Document:

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                                                                   EXHIBIT 4(b)

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                               INDENTURE OF TRUST

                                     between

                           CITY OF COHASSET, MINNESOTA

                                       and

                         U.S. BANK NATIONAL ASSOCIATION,

                                   as Trustee

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

                           Dated as of August 1, 2004

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

      $111,000,000 Collateralized Pollution Control Refunding Revenue Bonds
                       (ALLETE, Inc. Project), Series 2004

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                               INDENTURE OF TRUST

                                TABLE OF CONTENTS

This  table of contents  is not  part of the  Indenture, and is  for convenience
only. The captions herein are of no legal effect and do not  vary the meaning or
legal effect of any part of the Indenture.

                                                                            Page

PARTIES........................................................................1

RECITALS.......................................................................1

GRANTING CLAUSES...............................................................2

ARTICLE I DEFINITIONS, RULES OF CONSTRUCTION...................................3

     Section 101     Definitions of Words and Terms............................3
     Section 102     Rules of Construction....................................12
     Section 103     Characteristics of Certificate or Opinion................12

ARTICLE II THE BONDS..........................................................13

     Section 201     Authorization of Bonds; Terms of Series 2004 Bonds.......13
     Section 202     Issuance of Additional Bonds.............................15
     Section 203     Book-Entry System; Securities Depository.................16
     Section 204     Method and Place of Payment..............................17
     Section 205     Execution and Authentication.............................19
     Section 206     Registration, Transfer and Exchange of Bonds.............19
     Section 207     Temporary Bonds..........................................20
     Section 208     Mutilated, Destroyed, Lost and Stolen Bonds..............21
     Section 209     Cancellation of Bonds....................................21

ARTICLE III REDEMPTION AND PURCHASE OF BONDS..................................22

     Section 301     Redemption of Bonds......................................22
     Section 302     Election To Redeem; Notice to Trustee....................23
     Section 303     Selection of Bonds To Be Redeemed; Bonds Redeemed in
                     Part.....................................................23
     Section 304     Notice of Redemption.....................................24
     Section 305     Deposit of Redemption Price; Bonds Payable on
                     Redemption Date..........................................25

ARTICLE IV FUNDS AND ACCOUNTS, APPLICATION OF BOND PROCEEDS AND OTHER MONEY...26

     Section 401     Creation of Funds and Accounts...........................26
     Section 402     Deposit of Bond Proceeds and Other Money.................26
     Section 403     Redemption Fund..........................................27

                                       i

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     Section 404     Bond Fund................................................27
     Section 405     Payments Due on Non-Business Days........................28
     Section 406     Nonpresentment of Bonds..................................28
     Section 407     Money To Be Held in Trust................................28
     Section 408     Investment of Money......................................29
     Section 409     Records and Reports of Trustee...........................29

ARTICLE V SATISFACTION AND DISCHARGE..........................................30

     Section 501     Payment, Discharge and Defeasance of Bonds...............30
     Section 502     Satisfaction and Discharge of Indenture..................31
     Section 503     Rights Retained After Discharge..........................31

ARTICLE VI GENERAL AND PARTICULAR COVENANTS OF THE ISSUER.....................32

     Section 601     Issuer To Issue Bonds and Execute Indenture..............32
     Section 602     Limited Obligations......................................32
     Section 603     Payment of Bonds.........................................33
     Section 604     Performance of Covenants.................................33
     Section 605     Inspection of Books......................................33
     Section 606     Enforcement of Rights....................................33
     Section 607     Tax Covenants............................................33
     Section 608     Financing Statements.....................................34

ARTICLE VII EVENTS OF DEFAULT AND REMEDIES....................................34

     Section 701     Events of Default........................................34
     Section 702     Acceleration of Maturity; Rescission and Annulment.......35
     Section 703     Exercise of Remedies by the Trustee......................36
     Section 704     Trustee May File Proofs of Claim.........................37
     Section 705     Limitation on Suits by Bondowners........................38
     Section 706     Control of Proceedings by Bondowners.....................39
     Section 707     Application of Money Collected...........................39
     Section 708     Rights and Remedies Cumulative...........................40
     Section 709     Delay or Omission Not Waiver.............................40
     Section 710     Waiver of Past Defaults..................................40
     Section 711     Advances by Trustee......................................40

ARTICLE VIII THE TRUSTEE AND PAYING AGENTS....................................41

     Section 801     Acceptance of Trusts; Certain Duties and
                     Responsibilities.........................................41
     Section 802     Certain Rights of Trustee................................42
     Section 803     Notice of Defaults.......................................43
     Section 804     Compensation and Reimbursement...........................44
     Section 805     Corporate Trustee Required; Eligibility..................44
     Section 806     Resignation and Removal of Trustee.......................45
     Section 807     Appointment of Successor Trustee.........................46
     Section 808     Acceptance of Appointment by Successor...................46

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     Section 809     Merger, Consolidation and Succession to Business.........47
     Section 810     Co-Trustees and Separate Trustees........................47
     Section 811     No Transfer of First Mortgage Bonds......................48
     Section 812     Voting of First Mortgage Bonds...........................48
     Section 813     Surrender of First Mortgage Bonds........................49
     Section 814     Designation of Paying Agents.............................49

ARTICLE IX SUPPLEMENTAL INDENTURES............................................50

     Section 901     Supplemental Indentures without Consent of Bondowners....50
     Section 902     Supplemental Indentures with Consent of Bondowners.......50
     Section 903     Execution of Supplemental Indentures.....................52
     Section 904     Effect of Supplemental Indentures........................52
     Section 905     Reference in Bonds to Supplemental Indentures............52
     Section 906     Company's Consent to Supplemental Indentures.............52

ARTICLE X AMENDMENT OF LOAN AGREEMENT.........................................53

     Section 1001    Amendment, etc., to Loan Agreement Not Requiring
                     Consent of Bondowners....................................53
     Section 1002    Amendment, etc., to Loan Agreement Requiring Consent
                     of Bondowners............................................53
     Section 1003    Trustee Authorized To Join in Amendments; Reliance on
                     Counsel..................................................53

ARTICLE XI MEETINGS OF BONDOWNERS.............................................54

     Section 1101    Purposes for Which Bondowners' Meetings May Be Called....54
     Section 1102    Place of Meetings of Bondowners..........................54
     Section 1103    Call and Notice of Bondowners' Meetings..................54
     Section 1104    Persons Entitled To Vote at Bondowners' Meetings.........54
     Section 1105    Determination of Voting Rights; Conduct and
                     Adjournment of Meetings..................................55
     Section 1106    Counting Votes and Recording Action of Meetings..........55
     Section 1107    Revocation by Bondowners.................................56

ARTICLE XII NOTICES, CONSENTS AND ACTS OF BONDOWNERS..........................56

     Section 1201    Notices..................................................56
     Section 1202    Acts of Bondowners.......................................58
     Section 1203    Form and Contents of Documents Delivered to Trustee......59

ARTICLE XIII MISCELLANEOUS PROVISIONS.........................................60

     Section 1301    Further Assurances.......................................60
     Section 1302    Immunity of Officers, Employees and Members of Issuer....60
     Section 1303    Liability of Issuer Limited..............................60
     Section 1304    Execution Counterparts...................................60
     Section 1305    Governing Law............................................60

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     Section 1306    Benefit of Indenture.....................................61
     Section 1307    Severability.............................................61

EXHIBIT A--FORM OF SERIES 2004 BONDS ........................................A-1

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                               INDENTURE OF TRUST

     This  INDENTURE  OF TRUST,  dated as of  August 1, 2004 (the  "Indenture"),
between the CITY OF COHASSET,  MINNESOTA,  a municipal corporation organized and
existing under the laws of the State of Minnesota (the "Issuer"),  and U.S. Bank
National Association, a national banking association duly organized and existing
and  authorized  to accept and execute  trusts of the  character  herein set out
under the laws of the United States,  and having its principal  corporate  trust
office located in St. Paul, Minnesota, as trustee (the "Trustee").

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

     WHEREAS,  the Issuer is authorized and empowered under Minnesota  Statutes,
Sections 469.152 to 469.165, as amended (as hereinafter  defined, the "Act"), to
issue  revenue  bonds  to  finance,  in  whole  or in  part,  the  cost  of  the
acquisition, construction, reconstruction,  improvement, betterment or extension
of, and to acquire,  construct and hold, properties,  real or personal,  used or
useful in a  revenue-producing  enterprise or in the abatement or control of air
or water pollution in connection with a revenue-producing  enterprise engaged in
business, and to refund revenue bonds previously issued under the Act; and

     WHEREAS,  under the  provisions  of the Act and at the  request  of ALLETE,
Inc., a Minnesota  corporation  (hereinafter called the "Company"),  the City of
Bass  Brook,  Minnesota  (the  predecessor  to  the  Issuer)  previously  issued
$111,000,000  aggregate  principal  amount  of its 6%  Collateralized  Pollution
Control Revenue Bonds  (Minnesota  Power & Light Company  Project),  Series 1992
(hereinafter  called the "Refunded Bonds"),  the proceeds from the sale of which
were  used  for the  purpose  of  refinancing  a  portion  of the  costs  of the
acquisition,  construction and equipping of certain pollution control facilities
at units 1, 2 and 4 of the Clay Boswell steam electric  generating station owned
in part by the Company and located in the City of Cohasset, Minnesota; and

     WHEREAS, under the provisions of the Act and at the request of the Company,
the Issuer  has duly  authorized  the  issuance  and sale of its  Collateralized
Pollution Control Refunding Revenue Bonds (ALLETE,  Inc.  Project),  Series 2004
(the "Series 2004 Bonds"),  issuable under and upon the terms of this Indenture,
the proceeds  from the sale of which will be loaned by the Issuer to the Company
for the purpose of refunding the Refunded Bonds; and

     WHEREAS,  all things have been done that are  necessary  to make the Bonds,
when executed by the Issuer and authenticated and delivered hereunder, the valid
special,  limited  obligations of the Issuer, and to constitute this Indenture a
valid contract for the security of the Bonds,  in accordance  with their and its
terms.

     NOW, THEREFORE, THIS INDENTURE WITNESSETH:

     The Issuer,  in  consideration  of the premises and the  acceptance  by the
Trustee of the trusts hereby  created and of the purchase and  acceptance of the
Series  2004  Bonds  and  any   Additional   Bonds  (as   hereinafter   defined)
(collectively,  the "Bonds") by the Owners (as hereinafter  defined) thereof, in
order to secure the payment of the principal of,  premium,  if any, and interest
on the  Bonds  according  to their  tenor and  effect  and the  performance  and
observance by the Issuer of all of its covenants expressed or implied herein and
in the Bonds, does hereby

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pledge, and convey, assign  and grant to the Trustee a security interest in, the
property   described  in   paragraphs  (a),  (b) and  (c) below  (said  property
referred to herein as the "Trust Estate"):

          (a) all rights,  title and interest of the Issuer (including,  but not
     limited to, the right to enforce any of the terms thereof) in, to and under
     (1) the Loan  Agreement,  including all Receipts and Revenues of the Issuer
     from the Loan Agreement and all other payments owing to the Issuer and paid
     by the Company  under the Loan  Agreement  (except the  Issuer's  rights to
     payment of its fees and expenses and to indemnification as set forth in the
     Loan  Agreement and as otherwise  expressly set forth  therein),  including
     without  limitation  its rights to  delivery  of the First  Mortgage  Bonds
     issued and delivered by the Company,  and (2) all  financing  statements or
     other instruments or documents  evidencing,  securing or otherwise relating
     to the loan of the proceeds of the Bonds; and

          (b) the money and  investments  from time to time held by or on behalf
     of the Trustee in the funds and accounts  under the terms of this Indenture
     (provided  that any  moneys or  obligations  deposited  with or paid to the
     Trustee  for the  redemption  or payment of Bonds  which are deemed to have
     been paid in accordance  with Article V hereof shall not  constitute a part
     of the Trust Estate but will be held for and applied only to the payment of
     such Bonds); and

          (c) any and all other property (real, personal or mixed) of every kind
     and  nature  from time to time,  by  delivery  or by  writing  of any kind,
     pledged,  assigned or transferred as and for additional security under this
     Indenture  by the  Issuer or by anyone  in its  behalf or with its  written
     consent, to the Trustee,  which is hereby authorized to receive any and all
     such  property at any and all times and to hold and apply the same  subject
     to the terms hereof.

     TO HAVE AND TO HOLD  all the same to the  Trustee  and its  successors  and
assigns forever;

     BUT IN TRUST, NEVERTHELESS,  upon the terms and trusts herein set forth for
the equal and  proportionate  benefit,  security and protection of all Owners of
the Bonds  issued  under  and  secured  by this  Indenture,  without  privilege,
priority or  distinction as to lien or otherwise of any of the Bonds over any of
the others except as otherwise expressly provided herein.

     PROVIDED,  HOWEVER,  that if the Issuer,  its successors or assigns,  shall
well  and  truly  pay or cause to be paid the  principal  of the  Bonds  and the
premium,  if any, and interest due or to become due thereon, at the times and in
the manner  mentioned  in the Bonds,  according  to the true  intent and meaning
thereof,  or shall  provide,  as permitted  hereby,  for the payment  thereof by
depositing  with the Trustee sums  sufficient to pay the entire amount due or to
become due thereon,  and shall well and truly keep, perform, and observe all the
covenants  and  conditions  pursuant to the terms of this  Indenture to be kept,
performed  and observed by it and shall pay to the Trustee all sums of money due
or to become due to it in accordance with the terms and provisions hereof;  then
upon such final  payment this  Indenture  and the rights  hereby  granted  shall
cease,  terminate,  and become null and void; otherwise this Indenture to be and
remain in full force and effect.

                                       2

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                                   ARTICLE I

                       DEFINITIONS, RULES OF CONSTRUCTION

     SECTION 101 DEFINITIONS OF WORDS AND TERMS.  All words  and phrases defined
in the  preambles  of  this  Indenture  shall  have  the  same  meaning  in this
Indenture,  except as  otherwise  appears  in this  Section.  In  addition,  the
following terms shall have the following meanings,  unless the context otherwise
requires:

     "Act" means Minnesota  Statutes,  Sections 469.152 to 469.165,  as amended,
and all acts supplemental thereto or amendatory thereof.

     "Additional Bonds" means any Bonds issued under this Indenture,  other than
the Series 2004 Bonds.

     "Affiliate" means any Person which "controls," or is "controlled" by, or is
under common  "control" with, the Company.  For purposes of this  definition,  a
Person  "controls"  another Person when the first Person  possesses or exercises
directly,  or  indirectly  through  one or  more  other  affiliates  or  related
entities,  the power to direct the  management and policies of the other Person,
whether through the ownership of voting rights, membership, the power to appoint
members, trustees or directors, by contract, or otherwise.

     "Authorized  Denominations"  means,  in  respect  of  a  series  of  Bonds,
denominations of $5,000 or any integral multiple thereof.

     "Book-Entry  System"  means,  in respect  of a series of Bonds,  the global
book-entry system used by a Securities  Depository appointed pursuant to Section
203 hereof to effect the  transfer of  beneficial  ownership  interests  in such
Bonds.

     "Bond  Counsel"  means  any  legal  counsel  selected  by the  Company  and
reasonably  acceptable  to the Issuer and the  Trustee  who shall be  nationally
recognized  as expert in matters  pertaining to the validity of  obligations  of
governmental  issuers and the exemption from federal income taxation of interest
on such  obligations  and  experienced  in the  financing of  pollution  control
facilities.

     "Bond  Fund"  means the fund by that name  created by  Section  401 of this
Indenture.

     "Bondowner" means the Owner of a Bond.

     "Bonds" means the Series 2004 Bonds and any Additional Bonds.

     "Business Day"  means  a day  other  than (a) a Saturday,  Sunday or  legal
holiday, and (b) a day on which banks located in any city in which the principal
corporate  trust  office of the  Trustee or the  principal office of any  Paying
Agent is located are required or authorized by law to remain closed.

     "Cede & Co." means Cede & Co., as nominee of The Depository  Trust Company,
New York, New York.

                                       3

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     "Code"  means the  Internal  Revenue Code of 1986,  as amended,  and,  when
appropriate,  any statutory predecessor or successor thereto, and all applicable
regulations  thereunder  and any  applicable  official  rulings,  announcements,
notices, procedures and judicial determinations relating to the foregoing.

     "Company" means ALLETE,  Inc., a Minnesota  corporation,  and its permitted
successors and assigns under the Loan Agreement.

     "Company  Representative"  means the  President,  any Vice President or the
Treasurer of the Company and such other person or persons at the time designated
to act on behalf of the Company in matters  relating to this  Indenture  and the
Loan Agreement as evidenced by a written certificate furnished to the Issuer and
the Trustee  containing  the  specimen  signature  of such person or persons and
signed on behalf of the  Company by its  President,  any Vice  President  or its
Treasurer.  Such  certificate  may designate an alternate or alternates  each of
whom shall be entitled to perform all duties of the Company Representative.

     "Costs of Issuance" means "issuance  costs" with respect to Bonds described
in Section 147(g) of the Code and any regulations thereunder,  including but not
limited to the following:

          (a) underwriters'  compensation  (whether realized directly or derived
     through  purchase of Bonds at a discount  below the price at which they are
     expected to be sold to the public);

          (b) counsel  fees  (including  bond  counsel,  underwriters'  counsel,
     Issuer's counsel, as well as any other specialized counsel fees incurred in
     connection with the borrowing);

          (c) financial  advisor  fees  of any  financial  advisor to the Issuer
     incurred in connection with the issuance of such Bonds;

          (d) rating agency fees;

          (e) trustee, escrow agent and paying agent fees;

          (f) accountant  fees  and other  expenses  related to issuance of such
     Bonds;

          (g) printing  costs (for such Bonds and of the  preliminary  and final
     Official Statement relating to such Bonds); and

          (h) fees and expenses of the Issuer  incurred in  connection  with the
     issuance of such Bonds.

     "Counsel"  means an attorney  designated  by or  acceptable to the Trustee,
duly admitted to practice law before the highest court of any state; an attorney
for the Company or the Issuer may be eligible for appointment as Counsel.

                                       4

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     "Defeasance Obligations" means:

          (a) Government  Obligations  which are not subject to redemption prior
     to maturity;

          (b) obligations  of any  state or political  subdivision of any state,
     the interest on which is excluded from gross income for federal  income tax
     purposes and which meet the following conditions:

               (1) the  obligations  (A) are not subject to redemption  prior to
          maturity  or (B) the  trustee  for such  obligations  has  been  given
          irrevocable  instructions  concerning their calling and redemption and
          the  issuer of such  obligations  has  covenanted  not to redeem  such
          obligations other than as set forth in such instructions;

               (2) the obligations are secured by cash or noncallable Government
          Obligations  that may be  applied  only to payment  of  principal  of,
          premium, if any, and interest payments on such obligations;

               (3) the  sufficiency  of such  cash  and  noncallable  Government
          Obligations to pay in full all principal of, interest, and premium, if
          any,  on such  obligations  has  been  verified  by the  report  of an
          independent  certified  public  accountant (a  "Verification")  and no
          substitution of Government  Obligations shall be permitted except with
          cash or  other  Government  Obligations  and  upon  delivery  of a new
          Verification;

               (4) such cash and Government  Obligations serving as security for
          the obligations  are held in an irrevocable  escrow by an escrow agent
          or a trustee in trust for the owners of such obligations, at least one
          year has passed since the  establishment of such escrow and the issuer
          of such  obligations is not, and has not been since the  establishment
          of such escrow,  a debtor in a proceeding  commenced  under the United
          States Bankruptcy Code;

               (5) the Trustee has received an Opinion of Counsel that such cash
          and  Government  Obligations  are not  available  to satisfy any other
          claims, including those against the trustee or escrow agent;

               (6) the Trustee has received an Opinion of Bond Counsel delivered
          in connection  with the original  issuance of such  obligations to the
          effect that the interest on such  obligations  was exempt for purposes
          of federal income taxation, and the Trustee has received an Opinion of
          Bond Counsel  delivered in connection  with the  establishment  of the
          irrevocable  escrow to the effect that the establishment of the escrow
          will not result in the loss of any  exemption  for purposes of federal
          income taxation to which interest on such obligations  would otherwise
          be entitled;

               (7) the Trustee has received an unqualified opinion of nationally
          recognized  bankruptcy  counsel  to the  effect  that the  payment  of
          principal of and

                                       5

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          interest  on such  obligations  made  from  such  escrow  would not be
          avoidable as preferential  payments and  recoverable  under the United
          States  Bankruptcy  Code should the obligor or any other person liable
          on such  obligations  become a debtor in a proceeding  commenced under
          the United States Bankruptcy Code; and

               (8) the obligations are rated in the highest rating category by a
          nationally recognized securities rating service; or

          (c) obligations  (including  participation   certificates)  issued  or
     guaranteed  by an  agency  of  the  United  States  of  America  or  person
     controlled or supervised by and acting as an  instrumentality of the United
     States of America pursuant to authority granted by the Congress,  including
     but not limited to those of the  Federal  Home Loan  Mortgage  Corporation,
     Federal  Home Loan  Banks,  the Farm  Credit  System and  Federal  National
     Mortgage Association.

     "Determination of Taxability," when used with respect to a series of Bonds,
means a final, nonappealable determination by the Internal Revenue Service or by
a court of competent  jurisdiction  in the United  States  that,  as a result of
failure  by the  Company  to  observe or  perform  any  covenant,  condition  or
agreement on its part to be observed or performed under the Loan Agreement or as
a result  of the  inaccuracy  of any  representation  or  agreement  made by the
Company under the Loan Agreement, the interest payable on Bonds of the series is
includable  for federal  income tax  purposes in the gross  income of the owners
thereof  (other  than an  owner  who is a  "substantial  user"  of the  projects
refinanced  thereby or a "related  person" thereto within the meaning of Section
103(b)(13) of the 1954 Code), which final  determination  follows proceedings of
which the Company has been given written notice and in which the Company, at its
sole expense and to the extent deemed sufficient by the Company,  has been given
an opportunity to  participate,  either directly or in the name of the owners of
Bonds of the series.

     "Electronic   Notice"  means  notice  transmitted  through  a  time-sharing
terminal or facsimile  machine,  if operative as between any two parties,  or if
not operative, in writing or by telephone (promptly confirmed in writing).

     "Event of Default" has the meaning given such term in Section 701 hereof.

     "Facilities"  means the Refinanced  Pollution  Control  Facilities,  as now
existing or hereafter  improved,  which are described  generally in Exhibit A to
the Loan Agreement.

     "First  Mortgage"  means  the  Mortgage  and  Deed of  Trust,  dated  as of
September 1, 1945, from the Company to Irving Trust Company (now The Bank of New
York) and Richard H. West  (Douglas J.  MacInnes,  Successor),  as trustees,  as
heretofore and hereafter amended and supplemented.

     "First  Mortgage Bonds" means the first mortgage bonds issued and delivered
under the First Mortgage as required by Section 3.02 of the Loan Agreement.

     "First  Mortgage  Trustee"  means  the  corporate  trustee  under the First
Mortgage, its successors in trust and their assigns.

                                       6

<PAGE>

     "Government Obligations" means the following:

          (a) bonds,  notes,  certificates  of  indebtedness,  treasury bills or
     other  securities  constituting  direct  obligations of, or obligations the
     principal of and interest on which are fully and unconditionally guaranteed
     by, the United States of America; and

          (b) evidences  of direct  ownership of a  proportionate  or individual
     interest in future  interest or  principal  payments  on  specified  direct
     obligations of, or obligations the payment of the principal of and interest
     on which is  unconditionally  guaranteed  by, the United States of America,
     which  obligations  are  held  by a bank or  trust  company  organized  and
     existing  under  the laws of the  United  States  of  America  or any state
     thereof in the capacity of custodian.

     "Indenture"  means this  Indenture of Trust as  originally  executed by the
Issuer  and the  Trustee,  as from  time to time  amended  and  supplemented  by
Supplemental Indentures in accordance with the provisions of this Indenture.

     "Interest Payment Date" means each January 1 and July 1.

     "Issuer" means the City of Cohasset,  Minnesota,  and any successors to its
functions hereunder.

     "Issuer  Representative"  means the  Mayor of the  Issuer,  and such  other
person or  persons  at the time  designated  to act on  behalf of the  Issuer in
matters  relating to this  Indenture  and the Loan  Agreement  as evidenced by a
written  certificate  furnished to the Trustee containing the specimen signature
of such person or persons and signed on behalf of the Issuer by its Mayor.  Such
certificate  may  designate an alternate  or  alternates,  each of whom shall be
entitled to perform all duties of the Issuer Representative.

     "Loan"  means the loan of the  proceeds  of the Bonds made by the Issuer to
the Company pursuant to the Loan Agreement.

     "Loan Agreement" means the Loan Agreement,  of even date herewith,  between
the Issuer and the  Company,  as from time to time  amended or  supplemented  by
Supplemental  Loan  Agreements  in accordance  with the  provisions of Article X
hereof.

     "Loan Payments" means the payments of principal of and interest on the Loan
referred to in Section 3.02 of the Loan Agreement.

     "1954 Code" means the Internal Revenue Code of 1954, as amended,  and, when
appropriate,  any statutory predecessor thereto, and all applicable  regulations
thereunder  and  any  applicable  official  rulings,   announcements,   notices,
procedures and judicial determinations relating to the foregoing.

     "Opinion of Bond Counsel" means a written opinion of Bond Counsel.

     "Opinion of Counsel" means a written opinion of Counsel.

                                       7

<PAGE>

     "Original Purchaser" means, in respect of a series of Bonds, the Person who
purchases Bonds of the series from the Issuer.

     "Outstanding" means with respect to Bonds, as of the date of determination,
all Bonds theretofore authenticated and delivered under  this Indenture, except:

          (a) Bonds  theretofore  cancelled  by the Trustee or  delivered to the
     Trustee for cancellation as provided in Section 209 of this Indenture;

          (b) Bonds  for  whose  payment  or  redemption   money  or  Defeasance
     Obligations in the necessary amount have been deposited with the Trustee or
     any  Paying  Agent in trust for the  owners of such  Bonds as  provided  in
     Section  501 of this  Indenture,  provided  that,  if such  Bonds are to be
     redeemed,  notice of such  redemption  has been duly given pursuant to this
     Indenture or provision therefor satisfactory to the Trustee  has been made;

          (c) Bonds in  exchange  for or in lieu of which  other Bonds have been
     authenticated and delivered under this Indenture; and

          (d) Bonds  alleged to have been  destroyed,  lost or stolen which have
     been paid as provided in Section 208 of this Indenture;

provided,  however,  that,  in  determining  whether the Owners of the requisite
principal  amount  of  Outstanding   Bonds  have  given  any  request,   demand,
authorization,  direction, notice, consent or waiver under this Indenture, Bonds
owned by the Issuer or by the Company or any Related  Party thereto or Affiliate
thereof shall be disregarded and deemed not to be  Outstanding,  except that, in
determining  whether the Trustee  shall be  protected  in relying  upon any such
request, demand, authorization, direction, notice, consent or waiver, only Bonds
which the Trustee knows to be so owned shall be disregarded.

     "Owner"  means,  in respect of a Bond,  the Person or Persons in whose name
the Bond is registered on the bond registration  books maintained by the Trustee
pursuant to Section 206 hereof.

     "Participants"  means those financial  institutions for whom the Securities
Depository effects book-entry transfers and pledges of securities deposited with
the Securities Depository, as such listing of Participants exists at the time of
such reference.

     "Paying  Agent"  means the Trustee and any other  commercial  bank or trust
institution  organized  under  the laws of any  state of the  United  States  of
America  or  any  national  banking  association  designated  pursuant  to  this
Indenture or any  Supplemental  Indenture as paying agent for any Bonds at which
the principal of, redemption  premium,  if any, and interest on such Bonds shall
be payable.

     "Permitted  Investments"  means,  if and to the  extent the same are at the
time legal for investment of funds held under this Indenture:

          (a) Government Obligations;

                                       8

<PAGE>

          (b) bonds,  notes  or other  obligations  of any  state of the  United
     States or any  political  subdivision  of any  state,  which at the time of
     their purchase are rated in either of the two highest rating  categories by
     a Rating Service;

          (c) certificates  of deposit or time or demand  deposits  constituting
     direct  obligations  of any bank,  bank holding  company,  savings and loan
     association,  trust  company or other  financial  institution,  except that
     investments  may be made only in  certificates of deposit or time or demand
     deposits which are:

               (1) Insured by the Bank Insurance Fund or the Savings Association
          Insurance Fund of the Federal Deposit  Insurance  Corporation,  or any
          other similar United States Government  deposit insurance program then
          in existence; or

               (2) Continuously  and  fully secured by  securities  described in
          paragraph (a) above,  which have a market value,  exclusive of accrued
          interest,  at all times at least equal to the principal amount of such
          certificates of deposit or time or demand deposits; or

               (3) Issued by a bank,  bank  holding  company,  savings  and loan
          association,  trust  company  or  other  financial  institution  whose
          outstanding  unsecured long-term debt is rated at the time of issuance
          in either of the two highest rating categories by a Rating Service;

          (d) repurchase agreements with any bank, bank holding company, savings
     and  loan  association,   trust  company  or  other  financial  institution
     organized  under  the laws of the  United  States  or any  state,  that are
     continuously  and  fully  secured  by any  one or  more  of the  securities
     described in paragraph (a) above and which have a market  value,  exclusive
     of accrued interest, at all times at least equal to the principal amount of
     such repurchase  agreements,  provided that each such repurchase  agreement
     conforms  to  current  industry  standards  as  to  form  and  time,  is in
     commercially  reasonable  form, is for a  commercially  reasonable  period,
     results in  transfer of legal title to  identified  Government  Obligations
     which are segregated in a custodial or trust account for the benefit of the
     Trustee, and further provided that Government Obligations acquired pursuant
     to such  repurchase  agreements  shall be  valued  at the lower of the then
     current market value thereof or the  repurchase  price thereof set forth in
     the applicable repurchase agreement;

          (e) investment  agreements  constituting an obligation of a bank, bank
     holding company,  savings and loan  association,  trust company,  insurance
     company,  financial  institution or other credit provider whose outstanding
     unsecured  long-term  debt is rated at the time of such agreement in either
     of the two highest rating categories by a Rating Service;

          (f) short term discount  obligations of the Federal National  Mortgage
     Association and the Government National Mortgage Association; and

          (g) money  market  mutual funds that are  registered  with the federal
     Securities and Exchange  Commission,  meeting the requirements of Rule 2a-7
     under the Investment

                                       9

<PAGE>

     Company  Act of 1940 and  that  are  rated  in  either  of the two  highest
     categories  by a Rating  Service,  including  mutual  funds  from which the
     Trustee or its  affiliates  receive fees for  investment  advisory or other
     services to the fund.

     "Person"  means  any  natural  person,  firm,   association,   corporation,
partnership,  limited liability company,  limited liability  partnership,  joint
stock company, joint venture, trust,  unincorporated  organization or firm, or a
government or any agency or political subdivision thereof or other  public body.

     "Plant" means the Clay Boswell steam electric generating station located in
the City of Cohasset, Minnesota, and owned in part by the Company.

     "Rating  Service"  means  each of  Standard  & Poor's  Ratings  Service,  a
division of The McGraw-Hill  Companies,  Inc., and Moody's  Investor's  Service,
Inc.,  if a series of Bonds is rated by such rating  service at the time, or any
other nationally  recognized securities rating service acceptable to the Company
that maintains a rating on any of the Bonds.

     "Receipts  and  Revenues of the Issuer from the Loan  Agreement"  means all
moneys  paid or  payable  to the  Trustee  for the  account of the Issuer by the
Company in respect of the principal of and interest on the First Mortgage Bonds,
or pursuant to Section 3.02(e) or 8.01 of the Loan  Agreement,  and all receipts
of the Trustee  credited  under the  provisions of this  Indenture  against such
payments.

     "Redemption  Fund"  means  the fund by that name  created  by  Section  401
hereof.

     "Refunded Bonds" means the 6%  Collateralized  Pollution  Control Refunding
Revenue Bonds (Minnesota Power & Light Company Project),  Series 1992, issued by
the City of Bass Brook, Minnesota (the predecessor in interest to the Issuer) in
the original principal amount of $111,000,000.

     "Regular  Record Date" means the close of business on the 15th day (whether
or not a Business Day) of the calendar month immediately  preceding the Interest
Payment Date.

     "Related  Party" means any Person which is a member of the same  controlled
group with,  or a related  person to, the Issuer,  within the meaning of Section
1.150-1 of the Treasury Regulations.

     "Replacement  Bonds"  means Bonds issued to the  beneficial  owners of such
Bonds in accordance with Section 203 hereof.

     "Securities Depository" means for any series of Bonds, The Depository Trust
Company,  New York, New York,  and its successors and assigns,  or any successor
securities depository appointed pursuant to Section 203 hereof.

     "Series 2004 Bonds" means any bond or bonds of the series of Collateralized
Pollution Control Refunding Revenue Bonds (ALLETE,  Inc. Project),  Series 2004,
aggregating the principal  amount of $111,000,000,  to be issued,  authenticated
and delivered under and pursuant to this Indenture.

                                       10

<PAGE>

     "Sinking  Fund  Payment  Date"  means  one of the  dates  set  forth in any
applicable  provision of a  Supplemental  Indenture  for the making of mandatory
principal redemptions with respect to the Bonds.

     "Special Record Date" means, with respect to any Bond, the date established
by the Trustee in connection  with the payment of overdue  interest on such Bond
pursuant to Section 204 hereof.

     "State" means the State of Minnesota.

     "Stated  Maturity" when used with respect to any Bond or any installment of
interest  thereon  means the date  specified  in such Bond as the fixed  date on
which the  principal  of such Bond or such  installment  of  interest is due and
payable.

     "Supplemental  Indenture" means any indenture supplemental or amendatory to
this Indenture entered into by the Issuer and the Trustee pursuant to Article IX
of this Indenture.

     "Supplemental   Loan  Agreement"   means  any  agreement   supplemental  or
amendatory  to the Loan  Agreement  entered  into by the Issuer and the  Company
pursuant to Article X hereof.

     "Tax  Compliance  Certificate"  means  a No  Arbitrage  Certificate  of the
Company,  executed upon the issuance of a series of Bonds hereunder, as such may
be amended or  supplemented  from time to time in accordance with the provisions
thereof.

     "Transaction   Documents"  means  this  Indenture,   the  Bonds,  the  Loan
Agreement,  the Tax Compliance  Certificate,  the First Mortgage Bonds and those
certificates given by the Issuer, the Company and the Trustee in connection with
the issuance of the Bonds,  including any and all  amendments or  supplements to
any of the  foregoing;  provided,  however,  that  when the  words  "Transaction
Documents" are used in the context of the  authorization,  execution,  delivery,
approval or performance of Transaction Documents by a particular party, the same
shall mean only those  Transaction  Documents  that  provide for or  contemplate
authorization, execution, delivery, approval or performance by such party.

