*SECTION  12(b)(i),  (ii) AND (iii) AND SECTION 12(c) (i), (ii) AND (iii),  HAVE
BEEN OMITTED AND FILED  SEPARATELY  WITH THE SECURITIES AND EXCHANGE  COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THESE SECTIONS APPEAR ON PAGES
60 AND 61 OF THE COMPLETE DOCUMENT.


                                 LEASE AGREEMENT


        Lease  Agreement,  dated as of June 9, 1999 (as the same may be amended,
restated, modified or supplemented from time to time, "this Lease"), between LIC
Funding,  Limited Partnership,  a Delaware limited  partnership,  as lessor (the
"Lessor"), and KeySpan-Ravenswood,  Inc., a New York corporation, as lessee (the
"Lessee").


        SECTION 1.        DEFINED TERMS.

        Unless the context otherwise requires, each term defined in this Section
1 shall, when used in this Lease, have the meaning indicated:

     "Accrued  Default  Obligations"  has the  meaning  set forth in  Section 19
hereof.

        "Acquisition Certificate" means the written certification in the form of
Exhibit D hereto of the Lessee to be  delivered  to the  Lessor and the  Related
Assignee in connection  with any requested  acquisition  of the Facility and any
other  Parcel of Property or Unit of  Equipment  pursuant  to  paragraph  (b) of
Section 5 hereof,  certifying  with respect to the Facility or such  Property or
Equipment  that (i) the insurance  then carried on the Facility or such Property
or Equipment  complies  with the terms of this Lease,  (ii) all past and current
taxes and  assessments  applicable to the Facility or such Property or Equipment
have  been  paid  in  full,  (iii)  all  utility  services,  manuals,  equipment
inspection reports,  maintenance records,  easements, rights of way, facilities,
Intellectual  Property  Rights and  permits,  licenses and  approvals  which are
necessary  for  operation  and  occupancy  of the  Facility or such  Property or
Equipment have been obtained and are in full force and effect, (iv) there are no
Liens on the  Facility or such  Property  or  Equipment  that are not  Permitted
Liens,  (v)  all  representations  and  warranties  made in  this  Lease  and in
connection  with the  acquisition  of the Facility or such Property or Equipment
are and remain true and correct on and as of the date of the  acquisition of the
Facility or such  Property or  Equipment,  (vi) no Event of Default or Potential
Default  has  occurred  or  will  occur  and be  continuing  on the  date of the
acquisition  of the  Facility  or such  Property  or  Equipment,  and  (vii) the
Facility  or such  Property  or  Equipment  is  capable  of being  operated  and
maintained in compliance with all Legal Requirements.

        "Acquisition Cost" means, (i) with respect to any Unit of Equipment,  an
amount equal to the sum of (a) the vendor's  invoice price  therefor,  including
any progress  payments,  costs of labor,  delivery or installation,  sales, use,
excise or similar  taxes and any other charges  included in such invoice,  after
deduction for any refundable  discounts or credits  actually used by the Lessor,
(b) similar  amounts paid or payable with respect to such Unit to parties  other
than the vendor of such Unit,  (c) similar  costs  incurred with respect to such
Unit by the Lessee,  and (d) legal,  printing,  reproduction,  closing and other
normally  capitalizable  administrative fees and expenses paid by the Lessee and
approved  by the  Lessor;  and (ii) with  respect to the  Facility  or any other
Parcel of  Property,  an amount  equal to the amounts  included in (i)(d)  above
which are  applicable  to the  Facility  or such  Parcel  plus (a) the  seller's
contract price  therefor or, in the absence of a seller's  contract  price,  the
appraised value thereof, (b) closing costs, including, without limitation, title
insurance premiums,  survey and survey inspection charges,  recording and filing
fees, title closer fees, vendee's attorneys' fees and brokerage commissions, (c)
other  costs  related  to  the  acquisition,   including,   without  limitation,
appraisal, architectural, engineering, soil analysis, environmental analysis and
market  analysis  fees,  and (d) any amounts  paid in addition  to, and not as a
credit against the contract price, including, without limitation,  payments made
in satisfaction of prior liens,  and payment of any transfer,  transfer gains or
similar  taxes  imposed in respect of the  conveyance,  transfer or sale of such
Property.  The  Acquisition  Cost  of the  Facility  or any  other  Property  or
Equipment  may be reduced from time to time pursuant to paragraph (b) of Section
13 or paragraph (b) of Section 16 hereof.

        "Additional   Property"  means  such  equipment  and  tangible  personal
property as is located  adjacent to (but not at) the  Facility  and owned by the
Lessee or its Affiliates  (which may not be located on land that is owned by the
Lessee)  and all related  appliances,  appurtenances,  accessions,  furnishings,
piping,  conduits,  transmission  lines,  materials,  parts and  other  tangible
personal  property of any type associated with and relating  thereto  (including
all replacements of such  appliances,  appurtenances,  accessions,  furnishings,
materials,  parts and other personal property),  which is required in connection
with the  operation of the  Facility or any Turbine  Unit.  Additional  Property
shall be comprised  only of the  equipment  and personal  property  described in
Exhibit I hereto,  together with all replacements  thereof.  Neither the cost of
acquisition,  installation  and  construction  nor the  value of the  Additional
Property  shall be included in determining  Acquisition  Cost or Basic Rent; and
the   acquisition,   installation,   construction,   ownership,   operation  and
maintenance by the Lessee of the Additional  Property,  and the inclusion of the
definition of Additional Property in this Lease, shall not change or enlarge any
other definition in this Lease, including,  without limitation,  the definitions
of Acquisition Cost, Basic Rent, Capacity,  Facility, Facility Site and Facility
Assets.

     "Additional  Rent" has the meaning set forth in paragraph  (d) of Section 7
hereof.

     "Adjustment  Factor"  has the  meaning  set  forth in  paragraph  (b)(i) of
Section 13 hereof.

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

        "Air Permits" means the City of New York, the State of New York and U.S.
Environmental  Protection Agency permits or other Governmental  Actions relating
to the emission of air  Contaminants  required for the operation of the Facility
or a Turbine  Unit in order for the  Facility  or such  Turbine  Unit to operate
under the Environmental Requirements.

        "Appraisal   Procedure"  means  the  following   procedure   whereby  an
independent  appraiser shall be appointed by the Lessor and the Lessee, with the
consent of the Related  Assignee,  to  determine  the amount of wear and tear in
excess of that  attributable to normal use of the Facility or any other Property
or Equipment to which the provisions of (b)(iii) or (c)(iii)
apply.  If no such appraiser is appointed by the mutual  agreement of the Lessor
and the Lessee within ten (10) days of the written  request of either the Lessor
or the Lessee that an  appraiser be  appointed,  the Lessor and the Lessee shall
each appoint an independent  appraiser within fifteen (15) days thereafter,  and
the two  appraisers so appointed  shall appoint a third  independent  appraiser.
Each appraiser  appointed pursuant to the foregoing  procedure shall, within ten
(10) days after appointment of the last appraiser,  independently  determine the
amount of wear and tear in excess of that  attributable  to normal  use.  If the
Lessor or the Lessee shall fail to appoint an independent  appraiser  within the
above-mentioned  fifteen (15) day period,  the appraiser  appointed by the other
party shall  determine  such amount.  If a single  appraiser is appointed,  such
appraiser's determination shall be final. If three appraisers are appointed, the
amounts  determined by the three appraisers shall be averaged,  the amount which
differs the most from such average shall be excluded,  the remaining two amounts
shall be  averaged  and  such  average  shall  be  final.  The  expenses  of all
appraisers shall be paid by the Lessee.  Each appraiser appointed pursuant to an
"Appraisal  Procedure"  shall  be a  qualified  engineering  firm  and,  if  the
Appraisal Procedure shall relate to the Facility or any Turbine Unit, shall have
experience in appraising electric generating facilities.

