICLE XI

                                REBATE PROVISIONS

     Section 11.1.  Creation of the Rebate Fund.

     (a)  The Issuer shall create and establish with the Trustee a special
trust fund in the name of the Issuer to be designated by the Trustee and which
is referred to herein as the Rebate Fund (the "Rebate Fund"), which shall be
held, invested, expended and accounted for in accordance with this Loan
Agreement.

     (b)  Moneys in the Rebate Fund shall be held in trust by the Trustee
and, subject to Section 7.3 hereof, shall be held for the benefit of the United
States as contemplated under the provisions of this Loan Agreement and shall not
be considered to be held for the benefit of the Issuer, the Company, the Trustee
or the owners of the Bonds.

                                   ARTICLE XII

                                  MISCELLANEOUS

     Section 12.1.  References to the Bonds Ineffective After Bonds Paid.

     Upon Payment of the Bonds, all references in this Loan Agreement to the
Bonds shall be ineffective and the Issuer and any owner of the Bonds shall not
thereafter have any rights hereunder, excepting reporting and payment of rebate
payments under Section 7.3 hereof and rights of the Issuer to indemnification
and payment of expenses contained, without limitation, in Sections 7.5, 7.6 and
7.7 hereof.

     Section 12.2.  No Implied Waiver.

     In the event any agreement contained in the Note or this Loan Agreement
should be breached by either party and thereafter waived by the other party,
such waiver shall be limited to the particular breach so waived and shall not be
deemed to waive any other breach thereunder or hereunder. Neither any failure
nor any delay on the part of the Trustee to exercise any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof, or the exercise of any other right, power or
privilege.

     Section 12.3.  Issuer Representative.

     Whenever under the provisions of this Loan Agreement the approval of the
Issuer is required or the Issuer is required to take some action at the request
of the Company, such approval shall be made or such action shall be taken by the
Issuer Representative; and the Company, the Trustee and the Bondholders shall be
authorized to rely on any such approval or action.

     Section 12.4.  Company Representative.

<PAGE>

     Whenever under the provisions of this Loan Agreement the approval of the
Company is required or the Company is required to take some action at the
request of the Issuer, such approval shall be made or such action shall be taken
by the Company Representative; and the Issuer, the Trustee and the Bondholders
shall be authorized to act on any such approval or action.

     Section 12.5.  Notices.

     (a)  All notices, certificates or other communications hereunder shall be
sufficiently given and shall be deemed given when delivered by hand delivery or
mailed by first class, postage prepaid, registered or certified mail, or sent by
nationally-recognized overnight courier addressed as follows:

          (1)  if to the Issuer:        Hillsborough County Industrial
                                        Development
                              Authority
                              c/o Thomas K. Morrison
                              Morrison, Morrison & Mills, P.A.
                              Suite 100
                              1200 West Platt Street
                              Tampa, FL  33606;

          (2)  if to the Company:       Leslie Controls, Inc.
                              c/o Watts Industries, Inc.
                              815 Chestnut Street
                              North Andover, MA  01845
                              (Attention:  William C. McCartney, Corporate
                              Controller)

               with a copy to:  John R. LeClaire, P.C.
                              Goodwin, Procter & Hoar
                              Exchange Place
                              Boston, MA  02109

          (3)  if to the Trustee:       The First National Bank of Boston
                              150 Royall Street, Mail Stop 45-02-15
                              Canton, MA 02021
                              Attention:  Corporate Trust Division

     (b)  The Issuer, the Company or the Trustee may, by notice given hereunder,
designate from time to time any further or different addresses to which
subsequent notices, certificates or other communications shall be sent.

     Section 12.6.  If Payment or Performance Date Is Other Than a Business Day.

     If the specified or last date for the making of any payment, the
performance of any act or the exercising of any right, as provided in this Loan
Agreement, shall be a day other than a Business Day, such payment may be made or
act performed or right exercised on the next succeeding Business Day; provided
that interest shall accrue during any such period during which payment shall not
occur.

     Section 12.7.  Binding Effect.

<PAGE>

     This Loan Agreement shall inure to the benefit of and shall be binding upon
the Issuer, the Company and their respective successors and assigns, subject to
the provisions of Section 8.3 hereof.

     Section 12.8.  Severability.

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

     Section 12.9.  Amendments, Changes and Modifications.

     Subsequent to the issuance of the Bonds and prior to Payment of the Bonds,
this Loan Agreement and the other Bond Documents, may not be effectively
amended, changed, modified, altered or terminated except in accordance with the
Indenture.

     Section 12.10. Execution in Counterparts.

     This Loan Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument, and no one counterpart of which need be executed by all parties.

     Section 12.11. Applicable Law.

     This Loan Agreement shall be governed by and construed in accordance with
the laws of the State.

     Section 12.12. No Charge Against Issuer Credit.

     No provision hereof shall be construed to impose a charge against the
general credit of the Issuer or any personal or pecuniary liability upon any
member, official, employee or agent of the Issuer.

     Section 12.13. Issuer Not Liable.

     Notwithstanding any other provision of this Loan Agreement (a) the Issuer
shall not be liable to the Company, the Trustee, any Bondholder or any other
Person for any failure of the Issuer to take action under this Loan Agreement,
and (b) except with respect to any action for specific performance or any action
in the nature of a prohibitory or mandatory injunction, neither the Issuer nor
any officer or member of the Issuer nor any other official, employee, attorney
or agent of the Issuer shall be liable to the Company, the Trustee, any
Bondholder or any other Person for any action taken by the Issuer or by any of
its officers, servants, agents or employees or for any failure to take action
under this Loan Agreement or the Indenture except for the Issuer's willful
misconduct. In acting under this Loan Agreement, or in refraining from acting
under this Loan Agreement, the Issuer may conclusively rely on the advice of its
counsel.

     Section 12.14. Expenses.

     The Company agrees to pay all reasonable fees and expenses incurred in
connection with the preparation, execution, delivery, modification, waiver, and
amendment of this Loan Agreement, the other Bond Documents and related
documents, and the fees and expenses of bond counsel, counsel for the Issuer and
counsel for the Trustee in connection therewith or in connection with any
transactions contemplated thereby. The Company also agrees to pay to the
Trustee, as and when the same become due, its reasonable fees for services
rendered and its expenses incurred as Trustee, including the reasonable fees of
its counsel, and such other amounts as the Company herein assumes or agrees to
pay, including costs or expenses necessary to cancel and discharge the
Indenture. The Company also agrees to pay all expenses incurred by the Trustee
or the Issuer in collection of any indebtedness incurred hereunder in the event
of default by the Company, including reasonable attorneys fees.

     Section 12.15. Amounts Remaining with the Trustee.

     Any amounts remaining in the Bond Fund or otherwise in trust with the
Trustee under the Indenture or this Loan Agreement shall, after Payment of the
Bonds and all Administrative Expenses in accordance with this Loan Agreement, be
disbursed by the Trustee in accordance with the provisions of the Indenture or
otherwise as may be required by law.

<PAGE>

     IN WITNESS WHEREOF, the Issuer and the Company have caused this Loan
Agreement to be executed in their respective legal names by their duly
authorized representatives all as of the date first above written.

                               LESLIE CONTROLS, INC.

                               By  /s/ (Signature)
                                 Its: Assistant Treasurer

                               HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT
                               AUTHORITY

                               By  /s/ (Signature)
                                 Its: Chairman

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