     "Trustee"  means U.S.  Bank  National  Association,  and its  successor  or
successors and any other  corporation  or  association  which at any time may be
substituted  in its place  pursuant to and at the time serving as trustee  under
this Indenture.

     "Trust Estate" means the revenues,  money,  investments,  contract  rights,
general  intangibles,  and  instruments  and proceeds,  products and  accessions
thereof as set forth in the Granting  Clauses of this Indenture,  and such other
collateral, security and guarantees as shall from time to time be pledged to the
Trustee by the Issuer as security for its obligations under the Bonds.

     "United States  Bankruptcy Code" means the United States  Bankruptcy Reform
Act of 1978,  as amended from time to time,  or any  substitute  or  replacement
legislation.

                                       11

<PAGE>

     SECTION 102 RULES OF  CONSTRUCTION.  For all  purposes  of this  Indenture,
except as otherwise expressly provided or unless the context otherwise requires,
the following rules of  construction  apply in construing the provisions of this
Indenture:

     (a) The terms  defined in  this  Article  include the plural as well as the
         singular.

     (b) All  accounting  terms  not  otherwise  defined  herein  shall have the
         meanings  assigned to them, and all  computations  herein  provided for
         shall  be  made,  in  accordance  with  generally  accepted  accounting
         principles  to  the extent  applicable.  The term  "generally  accepted
         accounting principles" refers to such principles  in effect on the date
         of the determination, certification, computation or  other action to be
         taken hereunder using or involving such  terms provided,  as applied to
         any entity that operates a utility or  other  discrete  enterprise of a
         type with respect to which  particular  accounting principles from time
         to  time  shall  have been  generally  adapted  or  modified,  the term
         "generally   accepted   accounting   principles"   shall  include   the
         adaptations or modifications.

     (c) All references  in this instrument to designated "Articles," "Sections"
         and other subdivisions  are to be the designated Articles, Sections and
         other subdivisions of this instrument as originally executed.

     (d) The  words  "herein,"  "hereof"  and  "hereunder"  and  other  words of
         similar  import  refer  to this  Indenture  as a whole  and  not to any
         particular Article, Section or other subdivision hereof.

     (e) The Article and Section  headings  herein and  in the Table of Contents
         are for convenience only and shall not  affect the construction hereof.

     (f) Whenever an item or items are listed  after the word  "including," such
         listing  is not  intended  to  be a  listing  that  excludes  items not
         listed.

     (g) "Or" is not  intended  to  be  exclusive,  but is intended to permit or
         encompass one, more or all of the alternatives conjoined.

     (h) Any terms not defined herein but defined in  the Loan  Agreement  shall
         have  the  meanings  herein  unless   the  context   clearly   requires
         otherwise.

     SECTION 103 CHARACTERISTICS OF CERTIFICATE OR OPINION. Every certificate or
Opinion of Counsel  with  respect to  compliance  with a  condition  or covenant
provided for in this Indenture shall include: (i) a statement that the person or
persons making such  certificate or opinion have read such covenant or condition
and the definitions  herein relating  thereto;  (ii) a brief statement as to the
nature and scope of the examination or  investigation  upon which the statements
or opinions  contained in such certificate are based; (iii) a statement that, in
the opinion of the signers, they have made or caused to be made such examination
or  investigation  as is necessary to enable them to express an informed opinion
as to whether or not such covenant or condition has been complied with; and (iv)
a statement whether,  in the opinion of the signers,  such condition or covenant
has been complied with.

                                       12

<PAGE>

     Any such  certificate  made or given by an  officer  of the  Issuer  may be
based,  insofar as it relates to legal matters,  upon an Opinion of Counsel. Any
such Opinion of Counsel may be based,  insofar as it relates to factual  matters
information  with  respect  to which is in the  possession  of the Issuer or the
Company,  upon the  certificate  of an officer or  officers of the Issuer or the
Company.

                                   ARTICLE II

                                    THE BONDS

     SECTION 201 AUTHORIZATION  OF BONDS;  TERMS OF  SERIES  2004 BONDS.  (a) No
Bonds  may be  issued  under  this  Indenture  except  in  accordance  with  the
provisions of this Article. The total principal amount of Series 2004 Bonds that
may be issued  under this  Indenture  is limited as  provided  in this  Section.
Additional Bonds may be issued as provided in Section 202 hereof.

     (b) There shall be issued  under and secured by this  Indenture a series of
Bonds  designated  "Collateralized  Pollution  Control  Refunding  Revenue Bonds
(ALLETE,  Inc.  Project),  Series  2004," in the aggregate  principal  amount of
$111,000,000,  for the purpose of providing  funds to make a loan to the Company
to be used, with other available funds, to refund the Refunded Bonds.

     The  aggregate  principal  amount  of the  Series  2004  Bonds  that may be
authenticated  and delivered and Outstanding  under this Indenture is limited to
and shall not exceed $111,000,000.

     The Series  2004 Bonds shall be dated the date of their  original  issuance
and delivery, and shall have a Stated Maturity of July 1, 2022, subject to prior
redemption as provided in Article III hereof.

     (c) The Series 2004 Bonds shall bear  interest  from their date or from the
most recent date to which interest has been paid or duly provided for, at a rate
per annum  equal to  4.95%,  payable  on each  Interest  Payment  Date as herein
provided,  commencing  on January 1, 2005,  until  payment of the  principal  or
redemption  price thereof is made or provided for,  whether at Stated  Maturity,
upon redemption, acceleration or otherwise.

     The Series 2004 Bonds shall be issuable as fully  registered  bonds without
coupons,  in Authorized  Denominations,  in substantially  the form set forth in
Exhibit A  attached  to this  Indenture,  with  such  necessary  or  appropriate
variations,  omissions  and  insertions  as are  permitted  or  required by this
Indenture.  The Series 2004 Bonds may have endorsed thereon such legends or text
as may be  necessary  or  appropriate  to  conform to any  applicable  rules and
regulations of any governmental authority or any custom, usage or requirement of
law with respect thereto.

     The Series 2004 Bonds shall be numbered  from R-1  consecutively  upward in
order of issuance or in such other manner as the Trustee shall designate.

     (d) The Series 2004 Bonds may forthwith  upon the execution and delivery of
this  Indenture,  or from time to time  thereafter,  be  executed  by the proper
officers of the Issuer and

                                       13

<PAGE>

delivered   to  the  Trustee  for   authentication,   and  shall   thereupon  be
authenticated and delivered by the Trustee, but only upon receipt by the Trustee
of the following:

          (1) A copy,  certified by  the City  Clerk-Treasurer of the Issuer, of
              the resolution  adopted  by the Issuer authorizing the issuance of
              the Series 2004 Bonds  and the  execution of this  Indenture,  the
              Loan Agreement and  the other Transaction Documents to which it is
              a party.

          (2) A copy,  certified by  the Secretary or an Assistant  Secretary of
              the  Company,   of  the   resolutions   adopted   by  the  Company
              authorizing  the execution and delivery of the  Loan Agreement and
              the  other  Transaction  Documents  to which  it  is a party,  and
              approving  this Indenture and the issuance and sale of the  Series
              2004 Bonds.

          (3) An original  executed  counterpart  of  this  Indenture,  the Loan
              Agreement and the other Transaction Documents.

          (4) A  request  and  authorization  to  the  Trustee  on behalf of the
              Issuer, executed by an  Issuer Representative, to authenticate and
              thereafter   deliver  the   Series  2004  Bonds  to  the  Original
              Purchasers  thereof upon  payment to the Trustee,  for the account
              of the Issuer,  of the  purchase price thereof,  and directing the
              Trustee as to the  disposition  of the proceeds of the Series 2004
              Bonds.  The Trustee shall be  entitled to rely  conclusively  upon
              such  request and  authorization  as to  the names of the Original
              Purchasers and the amounts of such purchase price.

          (5) An Opinion  of  Bond  Counsel  stating  in effect  and  subject to
              customary   assumptions    and   qualifications,   that:  (1)  all
              conditions  precedent  provided in this Indenture relating to  the
              authentication  and  delivery  of the  Series 2004 Bonds have been
              complied  with;  and (2) the  Series 2004  Bonds,  when issued and
              executed by the  Issuer and  authenticated  and  delivered  by the
              Trustee,   will  be   the  valid  and  binding  special,   limited
              obligations  of the Issuer  in  accordance  with  their  terms and
              entitled  to the  benefits  of  and  secured  by the  lien of this
              Indenture  equally and ratably  with all  Outstanding  Bonds,  and
              will bear  interest  not  includable  in  gross income for federal
              income tax  purposes  of  the owners  thereof  except by reason of
              Section 103(b)(13) of the 1954 Code.

          (6) An original duly  executed counterpart or a duly certified copy of
              the  supplemental  indenture  to the First  Mortgage  creating the
              First Mortgage Bonds.

          (7) The First Mortgage Bonds.

     When the documents  specified  above have been filed with the Trustee,  and
when the  Series  2004 Bonds  shall  have been  executed  and  authenticated  as
required by this Indenture,  the Trustee shall deliver such Series 2004 Bonds to
or upon the order of the Original Purchasers  thereof,  but only upon payment to
the Trustee of the purchase price of the Series 2004 Bonds.

                                       14

<PAGE>

The proceeds of the sale of the Series 2004 Bonds,  including  accrued  interest
and premium thereon, if any, shall be immediately paid over to the Trustee,  and
the  Trustee  shall  deposit  and apply such  proceeds as provided in Article IV
hereof.

     SECTION 202 ISSUANCE OF ADDITIONAL BONDS.  Additional Bonds (in addition to
the Series 2004 Bonds) may be authenticated  and delivered from time to time for
one or  more  of  the  following  purposes:  (i)  refunding  and  prepaying  any
Outstanding  Bonds;  (ii)  refinancing any Outstanding  Bonds as provided for in
Section  5.04  of  the  Loan  Agreement;   (iii)   financing  the   acquisition,
construction, equipping or improvement of any property of the Company, including
funds  to  capitalize  interest  during   construction,   (iv)  refinancing  the
acquisition,  construction,  equipping  or  improvement  of any  property of the
Company through the refunding of outstanding  revenue bonds issued by a state or
political  subdivision or other indebtedness incurred by the Company, and (v) to
pay expenses of the issuance of such Additional Bonds.

     Additional  Bonds may at any time and from time to time be  executed by the
Issuer and delivered to the Trustee for authentication, but only upon receipt by
the Trustee of the following:

     (1) A copy,  certified  by the City  Clerk-Treasurer  of the Issuer, of the
         resolution  adopted  by the Issuer  authorizing  the  issuance  of such
         Additional  Bonds and  the execution  and delivery of the  Supplemental
         Loan Agreement  relating  to the Additional  Bonds and the Supplemental
         Indenture establishing the terms thereof.

     (2) A copy,  certified by  the  Secretary or an Assistant  Secretary of the
         Company,  of  the  resolutions  adopted by the Company  authorizing the
         execution and  delivery of the Supplemental Loan Agreement  relating to
         the Additional Bonds  and approving the Supplemental  Indenture and the
         issuance and sale of such Additional Bonds.

     (3) A certificate of a Company  Representative  approving the  issuance and
         delivery of the Additional Bonds.

     (4) An executed  counterpart of the Supplemental  Indenture  creating  such
         Additional Bonds and of the Supplemental  Loan Agreement  providing for
         the expenditure of proceeds of the Additional Bonds.

     (5) A request  and  authorization  to  the Trustee on behalf of the Issuer,
         executed by an  Issuer Representative,  to authenticate such Additional
         Bonds and  deliver  such  Additional  Bonds to the  Original  Purchaser
         thereof upon  payment to the Trustee, for the account of the Issuer, of
         the  purchase  price  thereof,  and  directing  the  Trustee  as to the
         disposition  of the  proceeds of such  Additional  Bonds.  The  Trustee
         shall  be  entitled  to  rely   conclusively   upon  such  request  and
         authorization  as  to the  names  of the  Original  Purchaser  and  the
         amounts of such purchase price.

     (6) A certificate of  an Issuer Representative  stating that to the best of
         his or  her  knowledge  no Event of Default is then  subsisting  and no
         event  or  condition  which  with the  lapsing of time or the giving of
         notice,  or both,  would become an Event of  Default has occurred,  and
         that all conditions precedent provided for in this

                                       15

<PAGE>

         Indenture  relating   to  the  authentication   and  delivery  of  such
         Additional Bonds have been complied with;

     (7) A certificate  of a Company  Representative stating that to the best of
         his or her  knowledge no "Event of Default" under the Loan Agreement is
         then  subsisting  and no event or condition  which  with the lapsing of
         time or the giving of notice,  or both, would  become such an "Event of
         Default" has occurred;

     (8) An Opinion of Bond  Counsel stating in effect, and subject to customary
         assumptions  and  qualifications:  (a) that  all  conditions  precedent
         provided in this Indenture relating to  the authentication and delivery
         of  such  Additional  Bonds  have  been  complied  with;  (b)  that the
         Additional  Bonds whose  authentication  and  delivery are then applied
         for,  when  issued and  executed by  the Issuer and  authenticated  and
         delivered  by the  Trustee,  will  be the  valid and  binding  special,
         limited  obligations of the Issuer  in accordance  with their terms and
         entitled to the benefits of and  secured by the lien of this  Indenture
         equally and ratably with all  Outstanding  Bonds and will bear interest
         not  includable  in gross income for federal income tax purposes of the
         owners thereof except by reason of  Section 103(b)(13) of the 1954 Code
         or  Section  147(a) of the Code;  and (c) stating  that the issuance of
         such  Additional  Bonds  will not  affect  the  tax-exempt  nature  for
         federal income tax purposes of any Bonds then outstanding.

     (9) Written  evidence,  satisfactory  to the  Trustee,  that   each  Rating
         Service  will not reduce or withdraw  its rating  then  assigned to the
         Outstanding Bonds as a result of the issuance of the  Additional Bonds.

     Any Additional Bonds shall be dated the date of original authentication and
delivery thereof,  shall bear interest at the rate or rates established pursuant
to Section 202  hereof,  and shall have Stated  Maturities  (provided  that such
Stated  Maturities  shall  be on  January  1 or July 1) and  may be  subject  to
redemption prior to their Stated Maturities at such times and prices and on such
terms  and  conditions  as  may  be  provided  by  the  Supplemental   Indenture
authorizing their issuance  (provided that any mandatory sinking fund redemption
dates  shall  be on a  January  1 or July 1).  Except  to the  extent  expressly
provided  otherwise in a Supplemental  Indenture  creating the Additional Bonds,
all Additional  Bonds shall be payable and secured  equally and ratably and on a
parity with all Bonds theretofore  issued and then Outstanding,  entitled to the
same benefits and security of this Indenture.

     SECTION 203 BOOK-ENTRY  SYSTEM;  SECURITIES  DEPOSITORY.  The Bonds of each
series shall  initially be registered to Cede & Co., the nominee for the initial
Securities  Depository,  and  no  beneficial  owner  will  receive  certificates
representing  their respective  interests in the Bonds,  except in the event the
Trustee issues Replacement Bonds as provided in this Section.  It is anticipated
that during the term of each series of Bonds,  the  Securities  Depository  will
make  book-entry  transfers  among its  Participants  and receive  and  transmit
payment of  principal  of,  premium,  if any, and interest on, such Bonds to the
Participants until and unless the Trustee authenticates and delivers Replacement
Bonds to the beneficial owners as described in the following paragraph.

                                       16

<PAGE>

     If (1) the Company determines (A) that the Securities  Depository is unable
to  properly  discharge  its  responsibilities,   or  (B)  that  the  Securities
Depository  is no  longer  qualified  to  act  as a  securities  depository  and
registered clearing agency under the Securities Exchange Act of 1934, as amended
(the "1934 Act"),  or (C) that the  continuation  of a Book-Entry  System to the
exclusion of the Bonds of any or all series being issued to any Bondowner  other
than the Securities Depository or its nominee is no longer in the best interests
of the  beneficial  owners of such Bonds,  or (2) the Trustee  receives  written
notice from Participants  having interests in not less than 50% of the principal
amount of the  Bonds  Outstanding,  as shown on the  records  of the  Securities
Depository (and certified to such effect by the Securities Depository), that the
Participants have determined that the continuation of a Book-Entry System to the
exclusion of any Bonds being issued to any Bondowner  other than the  Securities
Depository or its nominee is no longer in the best  interests of the  beneficial
owners of the  Bonds,  then the  Trustee  shall  notify the  Bondowners  of such
determination  or such notice and of the  availability  of bond  certificates to
owners  requesting  the same,  and the Trustee shall register in the name of and
authenticate  and deliver  Replacement  Bonds to the beneficial  owners or their
nominees in principal  amounts  representing  the interest of each,  making such
adjustments as it may find  necessary or appropriate as to accrued  interest and
previous calls for  redemption;  provided,  that in the case of a  determination
under (1)(A) or (1)(B) of this paragraph,  the Company,  with the consent of the
Trustee,  may select a successor  securities  depository in accordance  with the
following  paragraph  to  effect  book-entry  transfers.   In  such  event,  all
references  to the  Securities  Depository  herein shall relate to the period of
time when the Securities Depository has possession of at least one Bond which is
held in its  Book-Entry  System.  Upon the issuance of  Replacement  Bonds,  all
references  herein  to  obligations  imposed  upon  or to be  performed  by  the
Securities  Depository  shall be deemed to be imposed upon and  performed by the
Trustee, to the extent applicable with respect to such Replacement Bonds. If the
Securities  Depository  resigns and the Company,  the Trustee or Bondowners  are
unable  to  locate  a  qualified  successor  of  the  Securities  Depository  in
accordance with the following paragraph, then the Trustee shall authenticate and
cause  delivery of  Replacement  Bonds to Bondowners,  as provided  herein.  The
Trustee  may  rely  on  information  from  the  Securities  Depository  and  its
Participants as to the names of the beneficial  owners of the Bonds. The cost of
printing, registration,  authentication, and delivery of Replacement Bonds shall
be paid by the Company.

     In the event  the  Securities  Depository  resigns,  is unable to  properly
discharge its responsibilities, or is no longer qualified to act as a securities
depository  and registered  clearing  agency under the 1934 Act, the Company may
appoint a successor Securities  Depository provided the Trustee receives written
evidence  satisfactory  to  the  Trustee  with  respect  to the  ability  of the
successor  Securities  Depository  to discharge its  responsibilities.  Any such
successor  Securities  Depository  shall be a securities  depository  which is a
registered  clearing agency under the 1934 Act, or other  applicable  statute or
regulation  that operates a securities  depository upon reasonable and customary
terms.  The Trustee upon its receipt of a Bond or Bonds for  cancellation  shall
cause  the  delivery  of  Bonds  to  the  successor  Securities   Depository  in
appropriate denominations and form as provided herein.

     SECTION 204 METHOD AND PLACE OF  PAYMENT.  The   principal  of,  redemption
premium,  if any,  and  interest  on the Bonds  shall be  payable in any coin or
currency  of the  United  States of  America  which on the  respective  dates of
payment thereof is legal tender for the payment of public and private debts.

                                       17

<PAGE>

     The principal of and the redemption  premium, if any, on all Bonds shall be
payable by check or draft at maturity or upon earlier  redemption to the Persons
in whose names such Bonds are registered on the bond register  maintained by the
Trustee at the maturity or redemption date thereof,  upon the  presentation  and
surrender of such Bonds at the principal  corporate  trust office of the Trustee
or the principal office of any Paying Agent named in the Bonds.

     The  interest  payable on each Bond on any  Interest  Payment Date shall be
paid by the  Trustee to the  registered  owner of such Bond as shown on the bond
register at the close of business on the Regular  Record Date for such interest,
(1) by check or draft  mailed to such Owner at his  address as it appears on the
bond register or at such other address as is furnished to the Trustee in writing
by such Owner, or (2) with respect to Bonds held by a Securities Depository,  or
at the  written  request  addressed  to the Trustee by any Owner of Bonds in the
aggregate  principal  amount of at least $1,000,000 (or, if the principal amount
of the Outstanding Bonds of any series is less than $1,000,000, the Owner of all
Outstanding  Bonds of such series),  by electronic  wire transfer in immediately
available  funds to the bank for credit to the ABA  routing  number and  account
number filed with the Trustee no later than five  Business Days before a payment
date, but no later than a Regular Record Date for any interest payment, that all
such payments be made by wire transfer.

     Interest  on any Bond that is due and  payable but not paid on the date due
("Defaulted  Interest")  shall  cease to be payable to the Owner of such Bond on
the relevant Regular Record Date and shall be payable to the Owner in whose name
such Bond is registered  at the close of business on a special  record date (the
"Special Record Date") for the payment of such Defaulted Interest, which Special
Record Date shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of  Defaulted  Interest  proposed to be paid on
each Bond and the date of the proposed payment (which date shall be such as will
enable the Trustee to comply with the next sentence  hereof),  and shall deposit
with the  Trustee  at the time of such  notice an  amount of money  equal to the
aggregate  amount  proposed to be paid in respect of such Defaulted  Interest or
shall make  arrangements  satisfactory  to the Trustee for such deposit prior to
the date of the proposed payment; money deposited with the Trustee shall be held
in trust for the benefit of the Owners of the Bonds  entitled to such  Defaulted
Interest  as  provided  in this  Section.  Following  receipt  of such funds the
Trustee  shall fix the Special  Record  Date for the  payment of such  Defaulted
Interest which shall be not more than 15 nor less than 10 days prior to the date
of the  proposed  payment  and not less than 10 days  after the  receipt  by the
Trustee of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such  Special  Record Date and, in the name and at the expense of
the  Company,  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 Owner of a Bond entitled to such notice at the address of such
Owner as it  appears  on the bond  register  not less than 10 days prior to such
Special Record Date.

     Subject to the foregoing  provisions of this Section,  each Bond  delivered
under this Indenture upon transfer of or in exchange for or in lieu of any other
Bond shall carry all the rights to interest  accrued and unpaid,  and to accrue,
which were  carried  by such  other Bond and each such Bond shall bear  interest
from such date,  that neither  gain nor loss in interest  shall result from such
transfer, exchange or substitution.

                                       18

<PAGE>

     SECTION 205 EXECUTION AND  AUTHENTICATION.  The  Bonds shall be executed on
behalf of the Issuer by the manual or facsimile  signatures of the Mayor and the
City Clerk-Treasurer of the Issuer and said signatures shall be authenticated by
the Trustee.  It shall not be necessary for the seal of the Issuer to be affixed
to or  imprinted  upon any  Bond.  If any  officer  whose  manual  or  facsimile
signature  appears  on any Bonds  shall  cease to hold such  office  before  the
authentication  and delivery of such Bonds, such signature shall nevertheless be
valid and sufficient  for all purposes,  the same as if such person had remained
in office  until  delivery.  Any Bond may be signed  by such  persons  as at the
actual time of the  execution of such Bond shall be the proper  officers to sign
such Bond  although at the date of such Bond such persons may not have been such
officers.

     No Bond shall be secured by, or be  entitled to any lien,  right or benefit
under,  this Indenture or be valid or obligatory  for any purpose,  unless there
appears on such Bond a certificate of  authentication  substantially in the form
provided  for in  Exhibit  A  hereto,  executed  by the  Trustee  by the  manual
signature of an authorized  representative of the Trustee,  and such certificate
upon any Bond shall be conclusive  evidence,  and the only  evidence,  that such
Bond has been duly authenticated and delivered  hereunder.  At any time and from
time to time after the execution and delivery of this Indenture,  the Issuer may
deliver Bonds executed by the Issuer to the Trustee for  authentication  and the
Trustee shall  authenticate and deliver such Bonds as in this Indenture provided
and not otherwise.

     SECTION 206 REGISTRATION, TRANSFER AND EXCHANGE OF BONDS. The Trustee shall
cause to be kept at its principal corporate trust office a register (referred to
herein as the "bond register") in which, subject to such reasonable  regulations
as it may prescribe,  the Trustee shall provide for the  registration,  transfer
and exchange of Bonds as herein provided.  The Trustee is hereby appointed "bond
registrar" for the purpose of registering Bonds and transfers of Bonds as herein
provided.

     Bonds  may  be  transferred  or  exchanged  only  upon  the  bond  register
maintained  by the Trustee as  provided  in this  Section.  Upon  surrender  for
transfer or exchange of any Bond at the principal  corporate trust office of the
Trustee,  the Issuer  shall  execute,  and the Trustee  shall  authenticate  and
deliver,  in the name of the designated  transferee or transferees,  one or more
new Bonds of the same series, Stated Maturity,  of any Authorized  Denominations
and of a like aggregate principal amount.

     Every Bond presented or  surrendered  for transfer or exchange shall (if so
required by the Issuer or the Trustee,  as bond registrar) be duly endorsed,  or
be accompanied by a written  instrument of transfer in form  satisfactory to the
Trustee,  as bond registrar,  duly executed by the Owner thereof or his attorney
or legal representative duly authorized in writing.

     All Bonds  issued upon any transfer or exchange of Bonds shall be the valid
special,  limited  obligations  of the  Issuer,  evidencing  the same debt,  and
entitled to the same security and benefits  under this  Indenture,  as the Bonds
surrendered upon such transfer or exchange.

     No service charge shall be made for any registration,  transfer or exchange
of Bonds, but the Trustee or Securities  Depository may require payment of a sum
sufficient to cover any tax or other governmental  charge that may be imposed in
connection with any transfer or exchange of

                                       19

<PAGE>

Bonds,  and such  charge  shall  be paid  before  any  such  new  Bond  shall be
delivered.  The fees and  charges of the  Trustee  for making  any  transfer  or
exchange  and the  expense  of any bond  printing  necessary  to effect any such
transfer or exchange shall be paid by the Company.  In the event any Owner fails
to provide a correct taxpayer  identification number to the Trustee, the Trustee
may impose a charge against such Owner sufficient to pay any governmental charge
required to be paid as a result of such failure. In compliance with Section 3406
of the Code,  such amount may be deducted by the Trustee from amounts  otherwise
payable to such Owner hereunder or under the Bonds.

     The Trustee  shall not be  required,  (i) to transfer or exchange  any Bond
during a period  beginning  at the opening of business 15 days before the day of
the first mailing of a notice of redemption of such Bond and ending at the close
of business on the day of such mailing, or (ii) to transfer or exchange any Bond
so selected for redemption in whole or in part, during a period beginning at the
opening of business on any Regular  Record Date for such Bonds and ending at the
close of business on the relevant Interest Payment Date therefor.

     The Issuer,  the  Company,  the  Trustee  and any agent of the Issuer,  the
Company or the Trustee may treat the Person in whose name any Bond is registered
as the owner of such Bond for the purpose of receiving  payment of principal of,
and  premium,  if any,  and  interest  on, such Bond and for all other  purposes
whatsoever,  except as otherwise provided in this Indenture, whether or not such
Bond is overdue,  and, to the extent permitted by law,  neither the Issuer,  the
Company,  the  Trustee  nor any such agent  shall be  affected  by notice to the
contrary.

     The Person in whose name any Bond shall be  registered on the bond register
shall be deemed and regarded as the  absolute  owner  thereof for all  purposes,
except as otherwise provided in this Indenture,  and payment of or on account of
the  principal  of and  premium,  if any, and interest on any such Bond shall be
made only to or upon the order of the Owner thereof or his legal representative,
but such registration may be changed as herein provided. All such payments shall
be valid and effectual to satisfy and discharge the liability  upon such Bond to
the extent of the sum or sums so paid.

     At reasonable  times and under  reasonable  regulations  established by the
Trustee, the bond register maintained by the Trustee may be inspected and copied
by the  Issuer,  the Company or the Owners of 10% in  principal  amount of Bonds
Outstanding  or  the  authorized   representative  thereof,  provided  that  the
ownership of such Owner and the authority of any such designated  representative
shall be evidenced to the satisfaction of the Trustee.

     SECTION 207 TEMPORARY BONDS.  Pending the preparation of definitive  Bonds,
the Issuer may  execute,  and upon  request  of the  Issuer  the  Trustee  shall
authenticate  and  deliver,  temporary  Bonds which are  printed,  lithographed,
typewritten,  or otherwise produced,  in any denomination,  substantially of the
tenor of the  definitive  Bonds in lieu of which  they  are  issued,  with  such
appropriate  insertions,  omissions,  substitutions  and other variations as the
officers executing such Bonds may determine,  as evidenced by their execution of
such Bonds.  If  temporary  Bonds are issued,  the Issuer will cause  definitive
Bonds to be  prepared  without  unreasonable  delay.  After the  preparation  of
definitive Bonds, the temporary Bonds shall be exchangeable for definitive Bonds
upon surrender of the temporary Bonds at the principal corporate trust office of
the Trustee, without charge to the Owner. Upon surrender for

                                       20

<PAGE>

cancellation of any one or more temporary Bonds, the Trustee shall  authenticate
and deliver in exchange  therefor a like principal amount of definitive Bonds of
Authorized Denominations.  Until so exchanged, temporary Outstanding Bonds shall
in all respects be entitled to the security and benefits of this Indenture.

     SECTION 208 MUTILATED,  DESTROYED,  LOST  AND  STOLEN  BONDS.  If  (i)  any
mutilated  Bond is  surrendered  to the  Trustee,  or the Issuer and the Trustee
receive evidence to their satisfaction of the destruction,  loss or theft of any
Bond, and (ii) there is delivered to the Issuer and the Trustee such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Issuer or the Trustee that such Bond has been  acquired
by a bona fide  purchaser,  the Issuer  shall  execute  and upon its request the
Trustee shall  authenticate and deliver,  in exchange for or in lieu of any such
mutilated,  destroyed,  lost or stolen  Bond,  a new Bond of the same series and
Stated  Maturity and of like tenor and  principal  amount,  bearing a number not
contemporaneously outstanding.

     In case any such mutilated, destroyed, lost or stolen Bond has become or is
about to become due and payable,  the Issuer in its discretion  may,  instead of
issuing a new Bond, pay such Bond.

     Upon the  issuance of any new Bond under this  Section,  the Issuer and the
Trustee may require  the payment of a sum  sufficient  to cover any tax or other
governmental  charge  that may be  imposed  in  relation  thereto  and any other
expenses connected therewith.

     Every new Bond issued  pursuant to this  Section in lieu of any  destroyed,
lost or  stolen  Bond,  shall  constitute  an  original  additional  contractual
obligation  of the  Issuer,  whether or not the  destroyed,  lost or stolen Bond
shall be at any time  enforceable  by anyone,  and shall be  entitled to all the
security  and  benefits of this  Indenture  equally  and ratably  with all other
Outstanding Bonds.

     The  provisions of this Section are  exclusive  and shall  preclude (to the
extent lawful) all other rights and remedies with respect to the  replacement or
payment of mutilated, destroyed, lost or stolen Bonds.

     SECTION 209  CANCELLATION  OF BONDS.  All Bonds  surrendered  for  payment,
redemption,  transfer,  exchange or replacement,  if surrendered to the Trustee,
shall be promptly  cancelled by the Trustee,  and, if  surrendered to any Paying
Agent other than the  Trustee,  shall be  delivered  to the Trustee  and, if not
already cancelled, shall be promptly cancelled by the Trustee. The Issuer or the
Company  may at any time  deliver  to the  Trustee  for  cancellation  any Bonds
previously  authenticated  and  delivered  hereunder,  which  the  Issuer or the
Company may have acquired in any manner  whatsoever,  and all Bonds so delivered
shall be promptly  cancelled by the Trustee.  No Bond shall be  authenticated in
lieu of or in exchange  for any Bond  cancelled  as  provided  in this  Section,
except as expressly provided by this Indenture.  All cancelled Bonds held by the
Trustee  shall be destroyed  and disposed of by the Trustee in  accordance  with
applicable record retention requirements.  The Trustee shall execute and deliver
to the Issuer and the Company a  certificate  describing  the Bonds so cancelled
and destroyed.

                                       21

<PAGE>

                                  ARTICLE III

                        REDEMPTION AND PURCHASE OF BONDS

     SECTION 301 REDEMPTION  OF BONDS. Additional  Bonds  shall  be  subject  to
redemption as provided in the Supplemental  Indenture providing for the issuance
thereof.  The Series 2004 Bonds are subject to optional and mandatory redemption
prior to Stated Maturity as follows:

     (a) OPTIONAL REDEMPTION. Series 2004 Bonds are subject to redemption by the
Issuer, in whole or in part, in an amount evenly divisible by minimum Authorized
Denominations,  solely at the option of the  Company,  which shall be  exercised
upon the written  direction  of the  Company,  on July 1, 2014,  and on any date
thereafter, at a redemption price equal to 100% of the principal amount thereof,
without premium, plus accrued interest thereon to the redemption date.

     (b) EXTRAORDINARY OPTIONAL REDEMPTION. The Series 2004 Bonds are subject to
redemption  and  payment  prior to the Stated  Maturity  thereof by the  Issuer,
solely at the option of the Company,  which shall be exercised  upon the written
direction  of the  Company,  in  whole  or in part  on any  Business  Day,  at a
redemption price equal to 100% of the principal amount thereof, without premium,
plus accrued  interest  thereon to the  redemption  date,  if the Company  shall
declare,  within  180 days  following  the  occurrence  of one of the  following
events,  that it will cease to operate any element or unit of the  Facilities by
reason of the occurrence of such event:  (a) the damage or destruction of all or
substantially all of any element or unit of the Facilities or the Plant to which
such  Facilities  relate to such extent that, in the  reasonable  opinion of the
Company,  the repair and  restoration  thereof would not be economical;  (b) the
condemnation  of  all  or  substantially  all  of any  element  or  unit  of the
Facilities  or such Plant or the  taking by  condemnation  of such part,  use or
control of such element or unit of the  Facilities or Plant as to render them or
it  unsatisfactory  to the Company  for their or its  intended  use;  (c) if the
Company  has  abandoned  and  removed  from  service  all  or a  portion  of the
Facilities or all of its ownership  interest in the Plant;  (d) in the Company's
reasonable  opinion,  unreasonable  burdens or excessive  liabilities shall have
been imposed upon the Company with respect to the Facilities or the Plant or the
operation thereof,  including,  but without being limited to, federal,  state or
other ad valorem,  property, income or other taxes not being imposed on the date
of this  Indenture,  other  than ad  valorem  taxes  levied  on the date of this
Indenture upon privately owned property used for the same general purpose as the
Facilities or the Plant;  (e) as a result of any changes in the  Constitution of
the State or the  Constitution of the United States of America or of legislative
or  administrative  action  (whether  state or federal)  or by final  direction,
judgment or order of any court or administrative body (whether state or federal)
entered after the contest  thereof by the Company in good faith,  this Indenture
or  the  Loan  Agreement   becomes  void  or   unenforceable  or  impossible  of
performance;  or (f) if (1) the Company sells,  leases or otherwise  disposes of
the Facilities or a substantial part thereof to a Person who is not an Affiliate
of the Company, or changes or allows a change in the use of, such Facilities, or
any substantial  part thereof,  and (2) there is delivered to the Issuer and the
Trustee an Opinion of Bond  Counsel to the effect  that,  unless the Series 2004
Bonds or a specified  part thereof are  redeemed and retired  either prior to or
concurrently with such sale, lease or other disposition, or change in use, or on
a  subsequent  date  prior to  maturity,  Bond  Counsel  is  unable to render an
unqualified  opinion that such sale,  lease or other  disposition,  or change in
use,  of all or such  substantial  part of such  Facilities  will not  adversely
affect the excludability from gross income, for federal income tax

                                       22

<PAGE>

purposes,  of   the  interest  on  the   series  of  Bonds  that  financed  such
Facilities  and will not  adversely  affect  the  Company's  ability  to  deduct
interest  payments made pursuant to the  Agreement  under Section  150(b) of the
Code or a successor provision thereto.