        "Appraiser" means Arthur Andersen LLP.

        "Assignment"  means each assignment  agreement referred to in Section 21
hereof,  between  the Lessor  and a third  party,  pursuant  to which the Lessor
assigns  certain of its rights under this Lease to such third party, as the same
may be amended, restated, modified or supplemented from time to time.

        "Basic Rent" means,  with respect to the Facility or any other Parcel of
Property or Unit of Equipment, as the case may be:

        (a) At each Basic Rent  Payment  Date  during the  Initial  Term and the
Extended Term, and in respect of the  semi-annual  period ending on June 20th or
December 20th in which such Basic Rent Payment Date occurs,  the sum of (X) plus
(Y) plus (Z), where (X), (Y) and (Z) have the following meanings:

        (X)           (i) the  Equity  Capital  for the  Facility  or such other
                      Parcel of Property or Unit of  Equipment,  as the case may
                      be, before payment of the  applicable  Basic Rent for such
                      semi-annual period, multiplied by

                    (ii) a  fraction  having  a  numerator  equal  to 180  and a
                    denominator of 360, multiplied by

                    (iii)the  decimal  equivalent  of a percentage  equal to the
                    LIBOR Rate plus 2%.

        (Y)           (i) the Debt Capital for the Facility or such other Parcel
                      of  Property  or Unit of  Equipment,  as the  case may be,
                      before  payment  of the  applicable  Basic  Rent  for such
                      semi-annual period, multiplied by

                    (ii) a  fraction  having  a  numerator  equal  to 180  and a
                    denominator of 360, multiplied by

                 (iii)the  decimal  equivalent  of a  percentage  equal  to  the
                      Semi-Annual  Cost of Debt for the  Facility  or such other
                      Parcel of Property or Unit of  Equipment,  as the case may
                      be.

        (Z) an amount equal to the Management Fee.

        (b) For any partial  semi-annual  period during the Initial Term and any
Extended  Term, an amount equal to the sum of (X) plus (Y) plus (Z),  where (X),
(Y) and (Z) have the following meanings:

        (X) (i) the Equity  Capital  for the  Facility  or such other  Parcel of
Property or Unit of Equipment, as the case may be, multiplied by

                 (ii) a fraction  having a numerator equal to the number of days
                      the  Facility or such other  Parcel or Unit is under lease
                      during such partial semi-annual period (provided that, all
                      full  calendar  months  during  such  partial  semi-annual
                      period  shall be computed on the basis of a 30-day  month)
                      and a denominator of 360, multiplied by

                 (iii)the   applicable   decimal   referred   to  in   paragraph
                      (a)(X)(iii)  above,  provided  that, if the Effective Date
                      for the  Facility or such other Parcel or Unit falls on or
                      after the Lease Rate Date during such partial  semi-annual
                      period such decimal shall be the decimal  determined as of
                      the next succeeding Lease Rate Date.

        (Y)           (i) the Debt Capital for the Facility or such other Parcel
                      of  Property  or Unit of  Equipment,  as the  case may be,
                      multiplied by

                 (ii) a fraction  having a numerator equal to the number of days
                      the  Facility or such other  Parcel or Unit is under lease
                      during such partial semi-annual period (provided that, all
                      full  calendar  months  during  such  partial  semi-annual
                      period  shall be computed on the basis of a 30-day  month)
                      and a denominator of 360, multiplied by

                 (iii)the  decimal  equivalent  of a  percentage  equal  to  the
                      Semi-Annual  Cost of Debt for the  Facility  or such other
                      Parcel of Property or Unit of  Equipment,  as the case may
                      be;  provided that, if the Effective Date for the Facility
                      or such  other  Parcel or Unit falls on or after the Lease
                      Rate Date during such  partial  semi-annual  period,  such
                      Semi-Annual  Cost of Debt  shall be  determined  as of the
                      next succeeding Lease Rate Date.

        (Z) an amount equal to the Management Fee.
        (c) For each  semi-annual  period  during the Renewal  Term,  if any, an
amount equal to the fair market rental value thereof,  determined as provided in
paragraph (c) of Section 13 hereof.

        "Basic Rent Payment  Date" means June 20th and December  20th during the
Initial Term and any Extended Term and Renewal Term,  commencing on December 20,
1999, or, if such day is not a Business Day, the next succeeding Business Day.

        "Brooklyn Union East" means KeySpan Gas East Corporation (d/b/a Brooklyn
Union of Long Island), a New York corporation and a subsidiary of the Guarantor.

        "Brooklyn  Union Gas" means The Brooklyn  Union Gas Company,  a New York
corporation and a subsidiary of the Guarantor.

        "Business Day" means any day other than a Saturday, a Sunday or a day on
which  banking  institutions  in the City of New York are  authorized  by law to
close.

        "Capacity" means (i) with respect to the Facility, the rated capacity of
the Facility (at normal operating conditions) to generate electricity,  which is
initially expected to be approximately 1,742 megawatts, and (ii) with respect to
any other  Turbine  Unit,  the rated  capacity of such  Turbine  Unit (at normal
operating conditions) to generate electricity.

     "Cash  Proceeds"  has the meaning set forth in paragraph  (a) of Section 12
hereof.

     "CERCLA"  has the meaning set forth in  paragraph  (u)(iii) of Section 2(i)
hereof.

        "Code" means the  Internal  Revenue  Code of 1986,  as amended,  and the
rules and regulations promulgated thereunder from time to time.

        "Collateral  Indenture" means the Indenture of Trust, Security Agreement
and Assignment  dated as of the date hereof,  entered into by the Lessor and the
Collateral Trustee, pursuant to which the Lessor has granted a security interest
in certain collateral of the Lessor to the Collateral  Trustee,  as the same may
be amended,  restated,  modified or supplemented from time to time in accordance
with the terms thereof.

        "Collateral  Trustee"  means The Bank of New York,  in its  capacity  as
trustee  for the holders of the Notes under the  Collateral  Indenture,  and its
successors.

        "Computation  Period"  has the meaning  set forth in the  definition  of
Semi-Annual Cost of Debt in this Section 1.

     "Con Edison" means  Consolidated  Edison  Company of New York,  Inc., a New
York corporation.

        "Consent" means each consent of the Lessee to an Assignment, pursuant to
which the Lessee consents to the terms of such Assignment insofar as they relate
to this  Lease and the  Facility  or any other  Parcel  of  Property  or Unit of
Equipment, as the same may be amended,  restated,  modified or supplemented from
time to time.

        "Consolidated  Net  Worth"  means the total  consolidated  stockholders'
equity,  capital stock,  preferred stock and minority interests of the Guarantor
and its subsidiaries, determined in accordance with GAAP.

        "Contaminant"  means any  pollutant,  hazardous  substance,  radioactive
substance,  toxic substance,  hazardous waste, medical waste, radioactive waste,
special waste,  industrial waste,  petroleum or  petroleum-derived  substance or
waste,  asbestos,  PCBs or any  hazardous  or toxic  constituent  thereof or any
substance   regulated  or  identified   under   Environmental   Requirements  as
potentially harmful to human health, natural resources or the environment.

        "Core Gas  Distribution  Business"  means the  distribution  and sale at
retail to  customers  of natural gas in the New York City  boroughs of Brooklyn,
Queens and Staten Island and the Long Island counties of Nassau and Suffolk,  as
such business is conducted by Brooklyn  Union Gas and Brooklyn Union East on the
date hereof and more fully described in the Private Placement Memorandum.

        "Debt Capital"  means,  with respect to the Facility or any other Parcel
of  Property  or  Unit  of  Equipment,  as the  case  may  be,  at the  time  of
determination,  an amount equal to the Acquisition Cost thereof minus the Equity
Capital in respect thereof.

        "Debt Yield-Maintenance  Premium" means an amount equal to the amount of
Make-Whole  Premium (as defined in the Note Purchase  Agreement)  payable by the
Lessor (net of any amounts  payable to the Lessor under the  Derivative  Option)
pursuant to the terms of the Note Purchase Agreement.

        "Derivative  Option"  means  the  Option,  dated as of the date  hereof,
between the Lessor and Merrill Lynch Capital Services,  Inc., as the same may be
amended, restated, modified, or supplemented from time to time.

        "Easements"  means the easements  and licenses  granted to the Lessor by
the Lessee  pursuant to the Ground Lease,  as such easements and licenses may be
amended, restated, modified or supplemented from time to time in accordance with
the terms hereof.

        "Effective  Date"  means,  with  respect to the  Facility  and any other
Parcel of Property or Unit of Equipment,  the date on which the Facility or such
Parcel or Unit becomes  subject to this Lease,  as evidenced by execution by the
Lessor of a Unit  Leasing  Record with respect to the Facility or such Parcel or
Unit.

        "Engineering  Report"  means the 1998  assessments  prepared  by Stone &
Webster with respect to the Facility.

        "Environmental  Approvals" means all Governmental  Actions,  Air Permits
and other authorizations required under applicable Environmental Requirements.

        "Environmental Consultant" means Pilko & Associates, Inc., or such other
environmental   consulting  firm  qualified  to  evaluate   environmental  risks
associated  with the Facility,  the  Additional  Property or any other Parcel of
Property  or Unit  of  Equipment,  as  selected  by the  Lessee  and  reasonably
satisfactory in all respects to the Lessor and the Related Assignee.

        "Environmental Damages" means all claims, judgments,  damages (including
without  limitation  punitive and  consequential  damages),  losses,  penalties,
fines,   interest,   fees,  liabilities  (including  without  limitation  strict
liability),  taxes,  obligations,   encumbrances,   liens,  costs  and  expenses
(including,  without limitation, costs and expenses of investigation and defense
of any  claim  relating  to or in any  way  arising  out  of the  Facility,  the
Additional  Property  or any other  Parcel  of  Property  or Unit of  Equipment,
whether  or not  such  claim  is  ultimately  defeated,  and of any  good  faith
settlement  or judgment),  of whatever kind or nature,  contingent or otherwise,
matured  or  unmatured,   foreseeable  or  unforeseeable,   including,   without
limitation,  reasonable attorneys' fees and disbursements and consultants' fees,
any of  which  are  asserted,  imposed  or  incurred  at any  time  pursuant  to
Environmental Requirements, including, without limitation:

               (i) Damages  arising from the  existence of  Contaminants  at any
location or compliance  or  noncompliance  with, or violation of,  Environmental
Requirements;

               (ii) Damages for personal  injury or threatened  personal  injury
(including  without  limitation  sickness,  disease  or  death),  or  injury  or
threatened   injury  to   property   or  natural   resources,   foreseeable   or
unforeseeable,  including,  without  limitation,  the  cost  of  demolition  and
rebuilding of any improvements on real property;

               (iii)  Reasonable  fees  incurred for the services of  attorneys,
consultants,   contractors,   doctors,  experts,   laboratories  and  all  other
reasonable  costs  incurred  in  connection  with any  damages as  described  in
subparagraph  (i) of this  definition,  and the  investigation or remediation of
Contaminants  or the  suspected  presence of  Contaminants  or the  violation or
threatened violation of Environmental  Requirements,  including, but not limited
to, the preparation of any feasibility  studies or reports or the performance of
any  investigation,   cleanup,   treatment,   remediation,   removal,  response,
abatement,  containment,  closure, storage, disposal, transport,  restoration or
monitoring work required by any federal,  state,  local or foreign  governmental
agency or political  subdivision,  or otherwise expended in connection with such
conditions,  and including,  without limitation, any reasonable attorneys' fees,
costs and expenses  incurred in enforcing  this Lease or collecting any sums due
hereunder; and

               (iv) Liability to any third Person or  Governmental  Authority to
indemnify such Person or Governmental Authority for costs expended in connection
with  the  items  referenced  in  subparagraphs  (i),  (ii)  and  (iii)  of this
definition.

     "Environmental  Event" has the  meaning set forth in  paragraph  (ii)(g) of
Section 2 hereof.

        "Environmental Lien" means a Lien in favor of any Governmental Authority
for any (a)  liability  under  any  Environmental  Requirement,  or (b)  damages
arising from, or costs incurred by, such Governmental Authority in response to a
Release or threatened Release of a Contaminant into the environment.

        "Environmental  Matters" means any matter, fact or situation relating to
or arising from (a) any  violation or alleged  violation  of, or  compliance  or
noncompliance with, an Environmental Requirement,  (b) any Release or threatened
Release of any  Contaminant on, under or from the Facility or any other Property
or Equipment or the presence of any Contaminant which has come to be located on,
from or under the Facility,  the  Additional  Property or any other  Property or
Equipment from another location,  or (c) any injury to human health or safety or
the environment by reason of the matters described in clauses (a) and (b) above.

        "Environmental  Report"  means an  environmental  report  issued  to the
Lessor and the Related Assignee and is otherwise  satisfactory to the Lessor and
the Related Assignee in all respects, prepared by the Environmental Consultant.

        "Environmental  Requirements" means all applicable federal, state, local
and foreign  laws  (including  duties under the common  law),  statutes,  codes,
ordinances, rules, regulations, directives, Governmental Actions, authorizations
or orders  relating  to the  environment,  natural  resources  or human  health,
including, but not limited to those relating to (a) the use, handling or Release
of any  Contaminant  or (b)  worker  health.  Environmental  Requirements  shall
include all Environmental Requirements now or hereafter enacted, made or issued,
whether or not presently contemplated;  provided, that for purposes of paragraph
(i)(u) of Section 2 hereof,  Environmental Requirements shall include only those
Environmental  Requirements  enacted,  made  or  issued  as  of  the  time  such
representations and warranties shall be made or deemed made.