     (c) MANDATORY  REDEMPTION  UPON A DETERMINATION  OF TAXABILITY.  The Series
2004  Bonds  shall  be  redeemed,  at a  redemption  price  equal to 100% of the
principal amount thereof,  without premium, on the earliest practicable Interest
Payment  Date,  upon  written  notice  to  the  Company  by the  Trustee  of the
occurrence  of a  Determination  of  Taxability  with respect to the Series 2004
Bonds.  The  Trustee  shall give  prompt  written  notice to the  Company of the
occurrence  of any  event  of  which  the  Trustee  has  knowledge  which  could
reasonably be expected to give rise to a Determination of Taxability. The Series
2004 Bonds  shall be  redeemed,  either in whole or in part,  in such  principal
amount that, upon such redemption, the interest payable on the Series 2004 Bonds
remaining  outstanding  after such  redemption  would not be so  includable  for
federal income tax purposes in the gross income of the owners thereof.

     SECTION 302 ELECTION TO REDEEM;  NOTICE TO TRUSTEE.  The Issuer shall elect
to redeem  Bonds  subject  to  optional  redemption  upon  receipt  of a written
direction  of the  Company.  In case of any  redemption  at the  election of the
Issuer,  the Company shall, in the name and on behalf of the Issuer, at least 40
days prior to the redemption  date fixed by the Company (unless a shorter notice
shall be  satisfactory  to the  Trustee)  give  written  notice  to the  Trustee
directing the Trustee to call Bonds for redemption and give notice of redemption
and  specifying the redemption  date,  the principal  amount,  and maturities of
Bonds to be called for redemption, the applicable redemption price or prices and
the provision or provisions of this  Indenture  pursuant to which such Bonds are
to be called for redemption.

     The foregoing provisions of this Section shall not apply in the case of any
mandatory  redemption of Bonds under this Indenture,  and the Trustee shall call
Bonds for  redemption  and shall  give  notice of  redemption  pursuant  to such
mandatory  redemption  requirements  without the  necessity of any action by the
Issuer or the Company and whether or not the Trustee shall hold in the Bond Fund
money available and sufficient to effect the required redemption.

     SECTION 303 SELECTION  OF BONDS TO BE  REDEEMED;  BONDS  REDEEMED IN  PART.
Bonds  may be  redeemed  only in the  principal  amount  of  minimum  Authorized
Denominations.  If less than all Bonds are to be  redeemed  pursuant  to Section
301(a)  or  301(b)  hereof  (or  the  comparable  provisions  of a  Supplemental
Indenture),  such Bonds shall be redeemed from the series and Stated Maturity or
Maturities  selected  by the  Company.  If less than all Bonds of any series and
Stated Maturity are to be redeemed, the particular Bonds to be redeemed shall be
selected by the Trustee from the Bonds of such series and Stated  Maturity which
have not previously  been called for  redemption,  by such method as the Trustee
shall deem fair and  appropriate  and which may  provide for the  selection  for
redemption of portions equal to minimum  Authorized  Denominations of Bonds of a
denomination larger than such minimum Authorized Denominations.

     Any Bond which is to be redeemed only in part shall be  surrendered  at the
place of payment  therefor (with, if the Issuer or the Trustee so requires,  due
endorsement by, or a written  instrument of transfer in form satisfactory to the
Issuer and the Trustee duly  executed  by, the Owner  thereof or his attorney or
legal representative duly authorized in writing) and the Issuer

                                       23

<PAGE>

shall  execute and  the Trustee shall  authenticate  and deliver to the Owner of
such  Bond, without service charge, a new  Bond or Bonds of  the same series and
Stated  Maturity of any  Authorized  Denomination  as requested by such Owner in
aggregate  principal amount equal to and in exchange for the unredeemed  portion
of the principal of the Bond so surrendered. If the Owner of any such Bond shall
fail to present such Bond to the Trustee for payment and exchange as  aforesaid,
said Bond shall, nevertheless,  become due and payable on the redemption date to
the  extent  of the unit or units of  principal  amount  in  minimum  Authorized
Denominations called for redemption (and to that extent only).

     In  lieu  of  surrender  under  the  preceding  paragraph,  payment  of the
redemption  price of a  portion  of any Bond may be made  directly  to the Owner
thereof  without  surrender  thereof,  if there  shall  have been filed with the
Trustee a written  agreement of such Owner and, if such Owner is a nominee,  the
Person for whom such Owner is a nominee,  that payment shall be so made and that
such Owner will not sell,  transfer  or  otherwise  dispose of such Bond  unless
prior to delivery  thereof such Owner shall present such Bond to the Trustee for
notation  thereon of the  portion of the  principal  thereof  redeemed  or shall
surrender  such  Bond in  exchange  for a new Bond or Bonds  for the  unredeemed
balance of the principal of the surrendered Bond.

     The Trustee shall promptly  notify the Issuer and the Company in writing of
the Bonds  selected  for  redemption  and, in the case of any Bond  selected for
partial redemption, the principal amount thereof to be redeemed.

     SECTION 304 NOTICE OF REDEMPTION. Unless waived by any Owner of Bonds to be
redeemed,  official notice of any such redemption  shall be given by the Trustee
on  behalf  of the  Issuer  by  mailing  a copy of an  official  notice  of such
redemption by first class mail, at least 30 days prior to the  redemption  date,
to each Owner of Bonds to be redeemed at the address  shown on the bond register
or at such  other  address  as is  furnished  in  writing  by such  Owner to the
Trustee;  provided  that no defect  in or  failure  to give any such  redemption
notice shall affect the validity of  proceedings  for the redemption of any Bond
not affected by such defect or failure.

     All official notices of redemption shall be dated and shall state:

     (a) the redemption date;

     (b) the redemption price;

     (c) the  principal  amount of  Bonds to be  redeemed  and, if less than all
         Bonds are to be redeemed,  the  identification  by  reference to serial
         numbers  (and,  in  the  case of  partial  redemption,  the  respective
         principal amounts) of the Bonds to be redeemed;

     (d) that on  the redemption  date the redemption  price will become due and
         payable  upon each such Bond or portion  thereof called for redemption,
         and that  interest  thereon  shall cease to accrue from and  after said
         date (unless sufficient moneys are not available to the Trustee to  pay
         the redemption price);

                                       24

<PAGE>

     (e) the place where  the Bonds to be  redeemed  are to be  surrendered  for
         payment of the  redemption  price,  which place of payment shall be the
         principal  corporate  trust  office of  the  Trustee  or the  principal
         office of a Paying Agent; and

     (f) as to any Bonds to be  redeemed pursuant to Section 301(a) or (b), such
         notice is  conditional  upon  moneys or  Government  Obligations,  or a
         combination  thereof,  being  on deposit  with the Trustee in an amount
         sufficient  to  pay  the  redemption  price  on  the  redemption  date;
         otherwise such redemption shall not be effective.

     The  failure of any Owner of Bonds to receive  notice  given as provided in
this Section shall not affect the validity of any proceedings for the redemption
of  any  Bonds.  Any  notice  mailed  as  provided  in  this  Section  shall  be
conclusively  presumed to have been duly given and shall become  effective  upon
mailing, whether or not any Owner receives such notice.

     In addition to the foregoing  notice,  further notice shall be given by the
Trustee on behalf of the Issuer at least 35 days before the  redemption  date by
certified  mail or  overnight  delivery  service  to all  registered  securities
depositories then in the business of holding  substantial amounts of obligations
of types comprising the Bonds and to one or more national  information  services
that disseminate  notices of redemption of obligations  such as the Bonds.  Each
further notice of redemption given shall contain the information  required above
for an official  notice of  redemption  plus (i) the CUSIP  numbers of all Bonds
being redeemed;  (ii) the date of issue of the Bonds of the series as originally
issued;  (iii) the rate of interest borne by each Bond being redeemed;  (iv) the
series and the Stated  Maturity of each Bond being  redeemed;  and (v) any other
descriptive  information needed to identify accurately the Bonds being redeemed.
No defect in said  further  notice nor any failure to give all or any portion of
such further notice shall in any manner defeat the  effectiveness  of a call for
redemption if notice thereof is given as above prescribed.

     So long as the Securities  Depository is effecting  book-entry transfers of
the Bonds,  the Trustee shall  provide the notices  specified in this Section to
the Securities Depository.  It is expected that the Securities Depository shall,
in turn, notify its Participants and that the Participants, in turn, will notify
or cause to be notified the  beneficial  owners.  Any failure on the part of the
Securities Depository or a Participant, or failure on the part of a nominee of a
beneficial  owner of a Bond  (having been mailed  notice from the  Trustee,  the
Securities  Depository,  a Participant  or  otherwise) to notify the  beneficial
owner of the Bond so affected,  shall not affect the validity of the  redemption
of such Bond.

     SECTION 305 DEPOSIT OF REDEMPTION PRICE;  BONDS PAYABLE ON REDEMPTION DATE.
On or before any  redemption  date, the Issuer shall deposit with the Trustee or
with a Paying Agent, moneys or Government Obligations, or a combination thereof,
provided by the Company,  in an amount sufficient to pay the redemption price of
all the Bonds which are to be redeemed on that date.  Such moneys and Government
Obligations  shall be held in trust for the benefit of the  Persons  entitled to
such redemption price and shall not be deemed to be part of the Trust Estate.

     With respect to notice of any  redemption of the Bonds  pursuant to Section
301(a)  or (b),  unless  moneys  or  Government  Obligations,  or a  combination
thereof,  shall be received  by the  Trustee  prior to the giving of said notice
sufficient to pay the principal of and premium, if any,

                                       25

<PAGE>

and interest on the Bonds to be so  redeemed,  said notice shall state that said
redemption shall be conditional upon  the receipt  of such moneys or  Government
Obligations  by the  Trustee  on or prior to the date fixed for such redemption.
If such  moneys or  Government  Obligations  shall not have been  so received on
or prior to the  redemption  date,  said notice shall be of no force and effect,
the Issuer shall not redeem such Bonds and the Trustee shall give notice, in the
manner  in  which  the  notice  of  redemption  was  given,  that such moneys or
Government Obligations were not so received.

     Notice of  redemption  having  been given in  accordance  with  Section 304
hereof and the deposit of funds for  redemption  having been made, (i) the Bonds
or portions thereof so to be redeemed (together with accrued interest thereon to
the redemption  date) shall be due and payable on the redemption date and at the
redemption  price  specified in the notice of redemption,  and on and after such
date such  Bonds  shall  cease to bear  interest,  (ii) such  Bonds or  portions
thereof shall cease to be entitled to any lien,  benefit or security  under this
Indenture,  and (iii) the Owners of such Bonds or portions thereof shall have no
rights in respect  thereof  except to receive  payment of the  redemption  price
thereof and accrued  interest  thereon to the redemption date. Upon surrender of
any such Bond so called for redemption,  such Bond (or portion thereof) shall be
paid at the redemption price specified in the notice of redemption. Installments
of interest with a due date on or prior to the redemption  date shall be payable
to the Owners of the Bonds  registered  as such on the relevant  Regular  Record
Dates according to the terms of such Bonds and the provisions of Section 204. If
any Bond  called for  redemption  shall not be paid upon  surrender  thereof for
redemption,  the Bond shall  continue  to bear  interest  until paid at the rate
specified in the Bond.

                                   ARTICLE IV

                               FUNDS AND ACCOUNTS,
                          APPLICATION OF BOND PROCEEDS
                                 AND OTHER MONEY

     SECTION 401 CREATION OF FUNDS AND  ACCOUNTS.  There are hereby  created and
ordered to be  established  in the custody of the Trustee the following  special
trust funds in the name of the Issuer to be designated as follows:

     (a) "City  of  Cohasset--ALLETE, Inc. Refunded  Bonds Redemption Fund" (the
         "Redemption Fund").

     (b) "City of Cohasset--ALLETE, Inc. Bond Fund" (the "Bond Fund").

     The Trustee is authorized to establish  separate accounts within such funds
or otherwise segregate money within such funds, on a book-entry basis or in such
other manner as the Trustee may deem necessary or convenient,  or as the Trustee
shall be instructed by the Issuer.

     SECTION 402 DEPOSIT OF BOND PROCEEDS AND OTHER MONEY.  The Issuer,  for and
on behalf of the Company, shall deposit with the Trustee all of the net proceeds
of the Series 2004 Bonds,  and the Trustee  shall deposit and transfer or credit
such proceeds,  together with any other

                                       26

<PAGE>

money deposited with the Trustee to the Persons, Funds or  Accounts specified in
the  request and  authorization of  the Issuer  described  in  Section 201(d)(5)
hereof.

     SECTION 403 REDEMPTION  FUND. Money in the Redemption Fund shall be used to
pay  the  principal  of and a  portion  of the  interest  on (to the  extent  of
investment  income) the Refunded  Bonds on August 23, 2004,  or to reimburse the
Company  for the  advance of its own funds for such  purpose.  Any  payments  of
proceeds of the Series 2004 Bonds to be made to reimburse  the Company  shall be
promptly  made by wire  transfer to the account  designated  by the Company upon
delivery to the Trustee by the Company of a  certificate  of the trustee for the
Refunded  Bonds to be  refunded  by the Series  2004 Bonds that it has  received
funds sufficient to pay the redemption price of such Refunded Bonds in full.

     SECTION 404 BOND  FUND.  The  Trustee  shall  deposit  and  credit  to  the
applicable account in the Bond Fund, as and when received, the following:

     (a) That  portion  of the  purchase  price  of Bonds  paid by the  Original
         Purchaser thereof equal to the accrued  interest,  if any, on the Bonds
         from the date thereof to the date of issuance and delivery thereof.

     (b) All Loan Payments  made by the Company  pursuant to Section 3.02 of the
         Loan Agreement.

     (c) Each of the payments made by the Company on the First Mortgage Bonds.

     (d) Interest earnings and other income on Permitted Investments required to
         be deposited in the Bond Fund pursuant to Section 408 hereof.

     (e) All other moneys  received by the Trustee  under and pursuant to any of
         the  provisions  of  this  Indenture  or  the  Loan   Agreement,   when
         accompanied by directions  from the Person  depositing such moneys that
         such moneys are to be paid into the Bond Fund.

     The  money in the Bond Fund  shall be held in trust  and  shall be  applied
solely in accordance  with the provisions of this Indenture to pay the principal
of and redemption  premium, if any, and interest on the Bonds as the same become
due and payable at maturity, upon redemption, by acceleration or otherwise.

     The Trustee is to receive from the Company  pursuant to Section 3.02 of the
Loan  Agreement  the full  amount of  principal  of, and  premium,  if any,  and
interest  due on, the Bonds on each  Interest  Payment  Date,  Stated  Maturity,
redemption  date,  or  acceleration  date,  as the case may be.  If there is not
sufficient  money in the Bond Fund by 12:00  noon,  New York City  time,  on any
Interest Payment Date, Stated Maturity,  redemption date, or acceleration  date,
as the case may be, to pay all  principal of,  premium,  if any, and interest on
the Bonds due on such date, the Trustee shall promptly give Electronic Notice to
the Company of the amount of any such deficiency.

     The Trustee is authorized  and directed to withdraw  sufficient  funds from
the Bond Fund to pay principal of, redemption  premium,  if any, and interest on
the Bonds as the same become

                                       27

<PAGE>

due and  payable at  maturity  or upon  redemption  and to  make  said  funds so
withdrawn  available  to any  Paying  Agent  for  the  purpose  of  paying  said
principal, redemption premium, if any, and interest.

     The Trustee,  upon the written  instructions from the Issuer given pursuant
to written direction of the Company, shall use excess moneys in the Bond Fund to
redeem  all or part of the  Bonds  Outstanding  and to pay  interest  to  accrue
thereon prior to such  redemption  and redemption  premium,  if any, on the next
succeeding redemption date for which the required redemption notice may be given
or on  such  later  redemption  date  as may be  specified  by the  Company,  in
accordance with the provisions of Article III hereof,  so long as the Company is
not in default with respect to any payments  under the Loan Agreement and to the
extent  said  moneys are in excess of the amount  required  for payment of Bonds
theretofore matured or called for redemption.  The Company may cause such excess
money in the Bond Fund or such part  thereof or other money of the  Company,  as
the Company may direct, to be applied by the Trustee on a best efforts basis for
the  purchase  of Bonds in the open market for the  purpose of  cancellation  at
prices not exceeding the principal  amount thereof plus accrued interest thereon
to the date of such purchase.

     Upon  satisfaction  and  discharge  of this  Indenture in  accordance  with
Article V hereof,  all amounts  remaining  in the Bond Fund shall be paid to the
Company.

     SECTION 405 PAYMENTS DUE ON NON-BUSINESS DAYS. In  any case where  the date
of maturity of  principal  of,  redemption  premium,  if any, or interest on the
Bonds or the date fixed for  redemption of any Bonds shall be a day other than a
Business Day, then payment of principal, redemption premium, if any, or interest
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,  and no interest  shall  accrue for the period after
such date.

     SECTION 406 NONPRESENTMENT OF BONDS.  In  the  event any  Bond shall not be
presented for payment when the principal thereof becomes due, either at maturity
or otherwise,  or at the date fixed for redemption  thereof, if funds sufficient
to pay such Bond shall have been made available to the Trustee, all liability of
the Issuer to the Owner  thereof for the payment of such Bond,  shall  forthwith
cease,  terminate  and be completely  discharged,  and thereupon it shall be the
duty of the  Trustee to hold such funds in trust in a  separate  trust  account,
without  liability  for interest  thereon,  for the benefit of the Owner of such
Bond, who shall thereafter be restricted exclusively to such funds for any claim
of whatever  nature on his part under this  Indenture  or on or with  respect to
said Bond.  If any Bond shall not be  presented  for payment  within three years
following the date when such Bond becomes due, whether by maturity or otherwise,
the Trustee  shall repay to the  Company  the funds  theretofore  held by it for
payment  of such  Bond,  and such Bond  shall,  subject  to the  defense  of any
applicable statute of limitation,  thereafter be an unsecured  obligation of the
Company, and the Owner thereof shall be entitled to look only to the Company for
payment,  and then only to the extent of the amount so repaid,  and the  Company
shall not be liable for any  interest  thereon  and shall not be  regarded  as a
trustee of such money.

     SECTION 407 MONEY TO BE HELD IN TRUST.  All money deposited with or paid to
the Trustee for the funds and accounts held under this Indenture,  and all money
deposited with or

                                       28

<PAGE>

paid to any Paying Agent under any provision of this Indenture  shall be held by
the Trustee or  Paying  Agent in trust and shall be  applied  only in accordance
with the provisions of this Indenture and the Loan Agreement, and, until used or
applied as herein  provided,  shall  constitute  part of the Trust Estate and be
subject to the lien, terms and  provisions  hereof and  shall not  be commingled
with any other  funds of  the  Issuer or the  Company except  as provided  under
Section 408 hereof for  investment  purposes. Neither the Trustee nor any Paying
Agent shall  be under any liability for interest on any money received hereunder
except such as may be agreed upon.

     SECTION 408 INVESTMENT OF MONEY.  Money  held  in  each  of  the  funds and
accounts  under this  Indenture  shall,  pursuant to written  directions  of the
Company Representative,  be invested and reinvested by the Trustee in accordance
with the  provisions of this  Indenture and the Tax  Compliance  Certificate  in
Permitted  Investments  which mature or are subject to  redemption  by the owner
thereof  prior to the date  such  funds are  expected  to be  needed;  provided,
however,  that  if a  Company  Representative  fails  to  provide  such  written
directions to the Trustee and this Indenture and the Tax Compliance  Certificate
do not otherwise direct or limit such  investment,  money as to which no written
directions  have been  received  shall be invested in  investments  described in
paragraph (g) of the definition of "Permitted  Investments."  The Trustee hereby
agrees to comply with all provisions with respect to the investment of moneys in
the funds and accounts  under this  Indenture  specified  in the Tax  Compliance
Certificate. The Trustee may make any investments permitted by the provisions of
this Section through its own bond department or short-term investment department
and may pool money for  investment  purposes,  except  money held in any fund or
account  that are required to be yield  restricted  in  accordance  with the Tax
Compliance Certificate,  which shall be invested separately.  Any such Permitted
Investments  shall be held by or under the  control of the  Trustee and shall be
deemed  at all  times a part of the fund or  account  in which  such  money  are
originally  held.  The interest  accruing on each fund or account and any profit
realized  from such  Permitted  Investments  shall be  credited  to such fund or
account, and any loss resulting from such Permitted Investments shall be charged
to such fund or account.  The Trustee shall sell or present for  redemption  and
reduce to cash a sufficient  amount of such  Permitted  Investments  whenever it
shall be necessary  to provide  money in any fund or account for the purposes of
such fund or account and the Trustee shall not be liable for any loss  resulting
from such  investments.  Any money  that are to be used to pay  principal  of or
interest on or  redemption  price of Bonds shall be invested  only in Government
Obligations or shares of money market mutual funds that are registered  with the
federal  Securities and Exchange  Commission,  meeting the  requirements of Rule
2a-7 under the Investment  Company Act of 1940 and that are rated in the highest
rating  category by Standard & Poor's  Ratings  Services and Moody's  Investor's
Service,  Inc.,  such  investments  to mature or be subject to redemption at the
option of the holder not later than (i) 30 days from the date of the investment,
or (ii) the date the Trustee anticipates such funds are to be applied.

     SECTION 409 RECORDS AND REPORTS OF TRUSTEE.  The Trustee agrees to maintain
such  records  with  respect  to any and all  money or  investments  held by the
Trustee pursuant to the provisions of this Indenture as are reasonably requested
by the Issuer or the Company.  The Trustee  shall  furnish to the Issuer and the
Company a  monthly  report  on the  status  of each of the  funds  and  accounts
established  under  this  Article  which are held by the  Trustee,  showing  the
balance in each such fund or account as of the first day of the preceding month,
the total of

                                       29

<PAGE>

deposits to and the total of disbursements  from each such fund or account,  the
dates of such deposits and  disbursements,  and the balance in each such fund or
account on the last day of the  preceding  month.  The Trustee  shall  render an
annual  accounting for each calendar year ending December 31 to the Issuer,  the
Company and any Bondowner  requesting the same, showing in reasonable detail all
financial  transactions  relating  to the Trust  Estate  during  the  accounting
period,  including  investment earnings and the balance in any funds or accounts
created  by this  Indenture  as of the  beginning  and close of such  accounting
period. Each of the Issuer and (by entering into the Loan Agreement) the Company
acknowledges  that  regulations  of the  Comptroller  of the Currency  grant the
Issuer and the Company the right to receive brokerage  confirmations of security
transactions  as they occur.  Each of the Issuer and (by entering  into the Loan
Agreement)  the  Company  specifically  waives such  notification  to the extent
permitted by law and  acknowledges  that it will receive monthly and annual cash
transaction statements, which will detail all investment transactions.

                                   ARTICLE V

                           SATISFACTION AND DISCHARGE

     SECTION 501 PAYMENT,  DISCHARGE  AND  DEFEASANCE  OF BONDS.  Bonds  will be
deemed to be paid and discharged and no longer  Outstanding under this Indenture
and will cease to be entitled to any lien, benefit or security of this Indenture
if the Issuer  shall pay or provide  for the payment of such Bonds in any one or
more of the following ways:

     (a) by paying or causing to be paid the principal of (including  redemption
         premium,  if any)  and  interest  on such  Bonds,  as and when the same
         become due and payable;

     (b) by delivering such Bonds to the Trustee for cancellation; or

     (c) by  depositing  in trust with the Trustee or other  Paying Agent moneys
         and Defeasance  Obligations  in an amount,  together with the income or
         increment to accrue thereon,  without consideration of any reinvestment
         thereof,  sufficient to pay or redeem (when  redeemable)  and discharge
         the indebtedness on such Bonds at or before their  respective  maturity
         or  redemption  dates  (including  the  payment  of the  principal  of,
         premium,  if any, and interest payable on such Bonds to the maturity or
         redemption  date  thereof);  provided that, if any such Bonds are to be
         redeemed prior to the maturity  thereof,  notice of such  redemption is
         given  in  accordance  with  the  requirements  of  this  Indenture  or
         provision  satisfactory  to the  Trustee is made for the giving of such
         notice.

     In any case,  if the Bonds are rated by a Rating  Service,  the Bonds shall
not be deemed to have been paid or discharged by reason of any deposit  pursuant
to  paragraphs  (a) and/or  (c) above  unless  such  Rating  Service  shall have
confirmed  in writing to the Trustee  that its rating will not be  withdrawn  or
lowered as the result of any such deposit.

                                       30

<PAGE>

     The  foregoing  notwithstanding,  the liability of the Issuer in respect of
such Bonds shall continue,  but the Owners thereof shall  thereafter be entitled
to payment only out of the money and Defeasance  Obligations  deposited with the
Trustee as aforesaid.

     Moneys and Defeasance Obligations so deposited with the Trustee pursuant to
this  Section  shall not be a part of the Trust  Estate but shall  constitute  a
separate trust fund for the benefit of the Persons entitled thereto. Such moneys
and  Defeasance  Obligations  shall be  applied by the  Trustee  to the  payment
(either  directly or through any Paying Agent,  as the Trustee may determine) to
the  Persons  entitled  thereto,  of the  principal  (and  premium,  if any) and
interest  for whose  payment  such money and  Defeasance  Obligations  have been
deposited with the Trustee.

     SECTION 502 SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture and the
lien, rights and interests created by this Indenture shall cease,  terminate and
become null and void (except as to any surviving  rights of transfer or exchange
of Bonds herein provided for) if the following conditions are met:

     (a) the principal of,  premium,  if any, and interest on all Bonds has been
         paid or the Bonds have  otherwise been deemed to be paid and discharged
         by meeting the conditions of Section 501;

     (b) all other sums payable under this  Indenture  with respect to the Bonds
         are paid or  provision  satisfactory  to the  Trustee  is made for such
         payment;

     (c) the  Trustee  receives an Opinion of Bond  Counsel  (which may be based
         upon a ruling or rulings of the Internal Revenue Service) addressed and
         delivered to the Trustee and the Issuer to the effect that so providing
         for the  payment of any Bonds will not cause the  interest on the Bonds
         to be  included  in gross  income  for  federal  income  tax  purposes,
         notwithstanding the satisfaction and discharge of this Indenture; and

     (d) the  Trustee  receives  an Opinion  of  Counsel to the effect  that all
         conditions  precedent in this Section to the satisfaction and discharge
         of this Indenture have been complied with.

     Thereupon,   the  Trustee  shall  execute  and  deliver  to  the  Issuer  a
termination statement and such instruments of satisfaction and discharge of this
Indenture as may be necessary and shall pay, assign, transfer and deliver to the
Issuer,  or other Persons  entitled  thereto,  all money,  securities  and other
property  then held by it under this  Indenture  as a part of the Trust  Estate,
other  than  money or  Defeasance  Obligations  held in trust by the  Trustee as
herein  provided  for the payment of the  principal  of,  premium,  if any,  and
interest on the Bonds.

     SECTION 503 RIGHTS   RETAINED  AFTER   DISCHARGE.    Notwithstanding    the
satisfaction  and discharge of this  Indenture,  the rights of the Trustee under
Section 804 shall survive, and the Trustee shall retain such rights,  powers and
duties under this  Indenture as may be necessary and  convenient for the payment
of amounts due or to become due on the Bonds and the registration,  transfer and
exchange  of Bonds as  provided  herein.  Nevertheless,  any  money  held by the
Trustee or any Paying  Agent for the  payment of the  principal  of,  redemption
premium, if any, or

                                       31

<PAGE>

interest on any Bond remaining  unclaimed for three years after the principal of
all Bonds has become due and  payable,  whether at maturity or upon  proceedings
for redemption or by declaration as provided  herein,  shall then be paid to the
Company, and the Owners of any Bonds not theretofore presented for payment shall
thereafter  be entitled to look only to the Company for payment  thereof and all
liability  of the Trustee or any Paying Agent or the Issuer with respect to such
moneys shall thereupon cease.

                                   ARTICLE VI

                 GENERAL AND PARTICULAR COVENANTS OF THE ISSUER

     SECTION 601 ISSUER  TO  ISSUE  BONDS  AND  EXECUTE  INDENTURE.  The  Issuer
covenants  that it is duly  authorized  under the  Constitution  and laws of the
State to execute this Indenture, to issue the Bonds and to pledge and assign the
Trust Estate in the manner and to the extent  herein set forth;  that all action
on its part for the execution and delivery of this Indenture and the issuance of
the Bonds has been duly and effectively  taken;  and that the Bonds in the hands
of the Owners  thereof are and will be valid and  enforceable  special,  limited
obligations  of  the  Issuer  according  to  the  import  thereof,   subject  to
bankruptcy,  insolvency,  reorganization,  moratorium  and  other  similar  laws
affecting  creditors'  rights to the extent applicable and their enforcement may
be subject to the exercise of judicial discretion in appropriate cases.

     SECTION 602 LIMITED OBLIGATIONS. Under the provisions of the Act, the Bonds
may not be payable from nor charged upon any fund other than the revenue pledged
to the  payment  thereof,  nor shall  the  Issuer be  subject  to any  liability
thereon.  No Owner of the Bonds shall ever have the right to compel any exercise
of the taxing power of the Issuer to pay the Bonds or the interest thereon,  nor
to enforce payment thereof against any property of the Issuer except as provided
herein. The Bonds shall not constitute a charge,  lien or encumbrance,  legal or
equitable,  upon any property of the Issuer except as provided  herein.  No Bond
shall  constitute a debt of the Issuer within the meaning of any  constitutional
or statutory limitation.

     The Bonds and the interest thereon shall be special, limited obligations of
the Issuer payable (except to the extent paid out of Bond proceeds or the income
from the  temporary  investment  thereof and under  certain  circumstances  from
insurance proceeds and condemnation  awards) solely out of the Loan Payments and
other payments  derived by the Issuer under the Loan Agreement  (except for fees
and expenses payable to the Issuer, the Issuer's right to indemnification as set
forth in the Loan Agreement and as otherwise  expressly set forth therein),  and
are secured by a transfer,  pledge and  assignment  of and a grant of a security
interest  in the Trust  Estate to the  Trustee and in favor of the Owners of the
Bonds, as provided in this Indenture.  The Bonds and interest  thereon shall not
be deemed to  constitute a debt or liability of the Issuer,  the State or of any
political  subdivision  thereof  within the meaning of any State  constitutional
provision or statutory or charter  limitation  and shall not constitute a pledge
of the full  faith and  credit  of the  Issuer,  the  State or of any  political
subdivision  thereof, but shall be payable solely from the funds provided for in
the Loan  Agreement  and in this  Indenture.  The  issuance  of Bonds shall not,
directly,  indirectly  or  contingently,  obligate the Issuer,  the State or any
political  subdivision thereof to  levy any form of taxation therefor or to make
any appropriation for their payment.

                                       32

<PAGE>

     SECTION 603 PAYMENT OF BONDS.  The Issuer shall duly and  punctually pay or
cause to be paid, but solely from the sources  specified in this Indenture,  the
principal of, premium,  if any, and interest on the Bonds in accordance with the
terms of the Bonds and this Indenture.

     SECTION 604 PERFORMANCE  OF  COVENANTS.  The  Issuer  shall  (to the extent
within its control) faithfully perform or cause to be performed at all times any
and all covenants,  undertakings,  stipulations  and provisions  which are to be
performed  by the Issuer  contained in this  Indenture,  in the Bonds and in all
proceedings pertaining thereto.

     SECTION 605 INSPECTION OF BOOKS.  The Issuer  covenants and agrees that all
books and documents in its possession  relating to the Bonds, this Indenture and
the  Loan  Agreement,  and  the  transactions  relating  thereto  shall  at  all
reasonable  times be open to inspection by such accountants or other agencies as
the Trustee may from time to time  designate.  The Trustee  covenants and agrees
that all books and  documents  in its  possession  relating  to the Bonds,  this
Indenture and the Loan Agreement,  and the transactions relating thereto,  shall
be open to  inspection  by the Issuer  during  business  hours  upon  reasonable
notice.  Section 606 Enforcement of Rights.  The Issuer agrees that the Trustee,
as assignee,  transferee,  pledgee,  and owner of a security interest under this
Indenture in its name or in the name of the Issuer may enforce all rights of the
Issuer and the Trustee and all  obligations of the Company under and pursuant to
the Loan Agreement and any other Transaction  Documents for and on behalf of the
Bondowners,  whether  or not  the  Issuer  is in  default  hereunder.  The  Loan
Agreement and all other documents, instruments or policies of insurance shall be
delivered to and held by the Trustee.

     SECTION 607 TAX COVENANTS.  The  Issuer (to the extent  within its power or
direction) covenants for the benefit of the Owners of the Bonds, with respect to
the proceeds of the Bonds,  including the earnings thereon,  that no use of such
proceeds  or any other  moneys of the  Company or the Issuer  will be made which
would cause the Bonds to be "arbitrage  bonds" within the meaning of Section 148
of the Code on the date of such use and applicable to obligations  issued on the
date of issuance of the Bonds.

     The Issuer agrees that so long as any of the Bonds remain  Outstanding,  it
will (to the extent within its power or direction) comply with the provisions of
the Tax Compliance Certificate applicable to the Issuer.

     The Trustee  agrees to comply  with the  provisions  of the Tax  Compliance
Certificate,  and upon receipt of the Tax Compliance  Certificate  and any other
written letter or Opinion of Bond Counsel which sets forth such requirements, to
comply with any  statute,  regulation  or ruling that may apply to it as Trustee
hereunder and relating to reporting requirements or other requirements necessary
to preserve  the  exclusion  from  federal  gross  income of the interest on the
Bonds. The Trustee from time to time may cause a firm of attorneys,  consultants
or independent  accountants or an investment banking firm to supply the Trustee,
on behalf of the Issuer,  with such information as the Trustee, on behalf of the
Issuer, may request in order to determine in a manner reasonably satisfactory to
the Trustee,  on behalf of the Issuer, all matters relating to (a) the actuarial
yields on the Bonds as the same may relate to any data or conclusions  necessary
to verify that the Bonds are not "arbitrage bonds" within the meaning of Section
148 of the Code,

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<PAGE>

and (b)  compliance  with  rebate  requirements  of Section  148(f) of the Code.
Payment  for costs and  expenses  incurred  in  connection  with  supplying  the
foregoing information shall be paid by the Company.