        "Equity Capital" means, with respect to the Facility or any other Parcel
of  Property  or  Unit  of  Equipment,  as the  case  may  be,  at the  time  of
determination,  the  aggregate  amount  of cash  contributions  to the  Lessor's
capitalization  made by the  general  partner  and the  limited  partners of the
Lessor  used  to  pay  a  part  of  the  Acquisition  Cost  thereof,   plus  any
undistributed  return on such cash  contributions,  less the aggregate amount of
any  returns  of such cash  contributions  made to such  partners  at such time;
provided that, for purposes of the definition of "Basic Rent" and "Debt Capital"
in this Lease,  the reference  therein to "Equity Capital" shall not include any
undistributed return on such cash contributions.

        "Equipment"  means personal  property of any type leased or to be leased
hereunder and, when leased,  evidenced by Unit Leasing Records,  and all related
appliances,  appurtenances,  accessions, furnishings, materials and parts leased
or to be leased by the Lessor to the Lessee as provided herein and including all
replacements   and   subsequent   replacements   of  such  related   appliances,
appurtenances,  accessions,  furnishings,  materials  and  parts.  "Unit",  when
referring to the personal  property leased under this Lease,  means a particular
item of Equipment,  as the context may require.  This  definition of "Equipment"
does not include any Additional Property.

        "Event of Default" has the meaning set forth in Section 18 hereof.

     "Event  of Lease  Termination"  has the  meaning  set forth in  Section  14
hereof.

        "Event of Loss" means,  with respect to the Facility or any other Parcel
of Property or Unit of Equipment,  any of the following events:  (a) loss of all
or a  substantial  portion of the Facility or such other Parcel or Unit,  as the
case may be, or the use thereof due to  destruction,  damage  beyond  economical
repair or other damage which renders the Facility or such Parcel or Unit, as the
case may be,  permanently  unfit for the use  contemplated  by this Lease or any
other Operative  Document on a commercially  feasible basis; (b) any event which
results in an  insurance  settlement  with respect to the Facility or such other
Parcel or Unit, as the case may be, on the basis of a total loss or constructive
total loss;  and (c) the  condemnation  or taking or requisition of title or use
for an  indefinite  period or a period in excess of one hundred and eighty (180)
days by any  Governmental  Authority  which  constitutes  the taking of all or a
substantial  portion of the  Facility or such other Parcel or Unit such that the
remainder is not  sufficient to permit  operation of the Facility or such Parcel
or Unit on a commercially  feasible basis. A loss of a "substantial  portion" of
the  Facility  or any other  Parcel or Unit  shall be deemed to occur if, in the
reasonable  judgment of the Lessor and the Related  Assignee,  after such event,
(i) the Lessee will not be able to materially perform its obligations under this
Lease with respect to the Facility or such other Parcel or Unit, as the case may
be, or (ii) a material  diminution in the value,  utility or remaining  economic
useful life of the  Facility  or such  Parcel or Unit,  as the case may be, will
occur.

        "EWG"  means an  "exempt  wholesale  generator",  as  defined in Section
32(a)(1) of the 1935 Act or any related Legal Requirement.

     "Extended  Term" has the  meaning set forth in  paragraph  (b) of Section 6
hereof.

        "Facility" means the real and personal property and the improvements and
equipment   (including  all  related  appliances,   appurtenances,   accessions,
controls,  interconnection facilities,  transmission lines, wiring, furnishings,
materials and parts, and other related facilities and equipment,  along with any
replacements  thereof) thereon (including,  without limitation,  each of Unit 1,
Unit 2 and Unit 3), which  constitute an approximately  1,742 megawatt  electric
generating  facility  located  in the  Borough  of  Queens,  New  York,  as more
particularly described in Exhibits E and F hereto,  including without limitation
the Facility Assets,  the leasehold  interest of the Lessor under the Site Lease
and the Easements and other rights  granted or assigned to Lessor under the Site
Lease.  To the  extent  that  portions  of the  Facility  are  personal  or real
property,  respectively,  the provisions of this Lease with respect to Equipment
or  Property,  respectively,  shall  be  applicable  thereto,  except  as may be
otherwise  expressly  indicated.  This definition of "Facility" does not include
any Additional Property.

        "Facility Assets" means the buildings,  equipment, machinery, apparatus,
fixtures, structures,  appurtenances,  installations and other tangible personal
property comprising the Facility,  including, but not limited to, Unit 1, Unit 2
and Unit 3, which are conveyed to the Lessor pursuant to the Purchase  Agreement
Assignment and all replacements and renewals pursuant to the terms of this Lease
located  upon or affixed to the  Facility  Site.  This  definition  of "Facility
Assets" does not include any Additional Property.

        "Facility Site" shall mean the real property  situated in the Borough of
Queens,  Long Island City, New York, upon which the Facility Assets are located,
as more  particularly  described on Exhibit F hereto,  including the  respective
Easements  and licenses  relating  thereto and necessary to operate and maintain
the Facility.

        "Facility Support Agreement" means the Facility Support Agreement, dated
as of the date  hereof,  between the Lessor and the  Lessee,  as the same may be
amended, restated, modified or supplemented from time to time.

     "FERC" means the Federal  Energy  Regulatory  Commission,  or any successor
agency thereto.

        "Financing Arrangement" means, with respect to the Facility or any other
Parcel  of  Property  or Unit of  Equipment,  as the  case may be,  each  credit
agreement,  note  purchase  agreement,   loan  agreement,   security  agreement,
indenture,  mortgage,  deed of trust,  and each other  agreement or  arrangement
between  the Lessor  and a lender or  lenders  to the Lessor or other  Person or
Persons providing credit support to the Lessor or to debt issued by or on behalf
of the Lessor  related to the  financing  or (subject to the  Lessee's  consent)
refinancing  of the  Facility  or  such  other  Parcel  of  Property  or Unit of
Equipment,  as the case may be,  as any of the  same may be  amended,  restated,
modified  or  supplemented  from time to time  (except  for any such  amendment,
restatement,  modification  or supplement  which  affects any  obligation of the
Lessee hereunder, unless approved in writing by the Lessee).

        "FPA" has the meaning set forth in paragraph (o) of Section 2(i) hereof.

        "GAAP" means generally accepted accounting  principles as in effect from
time to time in the United States, applied on a consistent basis.

     "Governmental Action" has the meaning set forth in paragraph (d) of Section
2(i) hereof.

        "Governmental  Authority" means any agency,  department,  court or other
administrative, legislative or regulatory authority of any federal, state, local
or foreign governmental body.

        "Ground  Lease" means (i) with respect to the  Facility,  the Site Lease
and (ii) with  respect to any other  Parcel of  Property,  each ground lease (in
each case,  which  must be a  Mortgageable  Ground  Lease)  pursuant  to which a
leasehold interest in such Parcel is being leased to the Lessor.

        "Guaranty"  means the  Guaranty,  dated as of the date hereof,  from the
Guarantor  to the  Lessor,  as the same may be  amended,  restated,  modified or
supplemented from time to time.

        "Guarantor" means KeySpan Corporation (d/b/a KeySpan Energy), a New York
corporation (the parent of the Lessee), and its successors.