     The  foregoing  covenants  of this  Section  shall remain in full force and
effect notwithstanding the defeasance of the Bonds pursuant to Article V of this
Indenture  or any other  provision  of this  Indenture,  until the final  Stated
Maturity of all Bonds Outstanding and payment thereof.

     SECTION 608 FINANCING STATEMENTS.  The  Trustee will  cause (and the Issuer
will cooperate with the Trustee in causing) appropriate  continuation statements
with respect to financing  statements  filed in connection  with the issuance of
the initial series of Bonds, naming the Trustee as secured party with respect to
the Trust  Estate,  to be duly filed and recorded in the  appropriate  state and
county offices as required by the provisions of the Uniform  Commercial  Code or
other similar law as adopted in the State and any other applicable jurisdiction,
as from time to time  amended,  in order to perfect and  maintain  the  security
interests  created by this  Indenture,  provided  that the Trustee  shall not be
liable  for any cost or  expense  in  connection  with any  such  filing  or the
preparation  thereof,  which cost or expense shall be paid, or reimbursed to the
Trustee, by the Company in accordance with Section 6.04 of the Loan Agreement.

                                  ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

     SECTION 701 EVENTS OF DEFAULT.  The term "Event of Default,"  wherever used
in this Indenture,  means any one of the following  events  (whatever the reason
for such event and whether it shall be voluntary or  involuntary  or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):

     (a) default in the  payment of any  interest on any Bond for a period of 60
         days after such interest has become due and payable; or

     (b) default in the payment of the principal of (or premium, if any, on) any
         Bond when the same becomes due and payable  (whether at maturity,  upon
         proceedings for redemption, by acceleration or otherwise); or

     (c) default in the performance,  or breach, of any covenant or agreement of
         the Issuer in the Bonds or in this  Indenture  (other than as specified
         in clauses  (a) and (b)  above),  and  continuance  of such  default or
         breach for a period of 90 days after there has been given to the Issuer
         and the Company by the  Trustee or to the  Issuer,  the Company and the
         Trustee by the Owners of at least 25% in principal  amount of the Bonds
         Outstanding,  a written  notice  specifying  such default or breach and
         requiring it to be remedied;  provided,  that if such default cannot be
         fully  remedied  within  such  90-day  period,  but can  reasonably  be
         expected to be fully  remedied,  such default  shall not  constitute an
         Event of Default if the Issuer shall  immediately  upon receipt of such
         notice commence the curing of such

                                       34

<PAGE>

         default  and shall thereafter prosecute  and complete the same with due
         diligence and dispatch; or

     (d) any  Event of  Default  under  the Loan  Agreement  shall  occur and is
         continuing and has not been waived.

     With regard to any alleged default  concerning which notice is given to the
Company  under the  provisions  of this  Section,  the Issuer  hereby grants the
Company full  authority for the account of the Issuer to perform any covenant or
obligation,  the nonperformance of which is alleged in said notice to constitute
a default,  in the name and stead of the  Issuer,  with full power to do any and
all things and acts to the same extent that the Issuer  could do and perform any
such things and acts in order to remedy such default.

     SECTION 702 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event
of Default  described  in clause  (a),  (b) or (d) of Section  701 occurs and is
continuing, and further upon the condition that, in accordance with the terms of
the First Mortgage,  the First Mortgage Bonds shall have become  immediately due
and payable  pursuant to any provision of the First  Mortgage,  the principal of
all Bonds  Outstanding and the interest  accrued thereon shall,  without further
action, become and be immediately due and payable.

     The  provisions of the  preceding  paragraph,  however,  are subject to the
condition  that any  waiver of any  "Default"  under the  First  Mortgage  and a
rescission and annulment of its  consequences  shall  constitute a waiver of the
corresponding  Event or Events of Default under this  Indenture and a rescission
and annulment of the consequences  thereof,  and the Trustee shall promptly give
written  notice of such  waiver,  rescission  or annulment to the Issuer and the
Company, and shall give notice thereof to all Owners of Bonds in the same manner
as a notice of redemption;  but no such waiver,  rescission and annulment  shall
extend to or affect  any  subsequent  Event of  Default  or impair  any right or
remedy consequent thereon.

     At any time after such a declaration  of  acceleration  has been made,  but
before any  judgment  or decree  for  payment of money due on any Bonds has been
obtained by the Trustee as provided in this Article, the Owners of a majority in
principal amount of the Bonds  Outstanding may, by written notice to the Issuer,
the  Company  and the  Trustee,  rescind  and  annul  such  declaration  and its
consequences if

     (a) there is deposited with the Trustee moneys sufficient to pay

         (1) all overdue installments of interest on all Bonds,

         (2) the  principal  of (and  premium,  if any, on) any Bonds which have
             become due otherwise than by such  declaration of acceleration  and
             interest thereon at the rate or rates  prescribed  therefor in such
             Bonds,

         (3) interest upon overdue installments of interest at the rate or rates
             prescribed therefor in the Bonds, and

                                       35

<PAGE>

         (4) all  sums  paid  or  advanced  by the  Trustee  hereunder  and  the
             reasonable  compensation,  expenses,  disbursements and advances of
             the Trustee, its agents and counsel; and

     (b) all Events of Default,  other than the  non-payment of the principal of
         Bonds which have become due solely by such declaration of acceleration,
         have been cured or have been  waived as provided in Section 710 of this
         Indenture.

     No such  rescission and annulment  shall affect any  subsequent  default or
impair any right consequent thereon.

     SECTION 703 EXERCISE OF REMEDIES BY THE TRUSTEE.  Upon the  occurrence  and
continuance  of any Event of Default  under this  Indenture,  unless the same is
waived as  provided in this  Indenture,  the  Trustee  shall have the  following
rights and remedies, in addition to any other rights and remedies provided under
this Indenture or by law:

     (a) RIGHT TO BRING SUIT, ETC. The Trustee  may pursue any available  remedy
at law or in equity by suit, action, mandamus or other proceeding to enforce the
payment  of the  principal  of,  premium,  if any,  and  interest  on the  Bonds
Outstanding,  including interest on overdue principal (and premium,  if any) and
on  overdue  installments  of  interest,  and any  other  sums  due  under  this
Indenture,  to realize on or to  foreclose  any of its  interests or liens under
this  Indenture  or any other  Transaction  Document,  to enforce and compel the
performance  of the  duties and  obligations  of the Issuer as set forth in this
Indenture  and to enforce  or  preserve  any other  rights or  interests  of the
Trustee  under  this  Indenture  with  respect  to any of the  Trust  Estate  or
otherwise existing at law or in equity.

     (b) EXERCISE OF  REMEDIES AT  DIRECTION  OF  BONDOWNERS.  If  requested  in
writing to do so by the Owners of not less than 25% in principal amount of Bonds
Outstanding  and if indemnified as provided in Section 802(e) of this Indenture,
the Trustee shall  exercise such one or more of the rights and powers  conferred
by this  Section  as the  Trustee,  being  advised by  Counsel,  shall deem most
expedient in the interests of the Owners of the Bonds;  provided,  however, that
the Trustee  shall have the right to decline to comply with any such  request if
the Trustee  shall be advised by Counsel  that the action so  requested  may not
lawfully  be taken or if the  Trustee in good faith  shall  determine  that such
action would be unjustly prejudicial to the Owners of Bonds that are not parties
to such request.

     (c) APPOINTMENT  OF  RECEIVER.   Upon   the  filing  of  a  suit  or  other
commencement of judicial proceedings to enforce the rights of the Trustee and of
the Bondowners under this Indenture,  the Trustee shall be entitled, as a matter
of right,  to the  appointment  of a receiver or receivers of the Trust  Estate,
pending such proceedings,  with such powers as the court making such appointment
shall confer.

     (d) SUITS TO PROTECT  THE TRUST  ESTATE.  The  Trustee  shall have power to
institute and to maintain such  proceedings  as it may deem expedient to prevent
any  impairment  of the Trust  Estate by any acts  which may be  unlawful  or in
violation of this  Indenture  and to protect its  interests and the interests of
the  Bondowners in the Trust Estate,  including  power to institute and maintain
proceedings to restrain the enforcement of or compliance  with any  governmental

                                       36

<PAGE>

enactment,  rule or order that may be  unconstitutional or otherwise invalid, if
the enforcement of or compliance with such enactment, rule or order would impair
the security  under this  Indenture or be  prejudicial  to the  interests of the
Bondowners or the Trustee,  or to intervene  (subject to the approval of a court
of  competent  jurisdiction)  on  behalf  of  the  Bondowners  in  any  judicial
proceeding  to which  the  Issuer  or the  Company  is a party  and which in the
judgment  of the  Trustee  has a  substantial  bearing on the  interests  of the
Bondowners.

     (e) ENFORCEMENT  WITHOUT  POSSESSION OF  BONDS.  All rights of action under
this Indenture or any of the Bonds may be enforced and prosecuted by the Trustee
without the possession of any of the Bonds or the production thereof in any suit
or other proceeding relating thereto, and any such suit or proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express  trust.
Any  recovery  of  judgment  shall,  after  provision  for  the  payment  of the
reasonable  compensation,  expenses,  disbursements and advances of the Trustee,
its agents and counsel,  and subject to the provisions of Section 707 hereof, be
for the equal and ratable benefit of the Owners of the Bonds in respect of which
such judgment has been obtained.

     (f) RESTORATION  OF  POSITIONS.  If  the  Trustee  or  any   Bondowner  has
instituted any proceeding to enforce any right or remedy under this Indenture by
suit,  foreclosure,  the  appointment  of a  receiver,  or  otherwise,  and such
proceeding  has been  discontinued  or  abandoned  for any  reason,  or has been
determined adversely to the Trustee or to such Bondowner, then and in every case
the  Issuer,  the  Trustee  and  the  Bondowners  shall,  subject  to any  final
determination  in such  proceeding,  be restored to their former  positions  and
rights  under this  Indenture,  and  thereafter  all rights and  remedies of the
Trustee and the Bondowners  shall continue as though no such proceeding had been
instituted.

     SECTION 704 TRUSTEE  MAY FILE PROOFS OF CLAIM.  In case of the  pendency of
any   receivership,   insolvency,   liquidation,   bankruptcy,   reorganization,
arrangement,  adjustment,  composition or other judicial  proceeding relative to
the Issuer or any other obligor upon the Bonds or of such other obligor or their
creditors, 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 Issuer
for the payment of overdue principal, premium or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,

     (a) to file and  prove a claim  for the  whole  amount  of  principal  (and
         premium,  if any) and  interest  owing  and  unpaid in  respect  of the
         Outstanding  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 Bondowners allowed in such judicial proceeding, and

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

and any custodian,  receiver,  assignee,  trustee,  liquidator,  sequestrator or
other similar official in any such judicial  proceeding is hereby  authorized by
each  Bondowner to make such payments to the Trustee,  and in the event that the
Trustee shall consent to the making of such payments

                                       37

<PAGE>

directly to the  Bondowners,  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 804.

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

     SECTION 705 LIMITATION ON SUITS BY  BONDOWNERS.  No Owner of any Bond shall
have any right to institute any proceeding, judicial or otherwise, under or with
respect to this  Indenture,  or for the  appointment of a receiver or trustee or
for any other remedy under this Indenture, unless

     (a) such Owner has  previously  given  written  notice to the  Trustee of a
         continuing Event of Default;

     (b) the  Owners  of not less  than 25% in  principal  amount  of the  Bonds
         Outstanding shall have made written request to the Trustee to institute
         proceedings  in  respect  of such  Event of  Default in its own name as
         Trustee under this Indenture;

     (c) such Owner or Owners have offered to the Trustee  indemnity as provided
         in  Section  804 of this  Indenture  against  the costs,  expenses  and
         liabilities to be incurred in compliance with such request;

     (d) the Trustee for 60 days after its receipt of such  notice,  request and
         offer of indemnity has failed to institute any such proceeding; and

     (e) no direction  inconsistent  with such written request has been given to
         the Trustee  during  such 60-day  period by the Owners of a majority in
         principal amount of the Outstanding Bonds;

it being  understood and intended that no one or more Owners of Bonds shall have
any right in any manner  whatever by virtue of, or by availing of, any provision
of this Indenture to affect,  disturb or prejudice the lien of this Indenture or
the  rights  of any other  Owners  of  Bonds,  or to obtain or to seek to obtain
priority or preference  over any other Owners or to enforce any right under this
Indenture,  except in the manner  herein  provided and for the equal and ratable
benefit of all Outstanding Bonds.

     Notwithstanding  the  foregoing or any other  provision in this  Indenture,
however,  the Owner of any Bond  shall  have the  right  which is  absolute  and
unconditional  to receive payment of the principal of (and premium,  if any) and
interest on such Bond on the respective stated maturities expressed in such Bond
(or, in the case of redemption, on the redemption date) and nothing contained in
this  Indenture  shall affect or impair the right of any Owner to institute suit
for the enforcement of any such payment.

                                       38

<PAGE>

     SECTION 706 CONTROL OF PROCEEDINGS BY BONDOWNERS.  The Owners of a majority
in principal amount of the Bonds  Outstanding  shall have the right,  during the
continuance of an Event of Default,

     (a) to require the Trustee to proceed to enforce this Indenture,  either by
         judicial  proceedings  for the  enforcement of the payment of the Bonds
         and the foreclosure of this Indenture, or otherwise; and

     (b) to direct 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, provided that

         (1) such  direction  shall not be in  conflict  with any rule of law or
             this Indenture,

         (2) the Trustee may take any other action  deemed proper by the Trustee
             which is not inconsistent with such direction, and

         (3) the Trustee shall not determine  that the action so directed  would
             be  unjustly  prejudicial  to the Owners  not  taking  part in such
             direction.

     SECTION 707 APPLICATION OF MONEY  COLLECTED.  Any money  collected  by  the
Trustee  pursuant to this Article  together with any other sums then held by the
Trustee as part of the Trust Estate, shall be applied in the following order, at
the date or dates fixed by the Trustee and, in case of the  distribution of such
money  on  account  of  principal  (or  premium,  if  any)  or  interest,   upon
presentation  of the Bonds  and the  notation  thereon  of the  payment  if only
partially paid and upon surrender thereof if fully paid:

         FIRST: To the payment of all amounts due  the Trustee under Section 804
     of this Indenture;

         SECOND: To the payment of the whole amount then due and unpaid upon the
     Outstanding  Bonds for  principal  (and premium,  if any) and interest,  in
     respect of which or for the benefit of which such money has been collected,
     with interest (to the extent that such  interest has been  collected by the
     Trustee or a sum  sufficient  therefor  has been so  collected  and payment
     thereof is legally  enforceable at the respective rate or rates  prescribed
     therefor in the Bonds) on overdue  principal  (and premium,  if any) and on
     overdue  installments  of  interest;  and in case  such  proceeds  shall be
     insufficient  to pay in full the whole  amount so due and unpaid  upon such
     Bonds,  then to the payment of such  principal  and  interest,  without any
     preference or priority,  ratably  according to the aggregate amount so due;
     and

         THIRD: The  remainder,  if  any, to the Company or to whomsoever may be
     lawfully  entitled  to  receive  the  same  or  as  a  court  of  competent
     jurisdiction may direct.

     Whenever  money is to be applied by the Trustee  pursuant to the provisions
of this Section,  such money shall be applied by it at such times, and from time
to time,  as the Trustee  shall  determine,  having due regard for the amount of
such money available for application and

                                       39

<PAGE>

the likelihood of additional  money becoming  available for such  application in
the future.  Whenever the Trustee shall apply such money,  it shall fix the date
(which shall be an Interest  Payment Date unless it shall deem another date more
suitable) upon which such  application is to be made and upon such date interest
on the amounts of principal  to be paid on such date shall cease to accrue.  The
Trustee shall give such notice as it may deem appropriate of the deposit with it
of any such money and of the fixing of any such date,  and shall not be required
to make  payment  to the Owner of any  unpaid  Bond  until  such  Bond  shall be
presented to the Trustee for  appropriate  endorsement  or for  cancellation  if
fully paid.

     SECTION 708 RIGHTS AND  REMEDIES  CUMULATIVE.  No  right or  remedy  herein
conferred upon or reserved to the Trustee or to the Bondowners is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent  permitted by law, be cumulative and in addition to every other right and
remedy  given  hereunder  or now or  hereafter  existing  at law or in equity or
otherwise.  The  assertion or employment  of any right or remedy  hereunder,  or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

     SECTION 709 DELAY OR  OMISSION  NOT  WAIVER.  No  delay or  omission of the
Trustee  or of any Owner of any Bond to  exercise  any right or remedy  accruing
upon an Event of Default  shall impair any such right or remedy or  constitute a
waiver of any such Event of Default or an acquiescence therein.  Every right and
remedy given by this Article or by law to the Trustee or to the  Bondowners  may
be exercised from time to time, and as often as may be deemed expedient,  by the
Trustee or by the Bondowners, as the case may be.

     SECTION 710 WAIVER OF PAST  DEFAULTS.  Before  any  judgment  or decree for
payment  of money due has been  obtained  by the  Trustee  as  provided  in this
Article,  the Owners of a majority in principal amount of the Bonds  Outstanding
may, by written notice delivered to the Trustee and the Issuer, on behalf of the
Owners of all the Bonds waive any past default  hereunder and its  consequences,
except a default

     (a) in the payment of the principal of (or premium,  if any) or interest on
         any Bond, or

     (b) in respect of a covenant or  provision  hereof  which under  Article IX
         cannot be modified or amended  without the consent of the Owner of each
         Outstanding Bond affected.

     Upon any such waiver,  such default shall cease to exist,  and any Event of
Default arising  therefrom shall be deemed to have been cured, for every purpose
of this  Indenture;  but no such waiver shall extend to or affect any subsequent
or other default or impair any right or remedy consequent thereon.

     SECTION 711 ADVANCES BY  TRUSTEE.  If  the  Company  shall fail to make any
payment or perform any of its covenants in the Loan Agreement,  the Trustee may,
at any time and from time to time,  use and apply  any  moneys  held by it under
this Indenture,  or make advances,  to effect payment or performance of any such
covenant  on behalf  of the  Company.  All  moneys  so used or  advanced  by the
Trustee, together with interest at the Trustee's announced prime rate per annum,
shall be repaid by the Company  upon demand and such  advances  shall be secured
under this

                                       40

<PAGE>

Indenture prior to the Bonds. For the repayment of all such advances the Trustee
shall  have the right to use and  apply any  moneys at any time held by it under
this  Indenture  but no such use of moneys or advance  shall relieve the Company
from any default under the Loan Agreement.

                                  ARTICLE VIII

                          THE TRUSTEE AND PAYING AGENTS

     SECTION 801 ACCEPTANCE OF TRUSTS; CERTAIN DUTIES AND RESPONSIBILITIES.  The
Trustee  accepts  and  agrees to  execute  the  trusts  imposed  upon it by this
Indenture, but only upon the following terms and conditions:

     (a) Except during the continuance of an Event of Default,

         (1) 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; and

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

     (b) If 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) No  provision  of this  Indenture  shall be  construed  to relieve  the
Trustee from liability for its own negligent  action,  its own 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;

         (2) the Trustee  shall not be liable for any error of judgment  made in
             good faith by an authorized officer of the Trustee, unless it shall
             be proved  that the  Trustee  was  negligent  in  ascertaining  the
             pertinent facts;

         (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 the Owners of a majority in  principal  amount of the
             Outstanding  Bonds  relating  to the  time,  method  and  place  of
             conducting any proceeding for

                                       41

<PAGE>

             any  remedy  available  to the  Trustee, or exercising any trust or
             power conferred upon the Trustee, under this Indenture; and

         (4) no provision of this Indenture  shall require the Trustee to expend
             or risk its own funds or otherwise incur any financial liability in
             the performance of any of its duties hereunder,  or in the exercise
             of any of its rights or powers, if it shall have reasonable grounds
             for believing  that  repayment of such funds or adequate  indemnity
             against such risk or liability is not reasonably assured to it.

     (d) Whether or not therein  expressly so provided,  every provision of this
Indenture  relating to the conduct or  affecting  the  liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.

     SECTION 802 CERTAIN  RIGHTS OF TRUSTEE.  Except  as  otherwise  provided in
Section 801 of this Indenture:

     (a) The Trustee  may rely and shall be  protected  in acting or  refraining
from acting upon any resolution,  certificate,  statement,  instrument, opinion,
report, notice,  request,  direction,  consent, order, bond, debenture, or other
paper or  document  believed  by it to be  genuine  and to have  been  signed or
presented by the proper party or parties.

     (b) The Trustee shall be entitled to rely upon a  certificate  of an Issuer
Representative  as to the  sufficiency of any request or direction of the Issuer
mentioned herein,  the existence or non-existence of any fact or the sufficiency
or validity of any instrument,  paper or proceeding, or that a resolution in the
form therein set forth has been adopted by the governing  body of the Issuer has
been  duly  adopted,  and is in full  force and  effect.  The  Trustee  shall be
entitled to rely upon an  Officer's  Certificate  as to the  sufficiency  of any
request  or  direction  of  the  Company  mentioned  herein,  the  existence  or
non-existence  of any fact or the  sufficiency  or validity  of any  instrument,
paper or proceeding, or that a resolution in the form therein set forth has been
adopted by the governing  board of the Company has been duly adopted,  and is in
full force and effect.

     (c) Whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established  prior to taking,  suffering
or omitting any action  hereunder,  the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
a certificate of an Issuer Representative.

     (d) The Trustee may consult with  counsel,  and the written  advice of such
counsel or any Opinion of Counsel shall be full and complete  authorization  and
protection  in respect of any action  taken,  suffered or omitted by the Trustee
hereunder in good faith and in reliance thereon.

     (e) The Trustee  shall be under no obligation to exercise any of the rights
or powers  vested in it by this  Indenture at the request or direction of any of
the Bondowners  pursuant to this Indenture,  unless such  Bondowners  shall have
offered to the  Trustee  reasonable  security  or  indemnity  against the costs,
expenses and liabilities (except as may result from the Trustee's own negligence
or willful  misconduct)  which might be incurred by it in  compliance  with such
request or direction.

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<PAGE>

     (f) The Trustee shall not be bound to make any investigation into the facts
or  matters  stated  in  any  resolution,  certificate,  statement,  instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture, or
other paper or  document,  but the  Trustee,  in its  discretion,  may make such
further inquiry or  investigation  into such facts or matters as it may see fit,
and,  if  the  Trustee  shall   determine  to  make  such  further   inquiry  or
investigation,  it shall be entitled to examine the books,  records and premises
of the Issuer, personally or by agent or attorney.

     (g) The  Trustee  assumes  no  responsibility  for the  correctness  of the
recitals contained in this Indenture and in the Bonds, except the certificate of
authentication on the Bonds. The Trustee makes no  representations  to the value
or condition of the Trust Estate or any part thereof, or as to the title thereto
or as to the  security  afforded  thereby or hereby,  or as to the  validity  or
sufficiency  of  this  Indenture  or of the  Bonds.  The  Trustee  shall  not be
accountable  for the use or  application  by the Issuer or the Company of any of
the Bonds or the  proceeds  thereof or of any money paid to or upon the order of
the Issuer or the Company under any provision of this Indenture.

     (h) The Trustee,  in its individual or any other  capacity,  may become the
owner or pledgee of Bonds and may otherwise  deal with the Issuer or the Company
with the same rights it would have if it were not Trustee.

     (i) All money  received  by the  Trustee  shall,  until  used or applied or
invested as herein  provided,  be held in trust for the  purposes for which they
were  received.  Money  held by the  Trustee  in  trust  hereunder  need  not be
segregated  from other  funds  except to the extent  required  by law or by this
Indenture.  The Trustee  shall be under no  liability  for interest on any money
received  by it  hereunder  except as  otherwise  agreed  with the Issuer or the
Company.

     (j) The  Trustee  may  execute  any of the  trusts or powers  hereunder  or
perform  any  duties  hereunder  either  directly  or by or  through  agents  or
attorneys  and the  Trustee  shall  not be  responsible  for any  misconduct  or
negligence  on the part of any agent or attorney  appointed  with due care by it
hereunder.

     SECTION 803 NOTICE OF DEFAULTS.  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 IV of this  Indenture,  unless the Trustee shall be specifically
notified in writing of such default by the Issuer,  the Company or the Owners of
at least 10% in principal amount of all Bonds Outstanding, and in the absence of
such  notice so  delivered,  the  Trustee may  conclusively  assume  there is no
default except as aforesaid.  Within 30 days after the occurrence of any default
hereunder of which the Trustee is required to take notice or has received notice
as  provided in this  Section,  the Trustee  shall give  written  notice of such
default by mail to all Owners of Bonds as shown on the bond register  maintained
by the Trustee,  unless such default shall have been cured or waived;  provided,
however,  that,  except in the case of a default in the payment of the principal
of (or premium,  if any) or interest on any Bond, the Trustee shall be protected
in  withholding  such  notice  if and so  long  as the  Trustee  in  good  faith
determines  that the  withholding  of such  notice  is in the  interests  of the
Bondowners.  For the purpose of this Section, the term "default" means any event
which is, or after  notice or lapse of time or both  would  become,  an Event of
Default.

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<PAGE>

     SECTION 804 COMPENSATION AND  REIMBURSEMENT.  The Trustee shall be entitled
to payment or reimbursement

     (a) from time to time for  reasonable  compensation  for all reasonable and
         necessary  services rendered by it hereunder (which  compensation shall
         not be limited by any provision of law in regard to the compensation of
         a trustee of an express trust);

     (b) except as otherwise  expressly provided herein,  upon its request,  for
         all reasonable expenses, disbursements and advances incurred or made by
         the  Trustee  in  accordance  with  any  provision  of  this  Indenture
         (including   the   reasonable   compensation   and  the   expenses  and
         disbursements  of its agents  and  counsel),  except any such  expense,
         disbursement  or  advance  as may  be  attributable  to  the  Trustee's
         negligence, willful misconduct or bad faith; and

     (c) to  indemnify  the Trustee for,  and to hold it harmless  against,  any
         loss,  liability or expense incurred without negligence or bad faith on
         its  part,  arising  out of or in  connection  with the  acceptance  or
         administration  of this  trust,  including  the costs and  expenses  of
         defending  itself against any claim or liability in connection with the
         exercise or performance of any of its powers or duties hereunder.

     All  such  payments  and  reimbursements  shall be made by the  Company  as
provided in Section 6.04 of the Loan Agreement.

     The Trustee  shall  promptly  notify the Company in writing of any claim or
action brought  against the Trustee in respect of which  indemnity may be sought
against the Company,  setting forth the particulars of such claim or action, and
the Company will assume the defense thereof, including the employment of counsel
satisfactory  to the Trustee and the  payment of all  expenses.  The Trustee may
employ  separate  counsel in any such  action  and  participate  in the  defense
thereof,  and the  reasonable  fees and  expenses of such  counsel  shall not be
payable by the Company unless such employment has been  specifically  authorized
by the Company.

     Pursuant to the provisions of the Loan Agreement, the Company has agreed to
pay to the Trustee all reasonable  fees,  charges,  advances and expenses of the
Trustee,  and the Trustee  agrees to look only to the Company for the payment of
all  reasonable  fees,  charges,  advances  and  expenses of the Trustee and any
Paying  Agent as provided  in the Loan  Agreement.  The Trustee  agrees that the
Issuer  shall  have no  liability  for any fees,  charges  and  expenses  of the
Trustee.

     As security for the payment of such compensation,  expenses, reimbursements
and  indemnity  under this  Section,  the  Trustee  shall be secured  under this
Indenture by a lien prior to the Bonds and  otherwise as provided in Section 707
hereof,  and shall have the right to use and apply any trust  moneys  held by it
under Article IV hereof.

     SECTION 805 CORPORATE  TRUSTEE  REQUIRED;  ELIGIBILITY.  There shall at all
times be a Trustee  hereunder  which shall be a bank or trust company  organized
and doing  business  under the laws of the  United  States of  America or of any
state thereof,  authorized  under such laws to exercise  corporate trust powers,
subject to supervision or examination by federal or state authority,  and having
a combined  capital and  surplus of at least  $50,000,000.  If such  corporation
publishes  reports of  condition  at least  annually,  pursuant to law or to the
requirements of such

                                       44

<PAGE>

supervising or examining  authority,  then for the purposes of this Section, the
combined  capital  and  surplus  of such  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,  it shall resign  immediately in
the manner and with the effect specified in this Article.

     SECTION 806 RESIGNATION AND REMOVAL OF TRUSTEE.

     (a) The  Trustee may resign at any time by giving 30 days'  written  notice
thereof to the Issuer,  the Company and each Owner of Bonds Outstanding as shown
by the list of Bondowners required by this Indenture to be kept at the office of
the Trustee.  If an instrument  of  acceptance by a successor  Trustee shall not
have been  delivered  to the  Trustee  within 30 days  after the  giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.

     (b) If the Trustee has or shall acquire any conflicting interest, it shall,
within 90 days after ascertaining that it has a conflicting  interest, or within
30 days after receiving written notice from the Issuer,  the Company (so long as
the Company is not in default under the Loan Agreement) or any Bondowner that it
has a conflicting interest, either eliminate such conflicting interest or resign
in the manner and with the effect specified in Subsection (a).

     (c) The Trustee may be removed at any time by an  instrument  or concurrent
instruments  in writing  delivered  to the  Company,  the Issuer and the Trustee
signed by the Owners of a majority in principal amount of the Outstanding Bonds.
The Issuer,  the Company or any  Bondowner may at any time petition any court of
competent jurisdiction for the removal for cause of the Trustee.

     (d) The  Trustee may be removed at any time (so long as no Event of Default
has occurred and is continuing under this Indenture) by an instrument in writing
signed  by  the  Company  and   delivered   to  the   Trustee.   The   foregoing
notwithstanding,  the Trustee may not be removed by the Company  unless  written
notice of the delivery of such instrument signed by a Company  Representative is
mailed to the Owners of all Bonds Outstanding under this Indenture, which notice
indicates  the Trustee  will be removed and  replaced by the  successor  trustee
named in such notice,  such removal and replacement to become effective not less
than 60 days from the date of such  notice,  unless  the Owners of not less than
25% in  aggregate  principal  amount of such Bonds  Outstanding  shall object in
writing to such removal and replacement.

     (e) If at any time:

         (1) the Trustee shall fail to comply with  subsection (b) after written
             request therefor by the Issuer, the Company or by any Bondowner, or

         (2) the Trustee shall cease to be eligible  under Section 805 and shall
             fail to resign after written  request  therefor by the Issuer,  the
             Company or any Bondowner, or

         (3) 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

                                       45

<PAGE>

             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, (a) the Issuer or the Company may remove the Trustee, or
(b) any  Bondowner  may  petition any court of  competent  jurisdiction  for the
removal of the Trustee and the appointment of a successor Trustee.

     (f) The Trustee 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 the Owners of
Bonds as their names and addresses appear in the bond register maintained by the
Trustee.  Each notice shall  include the name of the  successor  Trustee and the
address of its principal corporate trust office.

     (g) 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 807.

     SECTION 807 APPOINTMENT OF SUCCESSOR TRUSTEE.  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 written  consent of the
Company (which consent shall not be  unreasonably  withheld) so long as no Event
of Default under Section  701(f) or under the Loan Agreement has occurred and is
continuing, or the Owners of a majority in principal amount of Bonds Outstanding
(if an Event of Default  hereunder or under the Loan  Agreement has occurred and
is continuing),  by an instrument or concurrent instruments in writing delivered
to the Issuer and the  retiring  Trustee,  shall  promptly  appoint a  successor
Trustee.  In case all or  substantially  all of the Trust Estate shall be in the
possession  of a receiver  or  trustee  lawfully  appointed,  such  receiver  or
trustee, by written  instrument,  may similarly appoint a temporary successor to
fill such vacancy until a new Trustee shall be so appointed by the Issuer or the
Bondowners.  If, within 30 days after such resignation,  removal or incapability
or the occurrence of such vacancy, a successor Trustee shall be appointed in the
manner herein provided, the successor Trustee so appointed shall, forthwith upon
its acceptance of such  appointment,  become the successor Trustee and supersede
the  retiring  Trustee and any  temporary  successor  Trustee  appointed by such
receiver or trustee.  If no successor  Trustee  shall have been so appointed and
accepted  appointment in the manner herein provided,  any Bondowner may petition
any court of competent  jurisdiction for the appointment of a successor Trustee,
until a successor shall have been appointed as above provided.  The successor so
appointed by such court shall  immediately and without further act be superseded
by any  successor  appointed as above  provided.  Every such  successor  Trustee
appointed  pursuant to the provisions of this Section shall be a bank with trust
powers or trust company in good standing  under the law of the  jurisdiction  in
which  it  was  created  and  by  which  it  exists,   meeting  the  eligibility
requirements of this Article.

     SECTION 808 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every successor Trustee
appointed  hereunder shall execute,  acknowledge and deliver to the Issuer,  the
Company and the retiring Trustee an instrument  accepting such appointment,  and
thereupon  the  resignation  or removal of the  retiring  Trustee  shall  become
effective  and  such  successor  Trustee,  without  any  further  act,  deed  or
conveyance, shall become vested with all the estates, properties, rights,

                                       46

<PAGE>

powers, trusts and duties of the retiring Trustee; but, on request of the Issuer
or the successor  Trustee,  such  retiring  Trustee  shall,  upon payment of its
charges,  execute and deliver an instrument  conveying and  transferring to such
successor Trustee upon the trusts herein expressed all the estates,  properties,
rights,  powers  and trusts of the  retiring  Trustee,  and shall  duly  assign,
transfer  and deliver to such  successor  Trustee all property and money held by
such  retiring  Trustee  hereunder,  subject  nevertheless  to its lien, if any,
provided for in Section 804.  Upon request of any such  successor  Trustee,  the
Issuer  shall  execute  any and all  instruments  for more  fully and  certainly
vesting  in  and  confirming  to  such  successor   Trustee  all  such  estates,
properties,  rights,  powers and trusts.  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
VIII, shall be forthwith filed and/or recorded by the successor  trustee in each
recording  office,  if any,  where the  Indenture  shall have been filed  and/or
recorded.

     No successor  Trustee  shall accept its  appointment  unless at the time of
such  acceptance  such  successor  Trustee shall be qualified and eligible under
this Article.

     SECTION 809 MERGER,  CONSOLIDATION  AND   SUCCESSION   TO   BUSINESS.   Any
corporation or association into which the Trustee may be merged or with which it
may be consolidated, or any corporation or association resulting from any merger
or  consolidation  to which the Trustee shall be a party,  or any corporation or
association  succeeding  to all or  substantially  all  of the  corporate  trust
business  of the  Trustee,  shall be the  successor  of the  Trustee  hereunder,
provided  such  corporation  or  association  shall be otherwise  qualified  and
eligible  under this  Article,  and shall be vested with all of the title to the
whole  property  or  Trust  Estate  and all  the  trusts,  powers,  discretions,
immunities, privileges and all other matters as was its predecessor, without the
execution  or filing of any paper or any  further  act on the part of any of the
parties  hereto.  In case any  Bonds  shall  have  been  authenticated,  but not
delivered,   by  the  Trustee  then  in  office,  any  successor  by  merger  or
consolidation to such  authenticating  Trustee may adopt such authentication and
deliver the Bonds so  authenticated  with the same  effect as if such  successor
Trustee had itself authenticated such Bonds.