        "Indebtedness"  means  for any  Person  (i) all  indebtedness  or  other
obligations  of such  Person for  borrowed  money and all  indebtedness  of such
Person  with  respect to any other  items  (other  than  income  taxes  payable,
deferred taxes,  deferred  credits and accounts  payable which are not more than
thirty (30) days past due, or if more than thirty (30) days past due,  are being
contested pursuant to a Permitted Contest) which would, in accordance with GAAP,
be  classified  as a liability  on the balance  sheet of such  Person,  (ii) all
obligations  of such Person to pay the  deferred  purchase  price of property or
services,  including  any such  obligations  created under or arising out of any
conditional  sale or other title retention  agreement,  (iii) all obligations of
such Person (contingent or otherwise) under  reimbursement or similar agreements
with  respect to the  issuance of letters of credit,  (iv) all  indebtedness  or
other obligations of such Person under or in respect of any swap, cap, collar or
other financial hedging  arrangement,  (v) all indebtedness or other obligations
of any other  Person of the type  specified in clause (i),  (ii),  (iii) or (iv)
above, the payment or collection of which such Person has guaranteed  (except by
reason of endorsement  for collection in the ordinary  course of business) or in
respect of which such Person is liable,  contingently  or otherwise,  including,
without  limitation,  liable  by  way  of  agreement  to  purchase  products  or
securities,  to provide funds for payment,  to maintain working capital or other
balance  sheet  conditions or otherwise to assure a creditor  against loss,  and
(vi) all  indebtedness  or other  obligations  of any  other  Person of the type
specified in clause (i), (ii), (iii), (iv) or (v) above secured by (or for which
the holder of such indebtedness has an existing right,  contingent or otherwise,
to be secured by) any Lien, upon or in property (including,  without limitation,
accounts and contract  rights) owned by such Person,  whether or not such Person
has  assumed  or  becomes  liable  for  the  payment  of  such  indebtedness  or
obligations.

        "Indemnified Person" has the meaning set forth in Section 11 hereof.

     "Initial  Term" has the  meaning  set forth in  paragraph  (a) of Section 6
hereof.

        "Insurance  Requirements"  means all  insurance  required to be obtained
with respect to the Facility  and any other  Property or Equipment  from time to
time  pursuant  to  Section  10  hereof  and all terms of any  insurance  policy
covering or applicable to the Facility and such other Property or Equipment, all
requirements of the issuer of any such policy,  all statutory  requirements  and
all orders,  rules,  regulations and other requirements of any governmental body
related to  insurance  applicable  to the  Facility  and such other  Property or
Equipment, including without limitation the Board of Fire Underwriters.

        "Intellectual Property Rights" means, collectively,  all patents, patent
applications,  trademarks (whether registered or not),  trademark  applications,
trade names,  proprietary  computer  software or  copyrights  (or any  licenses,
permits  or  agreements  with  respect  to any of the  foregoing)  necessary  to
construct,  operate,  lease or use the  Facility or any Property or Equipment or
any part thereof.

        "ISO" means the New York Independent System Operator.

        "Leasehold  Mortgage"  means the  leasehold  mortgage to be executed and
delivered  by the  Lessor  with  respect  to the Ground  Lease  relating  to the
Facility  pursuant to Section 8(i) hereof or with respect to any other Parcel of
Property, as the case may be.

     "Lease Rate Date" has the meaning set forth in  paragraph  (b) of Section 7
hereof.

        "Lease Term" means, with respect to the Facility and any other Parcel of
Property or Unit of Equipment,  the Initial Term plus the Extended Term thereof,
if any.

        "Legal  Requirements"  means,  at the  time of  determination,  all then
effective  laws,  judgments,  decrees,  ordinances and regulations and any other
governmental  rules,  orders and determinations and all requirements  having the
force  of law,  now or  hereinafter  enacted,  made or  issued,  whether  or not
presently   contemplated,   and  all  agreements,   covenants,   conditions  and
restrictions,  applicable  to the  Facility  and any other Parcel of Property or
Unit of Equipment  and/or the  ownership,  operation or use thereof,  including,
without limitation, all zoning laws, ordinances, regulations and building codes,
all requirements of labor laws and Environmental  Requirements,  compliance with
which is required  at any time from the date  hereof  through the Lease Term and
any Renewal  Term,  whether or not such  compliance  shall  require  structural,
unforeseen or extraordinary changes to the Facility or such other Parcel or Unit
and or the operation, occupancy or use thereof.

        "Lessee" has the meaning set forth in the first paragraph of this Lease.

        "Lessor"  means LIC Funding,  Limited  Partnership  or any  successor or
successors to all of its rights and obligations as the Lessor hereunder and, for
purposes  of  Section 11 hereof,  shall  include  any  partnership  (general  or
limited),  corporation,  limited liability company,  trust,  individual or other
entity which  computes its liability for income or other taxes on a consolidated
basis with LIC Funding,  Limited Partnership or the income of which for purposes
of such taxes is, or may be,  determined  or affected  directly or indirectly by
the income of the Lessor or its successor or successors.

        "LIBOR Rate" means the rate of interest per annum (rounded  upwards,  if
necessary,  to the  nearest  1/16th of 1%) quoted by The Bank of New York to the
Lessor at or before 10:00 a.m. (New York, New York time) (or as soon  thereafter
as practicable),  for the offering to The Bank of New York by prime banks in the
London  Eurodollar  interbank  market,  at  the  time  of  determination  and in
accordance  with the then usual practice in such market,  of deposits in dollars
for  delivery  on such  date and  having a  maturity  equal to one  month.  Each
determination  by the Lessor of the LIBOR Rate shall be conclusive  and binding,
absent  manifest error,  and may be computed using any reasonable  averaging and
attribution method.

        "Lien" means any security  interest,  mortgage,  pledge,  hypothecation,
assignment,  encumbrance, lien (statutory or other), or other security agreement
of any kind or nature whatsoever (including, without limitation, any conditional
sale  or  other  title   retention   agreement,   any  financing   lease  having
substantially  the same economic effect as any of the foregoing,  and the filing
of any financing  statement under the Uniform  Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).

        "Management  Agreement" means the Management Agreement,  dated as of the
date hereof, between the Lessor and Merrill Leasing, as the same may be amended,
restated, modified or supplemented from time to time.

        "Management Fee" means:

        (a) At each Basic Rent Payment Date during the Initial Term,  the sum of
an amount equal to the sum of:

                 (i)  the Acquisition Cost, multiplied by

                 (ii) a  fraction   having  a  numerator  equal  to  180  and  a
                      denominator of 360, multiplied by

                 (iii)the decimal equivalent of a percentage equal to 0.14%.

        (b) At each Basic Rent Payment Date during the Extended Term, the sum of
an amount equal to the sum of:

                 (i)  the Acquisition Cost, multiplied by

                 (ii) a  fraction   having  a  numerator  equal  to  180  and  a
                      denominator of 360, multiplied by

                 (iii)the decimal equivalent of a percentage equal to 0.13%.