     SECTION 810 CO-TRUSTEES AND SEPARATE  TRUSTEES.  At any time or times,  for
the purpose of meeting the legal  requirements of any  jurisdiction in which any
of the Trust  Estate may at the time be located,  or in the  enforcement  of any
default or the exercise any of the powers,  rights or remedies herein granted to
the  Trustee,  or any  other  action  which may be  desirable  or  necessary  in
connection  therewith,  the Trustee  shall have power to appoint,  and, upon the
written  request of the  Trustee  or of the Owners of at least 25% in  principal
amount of the Bonds Outstanding, the Issuer shall for such purpose join with the
Trustee in the  execution,  delivery  and  performance  of all  instruments  and
agreements  necessary or proper to appoint,  one or more Persons approved by the
Trustee  either to act as  co-trustee,  jointly with the Trustee,  of all or any
part of the Trust Estate, or to act as separate trustee of any such property, in
either  case  with  such  powers  as  may  be  provided  in  the  instrument  of
appointment,  and to vest in such person or persons in the  capacity  aforesaid,
any property,  title,  right or power deemed necessary or desirable,  subject to
the  other  provisions  of this  Section.  If the  Issuer  does not join in such
appointment  within 15 days after the receipt by it of a request so to do, or in
case an Event of Default has occurred and is continuing, the Trustee alone shall
have power to make such appointment.

                                       47

<PAGE>

     Should any written instrument from the Issuer be required by any co-trustee
or separate trustee so appointed for more fully confirming to such co-trustee or
separate  trustee  such  property,  title,  right  or  power,  any and all  such
instruments  shall, on request,  be executed,  acknowledged and delivered by the
Issuer.

     Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms, namely:

     (a) The Bonds shall be authenticated and delivered, and all rights, powers,
         duties  and  obligations   hereunder  in  respect  of  the  custody  of
         securities, cash and other personal property held by, or required to be
         deposited or pledged with,  the Trustee  hereunder,  shall be exercised
         solely, by the Trustee.

     (b) The rights,  powers, duties and obligations hereby conferred or imposed
         upon the Trustee in respect of any property covered by such appointment
         shall be conferred  or imposed  upon and  exercised or performed by the
         Trustee or by the  Trustee  and such  co-trustee  or  separate  trustee
         jointly,  as  shall  be  provided  in the  instrument  appointing  such
         co-trustee or separate trustee, except to the extent that under any law
         of any jurisdiction in which any particular act is to be performed, the
         Trustee shall be  incompetent  or  unqualified  to perform such act, in
         which  event  such  rights,  powers,  duties and  obligations  shall be
         exercised and performed by such co-trustee or separate trustee.

     (c) The Trustee at any time, by an  instrument  in writing  executed by it,
         with the  concurrence  of the Issuer  evidenced  by a  resolution,  may
         accept the resignation of or remove any co-trustee or separate  trustee
         appointed  under this  Section,  and,  in case an Event of Default  has
         occurred and is continuing,  the Trustee shall have power to accept the
         resignation  of, or remove,  any such  co-trustee  or separate  trustee
         without the concurrence of the Issuer.  Upon the written request of the
         Trustee,  the  Issuer  shall join with the  Trustee  in the  execution,
         delivery and performance of all instruments and agreements necessary or
         proper to effectuate  such  resignation or removal.  A successor to any
         co-trustee or separate  trustee so resigned or removed may be appointed
         in the manner provided in this Section.

     (d) No co-trustee or separate trustee  hereunder shall be personally liable
         by reason of any act or  omission  of the  Trustee,  or any other  such
         trustee hereunder.

     (e) Any request, demand, authorization,  direction, notice, consent, waiver
         or other act of Bondowners  delivered to the Trustee shall be deemed to
         have been delivered to each such co-trustee and separate trustee.

     SECTION 811 NO TRANSFER OF FIRST MORTGAGE BONDS. The Trustee covenants that
it will not  sell,  assign  or  transfer  the First  Mortgage  Bonds,  except as
required to effect transfer to any successor trustee under this Indenture.

     SECTION 812 VOTING OF FIRST  MORTGAGE  BONDS.  The  Trustee  covenants  and
agrees,  as the holder of the First  Mortgage  Bonds,  to attend such meeting or
meetings of bondholders  under the First Mortgage or, at its option,  to deliver
its proxy in connection therewith, as relate to

                                       48

<PAGE>

matters  with  respect to which it is entitled  to vote or consent.  The Trustee
shall vote the First Mortgage Bonds, or shall consent with respect  thereto,  in
favor of amendments and  modifications of the Mortgage of substantially the same
effect  as any  or all of the  following:  (1) to  make  available  as  property
additions  nuclear fuel (and similar or analogous  devices or substances) and to
establish other provisions as to such fuel, devices or substances;  (2) to allow
property additions to be located anywhere in the United States of America or its
coastal  waters;  (3) in addition,  to make available as property  additions any
form of space satellites (including solar power satellites),  space stations and
other  analogous  facilities;  and (4) to  change  "$5,000,000  or  more" in the
special  provision for retirement of Company Bonds referred to under the caption
"Special Provisions for Retirement of Company Bonds" to "a dollar amount greater
than 20% of  Company's  net  utility  plant as  shown by its  audited  financial
statements for its most recent fiscal year ending prior to the  commencement  of
such 12 month period." Either at any such meeting or meetings, or otherwise when
the consent of the holders of the Company's  first  mortgage  bonds issued under
the First Mortgage is sought  without a meeting,  with respect to any amendments
or  modifications  of the  First  Mortgage,  the  Trustee  shall  vote all First
Mortgage Bonds then held by it, or consent with respect thereto, proportionately
with what the  Trustee  reasonably  believes  will be the vote or consent of the
holders of all other first mortgage bonds of the Company then outstanding  under
the First  Mortgage  the  holders  of which  are  eligible  to vote or  consent;
provided,  however,  that the Trustee shall not vote as such holder in favor of,
or give its consent to, any  amendment  or  modification  of the First  Mortgage
which is correlative to any amendment or modification of this Indenture referred
to in Section 902 hereof without the prior consent and approval, obtained in the
manner  prescribed  in said  Section  902,  of  Owners of Bonds  which  would be
required under said Section 902 for such  correlative  amendment or modification
of this Indenture.

     SECTION 813 SURRENDER OF FIRST MORTGAGE BONDS.  The Trustee  covenants that
it will surrender First Mortgage Bonds to the corporate  trustee under the First
Mortgage  in  accordance  with the  provisions  of  Section  3.02(c) of the Loan
Agreement.

     SECTION 814 DESIGNATION OF PAYING AGENTS.  The Trustee is hereby designated
and agrees to act as principal Paying Agent for and in respect to the Bonds. The
Issuer may, with the consent of the Company, cause the necessary arrangements to
be made through the Trustee and to be thereafter  continued for the  designation
of  alternate  Paying  Agents,  if any,  and for the making  available  of funds
hereunder for the payment of the principal of, premium,  if any, and interest on
the Bonds, or at the principal  corporate trust office of said alternate  Paying
Agents.  In the event of a change  in the  office of  Trustee,  the  predecessor
Trustee  which has  resigned  or been  removed  shall cease to be trustee of any
funds provided hereunder and Paying Agent for principal of, premium, if any, and
interest on the Bonds,  and the successor  Trustee shall become such Trustee and
Paying  Agent  unless a separate  Paying  Agent or Agents are  appointed  by the
Issuer  in  connection  with the  appointment  pursuant  to  Section  807 of any
successor  Trustee;  provided that if such appointment of such successor Trustee
required the Company's consent,  the appointment of any separate Paying Agent in
connection  therewith  may  not be  made  without  the  Company's  consent.  Any
alternate  or separate  Paying Agent  appointed  pursuant to this Section may be
removed by the Issuer with the Company's consent.

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<PAGE>

                                   ARTICLE IX

                             SUPPLEMENTAL INDENTURES

     SECTION 901 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF BONDOWNERS.  Without
the  consent  of, or notice  to,  the  Owners of any  Bonds,  the Issuer and the
Trustee may from time to time, and when required by this Indenture shall,  enter
into one or more Supplemental Indentures for any of the following purposes:

     (a) to correct or  amplify  the  description  of any  property  at any time
         subject to the lien of this Indenture,  or better to assure, convey and
         confirm  unto the  Trustee  any  property  subject  or  required  to be
         subjected to the lien of this  Indenture,  or to subject to the lien of
         this Indenture additional property;

     (b) to  add  to  the  conditions,   limitations  and  restrictions  on  the
         authorized  amount,  terms or  purposes  of issue,  authentication  and
         delivery  of the Bonds,  as herein set  forth,  additional  conditions,
         limitations and restrictions thereafter to be observed;

     (c) to provide for the issuance of Additional Bonds pursuant to Section 202
         hereof;

     (d) to evidence the appointment of a separate  trustee or the succession of
         a new trustee under this Indenture;

     (e) to add to the  covenants  of the  Issuer or to the  rights,  powers and
         remedies  of the  Trustee for the benefit of the Owners of the Bonds or
         to surrender any right or power herein conferred upon the Issuer;

     (f) to cure any  ambiguity,  to correct or supplement any provision in this
         Indenture which may be inconsistent  with any other provision herein or
         to make any other change,  with respect to matters or questions arising
         under  this  Indenture,  which  shall  not  be  inconsistent  with  the
         provisions of this Indenture, provided such action shall not materially
         adversely affect the interests of the Owners of the Bonds; or

     (g) 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, as amended,  or under
         any  similar  federal  statute  hereafter  enacted,  or to  permit  the
         qualification  of the Bonds for sale under the  securities  laws of the
         United States or any state of the United States.

     SECTION 902 SUPPLEMENTAL INDENTURES WITH CONSENT OF  BONDOWNERS.  With  the
consent  of the Owners of not less than a majority  in  principal  amount of the
Bonds then Outstanding affected by such Supplemental  Indenture,  the Issuer and
the Trustee may enter into one or more  Supplemental  Indentures for the purpose
of adding any provisions to or changing in any manner or eliminating  any of the
provisions  of this  Indenture  or of  modifying in any manner the rights of the
Owners  of the Bonds  under  this  Indenture;  provided,  however,  that no such
Supplemental  Indenture  shall,  without  the  consent  of  the  Owner  of  each
Outstanding Bond affected thereby,

                                       50

<PAGE>

     (a) change the Stated  Maturity of the principal of, or any  installment of
         interest on, any Bond,  or reduce the principal  amount  thereof or the
         interest thereon or any premium payable upon the redemption thereof, or
         change any place of payment  where,  or the coin or  currency in which,
         any Bond,  or the interest  thereon is payable,  or impair the right to
         institute suit for the  enforcement of any such payment on or after the
         stated maturity thereof (or, in the case of redemption, on or after the
         redemption date); or

     (b) reduce the percentage in principal amount of the Outstanding Bonds, the
         consent  of  whose  Owners  is  required  for  any  such   Supplemental
         Indenture,  or the consent of whose  Owners is required  for any waiver
         provided for in this Indenture of compliance with certain provisions of
         this Indenture or certain defaults hereunder and their consequences; or

     (c) modify the obligation of the Issuer to make payment on or provide funds
         for the payment of any Bond; or

     (d) modify or alter the  provisions of the proviso to the definition of the
         term "Outstanding"; or

     (e) modify any of the  provisions  of this  Section or Section 710 or 1002,
         except,  with  respect to any  modification  of this Section or Section
         710, to increase  any  percentage  provided  thereby or to provide that
         certain other provisions of this Indenture cannot be modified or waived
         without the consent of the Owner of each Bond affected thereby; or

     (f) permit the  creation of any lien  ranking  prior to or on a parity with
         the lien of this  Indenture  with respect to any of the Trust Estate or
         terminate  the  lien of this  Indenture  on any  property  at any  time
         subject  hereto  or  deprive  the  Owner  of any  Bond of the  security
         afforded by the lien of this Indenture.

     The Trustee may in its discretion  determine whether or not any Bonds would
be affected by any Supplemental  Indenture and any such  determination  shall be
conclusive  upon the  Owners of all Bonds,  whether  theretofore  or  thereafter
authenticated and delivered  hereunder.  The Trustee shall not be liable for any
such determination made in good faith.

     If at any time the Issuer shall  request the Trustee to enter into any such
Supplemental  Indenture  for any of the  purposes of this  Section,  the Trustee
shall,  upon being  satisfactorily  indemnified with respect to expenses,  cause
notice of the proposed execution of such Supplemental  Indenture to be mailed to
each Owner of Bonds then  Outstanding  at the  addresses  appearing  in the bond
register.  Such  notice  shall  briefly  set  forth the  nature of the  proposed
Supplemental  Indenture  and shall state that copies  thereof are on file at the
principal   corporate  trust  office  of  the  Trustee  for  inspection  by  all
Bondowners.  The Trustee shall not, however,  be subject to any liability to any
Bondowner  by reason of its failure to mail such  notice,  and any such  failure
shall not affect the validity of such  supplemental  indenture when consented to
and approved as provided in this Section.  If the required  percentage of Owners
shall have consented to and approved the execution  thereof as herein  provided,
no Owner of any Bond shall have any

                                       51

<PAGE>

right to object to any of the terms and  provisions  contained  therein,  or the
operation  thereof,  or in any manner to question the propriety of the execution
thereof,  or to enjoin or restrain the Trustee or the Issuer from  executing the
same or from taking any action pursuant to the provision  thereof.  It shall not
be necessary  for the required  percentage of Owners of Bonds under this Section
to approve the particular form of any proposed  Supplemental  Indenture,  but it
shall be sufficient if such act shall  approve the substance  thereof.  Upon the
execution of any such  Supplemental  Indenture as in this Section  permitted and
provided,  this  Indenture  shall be and be deemed to be modified and amended in
accordance therewith.

     SECTION  903  EXECUTION  OF  SUPPLEMENTAL  INDENTURES.   In  executing,  or
accepting the additional trusts created by, any Supplemental Indenture permitted
by this  Article  or the  modification  thereby  of the  trusts  created by this
Indenture,  the Trustee shall  receive,  and,  subject to Section 801,  shall be
fully  protected  in relying  upon,  an Opinion of Bond  Counsel  addressed  and
delivered  to the  Trustee and the Issuer  stating  that the  execution  of such
Supplemental  Indenture is authorized or permitted by this  Indenture,  and that
the execution and delivery  thereof will not adversely affect the exclusion from
federal  gross income of interest on the Bonds.  The Trustee may, but shall not,
except to the extent required in the case of any Supplemental  Indenture entered
into under Section  901(g),  be obligated  to, enter into any such  Supplemental
Indenture  which affects the Trustee's  own rights,  duties or immunities  under
this Indenture or otherwise.

     SECTION 904 EFFECT OF  SUPPLEMENTAL  INDENTURES.  Upon the execution of any
Supplemental  Indenture under this Article,  this Indenture shall be modified in
accordance  therewith and such Supplemental  Indenture shall form a part of this
Indenture for all purposes;  and every Owner of Bonds  theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.

     SECTION 905 REFERENCE  IN  BONDS   TO   SUPPLEMENTAL   INDENTURES.    Bonds
authenticated  and delivered after the execution of any  Supplemental  Indenture
pursuant to this  Article  may,  and if required  by the Trustee  shall,  bear a
notation in form  approved by the Trustee as to any matter  provided for in such
Supplemental Indenture. If the Issuer shall so determine,  new Bonds so modified
as to  conform,  in the  opinion  of the  Trustee  and the  Issuer,  to any such
Supplemental   Indenture  may  be  prepared  and  executed  by  the  Issuer  and
authenticated and delivered by the Trustee in exchange for Outstanding Bonds.

     SECTION 906 COMPANY'S  CONSENT TO SUPPLEMENTAL  INDENTURES.  So long as the
Company is not in default under the Loan  Agreement,  a  Supplemental  Indenture
under this Article which affects any rights,  powers,  agreements or obligations
of the Company,  including,  without limitation,  rights, powers,  agreements or
obligations  of the Company under the Loan  Agreement,  the First Mortgage Bonds
and the  Mortgage,  or requires  any revision of the Loan  Agreement,  the First
Mortgage Bonds and the Mortgage,  will not become effective unless and until the
Company  consents in writing to the execution and delivery of such  Supplemental
Indenture.

                                       52

<PAGE>

                                   ARTICLE X

                           AMENDMENT OF LOAN AGREEMENT

     SECTION 1001 AMENDMENT,  ETC., TO LOAN AGREEMENT NOT REQUIRING  CONSENT  OF
BONDOWNERS.  The  Trustee  shall,  without  the  consent  of, or notice  to, the
Bondowners,  consent  to any  amendment,  change  or  modification  of the  Loan
Agreement as may be required:

     (a) by the provisions of the Loan Agreement or hereby;

     (b) in connection with the issuance of any Additional Bonds;

     (c) for the purpose of curing any ambiguity or formal defect or omission in
         the Loan Agreement; or

     (d) to effect  any other  amendment  to the Loan  Agreement  which,  in the
         judgment of the Trustee, will not adversely affect the interests of the
         Bondowners.

     SECTION 1002 AMENDMENT,  ETC.,  TO  LOAN  AGREEMENT  REQUIRING  CONSENT  OF
BONDOWNERS.  Except for the amendments,  changes or modifications as provided in
Section 1001,  the Trustee shall not consent to any other  amendment,  change or
modification of the Loan Agreement  without the giving of notice and the written
approval  or  consent of the  Owners of not less than a  majority  in  principal
amount of the Bonds then  Outstanding  given and procured in accordance with the
procedure  provided in this  Section.  If at any time the Issuer and the Company
shall request the consent of the Trustee to any such proposed amendment,  change
or  modification  of  the  Loan  Agreement,   the  Trustee  shall,   upon  being
satisfactorily  indemnified  with  respect  to  expenses,  cause  notice of such
proposed amendment,  change or modification of the Loan Agreement to be given in
the same manner as provided by Section 902 with respect to proposed supplemental
indentures.  Such notice  shall  briefly  set forth the nature of such  proposed
amendment,  change or modification and shall state that copies of the instrument
embodying  the same are on file at the principal  corporate  trust office of the
Trustee  for  inspection  by all Owners of the  Bonds.  The  Trustee  shall not,
however,  be  subject to any  liability  to any Owner of a Bond by reason of its
failure to give such notice,  and any such failure shall not affect the validity
of such  amendment,  change or  modification  when  consented to and approved as
provided in this Section. If the Owners of not less than a majority in aggregate
principal  amount of the Bonds  Outstanding  at the time of the execution of any
such amendment,  change or modification  shall have consented  thereto,  then no
Owner of any  Bond  shall  have any  right to  object  to any of the  terms  and
provisions  contained  therein,  or the operation  thereof,  or in any manner to
question the  propriety of the execution  thereof,  or to enjoin or restrain the
Trustee or the Issuer from executing the same or from taking any action pursuant
to the provisions thereof.

     SECTION 1003 TRUSTEE AUTHORIZED TO JOIN IN AMENDMENTS; RELIANCE ON COUNSEL.
The  Trustee  is  authorized  to join with the  Issuer  and the  Company  in the
execution  and  delivery of any  amendment  permitted by this Article and, in so
doing,  shall be fully protected by an opinion of Counsel that such 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.

                                       53

<PAGE>

                                   ARTICLE XI

                             MEETINGS OF BONDOWNERS

     SECTION 1101 PURPOSES  FOR WHICH  BONDOWNERS'  MEETINGS  MAY  BE CALLED.  A
meeting of Bondowners may be called at any time and from time to time for any of
the following purposes:

     (a) to give any notice to the  Issuer,  the Company or the  Trustee,  or to
         give any directions to the Trustee, or to consent to the waiving of any
         Default or Event of Default hereunder and its consequences,  or to take
         any other  action  authorized  to be taken by  Bondowners  pursuant  to
         Section 705 or 706;

     (b) to remove the Trustee pursuant to Section 806 or to appoint a successor
         trustee pursuant to Section 807;

     (c) to consent to the  execution of a  supplemental  indenture  pursuant to
         Section 902, or to consent to the execution of an amendment,  change or
         modification of the Loan Agreement pursuant to Section 1002; or

     (d) to take any other action  authorized to be taken by or on behalf of the
         Owners of any specified  principal  amount of the Bonds under any other
         provision hereof or under applicable law.

     SECTION 1102 PLACE OF MEETINGS OF BONDOWNERS. Meetings of Bondowners may be
held at such place or places as the  Trustee  or, in the case of its  failure to
act, the Bondowners calling the meeting shall from time to time determine.

     SECTION 1103 CALL AND NOTICE OF BONDOWNERS' MEETINGS.

     (a) The Trustee may at any time call a meeting of  Bondowners to be held at
such time and at such  place as the  Trustee  shall  determine.  Notice of every
meeting of Bondowners,  setting forth the time and the place of such meeting and
in general terms the action proposed to be taken at such meeting, shall be given
by first class mail postage prepaid, to the Bondowners at the addresses shown on
the registration books.

     (b) In case at any time the Owners of at least 20% in  aggregate  principal
amount of the Bonds  outstanding  shall  have  requested  the  Trustee to call a
meeting of the Bondowners by written request setting forth in reasonable  detail
the action  proposed to be taken at the meeting,  and the Trustee shall not have
given the notice of such meeting  within 20 days after  receipt of such request,
then such  Bondowners  may determine the time and the place for such meeting and
may call such  meeting to take any action  authorized  in Section 1101 by giving
notice thereof as provided in subsection (a) of this Section.

     SECTION 1104 PERSONS  ENTITLED  TO VOTE  AT  BONDOWNERS'  MEETINGS.  To  be
entitled to vote at any meeting of Bondowners, a person shall be an Owner of one
or more Outstanding  Bonds, or a person appointed by an instrument in writing as
proxy  for a  Bondowner  by such a  Bondowner.  The only  persons  who  shall be
entitled to be present or to speak at any meeting of

                                       54

<PAGE>

Bondowners  shall be  the persons  entitled to  vote at  such meeting  and their
Counsel, any representatives of the Trustee and its Counsel, any representatives
of the Company and its  Counsel  and any  representatives  of the Issuer and its
Counsel.

     SECTION 1105 DETERMINATION  OF VOTING RIGHTS;  CONDUCT  AND  ADJOURNMENT OF
MEETINGS.

     (a) Notwithstanding  any other provisions hereof, the Trustee may make such
reasonable regulations as it may deem advisable for any meeting of Bondowners in
regard to proof of the holding of Bonds and of the appointment of proxies and in
regard to the appointment and duties of inspectors of votes,  the submission and
examination  of proxies,  certificates  and other evidence of the right to vote,
and such other  matters  concerning  the conduct of the meeting as it shall deem
appropriate.  Except as otherwise permitted or required by any such regulations,
the holding of Bonds shall be proved in the manner specified in Section 1202 and
the appointment of any proxy shall be proved in the manner  specified in Section
1202 or by having the signature of the person  executing the proxy  witnessed or
guaranteed by any bank,  banker or trust  company  authorized by Section 1202 to
certify to the  holding of Bonds.  Such  regulations  may provide  that  written
instruments appointing proxies, regular on their face, may be presumed valid and
genuine without the proof specified in Section 1202 or other proof.

     (b) The Trustee  shall,  by an instrument  in writing,  appoint a temporary
chairman of the meeting, unless the meeting shall have been called by Bondowners
as provided in  subsection  (b) of Section  1103,  in which case the  Bondowners
calling  the  meeting  shall in like  manner  appoint a  temporary  chairman.  A
permanent chairman and a permanent  secretary of the meeting shall be elected by
vote of the Owners of a majority  of the Bonds  represented  at the  meeting and
entitled to vote.

     (c) At any meeting  each  Bondowner  or proxy shall be entitled to one vote
for each $5,000  principal  amount of  Outstanding  Bonds held or represented by
him; provided,  however, that no vote shall be cast or counted at any meeting in
respect of any Bond  challenged as not  Outstanding and ruled by the chairman of
the meeting to be not  Outstanding.  The  chairman of the meeting  shall have no
right to vote, except as a Bondowner or proxy.

     (d) At any  meeting of  Bondowners,  the  presence  of  persons  holding or
representing  Bonds  in an  aggregate  principal  amount  sufficient  under  the
appropriate   provision  hereof  to  take  action  upon  the  business  for  the
transaction  of which such  meeting was called shall  constitute  a quorum.  Any
meeting of Bondowners called pursuant to Section 1103 may be adjourned from time
to time by vote of the Owners (or  proxies  for the Owners) of a majority of the
Bonds  represented at the meeting and entitled to vote,  whether or not a quorum
shall be present;  and the meeting may be held as so adjourned  without  further
notice.

     SECTION 1106 COUNTING VOTES AND RECORDING ACTION OF MEETINGS. The vote upon
any  resolution  submitted  to any  meeting  of  Bondowners  shall be by written
ballots on which shall be  subscribed  the  signatures  of the  Bondowners or of
their  representatives  by proxy and the number or  numbers  of the  Outstanding
Bonds held or represented  by them. The permanent  chairman of the meeting shall
appoint  two  inspectors  of votes who shall count all votes cast at the meeting
for or against any  resolution and who shall make and file with the secretary of
the meeting their

                                       55

<PAGE>

verified  written  reports  in  duplicate  of all votes cast at the  meeting.  A
record, at least in triplicate, of the proceedings of each meeting of Bondowners
shall be prepared by the secretary of the meeting and there shall be attached to
said  record  the  original  reports of the  inspectors  of votes on any vote by
ballot taken thereat and affidavits by one or more persons  having  knowledge of
the facts  setting  forth a copy of the notice of the meeting  and showing  that
said notice was mailed as provided  in Section  1103.  Each copy shall be signed
and verified by the  affidavits of the  permanent  chairman and secretary of the
meeting  and  copies  shall be  delivered  to the Issuer  and the  Trustee.  The
Trustee's copy shall have attached  thereto the ballots voted at the meeting and
shall be preserved by the  Trustee.  Any record so signed and verified  shall be
conclusive evidence of the matters therein stated.

     SECTION 1107 REVOCATION BY BONDOWNERS. At any time prior to (but not after)
the  evidencing to the Trustee,  in the manner  provided in Section 1106, of the
taking of any  action by the Owners of the  percentage  in  aggregate  principal
amount of the Bonds specified  herein in connection with such action,  any Owner
of a Bond the number of which is  included in the Bonds the Owners of which have
consented to such action may, by filing  written  notice with the Trustee at its
principal  office and upon proof of holding as provided in Section 1202,  revoke
such consent so far as concerns such Bond.  Except as aforesaid any such consent
given by the Owner of any Bond shall be  conclusive  and binding upon such Owner
and upon all  future  Owners  of such Bond and of any Bond  issued  in  exchange
therefor  or in lieu  thereof,  irrespective  of whether or not any  notation in
regard  thereto is made upon such Bonds.  Any action  taken by the Owners of the
percentage in principal  amount of the Bonds specified herein in connection with
such action  shall be  conclusively  binding upon the Issuer,  the Company,  the
Trustee and the Owners of all the Bonds; provided that such action is authorized
by this Indenture.

                                  ARTICLE XII

                           NOTICES, CONSENTS AND ACTS
                                  OF BONDOWNERS

     SECTION 1201 NOTICES.  Except as  otherwise  provided  herein,  it shall be
sufficient service of any notice,  request,  demand,  authorization,  direction,
consent,  waiver or other paper  required or permitted  by this  Indenture to be
made,  given or furnished to or filed with the  following  Persons,  if the same
shall be  delivered  in  person  or duly  mailed by first  class  mail,  postage
prepaid, at the following addresses:

     (a) To the Issuer at:

                City of Cohasset
                305 Northwest 1st Avenue
                Cohasset, Minnesota 55721
                Attention:  City Clerk-Treasurer

     (b) To the Trustee at:

                U.S. Bank National Association
                Mail code EP-MN-WS3C

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<PAGE>

                60 Livingston Avenue
                St. Paul, Minnesota 55107
                Attention: Corporate Trust

     (c) To the Company at:

                ALLETE, Inc.
                30 West Superior Street
                Duluth, Minnesota  55802
                Attention:  Chief Financial Officer

     (d) To the Bondowners:

                At the addresses of the Bondowners as shown on the bond register
                maintained by the Trustee under this Indenture.

     (e) To Standard & Poor's at:

                Standard & Poor's Ratings Service
                25 Broadway
                New York, New York 10004
                Attention:  Structured Finance Group

     (f) To Moody's at:

                Moody's Investors Service, Inc.
                99 Church Street
                New York, New York 10007
                Attention:  Structured Finance--Monitoring Group

     If, because of the temporary or permanent suspension of mail service or for
any other  reason,  it is impossible  or  impractical  to mail any notice in the
manner herein provided, then such delivery of notice in lieu thereof as shall be
made with the approval of the Trustee shall constitute a sufficient notice.

     If notice to Bondowners is given by mail,  neither the failure to mail such
notice,  nor any  defect in any notice so mailed,  to any  particular  Bondowner
shall affect the  sufficiency  of such notice with respect to other  Bondowners.
Where this  Indenture  provides  for notice in any  manner,  such  notice may be
waived in writing by the Person  entitled to receive such notice,  either before
or after the event,  and such waiver  shall be the  equivalent  of such  notice.
Waivers of notice by Bondowners shall be filed with the Trustee, but such filing
shall not be a  condition  precedent  to the  validity  of any  action  taken in
reliance upon such waiver.

     The Trustee shall,  prior to the execution and delivery of any Supplemental
Indenture or consenting to any amendment to the Loan Agreement,  cause notice of
the  proposed   execution  and  delivery  of  such  Supplemental   Indenture  or
Supplemental  Loan Agreement  together with a copy of the proposed  Supplemental
Indenture or Supplemental  Loan Agreement to be mailed to any rating agency then
maintaining a rating on the Bonds at least 15 days prior to the proposed

                                       57

<PAGE>

date of execution and delivery of such  Supplemental  Indenture or  Supplemental
Loan  Agreement.  The Trustee shall also give notice to each Rating Service then
maintaining a rating on the Bonds if:

     (a) the Trustee  resigns or is removed,  or a new Trustee or  Co-Trustee is
         appointed;

     (b) there is a call for the redemption of all Bonds;

     (c) all of the Bonds are paid or defeased in accordance with the provisions
         of this Indenture;

     (d) an Event of Default or  acceleration  occurs or the Trustee  waives any
         Event of Default or acceleration under this Indenture;

     (e) any amendment is made to any of the other Transaction Documents;

     (f) the giving of notice of a mandatory  redemption of Bonds in whole or in
         part, or a payment of all principal,  interest and premium,  if any, on
         the Bonds; or

     (g) appointment of a successor Paying Agent.

     SECTION  1202  ACTS  OF   BONDOWNERS.   Any   notice,   request,    demand,
authorization,  direction,  consent,  waiver or other  action  provided  by this
Indenture to be given or taken by Bondowners may be embodied in and evidenced by
one or more substantially concurrent instruments of similar tenor signed by such
Bondowners in person or by an agent duly appointed in writing.  Except as herein
otherwise  expressly  provided,  such action  shall become  effective  when such
instrument or instruments are delivered to the Trustee,  and, where it is hereby
expressly required, to the Issuer or the Company. Proof of execution of any such
instrument  or of a writing  appointing  any such agent,  or of the ownership of
Bonds,  shall be sufficient  for any purpose of this Indenture and conclusive in
favor of the Issuer and the Trustee, if made in the following manner:

     (a) The fact and date of the execution by any Person of any such instrument
or  writing  may be  proved by the  certificate  of any  notary  public or other
officer authorized by law to take acknowledgments of deeds,  certifying that the
individual signing such instrument or writing  acknowledged to him the execution
thereof,  or by the  affidavit  of a witness of such  execution.  Whenever  such
execution  is by an officer of a  corporation  or a member of a  partnership  on
behalf of such  corporation or partnership,  such certificate or affidavit shall
also constitute sufficient proof of his authority.

     (b) The fact and date of  execution of any such  instrument  or writing and
the  authority of any Person  executing the same may also be proved in any other
manner which the Trustee deems  sufficient;  and the Trustee may in any instance
require  further  proof with  respect to any of the matters  referred to in this
Section.

     (c) The  ownership  of Bonds and the amount or  amounts,  numbers and other
identification  of such Bonds, and the date of holding the same, shall be proved
by the bond register maintained by the Trustee.

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<PAGE>

     In  determining  whether the Owners of the  requisite  principal  amount of
Bonds  Outstanding  have given any request,  demand,  authorization,  direction,
notice,  consent or waiver  hereunder,  Bonds owned by the Issuer or any Related
Party to the Issuer or the  Company or any  Affiliate  of the  Company  shall be
disregarded  and deemed  not to be  Outstanding,  except  that,  in  determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization,  direction,  notice,  consent  or waiver,  only  Bonds  which the
Trustee knows to be so owned shall be so disregarded.

     Any notice, request, demand,  authorization,  direction, consent, waiver or
other  action by the Owner of any Bond shall bind every future owner of the same
Bond and the owner of every Bond issued upon the transfer thereof or in exchange
therefor or in lieu thereof,  in respect of anything done or suffered to be done
by the Trustee or the Issuer in  reliance  thereon,  whether or not  notation of
such action is made upon such Bond.

     SECTION 1203 FORM AND CONTENTS OF DOCUMENTS DELIVERED TO TRUSTEE.  Whenever
several  matters are required to be  certified  by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or  covered by only one  document,  but one such  Person may  certify or give an
opinion  with  respect to some  matters and one or more other such Persons as to
the other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.

     Any  certificate  or  opinion  of an  officer  of the  Issuer may be based,
insofar as it relates to legal  matters,  upon a  certificate  or opinion of, or
representations  by,  counsel,  unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or  representations
with respect to the matters upon which his  certificate  or opinion is based are
erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual
matters,  upon a certificate or opinion of, or representations by, an officer or
officers of the Issuer stating that the information with respect to such factual
matters is in the possession of the Issuer, unless such counsel knows, or in the
exercise of  reasonable  care should know,  that the  certificate  or opinion or
representations with respect to such matters are erroneous.

     Whenever  any  Person is  required  to make,  give or  execute  two or more
applications,  requests, consents,  certificates,  statements, opinions or other
instruments  under this Indenture,  they may, but need not, be consolidated  and
form one instrument.

     Wherever  in  this  Indenture,   in  connection  with  any  application  or
certificate  or report to the  Trustee,  it is  provided  that the Issuer  shall
deliver any document as a condition of the granting of such  application,  or as
evidence of the Issuer's  compliance  with any term hereof,  it is intended that
the truth and accuracy,  at the time of the granting of such  application  or at
the effective  date of such  certificate  or report (as the case may be), of the
facts and  opinions  stated in such  document  shall in such case be  conditions
precedent to the right of the Issuer to have such application  granted or to the
sufficiency of such certificate or report.