        "Material  Contracts" means any contract entered into by the Lessee with
one or more  Persons  that is material to the sale of electric  capacity  and/or
energy  produced  at the  Facility or any Turbine  Unit or to the  operation  or
maintenance  of the  Facility or any Turbine  Unit or any service in  connection
therewith,  including,  without  limitation,  electric capacity and energy sales
contracts,   operation  and  maintenance   contracts,   fuel  supply  contracts,
transmission  service contracts,  goods and services contracts and all contracts
or subcontracts  that are material to the provision of the services,  materials,
supplies  and  benefits  contemplated  by the Facility  Support  Agreement.  The
Material Contracts existing at the date hereof are listed on Exhibit H hereto.

        "Material  Subsidiary"  means each of  Brooklyn  Union Gas and  Brooklyn
Union East,  and any other  Affiliate of the  Guarantor  which is engaged in the
Core Gas Distribution Business.

     "Merrill Leasing" means ML Leasing Equipment Corp., a Delaware corporation.

        "Merrill Lynch" means Merrill Lynch & Co., Inc., a Delaware corporation.

        "Mortgageable  Ground  Lease" means,  with respect to the Facility,  the
Site Lease, and means, with respect any other Parcel of Property to be subleased
to the Lessee,  a ground lease which is delivered to the Lessor for execution by
the Lessor,  or assigned to the Lessor by an  assignment  in form and  substance
satisfactory to the Lessor, and having such terms and  characteristics as may be
required by the Lessor and any Related Assignee, which terms and characteristics
shall include, without limitation,  the following: (a) free assignability to (i)
any lender as security for a borrowed  money  obligation of the Lessor and, upon
foreclosure  of such  security,  freely  assignable  by such lender to any third
party,  and (ii) any purchaser in connection with a sale of such other Parcel of
Property  pursuant to the  provisions  of this Lease (the Lessor and any Related
Assignee  being  released  from  liability  upon  such  assignment);  (b) a term
(including  renewals)  of at least ten (10) years in excess of the Lease Term of
such  other  Parcel of  Property  to which such  ground  lease  relates;  (c) no
provisions  for  percentage or variable  rent; (d) permit any lawful use; (e) no
provision for a security deposit; (f) a requirement that any Related Assignee or
any lender  will  receive  copies of all notices of default  delivered  under or
pursuant to such ground lease;  (g) a provision that any Related Assignee or any
lender shall have the right to cure any defaults thereunder (whether monetary or
nonmonetary  in  nature),  and in the event of such cure to receive a new ground
lease on the same terms as the original ground lease;  (h) a no recourse section
in  accordance  with  the  language  set  forth  in  Section  31  hereof;  (i) a
prohibition  of any  mortgages  or other  Liens on the  underlying  fee,  except
Permitted  Liens;  and (j) no provision  requiring  the Lessor to indemnify  any
Person.  A  Mortgageable  Ground  Lease shall be  delivered  with such  estoppel
certificates,   recognition  and  attornment  agreements,   or  confirmation  of
customary  mortgagee  protection as are reasonably  acceptable to the Lessor and
any Related  Assignee.  The Site Lease is a  Mortgageable  Ground Lease and each
other Ground Lease shall be a Mortgageable Ground Lease.

        "1935 Act" means the Public  Utility  Holding  Company  Act of 1935,  as
amended  from  time to time,  and the rules  and  regulations  from time to time
issued, published or promulgated pursuant thereto.

        "Notes" means the 6.91% Senior Notes due 2009 in an aggregate  principal
amount of  $412,250,000,  issued by the  Lessor  pursuant  to the Note  Purchase
Agreement.

        "Note Purchase Agreement" means, collectively, the several Note Purchase
Agreements, each dated as of June 9, 1999, between the Lessor and the purchasers
of the Notes,  as the same may be amended,  restated,  modified or  supplemented
from time to time.

        "Operative Documents" means this Lease, the Guaranty, each Ground Lease,
each  Consent,  the Facility  Support  Agreement,  the Purchase  Agreement,  the
Purchase  Agreement  Assignment,  the SNDA  (as  defined  in the  Note  Purchase
Agreement),  the Landlord's Consent (as defined in the Note Purchase  Agreement)
and each agreement,  certificate,  instrument or other writing  delivered by the
Lessee or the Guarantor in connection with any of the foregoing.

        "PCBs" means polychlorinated biphenyls.

     "Permitted  Contest" has the meaning set forth in paragraph  (a) of Section
28 hereof.

        "Permitted  Liens" means the  following  Liens and other  matters now or
hereafter  affecting  title to the  Facility or any other  Parcel of Property or
Unit of  Equipment:  (i) Liens  securing the payment of taxes,  assessments  and
other  governmental  charges or levies  which are either not  delinquent  or, if
delinquent,  are being  contested  by the  Lessee in good  faith as a  Permitted
Contest   (provided  that  the  Lessee  is  in  compliance   with  any  security
requirements  under paragraph (b) of Section 28 hereof relating  thereto);  (ii)
with respect to the Facility and the  Additional  Property,  zoning and planning
restrictions,  subdivision and platting restrictions;  (iii) with respect to any
other  Parcel of Property,  easements,  rights-of-way,  licenses,  reservations,
covenants,  conditions,  waivers and  restrictions  on the use of such Parcel of
Property,  minor  encroachments or minor  irregularities  of title none of which
individually  or in the  aggregate  could  reasonably  be expected to materially
impair the intended use or value of such Parcel;  (iv)  reservations  of mineral
interests,  none of which can reasonably be expected to impair the intended use,
actual  use,  operation,  leasing,  ownership  or  value  of the  Facility;  (v)
mechanics',  carriers',  workers', repairers' and other similar liens arising or
incurred in the ordinary course of business  relating to obligations as to which
there is no default on the part of the Lessee or the validity of which are being
contested in good faith as a Permitted  Contest and which, in the aggregate,  do
not exceed $5,000,000; (vi) the title matters set forth in the title policies or
specimen  title  policies  issued  in  favor  of the  Lessor  by  various  title
companies,  on the date  hereof or the  Effective  Date in  respect of any other
Parcel of Property or Unit of Equipment,  as the case may be; (vii) with respect
to the Facility and the Additional Property, all matters disclosed on the survey
prepared by GEOD  Corporation  or, with respect to any other Parcel of Property,
all matters  disclosed  on the survey  prepared  with  respect to such Parcel of
Property and any other facts that would be  disclosed by an accurate  survey and
physical  inspection  of  such  Parcel  of  Property;  (viii)  restrictions  and
regulations imposed by the ISO, any Governmental  Authority or any local, state,
regional,  national or international  reliability council;  (ix) with respect to
the  Facility  and the  Additional  Property,  the Liens  created  by the Lessor
pursuant  to or as  contemplated  by the  Collateral  Indenture  or any  Finance
Document (as defined in the Note Purchase Agreement),  and with respect to other
Property  or  Equipment,  the Liens on or in respect of such other  Property  or
Equipment  created by the Lessor pursuant to or as contemplated by this Lease or
any Financing Arrangement; (x) leases and licenses in effect with respect to the
Facility,  the Additional Property or any Parcel of Property which are permitted
by this  Lease or which are  delivered  to and  accepted  by the  Lessor and the
Related  Assignee prior to the Facility's or such Parcel's  Effective  Date; and
(xi) such  other or  additional  matters  as may be  approved  in writing by the
Lessor and, in the case of the Facility or the Additional Property,  the Related
Assignee,  and in the case of any  other  Property  or  Equipment,  any  Related
Assignee  with respect  thereto;  provided,  that solely for the duration of the
Post-Closing  Period,  the term "Permitted Liens" shall include such other Liens
which would not,  individually  or in the  aggregate,  reasonably be expected to
materially impair the continued use and operation of the Facility.