                                       59

<PAGE>

                                  ARTICLE XIII

                            MISCELLANEOUS PROVISIONS

     SECTION 1301 FURTHER ASSURANCES. The Issuer shall do, execute,  acknowledge
and deliver such  Supplemental  Indentures  and such further acts,  instruments,
financing  statements and  assurances as the Trustee may reasonably  require for
accomplishing the purposes of this Indenture.

     SECTION 1302 IMMUNITY OF  OFFICERS,  EMPLOYEES  AND MEMBERS OF  ISSUER.  No
recourse shall be had for the payment of the principal of or redemption premium,
if any, or  interest on any of the Bonds or for any claim based  thereon or upon
any obligation,  covenant or agreement  contained in this Indenture  against any
past,  present or future  officer,  director,  member,  employee or agent of the
Issuer, or of any successor public  corporation,  either directly or through the
Issuer or any  successor  public  corporation,  under any rule of law or equity,
statute or  constitution,  or by the enforcement of any assessment or penalty or
otherwise,  and all such  liability of any such  officers,  directors,  members,
employees  or  agents as such is  hereby  expressly  waived  and  released  as a
condition  of and  consideration  for the  execution of this  Indenture  and the
issuance of Bonds.

     SECTION 1303 LIABILITY OF ISSUER  LIMITED.  It  is understood and agreed by
the  Company  and the Owners from time to time of the Bonds that no Bonds or any
other document executed by the Issuer in connection with the issuance, sale, and
delivery of the Bonds,  or any  obligation  herein or therein  imposed  upon the
Issuer or breach thereof, shall give rise to a pecuniary liability of the Issuer
or a charge  against its general  credit or taxing powers or shall  obligate the
Issuer  financially in any way except with respect to the Loan Agreement and the
application of revenues  therefrom and the proceeds of the Bonds.  No failure of
the Issuer to comply with any term,  condition,  covenant,  or agreement  herein
shall subject the Issuer to liability for any claim for damages,  costs or other
financial or pecuniary charges except to the extent that the same can be paid or
recovered  from the Loan  Agreement  or  revenues  therefrom  or proceeds of the
Bonds. No execution on any claim,  demand, cause of action, or judgment shall be
levied upon or  collected  from the general  credit,  general  funds,  or taxing
powers of the Issuer.  In making the  agreements,  provisions  and covenants set
forth  herein,  the Issuer has not  obligated  itself except with respect to the
Loan  Agreement  and the  application  of  revenues  thereunder  as  hereinabove
provided. The Bonds constitute special obligations of the Issuer, payable solely
from the revenues pledged to the payment thereof pursuant to this Indenture, and
do not now and never shall constitute an indebtedness or a loan of the credit of
the Issuer, the State or any political  subdivision  thereof or a charge against
the  general   taxing   powers  of  any  of  them  within  the  meaning  of  any
constitutional or statutory provision whatsoever.

     SECTION 1304 EXECUTION COUNTERPARTS.  This Indenture may be executed in any
number  of  counterparts,  each of which so  executed  shall be  deemed to be an
original,  but all such counterparts  shall together  constitute but one and the
same instrument.

     SECTION 1305 GOVERNING  LAW.  This  Indenture  shall  be  governed  by  and
construed in accordance  with the laws of the State without giving effect to the
conflicts-of-laws principles thereof.

                                       60

<PAGE>

     SECTION 1306 BENEFIT OF  INDENTURE.  This  Indenture  shall  inure  to  the
benefit  of and shall be  binding  upon the  Issuer  and the  Trustee  and their
respective  successors  and  assigns,   subject,  however,  to  the  limitations
contained  herein.  With the  exception  of rights  expressly  conferred in this
Indenture,  nothing in this Indenture or in the Bonds, express or implied, shall
give to any  Person,  other than the  parties  hereto and their  successors  and
assigns  hereunder,  any separate trustee or co-trustee  appointed under Section
810 and the Owners of Outstanding  Bonds,  any benefit or any legal or equitable
right, remedy or claim under this Indenture.

     SECTION 1307 SEVERABILITY.  If  any  provision in this  Indenture or in the
Bonds shall be invalid,  illegal or  unenforceable,  the validity,  legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired thereby.

                                       61

<PAGE>

     IN WITNESS  WHEREOF,  the Issuer and the Trustee have caused this Indenture
of Trust to be duly executed by their duly  authorized  officers,  all as of the
day and year first above written.

                                        CITY OF COHASSET, MINNESOTA

                                        By: /s/ Marian Barcus
                                           -------------------------------------
                                                           Mayor

[SEAL]

Attest:

/s/ Debra Sakrison
----------------------------------------
          City Clerk-Treasurer

                                             U.S. BANK NATIONAL
                                               ASSOCIATION, as Trustee

                                             By: /s/ Joel Geist
                                                --------------------------------
                                             Title:       Vice President
                                                   -----------------------------

                        [Signature Page to Trust Indenture]

<PAGE>

                                                                       EXHIBIT A
                                                                          TO THE
                                                              INDENTURE OF TRUST

                            FORM OF SERIES 2004 BONDS

Unless this  certificate  is presented by an  authorized  representative  of The
Depository Trust Company, a New York corporation  ("DTC"),  to the issuer or its
agent for registration of transfer,  exchange,  or payment,  and any certificate
issued  is  registered  in the name of Cede & Co.  or in such  other  name as is
requested  by an  authorized  representative  of DTC (and any payment is made to
Cede  &  Co.  or  to  such  other  entity  as  is  requested  by  an  authorized
representative  of DTC), ANY TRANSFER,  PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE  BY OR TO ANY PERSON IS  WRONGFUL  inasmuch  as the  registered  owner
hereof, Cede & Co., has an interest herein.

                            UNITED STATES OF AMERICA
                               STATE OF MINNESOTA
                                COUNTY OF ITASCA

                                CITY OF COHASSET

             COLLATERALIZED POLLUTION CONTROL REFUNDING REVENUE BOND
                             (ALLETE, INC. PROJECT),
                                   SERIES 2004

No. R-1                                                             $111,000,000

     Date of Original          Interest          Maturity
           Issue                 Rate              Date                 CUSIP
           -----                 ----              ----                 -----

      August 19, 2004            4.95%          July 1, 2022          192472 BE7

      REGISTERED OWNER:          CEDE & CO.

      PRINCIPAL AMOUNT:          ONE HUNDRED ELEVEN MILLION DOLLARS
                                 ($111,000,000)*********************************

     The City of  Cohasset,  in the  County  of Itasca  and  State of  Minnesota
(hereinafter called the "Municipality"),  for value received, promises to pay to
the registered holder named above, or registered  assigns,  on the Maturity Date
specified above,  from the source and in the manner  hereinafter  provided,  and
upon  presentation and surrender hereof at the principal  corporate trust office
of the Trustee  hereinafter  referred to, the principal  amount specified above,
and to pay, from the source and in the manner hereinafter provided,  interest on
said  principal  amount  from the  date of  original  issue  hereof  until  said
principal  amount is paid or payment  thereof is duly  provided for, at the rate
per annum  specified  above,  except as the  provisions  below  with  respect to
redemption of this Bond may become  applicable  hereto.  Interest is computed on
the basis of a 360 day year  composed  of twelve  30-day  months  and is payable
semiannually on each January 1

                                      A-1

<PAGE>

and July 1 (hereinafter  called an "Interest Payment Date"),  commencing January
1,  2005,  to the  person  in whose  name this  Bond is  registered  in the bond
register  maintained by the Trustee  (herein called the "Owner") as of the close
of business on the fifteenth day (whether or not a Business Day) of the calendar
month next preceding such Interest Payment Date by check or draft mailed to such
Owner at his  address  as it  appears on the bond  register  or, at the  written
direction of any Owner of at least  $1,000,000 in aggregate  principal amount of
the  Bonds,  by wire  transfer  in  immediately  available  funds to an  account
designated by such Owner. The principal of and premium,  if any, and interest on
this Bond are payable in lawful money of the United States of America.

     This  Bond is one of an  authorized  issue  of  bonds  of the  Municipality
(herein called the "Bonds")  issued under,  and all equally and ratably  secured
and entitled to the  protection  given by, an  Indenture  of Trust,  dated as of
August  1,  2004 (as it may be  amended  and  supplemented,  herein  called  the
"Indenture"),  duly  executed and  delivered by the  Municipality  to U.S.  Bank
National  Association,  as  Trustee  (herein  called the  "Trustee",  which term
includes any successor  trustee under the  Indenture).  Reference is made to the
Indenture,  copies of which are on file in the offices of the  Municipality  and
the Trustee,  including all indentures  supplemental thereto, for a statement of
the nature and extent of the  security  for the Bonds,  the  rights,  duties and
obligations of the Municipality and the Trustee, the rights of the Owners of the
Bonds,  the manner in which the Indenture  can be amended,  and terms upon which
the Bonds are issued and secured.  All terms  capitalized but not defined herein
shall have the meanings assigned to them in the Indenture.

     The Bonds are issued by the Municipality in the aggregate  principal amount
of  $111,000,000  for  the  purpose  of  providing  funds  to be  loaned  by the
Municipality  to  ALLETE,  Inc.,  a  Minnesota  corporation  (herein  called the
"Company"),  pursuant to a Loan Agreement, dated as of August 1, 2004 (as it may
be amended or supplemented,  herein called the "Agreement"),  for the purpose of
refunding revenue bonds previously issued to refinance a portion of the costs of
acquisition,  construction  and  equipping  of certain  air and water  pollution
control  facilities (the  "Facilities")  used by the Company in the operation of
the Clay Boswell steam electric  generating station owned in part by the Company
and located in the Municipality (the "Plant"),  thereby assisting  activities in
the public  interest and for the public  welfare of the State of  Minnesota.  To
evidence  its  obligation  to repay such loan,  the Company  will deliver to the
Trustee its first  mortgage  bonds (the  "First  Mortgage  Bonds")  issued as an
additional series under the Mortgage and Deed of Trust, dated as of September 1,
1945,  from the Company to Irving  Trust  Company (now The Bank of New York) and
Richard H. West (Douglas J. MacInnes,  Successor),  as trustees, as supplemented
and to be supplemented (collectively referred to as the "First Mortgage").

     All Bonds Outstanding are subject to redemption by the Municipality, solely
at the option of the Company,  in whole or in part,  on any  Business  Day, at a
redemption price equal to 100% of the principal amount thereof, without premium,
plus accrued  interest  thereon to the  redemption  date,  if the Company  shall
declare,  within  180 days  following  the  occurrence  of one of the  following
events,  that it will cease to operate any element or unit of the  Facilities by
reason of the occurrence of such event:  (a) the damage or destruction of all or
substantially all of any element or unit of the Facilities or the Plant to which
such  Facilities  relate to such extent that, in the  reasonable  opinion of the
Company, the repair and restoration thereof would not be

                                      A-2

<PAGE>

economical;  (b) the condemnation of all or substantially  all of any element or
unit of the Facilities or such Plant or the taking by condemnation of such part,
use or control of such element or unit of the  Facilities  or Plant as to render
them or it  unsatisfactory  to the Company for their or its intended use; (c) if
the  Company has  abandoned  and  removed  from  service all or a portion of the
Facilities or all of its ownership  interest in the Plant,  (d) in the Company's
reasonable  opinion,  unreasonable  burdens or excessive  liabilities shall have
been imposed upon the Company with respect to the Facilities or the Plant or the
operation thereof,  including,  but without being limited to, federal,  state or
other ad valorem,  property, income or other taxes not being imposed on the date
of the  Indenture,  other  than  ad  valorem  taxes  levied  on the  date of the
Indenture upon privately owned property used for the same general purpose as the
Facilities or the Plant;  (e) as a result of any changes in the  Constitution of
the State of Minnesota or the Constitution of the United States of America or of
legislative  or  administrative  action  (whether  state or federal) or by final
direction,  judgment or order of any court or administrative body (whether state
or federal)  entered after the contest thereof by the Company in good faith, the
Indenture or the Loan Agreement  becomes void or  unenforceable or impossible of
performance;  or (f) if (1) the Company sells,  leases or otherwise  disposes of
the Facilities or a substantial part thereof to a Person who is not an Affiliate
of the Company,  or changes or allows a change in the use of, such Facilities or
any substantial part thereof, and (2) there is delivered to the Municipality and
the Trustee an Opinion of Bond Counsel to the effect that, unless the Bonds or a
specified part thereof are redeemed and retired either prior to or  concurrently
with such sale, lease or other disposition, or change in use, or on a subsequent
date prior to maturity,  Bond Counsel is unable to render an unqualified opinion
that such sale,  lease or other  disposition,  or change in use,  of all or such
substantial part of such Facilities will not adversely affect the  excludability
from gross  income,  for federal  income tax  purposes,  of the  interest on the
series of Bonds that financed such Facilities and will not adversely  affect the
Company's  ability to deduct  interest  payments  made pursuant to the Agreement
under  Section  150(b) of the Internal  Revenue Code of 1986,  as amended,  or a
successor provision thereto.

     All of the Bonds shall be subject to mandatory redemption,  at a redemption
price equal to 100% of the principal  amount thereof,  without  premium,  on the
earliest  practicable  Interest Payment Date, upon written notice to the Company
by the Trustee of the occurrence of a final, nonappealable  determination by the
Internal  Revenue  Service or a court of  competent  jurisdiction  in the United
States,  that,  as a result of the  failure by the Company to observe or perform
any  covenant,  condition  or  agreement on its part to be observed or performed
under the Agreement or as a result of the inaccuracy of any representation  made
by the  Company  under  the  Agreement,  the  interest  payable  on the Bonds is
includable  for federal  income tax  purposes in the gross  income of the owners
thereof  (other  than an  owner  who is a  "substantial  user"  of the  projects
refinanced  thereby or a "related  person" thereto within the meaning of Section
103(b)(13)  of the  Internal  Revenue  Code of 1954,  as  amended),  which final
determination  follows  proceedings  of which the Company has been given written
notice and in which the Company,  at its sole  expense and to the extent  deemed
sufficient by the Company, has been given an opportunity to participate,  either
directly or in the name of the owners of the Bonds. The Bonds shall be redeemed,
either in whole or in part, in such principal amount that, upon such redemption,
the interest  payable on the Bonds remaining  outstanding  after such redemption
would not be so  includable  for federal tax purposes in the gross income of the
owners thereof.

                                      A-3

<PAGE>

     The Bonds also are subject to  redemption  in whole or in part in an amount
evenly divisible by minimum  Authorized  Denominations,  solely at the option of
the Company, which shall be exercised upon the written direction of the Company,
on July 1, 2014, and on any date thereafter, at a redemption price equal to 100%
of the principal amount thereof,  without premium,  plus interest accrued on the
principal amount so redeemed to the redemption date.

     Notice of redemption  shall be mailed (unless  waived,  as set forth in the
Indenture) at least 30 days before the  redemption  date to each Owner of a Bond
to be  redeemed  at the  address  shown on the bond  register  or at such  other
address as is furnished in writing by such owner to the Trustee;  provided  that
no defect in or failure to give such notice of  redemption  by mail shall affect
the  validity of  proceedings  for  redemption  of any Bond not affected by such
defect or  failure.  With  respect to notice of any  optional  or  extraordinary
optional  redemption  of  the  Bonds,  as  described  above,  unless  moneys  or
Government  Obligations or a combination thereof,  provided by the Company shall
be received by the Trustee prior to the giving of said notice  sufficient to pay
the redemption  price on the Bonds to be redeemed,  said notice shall state that
said  redemption  shall  be  conditional  upon the  receipt  of such  moneys  or
Governmental  Obligations  by the Trustee on or prior to the date fixed for such
redemption.  If such moneys or Governmental  Obligations  shall not have been so
received on or prior to the  redemption  date,  said notice shall be of no force
and effect,  the Municipality  shall not redeem such Bonds and the Trustee shall
give notice,  in the manner in which the notice of  redemption  was given,  that
such moneys were not so received.  All Bonds so called for redemption will cease
to bear  interest on the specified  redemption  date,  provided  funds for their
redemption  have been duly  deposited,  and,  except for the purpose of payment,
shall  no  longer  be  protected  by the  Indenture  and  shall  not  be  deemed
Outstanding under the provisions of the Indenture.

     This Bond and the  series of which it forms a part are issued  pursuant  to
and in full compliance with the Constitution and laws of the State of Minnesota,
particularly  Minnesota  Statutes Sections 469.152 to 469.165,  as amended,  and
pursuant to resolutions adopted by the governing body of the Municipality, which
resolutions authorize the execution and delivery of the Agreement, the Indenture
and the Bonds,  and are limited  obligations  payable  solely from amounts to be
received by the  Municipality  from the Company on the First  Mortgage Bonds and
otherwise  pursuant to the Agreement,  which amounts,  if paid when due, will be
sufficient  to pay the  principal  of and  premium,  if any, and interest on the
Bonds.  Such  payments  are to be made to the  Trustee  for the  account  of the
Municipality  and credited to the Bond Fund  provided for in the  Indenture as a
special trust fund account created by the Municipality and have been pledged for
that purpose.  The Bonds do not constitute an indebtedness  of the  Municipality
within the meaning of any  constitutional  or  statutory  limitation  and do not
constitute or give rise to a pecuniary liability of the Municipality or a charge
against its  general  credit or taxing  powers.  No Owner of any Bond shall ever
have the right to compel any exercise of the taxing power of the Municipality to
pay the principal of or premium,  if any, or interest on the Bonds or to enforce
payment  thereof against any property of the  Municipality  other than the Trust
Estate.

     If  provision is made for the payment of the  principal of and premium,  if
any, and interest on this Bond in accordance with the Indenture, this Bond shall
no longer be deemed Outstanding under the Indenture,  shall cease to be entitled
to the benefits of the  Indenture,  and shall  thereafter be payable solely from
the funds provided for the payment thereof.

                                      A-4

<PAGE>

     If an Event of Default occurs,  the principal of all Outstanding  Bonds may
become  due and  payable  in the  manner  and with the  effect  provided  in the
Indenture.

     The Indenture  permits,  with certain  exceptions as therein provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Municipality  and the  Owners of the Bonds at any time with the  consent  of the
Owners of a  majority  in  aggregate  principal  amount of the Bonds at the time
Outstanding.  The Trustee may not vote the First Mortgage Bonds, or consent with
respect  thereto,  in favor of a  correlative  modification  or amendment of the
First  Mortgage  without like consent,  provided that the Trustee is required to
vote or consent in favor of certain  modifications and amendments  enumerated in
the Indenture that may be adopted without any consent of the Owners of the Bonds
Outstanding  under  the  Indenture.   The  Indenture  also  contains  provisions
permitting  Owners of a majority in aggregate  principal  amount of the Bonds at
the time  Outstanding,  on  behalf  of the  Owners  of all the  Bonds,  to waive
compliance  with certain  provisions  of the Indenture and certain past defaults
under the  Indenture and their  consequences.  Any such consent or waiver by the
Owner of this Bond shall be  conclusive  and binding  upon such Owner and of any
Bond issued in lieu hereof  whether or not notation of such consent or waiver is
made upon this Bond or such Bond.

     The Owner of this Bond shall 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  proceedings  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 all Outstanding  Bonds may become due and payable before the stated
maturity thereof, together with interest accrued thereon.

     The Bonds are issuable only as fully  registered  bonds without  coupons in
the  denominations  of $5,000 and any  integral  multiple of $5,000 in excess of
$5,000.  The  Bonds  are  exchangeable  for  other  Bonds  in the  form of fully
registered  bonds of the  same  aggregate  principal  amount  and in  authorized
denominations,  upon  surrender  thereof by the Owner  thereof at the  principal
corporate  trust office of the Trustee,  duly endorsed by, or  accompanied  by a
written  instrument of transfer in form satisfactory to the Trustee and executed
by the Owner thereof or his attorney duly  authorized in writing,  in the manner
and upon payment of the charges as provided in the Indenture.

     This Bond is  transferable  by the Owner hereof upon surrender of this Bond
for  transfer at the  principal  corporate  trust  office of the  Trustee,  duly
endorsed  by,  or  accompanied  by a  written  instrument  of  transfer  in form
satisfactory  to the Trustee and  executed  by, the Owner hereof or his attorney
duly  authorized  in writing,  in the manner and upon  payment of the charges as
provided in the  Indenture.  Thereupon  the  Municipality  shall execute and the
Trustee shall  authenticate and deliver,  in exchange for this Bond, one or more
new  Bonds in the name of the  transferee,  of an  authorized  denomination,  in
aggregate principal amount equal to the principal amount of this Bond.

     The Municipality, the Trustee and the Company may treat the person in whose
name this Bond is  registered  as the  absolute  holder  hereof for all purposes
whether or not this Bond is overdue,  and shall not be affected by any notice to
the contrary.

                                      A-5

<PAGE>

     IT IS HEREBY CERTIFIED,  RECITED AND DECLARED that all acts, conditions and
things  required  to exist,  happen  and be  performed  precedent  to and in the
execution  and delivery of the Indenture and the issuance of this Bond do exist,
have happened and have been  performed in due time,  form and manner as required
by law,  and that the  issuance  of this Bond and the series of which it forms a
part does not exceed or violate any  constitutional  or statutory  limitation of
indebtedness.

     This Bond shall not be valid or  obligatory  for any purpose or be entitled
to any  security  or  benefit  under the  Indenture  unless the  Certificate  of
Authentication hereon has been signed by the Trustee.

     IN WITNESS WHEREOF, the City of Cohasset, Minnesota, by its governing body,
has caused this Bond to be executed in its name by the  facsimile  signatures of
the  Mayor and the City  Clerk-Treasurer  and  sealed  with a  facsimile  of its
official seal printed hereon.

Dated:  August 19, 2004

                                        ----------------------------------------
                                             Mayor

(SEAL)

                                        ----------------------------------------
                                             City Clerk-Treasurer

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

                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

     This Bond is one of the Bonds of the series designated therein and referred
to in the within-mentioned Indenture.

                                        U.S. Bank National Association,
                                        as Trustee

                                        By:
                                        ----------------------------------------
                                             Authorized Signature

                                      A-6

<PAGE>

                                   ASSIGNMENT

     FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
_________________________________,  the within Bond and does hereby  irrevocably
constitute and appoint  ________________________________________,  attorney,  to
transfer the within Bond on the books kept for registration  thereof,  with full
power of substitution in the premises.

Dated:
      ----------------------

                                        ----------------------------------------
PLEASE INSERT SOCIAL SECURITY           NOTICE: The signature to this assignment
OR OTHER IDENTIFYING NUMBER             must  correspond  with  the name  as  it
OF ASSIGNEE                             appears upon the face of the within Bond
                                        in every particular, without  alteration
                                        or  any be  guaranteed  by a  commercial
                                        bank  or trust company or by a brokerage
                                        firm having a  membership in  one of the
                                        major stock exchanges.

SIGNATURE GUARANTEED:
                     -----------------------------------------------------

                                      A-7<PAGE>
                                                                    EXHIBIT 4(c)

                                                                           FINAL

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

                                 LOAN AGREEMENT

                                     between

                           CITY OF COHASSET, MINNESOTA

                                       and

                                  ALLETE, INC.

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

                           Dated as of August 1, 2004

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

                                   Relating to

      $111,000,000 Collateralized Pollution Control Refunding Revenue Bonds
                       (ALLETE, Inc. Project), Series 2004

--------------------------------------------------------------------------------
<PAGE>

                                TABLE OF CONTENTS

This table of contents is not part of the Loan Agreement, and is for convenience
only. The captions herein are of no legal effect and do not vary the meaning or
legal effect of any part of the Loan Agreement.

                                                                            Page
                                                                            ----

Parties........................................................................1

Recitals.......................................................................1

ARTICLE I DEFINITIONS; REFERENCES; CERTIFICATES AND OPINIONS; GENERAL
PROVISIONS.....................................................................1

     Section 1.01.     Definitions.............................................1
     Section 1.02.     References..............................................5
     Section 1.03.     Certificates and Opinions...............................5
     Section 1.04.     Notices, etc. to Trustee, Issuer and Company............5
     Section 1.05.     Successors and Assigns..................................6
     Section 1.06.     Separability Clause.....................................6
     Section 1.07.     Execution Counterparts..................................6
     Section 1.08.     Construction............................................6
     Section 1.09.     Benefit of Agreement....................................6
     Section 1.10.     Limitation of Liability.................................6

ARTICLE II REPRESENTATIONS AND WARRANTIES......................................7

     Section 2.01.     Representations of the Issuer...........................7
     Section 2.02.     Representations and Warranties of the Company...........8

ARTICLE III THE LOAN..........................................................12

     Section 3.01.     Amount and Source of Loan..............................12
     Section 3.02.     Creation, Issuance, Delivery and Surrender of First
                       Mortgage Bonds.........................................12
     Section 3.03.     Payments Assigned; Company's Obligations
                       Unconditional..........................................13
     Section 3.04.     Payments Due on Non-Business Days......................14
     Section 3.05.     Company's Remedies.....................................14

ARTICLE IV THE FACILITIES.....................................................14

     Section 4.01.     Completion and Location of the Facilities..............14
     Section 4.02.     Maintenance of Facilities; Remodeling..................14
     Section 4.03.     Insurance..............................................15
     Section 4.04.     Condemnation...........................................15
     Section 4.05.     Payment of Taxes; Discharge of Liens...................15
     Section 4.06.     Use of Facilities......................................16
     Section 4.07.     Issuer's and Trustee's Access to Facilities............16

                                      -i-

<PAGE>

ARTICLE V REDEMPTION OF BONDS.................................................16

     Section 5.01.     Prepayment of Loan.....................................16
     Section 5.02.     Option To Prepay Loan and To Direct Redemption of
                       Bonds..................................................16
     Section 5.03.     Obligation To Prepay Loan and Redeem Bonds Upon
                       Certain Events.........................................16
     Section 5.04.     Option to Refinance Bonds without Prepayment of Loan...17

ARTICLE VI SPECIAL COVENANTS OF THE COMPANY...................................17

     Section 6.01.     Maintenance of Corporate Existence.....................17
     Section 6.02.     Annual Statement.......................................17
     Section 6.03.     Indemnification........................................17
     Section 6.04.     Additional Payments....................................18
     Section 6.05.     Assurance of Tax Exemption.............................19
     Section 6.06.     Redemption of Refunded Bonds; Payment of Costs of
                       Issuance...............................................22

ARTICLE VII ASSIGNMENT, LEASING AND SELLING...................................22

     Section 7.01.     Conditions.............................................22
     Section 7.02.     Instrument Furnished to Trustee........................23
     Section 7.03.     Limitation.............................................23

ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES...................................23

     Section 8.01.     Events of Default..................................23
     Section 8.02.     Force Majeure......................................23
     Section 8.03.     Remedies...........................................24
     Section 8.04.     No Remedy Exclusive................................24
     Section 8.05.     Reimbursement of Attorneys' Fees...................24
     Section 8.06.     Waiver of Breach; Exercise of Rights by Trustee....25
     Section 8.07.     Trustee's Exercise of the Issuer's Remedies........25

ARTICLE IX MISCELLANEOUS......................................................25

     Section 9.01.     Termination............................................25
     Section 9.02.     Assignment.............................................25
     Section 9.03.     Amendments, Changes and Modifications..................25
     Section 9.04.     Spin-off Shall Not Violate Terms of This Agreement.....25

Testimonium...................................................................36

Signatures and Seals..........................................................36

Exhibit A-Description of the Refinanced Pollution Control Facilities.........A-1

                                      -ii-

<PAGE>

                                 LOAN AGREEMENT

     THIS LOAN AGREEMENT, dated as of August 1, 2004, between the CITY OF
COHASSET, a municipal corporation of the State of Minnesota (as hereinafter
defined, the "Issuer"), and ALLETE, INC., a Minnesota corporation (as
hereinafter defined, the "Company").

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

     WHEREAS, the Issuer is authorized and empowered under Minnesota Statutes,
Sections 469.152 to 469.165, as amended (the "Act"), to issue revenue bonds to
finance, in whole or in part, the cost of the acquisition, construction,
reconstruction, improvement, betterment or extension of, and to acquire,
construct and hold, properties, real or personal, used or useful in the
abatement or control of air or water pollution in connection with a
revenue-producing enterprise engaged in business, and to refund revenue bonds
previously issued under the Act; and

     WHEREAS, the Issuer proposes to issue and sell its revenue bonds under the
Act to refund bonds previously issued by the City of Bass Brook, Minnesota (the
predecessor to the Issuer), the proceeds of which will be used to refinance a
portion of the costs of the acquisition, construction and equipping of certain
air and water pollution control facilities at units 1, 2 and 4 of the Clay
Boswell steam electric generating station owned in part by the Company and
located in the City of Cohasset, Minnesota; and

     WHEREAS, the Issuer is further authorized and empowered under the Act to
enter into a loan agreement providing for payments to it sufficient to pay when
due the principal of, premium, if any, and interest on its revenue bonds.

     NOW, THEREFORE, the parties hereto, intending to be legally bound hereby
and in consideration of the premises, DO HEREBY AGREE as follows:

                                   ARTICLE I

               DEFINITIONS; REFERENCES; CERTIFICATES AND OPINIONS;
                               GENERAL PROVISIONS

     Section 1.01.  DEFINITIONS. The terms defined in this Article I shall for
all purposes of this Agreement have the meaning herein specified, unless the
context clearly requires otherwise:

     "Act" means Minnesota Statutes, Sections 469.152 to 469.165, as amended,
and all acts supplemental thereto or amendatory thereof.

     "Additional Bonds" means any Bonds issued under the Indenture, other than
the Series 2004 Bonds.

     "Agreement" means this Loan Agreement between the Issuer and the Company,
and any and all modifications, alterations, amendments and supplements hereto
entered into in accordance with the provisions hereof and of the Indenture.

<PAGE>

     "Bond Counsel" means any legal counsel selected by the Company and
reasonably acceptable to the Issuer and the Trustee who shall be nationally
recognized as expert in matters pertaining to the validity of obligations of
governmental issuers and the exemption from federal income taxation of interest
on such obligations and experienced in the financing of pollution control
facilities.

     "Bond Year," when used with respect to a series of Bonds, shall have the
meaning given it in the Tax Compliance Certificate.

     "Bonds" means the Series 2004 Bonds and any Additional Bonds.

     "Code" means the Internal Revenue Code of 1986, as amended, and, when
appropriate, any statutory predecessor or successor thereto, and all applicable
regulations thereunder and any applicable official rulings, announcements,
notices, procedures and judicial determinations relating to the foregoing.

     "Company" means ALLETE, Inc., a Minnesota corporation, its successors and
assigns, and any surviving, resulting or transferee corporation that may assume
its obligations in accordance with Section 6.01 hereof.

     "Company Representative" means the President, any Vice President or the
Treasurer of the Company and such other person or persons at the time designated
to act on behalf of the Company in matters relating to this Agreement and the
Indenture as evidenced by a written certificate furnished to the Issuer and the
Trustee containing the specimen signature of such person or persons and signed
on behalf of the Company by its President, any Vice President or its Treasurer.
Such certificate may designate an alternate or alternates each of whom shall be
entitled to perform all duties of the Company Representative.

     "Counsel" means an attorney designated by or acceptable to the Trustee,
duly admitted to practice law before the highest court of any state; an attorney
for the Company or the Issuer may be eligible for appointment as Counsel.

     "Determination of Taxability," when used with respect to a series of Bonds,
means a final, nonappealable determination by the Internal Revenue Service or by
a court of competent jurisdiction in the United States that, as a result of
failure by the Company to observe or perform any covenant, condition or
agreement on its part to be observed or performed under this Agreement or as a
result of the inaccuracy of any representation or agreement made by the Company
under this Agreement, the interest payable on Bonds of the series is includable
for federal income tax purposes in the gross income of the owners thereof (other
than an owner who is a "substantial user" of the projects refinanced thereby or
a "related person" thereto within the meaning of Section 103(b)(13) of the 1954
Code), which final determination follows proceedings of which the Company has
been given written notice and in which the Company, at its sole expense and to
the extent deemed sufficient by the Company, has been given an opportunity to
participate, either directly or in the name of the owners of Bonds of the
series.

     "Facilities" means the facilities refinanced, in whole or in part, with the
proceeds of the Refunded Bonds, which are described generally in Exhibit A to
this Agreement.

                                      -2-

<PAGE>

     "First Mortgage" means the Mortgage and Deed of Trust, dated as of
September 1, 1945, from the Company to The Bank of New York and Douglas J.
MacInnes (successors to Irving Trust Company and Richard H. West), as trustees,
as heretofore and hereafter amended and supplemented.

     "First Mortgage Bonds" means the bonds issued and delivered under the First
Mortgage as required by Section 3.02 hereof.

     "First Mortgage Trustee" means the corporate trustee under the First
Mortgage, its successors in trust and their assigns.

     "Indenture" means the Indenture of Trust, dated as of the date hereof,
between the Issuer and the Trustee, and any and all modifications, alterations,
amendments and supplements thereto entered into from time to time in accordance
with the provisions thereof.

     "Issuer" means the City of Cohasset, Minnesota (the successor in interest
to the City of Bass Brook, Minnesota), and any successors to its functions
hereunder.

     "Issuer Representative" means the Mayor of the Issuer, and such other
person or persons at the time designated to act on behalf of the Issuer in
matters relating to the Indenture and the Loan Agreement as evidenced by a
written certificate furnished to the Trustee containing the specimen signature
of such person or persons and signed on behalf of the Issuer by its Mayor. Such
certificate may designate an alternate or alternates, each of whom shall be
entitled to perform all duties of the Issuer Representative.

     "1954 Code" means the Internal Revenue Code of 1954, as amended, and, when
appropriate, any statutory predecessor thereto, and all applicable regulations
thereunder and any applicable official rulings, announcements, notices,
procedures and judicial determinations relating to the foregoing.

     "Original Purchasers" means, with respect to the Series 2004 Bonds, UBS
Financial Services Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

     "Outstanding" means with respect to Bonds, as of the date of determination,
all Bonds theretofore authenticated and delivered under the Indenture, except:

          (a) Bonds theretofore cancelled by the Trustee or delivered to the
     Trustee for cancellation as provided in Section 209 of the Indenture;

          (b) Bonds for whose payment or redemption money or Defeasance
     Obligations in the necessary amount have been deposited with the Trustee or
     any Paying Agent in trust for the owners of such Bonds as provided in
     Section 501 of the Indenture, provided that, if such Bonds are to be
     redeemed, notice of such redemption has been duly given pursuant to the
     Indenture or provision therefor satisfactory to the Trustee has been made;

          (c) Bonds in exchange for or in lieu of which other Bonds have been
     authenticated and delivered under the Indenture; and

                                      -3-

<PAGE>

          (d) Bonds alleged to have been destroyed, lost or stolen which have
     been paid as provided in Section 208 of the Indenture;

provided, however, that, in determining whether the Owners of the requisite
principal amount of Outstanding Bonds have given any request, demand,
authorization, direction, notice, consent or waiver under this Agreement, Bonds
owned by the Issuer or by the Company or any Related Party thereto or Affiliate
thereof shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only Bonds
which the Trustee knows to be so owned shall be disregarded.

     "Owner" means, in respect of a Bond, the Person or Persons in whose name
the Bond is registered on the bond registration books maintained by the Trustee
pursuant to Section 206 of the Indenture.

     "Person" means any natural person, firm, association, corporation,
partnership, limited liability company, limited liability partnership, joint
stock company, joint venture, trust, unincorporated organization or firm, or a
government or any agency or political subdivision thereof or other public body.

     "Plant" means the Clay Boswell steam electric generating station located in
the City of Cohasset, Minnesota, and owned in part by the Company.

     "Prior Pollution Control Bonds" means the Collateralized Pollution Control
Revenue Bonds, Series 1978 Series A (Minnesota Power & Light Company Project)
issued by the Town of Bass Brook (the predecessor political subdivision of the
City of Bass Brook, Minnesota, which, in turn, is the predecessor in interest to
the Issuer) in the aggregate principal amount of $111,000,000.

     "Redemption Date" means August 23, 2004.

     "Rebate Amount" has the meaning given such term in Section 6.05(b)(1)
hereof.

     "Refinanced Pollution Control Facilities" means the real and personal
properties which comprise the facilities refinanced with proceeds of the Series
2004 Bonds as further described in Exhibit A hereto.

     "Refunded Bonds" means the 6% Collateralized Pollution Control Refunding
Revenue Bonds (Minnesota Power & Light Company Project), Series 1992 issued by
the City of Bass Brook, Minnesota (the predecessor in interest to the Issuer) in
the original principal amount of $111,000,000.

     "Series 2004 Bonds" means any bond or bonds of the series of Collateralized
Pollution Control Refunding Revenue Bonds (ALLETE, Inc. Project), Series 2004,
aggregating the principal amount of $111,000,000, to be issued, authenticated
and delivered under and pursuant to the Indenture.

                                      -4-

<PAGE>

     "Spin-off" means the distribution by the Company to its shareholders of all
or any portion of its shares of common stock of ADESA, Inc.

     "State" means the State of Minnesota.

     "Tax Certificate" means the Tax Certificate, dated August 19, 2004 of the
Company.

     "Tax Compliance Certificate" means the Tax Compliance Certificate dated
August 19, 2004 of the Company.

     "Trustee" means U.S. Bank National Association, a national banking
association organized under the laws of the United States, and its successors in
trust and assigns under the Indenture.

     In addition to the foregoing definitions, any terms not defined herein but
defined in the Indenture (including, without limitation, in Section 101 thereof)
shall have the meanings herein unless the context clearly requires otherwise.

     Section 1.02. REFERENCES. All references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Agreement as originally executed. The
words "herein," "hereof," and "hereunder," and other words of similar import,
refer to this Agreement as a whole and not to any particular Article, Section or
other subdivision unless the context clearly indicates otherwise. The Article
and Section headings herein and in the Table of Contents are for convenience
only and shall not affect the construction hereof. Unless the context hereof
clearly requires otherwise, the masculine shall include the feminine and vice
versa and the singular shall include the plural and vice versa.

     Section 1.03. CERTIFICATES AND OPINIONS. Any certificate or opinion of an
officer of the Company may be based, insofar as it relates to legal matters,
upon a certificate or opinion of, or representations by, Counsel or Bond
Counsel. Any opinion of Counsel or Bond Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company stating that the information with
respect to such factual matters is in the possession of the Company.

     Wherever in this Agreement, in connection with any request, certificate or
report to the Issuer or the Trustee, it is provided that the Company shall
deliver any document as a condition of the granting of such request, or as
evidence of the Company's compliance with any term hereof, it is intended that
the truth and accuracy at the time of the granting of such request or at the
effective date of such certificate or report, as the case may be, of the facts
and opinions stated in such document shall in each case be conditions precedent
to the right of the Company to have such request granted or to the sufficiency
of such certificate or report.

     Section 1.04. NOTICES, ETC. TO TRUSTEE, ISSUER AND COMPANY. Any request,
demand, authorization, direction, notice, consent, waiver or other document
provided or permitted by this Agreement shall be sufficient for every purpose
hereunder if in writing and mailed by certified mail, postage prepaid, or
delivered by an express or overnight delivery service (with a copy to

                                      -5-

<PAGE>

the other persons listed below), at the following addresses (or such other
address as may be provided by any such person by notice):

     To the Issuer:                     City of Cohasset
                                        305 Northwest 1st Avenue
                                        Cohasset, Minnesota  55721-9698
                                        Attn:  City Clerk-Treasurer

     To the Company:                    ALLETE, Inc.
                                        30 West Superior Street
                                        Duluth, Minnesota  55802
                                        Attn:  Chief Financial Officer

     To the Trustee:                    U.S. Bank National Association
                                        Mail code EP-MN-WS3C
                                        60 Livingston Avenue
                                        St. Paul, Minnesota 55107
                                        Attention:  Corporate Trust

     To the First Mortgage Trustee:     The Bank of New York
                                        101 Barclay Street
                                        New York, New York 10286
                                        Attention: Corporate Trust

     Section 1.05. SUCCESSORS AND ASSIGNs. All covenants and agreements in this
Agreement by the Issuer or the Company shall bind their successors and assigns,
whether so expressed or not.

     Section 1.06. SEPARABILITY CLAUSE. In case any provision in this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

     Section 1.07. EXECUTION COUNTERPARTS. This Agreement may be executed in any
number of counterparts. All such counterparts shall be deemed to be originals
and shall together constitute one and the same instrument.

     Section 1.08. CONSTRUCTION. This Agreement shall be construed in accordance
with the laws of the State without giving effect to the conflicts-of-law
principles thereof.

     Section 1.09. BENEFIT OF AGREEMENT. Nothing in this Agreement, express or
implied, shall give to any Person, other than the parties hereto and the
Trustee, and their successors and assigns hereunder, any benefit or other legal
or equitable right, remedy or claim under this Agreement.

     Section 1.10. LIMITATION OF LIABILITY. This Agreement is entered into by
the Issuer pursuant to the Act, and, notwithstanding any provisions hereof, the
Issuer's obligations hereunder are subject in all respects to the limitations of
the Act. No agreements or provisions contained in this Agreement nor any
agreement, covenant or undertaking by the Issuer contained

                                      -6-

<PAGE>

in any document executed by the Issuer in connection with the Facilities shall
give rise to any pecuniary liability of the Issuer or a charge against
their general credit or taxing powers, or shall obligate the Issuer financially
in any way except with respect to the application of revenues hereunder and the
proceeds of the Bonds. No failure of the Issuer to comply with any term,
condition, covenant or agreement herein shall subject the Issuer to liability
for any claim for damages, costs or other financial or pecuniary charge except
to the extent that the same can be paid or recovered from the revenues hereunder
or proceeds of the Bonds; and no execution on any claim, demand, cause of action
or judgment shall be levied upon or collected from the general credit, general
funds or taxing powers of the Issuer. Nothing herein shall preclude a proper
party in interest from seeking and obtaining specific performance against the
Issuer for any failure to comply with any term, condition, covenant or agreement
herein; provided that no costs, expenses or other monetary relief shall be
recoverable from the Issuer except as may be payable from the revenues
hereunder.

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

     Section 2.01. REPRESENTATIONS OF THE ISSUER. The Issuer makes the following
representations as the basis for the undertakings on the part of the Company
herein contained:

          (a) The Issuer is a municipal corporation duly organized and validly
     existing under the Constitution and laws of the State.

          (b) In authorizing the issuance of the Bonds to refund the Refunded
     Bonds the Issuer's purpose is, and in its judgment the effect thereof will
     be, to promote the public welfare by: the retention, encouragement and
     development of economically sound industry and commerce so as to prevent
     the emergence of or rehabilitate, so far as possible, blighted and marginal
     lands and areas of chronic unemployment; the development of industry to use
     the available resources of the community, in order to retain the benefit of
     the community's existing investment in educational and public service
     facilities; and halting the movement of talented, educated personnel of
     mature age to other areas and thus preserving the economic and human
     resources needed as a base for providing governmental services and
     facilities.

          (c) The refunding of the Refunded Bonds, the issuance and sale of the
     Bonds, the execution and delivery of this Agreement and the Indenture, and
     the performance of all covenants and agreements of the Issuer contained in
     this Agreement and the Indenture, and of all other acts and things required
     under the Constitution and laws of the State to make this Agreement and the
     Indenture valid and binding special, limited obligations of the Issuer in
     accordance with their terms, are authorized by the Act and have been duly
     authorized by resolutions of the governing body of the Issuer adopted at
     meetings thereof duly called and held by the affirmative vote of not less
     than a majority of its members.

          (d) To refund the Refunded Bonds, and in anticipation of the
     collection of the payments to be made by the Company pursuant to the First
     Mortgage Bonds and this Agreement, the Issuer has duly authorized the
     Series 2004 Bonds in the aggregate

                                      -7-

<PAGE>

     principal amount of $111,000,000, to be issued upon the terms set forth in
     the Indenture, under the provisions of which certain of the Issuer's
     interests in this Agreement and the payments due hereunder are, as provided
     by the Act, pledged and a security interest therein granted to the Trustee
     as security for the payment of the principal of, premium, if any, and
     interest on the Bonds.

          (e) The execution and delivery of this Agreement and the other
     agreements contemplated hereby to which the Issuer is a party, including
     without limitation the Indenture, and the consummation of the transactions
     contemplated hereby and thereby, and the fulfillment of the terms hereof
     and thereof, do not and will not conflict with, or constitute on the part
     of the Issuer a breach of or a default under, any existing (i) law, or (ii)
     other legislative act, constitution or other proceeding establishing or
     relating to the establishment of the Issuer or its affairs or its
     resolutions, or (iii) agreement, indenture, mortgage, lease or other
     instrument to which the Issuer is subject or is a party or by which it is
     bound.

          (f) No officer of the Issuer who is authorized to take part in any
     manner in making this Agreement or the Indenture or any contract
     contemplated hereby or thereby has a personal financial interest in or has
     personally and financially benefited from this Agreement or the Indenture
     or any such contract.

          (g) There is not pending or, to the best knowledge of the Issuer,
     threatened any suit, action or proceeding against or affecting the Issuer
     before or by any court, arbitrator, administrative agency or other
     governmental authority which materially and adversely affects the validity,
     as to the Issuer, of this Agreement or the Indenture, any of its
     obligations hereunder or thereunder or any of the transactions contemplated
     hereby or thereby.

     Section 2.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
makes the following representations and warranties as the basis for the
undertakings on the part of the Issuer herein contained:

          (a) The Company is a corporation duly incorporated and in good
     standing under the laws of, and qualified to do business in, the State.

          (b) The Company has the power to enter into this Agreement and to
     perform and observe the agreements and covenants on its part contained
     herein, and by proper corporate action has duly authorized the execution
     and delivery hereof and thereof.

          (c) No consent, approval, authorization or other order of any
     regulatory body or administrative agency or other governmental body is
     legally required for the Company's participation in the transactions
     contemplated by this Agreement and the First Mortgage, except such as (i)
     have been obtained or (ii) may be required under state securities laws.

          (d) The execution and delivery of this Agreement by the Company do
     not, and consummation of the transactions contemplated hereby and thereby
     and fulfillment of the terms hereof and thereof, including, without
     limitation, the issuance and delivery of the

                                      -8-

<PAGE>

     First Mortgage Bonds, will not, result in a breach of any of the material
     terms or provisions of, or constitute a default under, any indenture,
     mortgage, deed of trust or other material agreement or instrument to which
     the Company is a party or by which it is now bound, or the Articles of
     Incorporation or Bylaws of the Company, or any present order, rule or
     regulation applicable to the Company of any court or of any regulatory body
     or administrative agency or other governmental body having jurisdiction
     over the Company or over any of its properties, or any statute of any
     jurisdiction applicable to the Company.

          (e) There is not pending or, to the best knowledge of the Company,
     threatened any suit, action or proceeding against or affecting the Company
     before or by any court, arbitrator, administrative agency or other
     governmental authority that materially and adversely affects the validity,
     as to the Company, of any of the transactions contemplated by this
     Agreement or the ability of the Company to perform its obligations
     hereunder or as contemplated hereby.

          (f) The Company does not rely on any warranty of the Issuer, either
     express or implied, as to the Facilities or the refunding of the Refunded
     Bonds or the adequacy of the loan made hereby for such refunding, and
     recognizes that, under the Act, the Issuer is not authorized to operate the
     Facilities or to expend any funds thereon, other than the revenues received
     by it therefrom or the proceeds of the Bonds, or other funds granted to it
     for purposes contemplated in the Act.

          (g) The proceeds of the Series 2004 Bonds to be deposited in the
     Redemption Fund in accordance with Section 403 of the Indenture will be
     used to redeem the Refunded Bonds on the Redemption Date.

          (h) The First Mortgage has been duly authorized by appropriate
     corporate proceedings on the part of the Company, has been duly executed
     and delivered and constitutes a legal, valid and binding instrument
     enforceable in accordance with its terms, except as the same may be limited
     by the laws of the states where property covered thereby is located
     affecting the remedies for the enforcement of the security provided for in
     the First Mortgage (which laws do not make such remedies inadequate for
     realization of the benefits of such security) or except as the same may be
     limited by bankruptcy, insolvency or similar laws; and the First Mortgage
     constitutes a valid mortgage effective to create a lien for the security of
     the First Mortgage Bonds upon the property now owned by the Company therein
     specifically described as subject to the lien thereof, except as otherwise
     provided therein with respect to specific property or classes of property.

          (i) The First Mortgage Bonds will be duly authorized by the Company,
     will constitute legal, valid and binding obligations of the Company, will
     be secured by and entitled to the benefits of the First Mortgage equally
     and ratably, subject to the provisions of the First Mortgage relating to
     any sinking fund or similar fund for the benefit of the bonds of any
     particular series thereof, with all other bonds of the Company duly issued
     and outstanding under the First Mortgage, and (subject to the qualification
     expressed in the paragraph above with respect to the enforceability of
     certain of the remedial provisions of the First Mortgage) are enforceable
     in accordance with their terms.

                                      -9-

<PAGE>

          (j) Each element or unit of the Facilities, as described in Exhibit A
     hereto, was designed to meet applicable federal, state and local
     requirements for the control of air and water pollution in effect at the
     time of issuance of the respective Prior Pollution Control Bonds, and the
     Facilities are being used to abate or control air or water pollution.

          (k) The information and estimates heretofore furnished to the Issuer
     and Bond Counsel by the Company with respect to the nature and use of the
     Facilities and the expenditure of the proceeds of the Refunded Bonds and
     the Prior Pollution Control Bonds are true and correct and do not omit any
     statement, the omission of which would render any of the statements made
     therein misleading in the circumstances in which they are made.

          (l) The facilities comprising the Facilities are used to abate or
     control water or atmospheric pollution or contamination by removing,
     altering, disposing or storing pollutants, contaminants, wastes or heat.
     Such facilities are designed for no significant purpose other than the
     control of pollution and the expenditures with respect thereto would not
     have been made but for the purpose of controlling pollution. The Minnesota
     Pollution Control Agency, which is the agency exercising jurisdiction, has
     certified that the Facilities, as designed, are in furtherance of the
     purpose of abating or controlling air or water pollution.

          (m) At least 90% of the proceeds of the Prior Pollution Control Bonds,
     including any investment earnings thereon, has been used for the payment of
     costs of air or water pollution control facilities within the meaning of
     Section 103(b)(4)(F) of the 1954 Code.

          (n) At least 90% of the proceeds of the Prior Pollution Control Bonds,
     including any investment earnings thereon, has been used to provide either
     land or property of a character subject to the allowance for depreciation
     under Section 167 of the Code and all amounts paid from the proceeds of the
     Prior Pollution Control Bonds were, for federal income tax purposes,
     chargeable to the capital account of the Company with respect to the
     Facilities or would have been so chargeable either with a proper election
     by the Company (for example, under Section 266 of the Code) or but for a
     proper election by the Company to deduct such amounts.

          (o) The average maturity of the Series 2004 Bonds does not exceed 120%
     of the average reasonably expected economic life of the Facilities
     determined as of the date of issuance of the Series 2004 Bonds (all within
     the meaning of Section 147(b) of the Code).

          (p) None of the proceeds of the Prior Pollution Control Bonds, the
     Refunded Bonds or the Series 2004 Bonds has been or will be used to provide
     any private or commercial golf course, country club, massage parlor, tennis
     club, skating facility (including roller skating, skate board and ice
     skating), racquet sports facility (including any handball or racquetball
     court), hot tub facility, suntan facility or racetrack, airplane, skybox or
     other private luxury box, health club facility, store the principal
     business of which is the sale of alcoholic beverages for consumption off
     premises or facility the

                                      -10-

<PAGE>

     primary purpose of which is one of the following: retail food and beverage
     services, automobile sales or service, or the provision of recreation or
     entertainment.

          (q) No obligations which are private activity bonds under Section 141
     of the Code but bear interest which is excludable from gross income for
     purposes of federal income taxation, are sold at substantially the same
     time as the Series 2004 Bonds pursuant to the same plan of marketing which
     are payable in whole or in part by the Company or otherwise have with the
     Series 2004 Bonds any common or pooled security for the payment of debt
     service thereon.

          (r) None of the proceeds of the Prior Pollution Control Bonds or the
     Refunded Bonds has been or will be used (directly or indirectly) to acquire
     land (or an interest therein) and none of the proceeds of the Prior
     Pollution Control Bonds or the Refunded Bonds has been or will be used for
     the acquisition of any property (or an interest therein) unless the first
     use of such property was pursuant to such acquisition.

          (s) The Refinanced Pollution Control Facilities do not include any
     property to be sold or any property to be affixed to or consumed in the
     production of property for sale, or any housing facility to be rented or
     used as a permanent residence.

          (t) No proceeds of the Prior Pollution Control Bonds have been or will
     be used to finance any building or structure that is used primarily for the
     self storage of goods, wares or merchandise for compensation.

          (u) The Facilities have been acquired, constructed and installed, and
     (except as described in clause (w) below) have been and will be used, by
     the Company for use in the Company's trade or business or for the
     production of income, within the meaning of Section 167 of the Code, and
     not for the purpose of resale.

          (v) Except as described in clause (w) below, the Company was, and
     always has been, the only "principal user" of the Facilities within the
     meaning of Section 144(a)(3) of the Code and Section 103(b) of the 1954
     Code.

          (w) In September 1990, the Company sold an undivided 20% interest in
     Unit 4 of the Plant (including an undivided 20% interest in that portion of
     the Facilities associated with Unit 4) to Wisconsin Public Power, Inc.
     ("WPPI") and entered into various agreements with WPPI relating to the
     joint ownership, operation and maintenance of Unit 4. (The proceeds of such
     sale became general corporate funds of the Company and have not been
     pledged, nor are they available, to pay debt service on the Prior Pollution
     Control Bonds or the Refunded Bonds.)

                                      -11-

<PAGE>

                                  ARTICLE III

                                    THE LOAN

     Section 3.01. AMOUNT AND SOURCE OF LOAN. The Issuer agrees to lend to the
Company, upon the terms and conditions herein specified, the proceeds received
by the Issuer from the sale of the Bonds, by causing such proceeds to be
transferred to the Trustee for disbursement in accordance with the Indenture.
For this purpose, the proceeds of the Bonds (and therefore the loan) shall be
deemed to include the underwriting discount, if any, or other amount by which
the amount received by or on behalf of the Issuer on the original sale of any
Bonds to the Original Purchasers is less than the principal amount of such
Bonds. The obligation of the Issuer to lend such proceeds shall be discharged,
and the obligation of the Company to repay the loan shall become effective, when
such proceeds are received by the Trustee from the Issuer or the Original
Purchasers thereof. The Company agrees that, pending the disbursement of the
proceeds of the Bonds as provided herein and in the Indenture, the Trustee shall
have a security interest in the proceeds of the Bonds.

     Section 3.02. CREATION, ISSUANCE, DELIVERY AND SURRENDER OF FIRST MORTGAGE
                   BONDS.

          (a) The obligation of the Company to repay the loan made to it by the
     Issuer pursuant to Section 3.01 hereof shall be evidenced by the First
     Mortgage Bonds. The Company will create, in respect of the Bonds, a series
     of First Mortgage Bonds (i) maturing on such date and in such principal
     amount that, upon the stated maturity date of the Bonds, an equal principal
     amount of First Mortgage Bonds shall mature, (ii) bearing interest at the
     same rate, payable at the same times, as the Bonds, and (iii) requiring the
     redemption of all or an equal principal amount thereof on each date on
     which the Bonds are required to be redeemed pursuant to Section 301(b) of
     the Indenture.

          (b) The Company shall receive a credit against its obligation to make
     any payment of the principal of or interest on the First Mortgage Bonds,
     whether at maturity, upon redemption or otherwise, in an amount equal to,
     and such obligation shall be fully or partially, as the case may be,
     satisfied and discharged to the extent of, the amount, if any, credited
     pursuant to the Indenture against the payment required to be made by or for
     the account of the Issuer in respect of the corresponding payment of the
     principal of or interest on the Bonds.

          (c) The Issuer agrees with the Company that at the time any Bonds
     cease to be Outstanding (other than by reason of the applicability of
     clause (c) of the definition of Outstanding), the Trustee shall surrender
     to the First Mortgage Trustee a corresponding principal amount of First
     Mortgage Bonds.

          (d) The Issuer covenants that it will not sell, assign or transfer the
     First Mortgage Bonds, except to the extent provided in Section 3.03 hereof.
     In view of the assignment referred to in said Section 3.03, the Issuer
     agrees that (i) the First Mortgage Bonds shall be issued and delivered to,
     and registered in the name of, the Trustee; (ii) the Indenture shall
     provide that the Trustee shall not sell, assign or transfer the First
     Mortgage Bonds, except as required to effect transfer to any successor
     trustee under the

                                      -12-

<PAGE>

     Indenture; and (iii) the Company may take such actions as it shall deem to
     be desirable to effect compliance with such restrictions on transfer,
     including the placing of an appropriate legend on each First Mortgage Bond
     and the issuance of stop-transfer instructions to the First Mortgage
     Trustee or any other transfer agent under the First Mortgage.

          (e) In consideration of the issuance and sale by the Issuer of the
     Bonds and the application of the proceeds thereof as provided herein and in
     the Indenture, the Company agrees to pay to the Trustee for deposit into
     the Bond Fund, in addition to the payments required to be made on the First
     Mortgage Bonds, such supplemental amounts at such times as may be necessary
     in order to assure that payment of the principal of and premium, if any,
     and interest on the Bonds shall be made when due, at maturity, upon
     unconditional proceedings for redemption or otherwise.

          All payments required of the Company under this Section 3.02 shall be
     made directly to the Trustee at its principal corporate trust office, in
     funds immediately available to the Trustee, at or before 11:30 a.m., New
     York City time, on each date on which any principal, premium or interest is
     due on the Bonds, for the account of the Issuer, and shall be credited to
     the Bond Fund. In the event the Company should fail to make any of the
     payments required in this Section 3.02, the item so in default shall
     continue as an obligation of the Company until the amount in default shall
     have been fully paid, and the Company agrees to pay the same with interest
     thereon (including to the extent permitted by law interest on overdue
     installments of interest) at the rate borne by the Bonds as to which such
     default exists.

          (f) The Company agrees that, if an Event of Default described in
     Section 701(a) or (b) of the Indenture shall have occurred, in determining
     whether or not any payment of the principal of or interest on the First
     Mortgage Bonds shall have been made in full, moneys received by the Trustee
     from the Company shall, to the extent of the amount remaining to be paid by
     the Company pursuant to subsection (e) of this Section 3.02, be deemed to
     have been paid under said subsection (e) and not to have been paid on the
     First Mortgage Bonds.

     Section 3.03. PAYMENTS ASSIGNED; COMPANY'S OBLIGATIONS UNCONDITIONAL. It is
understood and agreed that all rights and interest of the Issuer under this
Agreement, except for the Issuer's rights under Sections 6.02, 6.03 and 8.05
hereof, including the right to delivery of the First Mortgage Bonds and the
payments to be made thereon, are to be pledged and a security interest therein
granted to the Trustee. The Company assents to such pledge and grant of a
security interest and agrees that the obligation of the Company to make the
payments on the First Mortgage Bonds and the other payments due hereunder shall
be absolute, irrevocable and unconditional and shall not be subject to any
defense (other than payment) or any right of set-off, counterclaim or recoupment
arising out of any breach by the Issuer or the Trustee or any other party under
this Agreement, the Indenture or otherwise, or out of any obligation or
liability at any time owing to the Company by the Issuer, the Trustee or any
other party, and, further, that the payments on the First Mortgage Bonds and
other payments due hereunder shall continue to be payable at the times and in
the amounts therein specified, whether or not the Facilities or the Plant, or
any portion thereof, shall have been destroyed by fire or other casualty, or
title thereto,

                                      -13-

<PAGE>

or the use thereof, shall have been taken by the exercise of the power of
eminent domain, and that there shall be no abatement of or diminution in any
such payments by reason thereof, whether or not the Facilities or the Plant
shall be used or useful and whether or not any applicable laws, regulations or
standards shall prevent or prohibit the use of the Facilities or the Plant, or
for any other reason. The Company will not suspend or discontinue any such
payments, will perform and observe all of its other agreements in this
Agreement, and, except as expressly permitted in this Agreement, will not
terminate this Agreement for any cause, including but not limited to any acts or
circumstances that may constitute failure of consideration, bankruptcy or
insolvency of the Issuer or the Trustee, change in the tax or other laws or
administrative rulings or actions of the United States of America or the State
or any political subdivision thereof, or failure of the Issuer to perform and
observe any agreement, whether express or implied, or any duty, liability or
obligation arising out of or connected with this Agreement or the Indenture.

     Section 3.04. PAYMENTS DUE ON NON-BUSINESS DAYS. In any case where a
payment to be made by the Company pursuant to this Agreement (including, but not
limited to, a loan payment pursuant to Section 3.02 hereof) shall be due on a
day that is not a Business Day, then such payment may be made on the next
succeeding Business Day with the same force and effect as if made on the due
date.

     Section 3.05. COMPANY'S REMEDIES. Nothing contained in this Article shall
be construed to release the Issuer from the performance of any of its agreements
in this Agreement, and, if the Issuer should fail to perform any such agreement,
the Company may institute such action against the Issuer as the Company may deem
necessary to compel the performance, so long as such action shall not violate
the Company's agreements in Section 3.03 hereof. The Company may at its own cost
and expense, and in its own name, prosecute or defend any action or proceeding
against third parties or take any other action which the Company deems
reasonably necessary in order to secure or protect its interest in the
Facilities and right of possession, occupancy and use thereof under this
Agreement. In this event, the Issuer agrees to cooperate fully with the Company
in any such action or proceeding if the Company shall so request and agree to
pay all expenses.

                                   ARTICLE IV

                                 THE FACILITIES

     Section 4.01. COMPLETION AND LOCATION OF THE FACILITIES. The Company has
caused the Facilities to be acquired, constructed and installed in accordance
with the plans and specifications therefor. Except as described in Section
2.02(w) hereof, the Facilities are owned and operated by the Company. Each of
the Facilities is located within the jurisdiction of the Issuer, and was, at the
time of the issuance of the Refunded Bonds, located within the jurisdiction of
the City of Bass, Minnesota.

     Section 4.02. MAINTENANCE OF FACILITIES; REMODELING. So long as any Bonds
are Outstanding, the Company shall cause the Facilities to be maintained,
preserved and kept in good repair, working order and condition and from time to
time cause to be made all necessary and proper repairs, replacements and
renewals; provided, however, that, subject to the general provisions of Section
6.05 hereof, the Company will have no obligation to cause to be

                                      -14-

<PAGE>

maintained, preserved, kept, repaired, replaced or renewed any element or unit
of the Facilities (a) the maintenance, preservation, keeping, repair,
replacement or renewal of which becomes uneconomic to the owners thereof because
of damage or destruction by a cause not within the control of such owners, or
obsolescence (including economic obsolescence) or change in governmental
standards and regulations, or the termination of the operation of the Plant, or
any portion thereof, to which such element or unit of the Facilities is an
adjunct, and (b) with respect to which the Company has furnished to the Issuer
and the Trustee a certificate executed by a Company Representative that the
maintenance, preservation, keeping, repair, replacement or renewal of such
element or unit of the Facilities is being discontinued for one of the foregoing
reasons, which shall be stated therein.

     The Company shall have the privilege, at its own expense, of causing any of
the Facilities to be remodeled or causing substitutions, modifications or
improvements to be made to the Facilities from time to time as it, in its
discretion, may deem to be desirable for its uses and purposes, which
remodeling, substitutions, modifications and improvements shall be included
under the terms of this Agreement as part of the Facilities.

     Section 4.03. INSURANCE. So long as any Bonds are Outstanding, the Company
agrees to maintain or cause to be maintained such fire, casualty, public
liability and other insurance with respect to the Facilities as is customarily
carried by electric utility companies with respect to similar facilities. All
proceeds of such insurance shall be for the account of the Company.

     Section 4.04. CONDEMNATION. As between the Issuer and the Company, the
Company shall be entitled to the entire proceeds of any condemnation award or
portion thereof made for damages to or takings of the Plant, the Facilities or
other property.

     Section 4.05. PAYMENT OF TAXES; DISCHARGE OF LIENS.  The Company will:

          (a) pay, or make provision for payment of, all lawful taxes and
     assessments, including income, profits, property or excise taxes, if any,
     or other municipal or governmental charges, levied or assessed by any
     federal, state or municipal government or political body upon the
     Facilities or upon any amounts payable pursuant to Section 3.02 hereof when
     the same shall become due; provided that the Company may in good faith
     contest any such tax or assessment in appropriate legal proceedings, and in
     such event may permit the items so contested to remain unpaid during the
     period of such contest and any appeal therefrom, unless the Issuer or the
     Trustee shall notify the Company in writing that, in the opinion of
     Counsel, by nonpayment of any such items the lien of the Indenture as to
     the amounts payable on the First Mortgage Bonds or pursuant to Section 3.02
     hereof will be materially endangered, in which event the Company shall
     promptly pay all such unpaid items; and

          (b) pay or cause to be satisfied and discharged or make adequate
     provision to satisfy and discharge, within 60 days after the same shall
     accrue, any lien or charge upon any amounts payable on the First Mortgage
     Bonds or pursuant to Section 3.02 hereof, and all lawful claims or demands
     which, if unpaid, might be or become a lien upon such amounts; provided
     that the Company may in good faith contest any such lien or charge or
     claims or demands in appropriate legal proceedings, and in such event may
     permit the

                                      -15-

<PAGE>

     items so contested to remain undischarged and unsatisfied during the period
     of such contest and any appeal therefrom, unless the Issuer or the Trustee
     shall notify the Company in writing that, in the opinion of Counsel, by
     nonpayment of any such items the lien of the Indenture as to the amounts
     payable on the First Mortgage Bonds or pursuant to Sections 3.02 hereof
     will be materially endangered, in which event the Company shall promptly
     pay and cause to be satisfied and discharged all such unpaid items.

     Section 4.06. USE OF FACILITIES. So long as any Series 2004 Bonds are
Outstanding, the Company will cause the Facilities to be used for the abatement
or control of air and water pollution or such other use as will not impair the
status of the interest on such Series 2004 Bonds as exempt from federal income
taxation.

     Section 4.07. ISSUER'S AND TRUSTEE'S ACCESS TO FACILITIES. The Company
agrees that the Issuer and Trustee shall have the right, upon appropriate prior
notice to the Company, to have reasonable access to the Plant and Facilities
during normal business hours for the purpose of making examinations and
inspections of the same.

                                   ARTICLE V

                               REDEMPTION OF BONDS

     Section 5.01. PREPAYMENT OF LOAN. The Company may at any time transmit
funds directly to the Trustee, for deposit in the Bond Fund, in addition to
amounts, if any, otherwise required at that time pursuant to this Agreement, and
direct that said money be utilized by the Trustee for redemption of Bonds which
are then or will be redeemable in accordance with their terms on a date
specified by the Company, provided notice is properly given in accordance with
Section 302 of the Indenture.

     Section 5.02. OPTION TO PREPAY LOAN AND TO DIRECT REDEMPTION OF BONDS. The
Company shall have the option to prepay the loan in whole or in part upon the
conditions set forth for redemption of the Bonds under Section 301(b) of the
Indenture. In any such case, the Company shall, to exercise its option
hereunder, notify the Issuer and Trustee in writing within 180 days following
occurrence of the event permitting such redemption, designating a redemption
date, and, prior to said redemption date, deposit with the Trustee a sum
sufficient, with other funds held by the Trustee and available for such purpose,
to redeem such Bonds then Outstanding.

     Section 5.03. OBLIGATION TO PREPAY LOAN AND REDEEM BONDS UPON CERTAIN
EVENTS. The Company shall be obligated to repay the loan from the proceeds of
the Series 2004 Bonds (in whole or in part, based upon the portion of the Series
2004 Bonds required to be redeemed), to the extent Series 2004 Bonds are
required to be redeemed in accordance with Section 301(c) of the Indenture.

     The prepayment of the loan required by the preceding paragraph, which shall
be deposited on or prior to the redemption date, shall be a sum sufficient,
together with other funds deposited with the Trustee and available for such
purpose, to redeem all of the Series 2004 Bonds to be redeemed at a price equal
to 100% of the principal amount thereof plus accrued

                                      -16-

<PAGE>

interest to the date of redemption, and, if no Bonds shall thereafter remain
outstanding, to pay all reasonable and necessary fees and expenses of the
Trustee and any Paying Agent, and all other liabilities of the Company, accrued
and to accrue under this Agreement through the redemption date.

     Section 5.04. OPTION TO REFINANCE BONDS WITHOUT PREPAYMENT OF LOAN. The
Bonds of one or more series may be refinanced through the issuance of Additional
Bonds. The proceeds of such Additional Bonds shall be used, together with other
funds on deposit with the Trustee available for such purpose, to redeem the
Bonds to be refinanced. On or before such redemption date, the Company shall
deliver to the Trustee amended First Mortgage Bonds meeting the requirements of
Section 3.02(a) with respect to the Additional Bonds, such amended First
Mortgage Bonds to be substituted for the First Mortgage Bonds then held by the
Trustee. Upon the receipt by the Trustee of the amended First Mortgage Bonds and
funds sufficient to redeem the outstanding Bonds, the Issuer agrees that the
Trustee shall surrender to the First Mortgage Trustee the First Mortgage Bonds
corresponding to the Bonds to be redeemed. In the event of such refinancing and
substitution of amended First Mortgage Bonds in exchange for First Mortgage
Bonds of an equal principal amount, the loan shall not be deemed to have been
paid or prepaid and no new loan shall be deemed to have been made by the Issuer
to the Company. The interest rate and other terms of the Additional Bonds and
the amended First Mortgage Bonds need not be the same as those of the Bonds and
the First Mortgage Bonds to be amended. This Agreement shall be amended to
reflect the issuance of, and to amend the terms of the loan to conform to the
terms of, any such Additional Bonds.