        "Person"  means  any  individual,   corporation,   partnership,  limited
liability  company,   private  limited  company,  joint  venture,   association,
joint-stock  company,  trust,  unincorporated  organization of government or any
agency or political subdivision thereof.

        "Pilko Environmental Report" means the Phase I Environmental  Assessment
of Ravenswood Generating Station prepared by Pilko & Associates, Inc., dated May
28, 1999, as supplemented by letter from Pilko & Associates, Inc., dated June 8,
1999.

     "Possessory  Remedy" has the meaning set forth in paragraph  (o) of Section
2(i) hereof.

     "Post-Closing Period" has the meaning set forth in paragraph (i) of Section
2(ii) hereof.

        "Potential Default" means any event which, but for the lapse of time, or
giving of notice, or both, would constitute an Event of Default.

        "Private Placement  Memorandum" means the Confidential Private Placement
Memorandum dated April 1999,  prepared with respect to the offering of the notes
sold pursuant to the Note Purchase Agreement,  together with Appendices A, B and
C attached thereto.

        "Property" means any and all parcels of land together with all buildings
and  other  improvements  (including,   without  limitation,   the  attachments,
appliances, equipment, machinery and other affixed property which, in each case,
would constitute  "fixtures" under Section 9-313(l)(a) of the Uniform Commercial
Code) now or hereafter  located on such parcels of land,  leased or to be leased
hereunder  and,  when  leased,  evidenced  by  Unit  Leasing  Records,  and  the
respective easements, rights and appurtenances relating to such parcels of land,
buildings and  improvements.  "Parcel" or "Parcel of Property"  means a specific
parcel or parcels of Property.  This  definition of "Property"  does not include
any Additional Property.

        "Prudent  Utility  Practice"  means,  as the context may  require,  at a
particular  time any of the  practices,  methods  and acts  (including,  without
limitation,  methods or acts  engaged in or approved  by at least a  substantial
portion of the  electric  utility  industry  prior  thereto)  which,  (i) in the
exercise  of the  Lessee's  reasonable  judgment  in light of the  facts and the
characteristics of the Facility or other Property or Equipment known at the time
the decision was made, would have been expected to accomplish the desired result
at  the  lowest  reasonable  cost  consistent  with   reliability,   safety  and
expedition,  good customer  relations and, except as otherwise  permitted by the
last  sentence  of  paragraph  (c)  of  Section  8  hereto,   applicable   Legal
Requirements  and  (ii) are  consistent  with the  practices,  methods  and acts
employed by the Lessee with respect to electric generating facilities of similar
design,  construction  and  regulatory  status  as,  and at such time  similarly
situated to, the Facility or such other Property or Equipment.  "Prudent Utility
Practice" is not intended to be limited to the optimum practice,  method or act,
to the exclusion of all others,  but rather to be a spectrum of  reasonable  and
prudent practices, methods or acts.

        "Purchase  Agreement"  means the Generating  Plant and Gas Turbine Asset
Purchase and Sale Agreement, dated as of January 28, 1999, as amended on May 24,
1999, and as further amended by the Purchase Agreement  Assignment,  between Con
Edison and the Guarantor, including the schedules and exhibits thereto.

        "Purchase  Agreement  Assignment" means the Second  Amendment,  Consent,
Assignment  and  Assumption  Agreement,  dated as of June 18,  1999,  among  the
Guarantor,  the Lessee,  KeySpan-Ravenswood  Services Corp.,  Con Edison and the
Lessor,  pursuant to which the  Guarantor  assigns to the Lessor  certain of the
Guarantor's  rights under the Purchase Agreement to acquire the Facility Assets,
as the same may be  amended,  restated,  modified or  supplemented  from time to
time.

     "Recordable  Documents"  has the  meaning  set  forth in  paragraph  (i) of
Section 8 hereof.

     "Recording  Event" has the meaning set forth in paragraph  (i) of Section 8
hereof.

        "Related  Assignee"  means,  (A)  with  respect  to  the  Facility,  the
Collateral Trustee, and (B) with respect to any other Parcel of Property or Unit
of  Equipment,  the  respective  trustee or agent under  Financing  Arrangements
pursuant to which such  trustee or agent  provided,  and/or acted in a fiduciary
capacity for lenders which  provided,  credit support or other  financing to the
Lessor and to which an interest in this Lease or in any other Parcel of Property
or Unit of Equipment  was assigned  conditionally  or otherwise by the Lessor in
accordance  with Section 21. For purposes of paragraphs (d), (e), (f) and (o) of
Section 2(i),  paragraphs  (d) and (e) of Section 5, paragraph (b) of Section 9,
paragraph  (a) of Section 10, the last  sentence of clause (ii) of paragraph (d)
of Section  10,  clause  (iv)  (other  than the last  reference  to the  Related
Assignee  therein) of paragraph (d) of Section 10,  paragraph (h) of Section 10,
Section 11,  Section 14,  clause (iv) of paragraph (j) of Section 18, the second
reference in paragraph five of Section 19,  paragraph (b) of Section 21, Section
27, and clause (iii) of paragraph  (a) of Section 28 hereof,  the term  "Related
Assignee"  shall include each of the purchasers and holders from time to time of
the Notes and for purposes of paragraphs (d), (f), (g) and (h) of Section 2(ii),
paragraph (b) of Section 5,  paragraphs  (d), (h),  (i)(x) and (i)(A) and (D) of
Section 8,  paragraph  (e) of Section 9,  paragraphs  (b),  (c),  (e) and (f) of
Section 10 and clauses (x) and (xi) of the definition of "Permitted  Liens", the
term "Related  Assignee"  shall include each of the Qualifying  Noteholders  (as
defined in the Note Purchase Agreement).  In addition, if any action,  inaction,
matter,  consent or approval under this Lease is required to be performed or not
to be performed or occurs and the same will directly or  indirectly  affect both
the  Facility and any other  Parcel of Property or Unit of  Equipment,  then the
applicable  references to the "Related Assignee" shall be deemed to include each
Related  Assignee  with respect to the  Facility,  Parcel of Property or Unit of
Equipment, as applicable.

        "Release"  means  the  release,  spill,  emission,   leaking,   pumping,
injection, deposit, disposal,  discharge,  dispersal, leaching or migrating into
the  indoor or outdoor  environment  of any  Contaminant  through or in the air,
soil, surface water, groundwater, or any structure.

        "Remedial  Action" means actions  required or otherwise  undertaken by a
Governmental Authority, or which are appropriate as a matter of prudent business
practice and commercial reasonableness, to (i) investigate,  remediate, contain,
isolate, remove, treat or in any other way address Contaminants in the indoor or
outdoor environment; (ii) address the threatened Release of Contaminants;  (iii)
investigate if a Release or threat of a Release has occurred or to determine the
extent of a Release;  (iv) perform a risk analysis relating to Contaminants that
have been  Released;  or (v) perform  post-remedial  investigation,  monitoring,
operation, maintenance and care.