                                   ARTICLE VI

                        SPECIAL COVENANTS OF THE COMPANY

     Section 6.01. MAINTENANCE OF CORPORATE EXISTENCE. Except as otherwise
permitted in the First Mortgage, the Company covenants that it will maintain its
corporate existence and qualification to do business in the State, will not
dissolve or otherwise dispose of all or substantially all its assets and will
not consolidate with or merge into or with another corporation or permit one or
more other corporations to consolidate with or merge into it; provided that, for
the avoidance of doubt, the Spin-off shall not constitute an act by the Company
to dissolve or otherwise dispose of all or substantially all of its assets. In
the event of any such acquisition of its assets, or merger or consolidation, as
permitted by the First Mortgage, the acquirer of its assets or the corporation
with which it shall consolidate or into which it shall merge shall assume in
writing all of the obligations of the Company under this Agreement.

     Section 6.02. ANNUAL STATEMENT. The Company will have an annual audit made
by its regular independent certified public accountants and will furnish the
Issuer and the Trustee (within 120 days after the close of the Company's fiscal
year) with the Company's annual report to shareholders for the year then ended
and the Trustee with a written statement at the same time as its annual report
signed by a Company Representative and stating that the Company is not in
default under the terms of this Agreement, or, if in default, specifying the
nature thereof.

     Section 6.03. INDEMNIFICATION. The Company releases the Issuer, and the
Trustee from, agrees that the Issuer, and the Trustee shall not be liable for,
and agrees to indemnify and hold

                                      -17-

<PAGE>

the Issuer, and the Trustee harmless from, any liability for any loss or damage
to property or any injury to or death of any person that may be occasioned by
any cause whatsoever pertaining to the Plant or the Facilities.

     The Company will indemnify and hold the Issuer and the Trustee free and
harmless from any loss, claim, damage, tax, penalty, liability, disbursement,
litigation expenses, attorneys' fees and expenses or court costs arising out of,
or in any way relating to, the execution or performance of this Agreement, the
issuance or sale of the Bonds, actions taken under the Indenture or any other
cause whatsoever pertaining to the Plant or the Facilities, except as my arise
though the willful misconduct or negligence of the Issuer or the Trustee, as the
case may be.

     Under this Section 6.03, the Company shall also be deemed to release,
indemnify and agree to hold harmless each employee, official, officer or agent
of the Issuer to the same extent as the Issuer.

     If any claim of the type described in this Section 6.03 is asserted against
the Issuer, or the Trustee or any employee, official, officer or agent of any
thereof, the Issuer or the Trustee, as the case may be, agrees to give prompt
written notice to the Company and the Company shall have authority to assume the
defense thereof, with full power to litigate, compromise or settle the same in
its sole discretion; it being understood that the Issuer and the Trustee will
not settle or consent to the settlement of the same without the consent of the
Company.

     The covenants in this Section 6.03 shall survive the payment of the Bonds,
termination of the other provisions of this Agreement and the discharge of the
other obligations of the Company hereunder.

     Section 6.04. ADDITIONAL PAYMENTS. In addition to any other payments
required hereunder, the Company will pay the following amounts to the following
persons:

          (1) to the Trustee, when due, all reasonable fees and expenses of the
     Trustee for services rendered under the Indenture and all reasonable fees
     and expenses of the Paying Agents, counsel, accountants, engineers and
     others incurred in the performance on request of the Trustee of services
     under the Indenture (including, without limitation, Section 6.08 thereof)
     for which the Trustee and such other Persons are entitled to payment or
     reimbursement, but the Company may, without creating a default hereunder,
     contest in good faith the reasonableness of any such services, fees or
     expenses other than the Trustee's and any Paying Agent's fees for ordinary
     services as set forth in the Indenture; and

          (2) to the Issuer, all reasonable and necessary expenses incurred by
     the Issuer, with the prior written approval of the Company, with respect to
     this Agreement, the Indenture and any transaction or event contemplated by
     this Agreement or by the Indenture and which are not otherwise required to
     be paid by the Company under the terms of this Agreement.

     In the event the Company should fail to make any of the payments required
by this Section 6.04, the item in default shall continue as an obligation of the
Company until the amount

                                      -18-

<PAGE>

in default shall have been fully paid, and the Company will pay the same with
interest thereon at a rate per annum equal to one percent above the prime or
reference rate from time to time publicly announced by and in effect for the
largest commercial bank, as measured by assets, in the Ninth Federal Reserve
District (with each change in such prime or reference rate resulting in a
corresponding change in the rate to be paid hereunder), or, if such rate or
rates shall exceed the maximum rate then permitted by law, at the maximum rate
permitted by law; provided that, with the exception of the Trustee's and any
Paying Agent's fees, interest shall not accrue on such obligation until written
notice has been given to the Company that such payment is past due.

     Section 6.05. ASSURANCE OF TAX EXEMPTION. (a) It is the intention of the
Company and the Issuer that the interest on the Bonds be excludable from the
gross income of the holders thereof for federal income tax purposes pursuant to
Section 103 of the Code (including, where applicable, Section 103 of the 1954
Code), except for any Bond held by a Person referred to in Section 103(b)(13) of
the 1954 Code. To that end, the Company represents, covenants and agrees with
the Issuer, the Trustee and all Owners of the Bonds that (a) it will not permit
the use of any proceeds of the Bonds or fail to use or cause to be used such
proceeds or take any other action or omit to take any action, which use,
failure, act or omission will cause the loss of such exclusion, and (b) it will
file with the Internal Revenue Service, or any other authorized governmental
agency, any and all statements or other instruments, if any, required under the
Code with respect to obligations the interest on which is excludable from the
gross income of the owners thereof for federal income tax purposes pursuant to
Section 103 of the Code (including, where applicable, Section 103 of the 1954
Code). Furthermore, the Company represents, covenants and agrees as follows:

          (1) The Company will not use the proceeds of the Bonds or any other
     moneys in such a manner as to cause the Bonds to be "arbitrage bonds"
     within the meaning of Section 148 of the Code.

          (2) The Company will not take any action, or permit any action (which
     is within its control) to be taken, which would otherwise cause the
     interest on the Bonds to become includable in gross income for purposes of
     federal income taxation in the hands of the owners thereof (other than by
     operation of Section 103(b)(13) of the 1954 Code).

          (3) The Company will not lease, sell, assign, grant or convey all or
     any portion of the Facilities or any interest therein to the United States
     of America or any agency or instrumentality thereof within the meaning of
     Section 149(b) of the Code or Section 103(h) of the 1954 Code, unless first
     obtaining an opinion of Bond Counsel that any such lease, sale, assignment,
     grant or conveyance will not adversely affect the excludability from gross
     income of interest on the Series 2004 Bonds for purposes of federal income
     taxation.

          (4) The Company will comply with any restrictions on the investment of
     moneys set forth in the Tax Compliance Certificate in respect of the Series
     2004 Bonds.

          (5) The Company will take such action, or refrain from taking such
     action, as shall be necessary to assure that all proceeds of the Prior
     Pollution Control Bonds, the Refunded Bonds and the Series 2004 Bonds and
     the facilities directly or indirectly

                                      -19-

<PAGE>

     financed or refinanced with such proceeds have been and will be used in
     such manner that the Prior Pollution Control Bonds, the Refunded Bonds and
     the Series 2004 Bonds are obligations described in Section 103(b)(4)(F) of
     the 1954 Code and, in the case of the Refunded Bonds and the Series 2004
     Bonds, Section 1313 of the Tax Reform Act of 1986.

          (6) no action, nor permit any action to be taken, which would render
     inaccurate or incorrect any of the representations or warranties made in
     this Section 6.05(a) or Section 2.02 hereof or any of the representations
     or certifications otherwise given by or on behalf of the Company in
     connection with the issuance of the Prior Pollution Control Bonds, the
     Refunded Bonds or the Series 2004 Bonds.

          (7) The Company will comply with and fulfill all other requirements
     and conditions of the Code and the 1954 Code relating to the Refinanced
     Pollution Control Facilities and the operation thereof to the end that the
     interest on the Series 2004 Bonds shall at all times be excludable from
     gross income for purposes of federal income taxation in the hands of the
     owners thereof (other than by operation of Section 103(b)(13) of the 1954
     Code).

          (8) No changes shall be made in the Facilities which shall in any way
     impair the exemption of interest on any of the Series 2004 Bonds from
     federal income taxation. The Company has no current intention to use any
     part of the Facilities after the Series 2004 Bonds are discharged for a use
     that is not permitted under Section 103(b) of the 1954 Code for facilities
     financed by municipal obligations, the interest on which is exempt from
     federal income taxation.

          (9) None of the proceeds of the Series 2004 Bonds will be used to pay
     "issuance costs" of the Bonds within the meaning of Section 147(g) of the
     Code.

     (b) The Issuer and the Company covenant and certify to each other and to
and for the benefit of the Owners of the Bonds that no use will be made of the
proceeds of the Bonds or any other moneys, and no disposition will be made of
the Facilities, which would cause any Bonds to be arbitrage bonds within the
meaning of Section 148 of the Code. Pursuant to such covenant, the Issuer and
the Company jointly and severally obligate themselves to comply throughout the
term of the issue of the Bonds with the requirements of Section 148 of the Code.

     The Company recognizes that the exemption from federal income taxation of
the interest to be paid on the Bonds is dependent upon compliance with the
provisions of Section 148 of the Code. The Company represents to and covenants
with the Issuer, the Trustee and each Owner of Bonds that:

          (1) If all "gross proceeds" (as defined in Section 148(f)(6)(B) of the
     Code) of the Series 2004 Bonds are not expended for the payment of
     principal of and interest on Refunded Bonds by the date which is 90 days
     after the date of issue of the Bonds of such series, or if, notwithstanding
     that all gross proceeds are so expended by such date, gross proceeds arise
     at some later date, then the Company shall make the determinations and take
     the actions hereinafter required by this Section 6.05(b), on behalf of, and
     as agent

                                      -20-

<PAGE>

     for, the Issuer, and shall rebate to the United States, not later than 60
     days after each installment computation date, an amount which ensures that
     at least 90% of the Rebate Amount at the time of such payment will have
     been paid to the United States, and within 60 days after the final
     computation date, an amount sufficient to pay the remaining balance of the
     Rebate Amount, all in the manner and as required by Section 148(f) of the
     Code. As used herein, "Rebate Amount" means the amount described in Section
     148(f)(2) of the Code, computed in accordance with the provisions of said
     Section 148(f)(2) and the regulations now or hereafter promulgated
     thereunder, including Treasury Regulations, Sections 1.148-0 through
     1.148-11 and 1.150-1.

          (2) The Company shall determine the Rebate Amount within 30 days after
     the close of each Bond Year and upon payment or redemption of all principal
     of a series of Bonds, and shall furnish the Issuer and the Trustee upon
     each determination with a certificate of a Company Representative verifying
     such determination and with any supporting documentation required to
     calculate or evidence the Rebate Amount in accordance with the Code and
     applicable regulations. The Company shall retain records of such
     determinations until six years after final payment or redemption of
     principal of the series of Bonds. Upon each such determination, the Company
     shall set aside, or cause to be set aside, the Rebate Amount so determined,
     and shall separately account for, or cause to be separately accounted for,
     the earnings from the investment thereof, and such earnings shall become
     part of the Rebate Amount.

          (3) At no time during any Bond Year will "gross proceeds" (other than
     proceeds of the Bonds invested for an initial "temporary period" therefor
     and proceeds invested during temporary investment periods related to debt
     service) in an amount in excess of 150% of the debt service on the Series
     2004 Bonds for such Bond Year be invested in "nonpurpose obligations" with
     a "yield" higher than the "yield" on such Bonds, and any "gross proceeds"
     invested in "nonpurpose obligations" within such 150% shall be promptly and
     appropriately reduced as the principal balance of the Bonds is reduced (all
     within the meaning of Section 148(d)(3) of the Code).

     (c) The Company covenants and agrees that it will perform its covenants and
agreements relating to the Refunded Bonds in respect of the calculation and
payment to the United States of any rebatable arbitrage in respect of the
Refunded Bonds under Section 148(f) of the Code, within 60 days after the date
of final payment thereof, so as to preserve the exclusion from gross income of
interest on the Refunded Bonds for purposes of federal income taxation.

     (d) The provisions of this Section 6.05 shall survive the retirement and
payment of the Bonds and the discharge of the Issuer's and the Company's other
obligations hereunder.

     (e) Notwithstanding anything in this Agreement or the Indenture to the
contrary, the provisions of this Section 6.05 may be amended by an instrument
signed by the Issuer and the Company and delivered to the Trustee, accompanied
by an opinion of Bond Counsel stating in effect that the provisions of this
Section 6.05, as so amended, if complied with by the Company, will not adversely
affect the tax exclusion from gross income of interest on any Bond for purposes
of federal income taxation.

                                      -21-

<PAGE>

     (f) The covenants, agreements and the representation contained herein and
in the Tax Compliance Certificate and the Tax Certificate are intended to ensure
compliance with the provisions of the Code and to establish that the
expectations and facts pertaining to such provisions of the Code are consistent
with such provisions. In the event that the Code is amended or regulations
thereunder are hereafter proposed or promulgated and the effect of such change
is to modify or delete any element of the covenants or agreements contained
herein, the Company shall be relieved of its obligation to comply with such
covenants or agreements to the extent of such modification or deletion, provided
that the Company receives an opinion of Bond Counsel that such action will not
adversely affect the exclusion of the interest on the Bonds from the gross
income of the holders thereof for federal income tax purposes. In the event such
regulations impose additional requirements which are applicable to the Bonds,
the Company hereby agrees to comply with the provisions of the regulations.

     (g) The Company shall not be deemed in breach of any representation,
covenant or agreement in this Section 6.05 and in Section 2.02 hereof, in the
Tax Compliance Certificate or the Tax Certificate to the extent it takes
remedial action to prevent a Determination of Taxability that would otherwise be
caused by such breach.

     Section 6.06. REDEMPTION OF REFUNDED BONDS; PAYMENT OF COSTS OF ISSUANCE.
The Company covenants and agrees with the Issuer that it will cause the Refunded
Bonds to be paid and discharged on or prior to the 90th day after the date of
issuance of the Series 2004 Bonds. The Company also covenants and agrees to
provide any moneys required for the payment and discharge of the Refunded Bonds
on or prior to the date on which they are called for redemption. The Company
further agrees that it will pay all reasonable Costs of Issuance promptly when
due.

                         ASSIGNMENT, LEASING AND SELLING

     Section 7.01. CONDITIONS. The Company's interest in this Agreement may be
assigned in whole or in part, and the Company's interest in any element or unit
of the Facilities may be leased or sold as a whole or in part, subject, however,
to the provisions of Section 6.05 hereof and to the following conditions:

          (a) no assignment, lease or sale shall cause the Company to breach any
     of the covenants contained in Sections 4.06 and 6.05 hereof or any of the
     representations or warranties contained in Section 2.02 hereof, or
     otherwise cause the interest payable on any Bonds to become includable in
     gross income for purposes of federal income taxation (other than by
     operation of Section 103(b)(13) of the 1954 Code), nor relieve the Company
     from primary liability on the First Mortgage Bonds, for its obligation to
     make the loan payments required by Section 3.02 hereof or for any other of
     its obligations hereunder other than those assumed pursuant to subsection
     (b) of this Section 7.01; and

          (b) the assignee, lessee or purchaser from the Company shall assume,
     in writing, all the obligations of the Company hereunder relating to the
     operation, maintenance and insurance of the Facilities to the extent of the
     interest assigned, leased or sold.

                                      -22-

<PAGE>

For purposes of this Article 7 and Section 2.02(v), it is not intended that an
assignment, lease or sale that complies with this Article 7 would result in a
misrepresentation under Section 2.02(v).

          Section 7.02. INSTRUMENT FURNISHED TO TRUSTEE. The Company shall,
     within 15 days after the delivery thereof, furnish to the Issuer and the
     Trustee a true and complete copy of the agreements or other documents
     effectuating any such assignment, lease or sale.

          Section 7.03. LIMITATION. So long as any Bonds are Outstanding, this
     Agreement shall not be assigned nor shall the Facilities be leased or sold,
     in whole or in part, except as provided in this Article VII or in Section
     6.01 hereof.

                                  ARTICLE VIII

                         EVENTS OF DEFAULT AND REMEDIES

          Section 8.01. EVENTS OF DEFAULT. Any one or more of the following
events is an Event of Default under this Agreement:

          (1) a "Default" as such term is defined in Section 65 of the First
     Mortgage;

          (2) failure by the Company to pay when due any amount required to be
     paid under the First Mortgage Bonds or Section 3.02 hereof, which failure
     shall have resulted in an "Event of Default" under subsection (a) or (b) of
     Section 701 of the Indenture; or

          (3) if the Company shall fail to observe and perform, for reasons
     other than Force Majeure (as set forth in Section 8.02 hereof), any other
     covenant, condition or agreement on its part under this Agreement other
     than payments of principal or a premium, if any, or interest on the First
     Mortgage Bonds or amounts payable pursuant to Section 3.02 hereof which
     failure continues for a period of 90 days after written notice, specifying
     such failure and requesting that it be remedied, is given to the Company by
     the Trustee, unless the Trustee shall agree in writing to an extension of
     such time prior to its expiration, or for such longer period as may be
     reasonably necessary to remedy such failure, provided that the Company is
     proceeding with reasonable diligence to remedy the same.

     Section 8.02. FORCE MAJEURE. The provisions of Section 8.01(3) hereof are
subject to the following limitations: If by reason of acts of God, strikes,
lockouts or other industrial disturbances, acts of public enemies, orders of any
kind of the Government of the United States or of the State, or any department,
agency, political subdivision, court or official of either of them, or any civil
or military authority, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, hurricanes, tornados, storms, floods, washouts, droughts,
arrests, restraint of government and people, civil disturbances, explosions,
breakage or accident to machinery, partial or entire failure of utilities, or
any cause or event not reasonably within the control of the Company, the Company
is unable in whole or in part to carry out any one or more of its agreements or
obligations contained in this Agreement, other than its obligations contained in
Sections 3.02, 4.05, 6.01, 6.03 and 6.05 hereof, the Company shall not be deemed
in default by reason of not carrying out said agreement or agreements or
performing said obligation or obligations during the continuance of such
inability. The Company agrees, however, to use its

                                      -23-

<PAGE>

best efforts to remedy with all reasonable dispatch the cause or causes
preventing it from carrying out its agreements; provided that the settlement of
strikes, lockouts and other industrial disturbances shall be entirely within the
discretion of the Company, and the Company shall not be required to make
settlement of strikes, lockouts and other industrial disturbances by acceding to
the demands of the opposing party or parties when such course is, in the
judgment of the Company, unfavorable to the Company.

     Section 8.03. REMEDIES. Upon the occurrence of an Event of Default
described in subsection (1) of Section 8.01 hereof, the Trustee, as the holder
of the First Mortgage Bonds, shall, subject to the provisions of the Indenture,
have the rights provided in the First Mortgage. Any waiver of any "Default"
under the First Mortgage and a rescission and annulment of its consequences
shall constitute a waiver of the corresponding Event or Events of Default under
this Agreement and a rescission and annulment of the consequences thereof.
Whenever any Event of Default shall have occurred and be subsisting, the Issuer
may, with the prior written consent of the Trustee and with notice in writing to
the Company, declare the remaining principal balance of the loan payable under
Section 3.02 and any other amounts due hereunder (being an amount equal to that
necessary to pay in full all Outstanding Bonds, assuming acceleration of the
Bonds under the Indenture and to pay all other indebtedness thereunder) to be
immediately due and payable, whereupon the same shall become immediately due and
payable by the Company; and, in the event the Company does not, within three
business days thereafter, deposit with the Trustee an amount sufficient to
satisfy its obligations under the preceding clause, then the Issuer, or the
Trustee on behalf of the Issuer, may take whatever action at law or in equity
may appear necessary or appropriate to collect the balance then due, or to
enforce performance and observance of any obligation, agreement or covenant of
the Company under this Agreement.

     Any amounts collected pursuant to action taken under this Section 8.03
shall be paid into the Bond Fund and applied in accordance with the provisions
of the Indenture.

     Section 8.04. NO REMEDY EXCLUSIVE. No remedy conferred upon or reserved to
the Issuer by this Agreement is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be cumulative and shall
be in addition to every other remedy given under this Agreement or now or
hereafter existing at law or in equity or by statute. No delay or omission to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
or power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle the Issuer to exercise any remedy reserved to it
in this Article, it shall not be necessary to give any notice, other than such
notice as may be herein expressly required.

     Section 8.05. REIMBURSEMENT OF ATTORNEYS' FEES. If the Company shall
default under any of the provisions of this Agreement and the Issuer or the
Trustee shall employ attorneys or incur other reasonable expenses for the
collection of payments due hereunder or for the enforcement of performance or
observance of any obligation or agreement on the part of the Company contained
in this Agreement, the Company will on demand therefor reimburse the Issuer or
the Trustee, as the case may be, for the reasonable fees of such attorneys and
such other reasonable expenses so incurred.

                                      -24-
<PAGE>

     Section 8.06. WAIVER OF BREACH; EXERCISE OF RIGHTS BY TRUSTEE. In the event
any obligation created by this Agreement shall be breached by either of the
parties and such breach shall thereafter be 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 hereunder. In view of the pledge of and grant
of a security interest in the Issuer's rights in and under this Agreement to the
Trustee under the Indenture, the Issuer shall have no power to waive any default
hereunder by the Company without the consent of the Trustee, and the Trustee may
exercise any of the rights of the Issuer hereunder.

     Section 8.07. TRUSTEE'S EXERCISE OF THE ISSUER'S REMEDIES. Whenever any
Event of Default shall have happened and be subsisting, the Trustee may, but
except as otherwise provided in the Indenture shall not be obliged to, exercise
any or all of the rights of the Issuer under this Article VIII, upon notice as
required of the Issuer unless the Issuer has already given the required notice.

                                   ARTICLE IX

                                  MISCELLANEOUS

     Section 9.01. TERMINATION. At any time when the principal of, premium, if
any, and interest on all Bonds have been paid and arrangements satisfactory to
the Trustee have been made for the discharge of all accrued liabilities under
this Agreement, this Agreement, except as otherwise provided in Sections 6.04
and 6.05 hereof, shall terminate.

     Section 9.02. ASSIGNMENT. This Agreement may not be assigned or a security
interest granted herein by either the Issuer or the Company without the consent
of the other (which consent will not be unreasonably withheld), except that the
Issuer may pledge and grant a security interest in its interest in this
Agreement to the Trustee and the Company may assign its interest in this
Agreement in accordance with Section 6.01 or 7.01 hereof.

     Section 9.03. AMENDMENTS, CHANGES AND MODIFICATIONS. Except as otherwise
expressly provided in this Agreement or in the Indenture, subsequent to the
original issuance of any Bonds and before the Indenture is satisfied and
discharged in accordance with its terms, this Agreement may not be amended,
changed or modified except in accordance with the provisions of Article X of the
Indenture.

     Section 9.04. SPIN-OFF SHALL NOT VIOLATE TERMS OF THIS AGREEMENT.
Notwithstanding anything to the contrary contained herein, the Spin-off shall
not violate the terms of this Agreement.

                                      -25-

<PAGE>

     IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement
to be executed in their respective corporate names and their respective
corporate seals to be hereunto affixed and attested by their duly authorized
officers, all as of the date first above written.

                                        CITY OF COHASSET, MINNESOTA

                                        By:      /s/ Marian Barcus
                                           -------------------------------
                                                        Mayor

(SEAL)

Attest:     /s/ Debra Sakrison
       ----------------------------
           City Clerk-Treasurer

                                        ALLETE, INC.

                                        By         /s/ James Vizanko
                                           -------------------------------
                                           Its  Senior Vice President and
                                               ---------------------------
                                                Chief Financial Officer
                                           -------------------------------

(SEAL)

Attest:    /s/ Deborah A. Amberg
       ---------------------------------------
       Its Vice President, General Counsel and
          ------------------------------------
           Secretary
       ---------------------------------------

                       [Signature Page to Loan Agreement]

                                      -26-

<PAGE>

                                                                       EXHIBIT A
                                                                          to the
                                                                  Loan Agreement

           DESCRIPTION OF THE REFINANCED POLLUTION CONTROL FACILITIES

<PAGE>
                                                                       EXHIBIT A

     The following Facilities have been, are being
     or are to be acquired and constructed at
     Units 1 and 2 of the Clay Boswell steam
     electric generating station.

Bag House Facilities
--------------------

     The two  custom  made bag houses are  furnished  by Western  Precipitation,
Division of Joy  Manufacturing,  to remove the particulate  matter from the flue
gases   discharged   from  each  boiler.   Each  bag  house  consists  of  eight
compartments,  with each  compartment  containing two hundred forty 12" diamater
fiberglass  bags.  Bag  arrangement  is 12 bags  wide by 20 bags  deep  with two
internal walkways. Each bag house is approximately 62' x 72' x 85'.

     Each bag house is rated at 371,000  ACFM @ 390  degrees F and 28.08 inc. Hg
abs.  with an inlet dust  loading of 3.5  GR/ACF.  The  system  starts  near the
existing air heater  outlet duct  includes  inlet duct work and support steel to
the bag house inlet.  Flue gas enters each compartment from the bottom bag house
hopper area  through  two inlet  dampers,  pass up and  through the bags,  exits
through  two  outlet  damper  valves  and to the bag house  outlet  plenum.  Bag
cleaning is accomplished by isolating a compartment and drawing cleaned flue gas
through  reverse air duct work, fan and damper causing  reverse air flow through
the bags. Ash is collected in the compartment  hopper.  Flyash is  pneumatically
conveyed from the 16 hoppers to a common storage silo.

     Additional  equipment in the bag house  facility  includes a hopper heating
and level system,  main control panel,  instrumentation  and control,  pneumatic
piping and valve operators,  motors, motor control center, cable, conduit, tray,
access platforms, walkways, support steel, insulation, lagging and foundations.

<PAGE>

     The following Facilities have been, are
     being or are to be acquired and constructed
     at unit 4 of the Clay Boswell steam electric
     generating station.

Circulatinq Water System
------------------------

     This equipment consists of a complete mechanical draft cooling tower, three
circulating water pumps, pump house, circulating, riser, and bypass water piping
(but not makeup or blowdown piping),  one acid feed system, one chlorination and
dechlorination   system,  and  associated   piping,  and  additional   equipment
interconnecting  with  plant  equipment  including  two heat  exchangers,  three
cooling  water pumps,  a chemical  feed tank, a cooling  water head tank and the
associated piping and valves.

Waste Treatment System
----------------------

     One water  softener/clarifier  to chemically soften and clarify water to be
discharged to the Mississippi  River. One hundred foot diameter by thirteen feet
high  steel  unit  designed  for  2500  GPM.  Including  center  drive  and rake
mechanism, polymer feed system, soda ash feed system and 1000 ton steel soda ash
storage  silo.  The  storage  silo is enclosed in a facility  shared by the lime
silo.  The soda ash silo has a feed system  including  mixers and tanks.  One PH
adjustment structure designed for 3800 GPM with acid and caustic feed system for
maintaining the PH of the plant discharge between 6.5 and 8.5 as required by the
MPCA.

     Two 30 foot diameter sand and anthracite filters each designed for 1900 GPM
to remove  excessive  suspend solids and turbidity  from  wastewater in order to
comply with the NPDES requirements,  each unit has three filtering  compartments
and self-contained backwash storage; including flow splitter boxes and blower.

     Two oil-solids  separator each designed for 500 GPM to treat  miscellaneous
plant water flows which contain oil. Includes 2000 gallon waste oil storage tank
and a polymer feed systems.

     Approximately 19 concrete sumps using 43 pumps for transporting  wastewater
through the plant for  treatment.  This will require over 10,000 feet of pipe of
various sizes to be installed  underground.  There will be 14 pumps and 8 mixers
needed for chemical feed systems.

     The major pieces of equipment are housed in an 240' by 61' building.
                                                             -
     There will be four clay  lined  holding  basins  each of  1,000,000  gallon
capacity to store water for settling prior to treatment. A grit

                                       A-2

<PAGE>

chamber  will  also be used  to collect area  runoff from  other portions of the
plant to eliminate  suspended  solids from entering the lake.  The existing coal
pile sump will be  upgraded  to accept  the coal pile rain  water  runoff.  Also
required are system  control  panels and  instrumentation  to monitor  equipment
performance and effluent  wastewater  quality which will be located at the local
equipment and in the AQCS control room.

     A portion of the waste  treatment  system will occupy land  acquired  after
February 22, 1977.

Dust Control Facilities
-----------------------

     The purpose of this equipment is to collect the particulate matter from the
coal handling equipment and dry chemical handling system. The equipment consists
of a fabric type dust  collectors,  duct work and housings for the coal handling
system.

Electrical equipment
--------------------

     The purpose of this  equipment is to provide the  electrical  needs for all
pollution  control  systems.  This system consists of switchgear,  motor control
centers,  power transformers, underground conduit power cable and trays, control
cables and trays and above ground conduit and motors.

Scrubber Sludqe Pond
--------------------

     The  purpose  of this  pond is to  collect  the  precipitates  from the air
quality control systems.  The pond consists of clay lined earthen ponds and pump
houses. A portion of the pond occupies land purchased after Pebruary 22, 1977.

Air Quality Control Facilities
------------------------------

     The purpose of this  equipment  is to remove  particulate  and S02 from the
combustion flue gas.

     This Air Quality  Control System (AQCS)  consists of four parallel  modules
for particulate and sulfur dioxide  removal.  (Exiting flue gas from the AQCS is
reheated by mixing hot flue gas from two electrostatic  precipitators  operating
in parallel with the AQCS).

     The AQCS,  rated at 2,207,549  ACFM at 300 degrees F and - 14.5 inches W.C.
with maximum design inlet conditions for 11 GR/SCF particulate and 2900 PPM S02.
The AQCS is housed in a 162 foot x 236 foot x 150 foot structural steel enclosed
building. The Air Quality Control System is supplied by Peabody Process Systems.
The  system  starts at the two  boiler air  heater  outlets,  to a common  inlet
plenum,  to each of the four  venturi/absorber  trains,  to the discharge  ducts
where reheat occurs,  to a common discharge  plenum, to the four I. D. Fan inlet
ducts and  ending at the I. D. Fan inlet  control  dampers.  All  ductwork  from
scrubber to the stack is lined or alloy material.

                                       A-3

<PAGE>

     Each of the four  parallel  AQCS  trains  consists  of an  inlet  isolation
damper,  expansion  joint,  radial flow  venturi for  particulate  removal,  two
venturi  recycle  pumps,  spray tower  absorber for S02 removal,  three absorber
recycle pumps,  reheater  stack  diffuser,  absorber  outlet  isolation  damper,
expansion  joint, I. D. Fan inlet isolation  damper and a 164,000 gallon recycle
tank.  Internals  of the  venturi/absorber  include,  adjustable  radial  throat
mechanism,  208 hollow cone refrax spray nozzles,  a 316 L stainless steel sieve
type wash tray, and followed by a 12 inch layer of chevron mist eliminators. The
carbon  steel  venturi/absorber   vessels  are  lined  with  chemical  resistant
polyester and erosion resistant rubber linings.

     Also  including all  structural  and support  steel,  insulation,  lagging,
instrumentation   and  controls,   rubber  lined  carbon  steel  and  fiberglass
interconnectings piping, valves, agitators and drives, pump motors,  foundations
and miscellaneous accessory equipment.

     The AQCS is  designed  to operate  using both flyash and lime as the alkali
for the removal of SO2.  Chemical  preparation  equipment  includes one 1000 ton
lime storage silo,  pneumatic  transport  system to the four slaker silos,  four
lime gravimetric  control weight feeders,  lime silo bin vents,  four 8000 LB/HR
lime slakers,  grit removal conveyor system,  355,000 gallons lime a1kali slurry
tank, and two 750 GPM lime slurry feed pumps, and lime slurry tank agitators.

     Flyash alkali equipment includes one 120 ton flyash storage silo, pneumatic
transfer  system,  flyash alkali tank with  agitators and two slurry feed pumps.
The  flyash  and  lime  alkali  preparation  building  is 147 feet x 70 feet and
includes a motorized bridge crane for service of equipment. Additional equipment
which is common to the AQCS includes two fiberglass  emergency deluge head tanks
with piping, valves and controls, effluent waste slurry sump, three waste slurry
pumps and three waste  slurrybooster  pumps,  each of which are rubber lined and
rated at 1350 GPM,  flakeglass  lined wash water  tank,  two 1500 GPM wash water
pumps constructed of alloy 20,  approximately  14,000 linear feet of schedule 80
slurry  piping to pond,  three 1350 GPM  supernate  return pump  constructed  of
hastalloy C, slurry pond intake structure and pump house,  approximately  14,000
linear feet of schedule 40 supernate  return  piping and  supports  from pond to
AQCS  building,  four  monorails  and hand chain hoists to service the 16 slurry
agitators,  20 slurry recycle pumps, 6 waste slurry pumps, waste slurry agitator
and wash water pumps.

     Reheat for the Unit No. 4 cleaned  gas will be  provided  by mixing the gas
leaving the  absorber  with a portion of the 800 degrees F flue gas taken before
the air  heaters.  Prior  to the  mixing  step the hot gas  will be  cleaned  of
particulate by two electrostatic precipitators. The two model RUCC precipitators
are furnished by Western Precipitation Division, Joy Manufacturing Company. Each
precipitator  is rated at 200,000  ACFM at 815  degrees  FWG with 390 feet 2/100
ACFM  specific  collection  area with 10 percent of bus sections out of service.
Precipitator  configuration is one chamber,  four fields deep, 26 passages and 9
foot x 24' foot fields.

                                       A-4

<PAGE>

     Included is the inlet and outlet ducts, four guillotine  isolation dampers,
expansion  joints,  flyash hoppers with fibrators,  aerators,  heaters and level
level  detectors,   electromagnetic  impact  rappers,  transformers,   thyristor
rectifier  control  units,  high and low  voltage  wiring,  insulation,  lagging
pneumatic  flyash  transport  system,  instrument  and control,  support  steel,
platforms, stairs and walkways, enclosure and foundations. The AQCS control room
will include the  instrumentation  and controls necessary to operate and control
the operation of the following systems: Electrostatic Precipitators, Air Quality
Control System,  Chlorination Control, Flyash Handling, Scrubber Waste Disposal,
and Waste Water Treatment Facility.  Also included is a water lab and a building
to house the electrical switchgear and motor control centers.

     The AQCS plant includes a pilot plant.

     The  lime  unloading   equipment   includes  a  truck  unloading   facility
approximately 40 feet wide by 70 feet long. The system includes pneumatic piping
to the lime and soda ash silos and three pneumatic blowers.

                                       A-5

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