     "Removable  Improvements"  has the  meaning set forth in  paragraph  (b) of
Section 8 hereof.

     "Renewal  Term" has the  meaning set forth in  paragraph  (c) of Section 13
hereof.

        "Responsible Officer" shall mean the President,  any Vice President, the
Treasurer or any Assistant  Treasurer of the Lessee, or any other officer of the
Lessee primarily  responsible for the  administration  of the obligations of the
Lessee with respect to this Lease.

     "SEC" means the Securities and Exchange Commission, or any successor agency
thereto.

     "Segregated  Unit" has the meaning set forth in paragraph (a) of Section 13
hereof.

        "Semi-Annual  Cost of Debt"  means,  with respect to the Facility or any
other Parcel of Property or Unit of  Equipment  leased  hereunder,  the weighted
average  percentage  cost per  annum  (including  as part of such  cost any fees
payable under or pursuant to any Financing Arrangements relating to the Facility
or such Parcel or Unit) of borrowings outstanding under the applicable Financing
Arrangements  (whether or not  interest  is  accruing at a default  rate) at any
time,  in each case,  during the period from and  including  the 16th day of the
calendar  month in which the  semi-annual  period for which  Basic Rent is being
computed  begins to and  including  the 15th day of the calendar  month in which
such semi-annual period ends (the "Computation  Period") to finance or refinance
the acquisition and ownership of the Facility or such Property or Equipment,  as
the case may be.

        "Site Lease" means the Ground Lease and Easement Agreement,  dated as of
June 18, 1999,  between the Lessee, as ground lessor,  and the Lessor, as ground
lessee,  pursuant to which a leasehold  interest in the  Facility  Site is being
leased and non-terminable rights to the Additional Property are being granted to
the Lessor, as the same may be amended, restated,  modified or supplemented from
time to time.

     "Taking" has the meaning set forth in paragraph (a) of Section 16 hereof.

        "Termination Covenants" means the following covenants made by the Lessee
to the Lessor as a condition  to the sale of the Facility or any other Parcel of
Property or Unit of Equipment pursuant to Section 12 hereof: on the date of such
sale (a) no Event of Default, Potential Default, Event of Loss or Event of Lease
Termination  shall have  occurred  and be  continuing  and the Lessee shall have
delivered to the Lessor and the Related  Assignee a certificate of a Responsible
Officer to such effect, (b) the Facility, the Additional Property or such Parcel
or Unit shall not be undergoing any repairs, additions or alterations that could
reasonably  be expected to diminish (by more than a de minimus  amount) the fair
market value, utility or remaining economic useful life which the Facility,  the
Additional  Property or such Parcel or Unit would have had at such time had such
repair,  addition or alteration not been undergoing (assuming the Facility,  the
Additional Property or such Parcel or Unit is in the condition required hereby),
(c) the  Facility,  the  Additional  Property or such Parcel or Unit shall be in
compliance  with all Legal  Requirements,  (d) the Lessee shall, at its expense,
deliver to the Lessor an  Environmental  Report  prepared  by the  Environmental
Consultant  satisfactory  in scope and  content to the  Lessor  and the  Related
Assignee in their reasonable discretion, to the effect that (i) no Environmental
Matters  exist with respect to the  Facility,  the  Additional  Property or such
Parcel or Unit as a result of the construction, operation and maintenance of the
Facility,  the Additional Property or such Parcel or Unit and (ii) the Facility,
the Additional  Property or such Parcel or Unit may be commercially  operated in
compliance with  Environmental  Requirements and (e) the Lessee shall deliver to
the  Lessor  and the  Related  Assignee  a  report  of an  independent  engineer
reasonably  satisfactory to the Lessor and the Related  Assignee,  to the effect
that (i) the Facility or such Parcel or Unit has been maintained in all material
respects in accordance with the terms and conditions of Section 9 of this Lease,
(ii) the  Facility  or such  Parcel  or Unit is  capable  of being  operated  in
accordance  with (A) the Capacity of the Facility or such Unit,  as the case may
be, taking into account  ordinary wear and tear  resulting from the operation of
the Facility or such Unit, (B) Prudent  Utility  Practice and (C) all applicable
Environmental Requirements,  and (iii) the proposed sale of such other Parcel or
Unit will not adversely affect the operation of the Facility.

        "Termination Event Date" has the meaning set forth in Section 14 hereof.

     "Termination  Notice" has the meaning set forth in paragraph (a) of Section
12 hereof.

     "Termination  Settlement  Date" has the  meaning  set forth in  Section  14
hereof.

        "Turbine  Unit"  means  Unit 1,  Unit 2 or Unit 3,  or,  if the  context
otherwise requires,  any other Unit of Equipment which is an electric generating
facility, as the case may be.

        "Unit  1"  means  the  Property  and  the   improvements  and  Equipment
(including  all  related  appliances,   appurtenances,   accessions,   controls,
interconnection facilities,  transmission lines, wiring, furnishings,  materials
and  parts,  and  other  related  facilities  and  equipment,   along  with  any
replacements thereof) constructed thereon, which constitute an approximately 385
megawatt steam turbine  generator,  as more particularly  described in Exhibit E
hereto.

        "Unit  2"  means  the  Property  and  the   improvements  and  Equipment
(including  all  related  appliances,   appurtenances,   accessions,   controls,
interconnection facilities,  transmission lines, wiring, furnishings,  materials
and  parts,  and  other  related  facilities  and  equipment,   along  with  any
replacements thereof) constructed thereon, which constitute an approximately 385
megawatt steam turbine  generator,  as more particularly  described in Exhibit E
hereto.

        "Unit  3"  means  the  Property  and  the   improvements  and  Equipment
(including  all  related  appliances,   appurtenances,   accessions,   controls,
interconnection facilities,  transmission lines, wiring, furnishings,  materials
and  parts,  and  other  related  facilities  and  equipment,   along  with  any
replacements thereof) constructed thereon, which constitute an approximately 972
megawatt steam turbine  generator,  as more particularly  described in Exhibit E
hereto.

        "Unit Leasing Record" means an instrument,  substantially in the form of
Exhibit B hereto,  evidencing  the lease of the  Facility or any other Parcel or
Parcels of Property or Unit or Units of Equipment under this Lease.

     "Unit Purchase Price" has the meaning set forth in paragraph (b) of Section
13 hereof.

        SECTION 2.        REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.

        (i)    The Lessee represents and warrants to the Lessor:

        (a) Corporate Matters.  The Lessee (i) has been duly incorporated and is
validly  existing as a corporation  in good standing under the laws of the State
of New York, (ii) has all requisite power,  authority and legal right to own and
operate its  properties  and to conduct its business as presently  conducted and
proposed to be conducted  after giving effect to the  transactions  contemplated
hereby and to execute, deliver and perform its obligations under this Lease, any
other Operative Document to which it is a party and any Material  Contract,  and
(iii) is duly qualified to do business as a foreign corporation in good standing
in each  jurisdiction  in which its  ownership or leasing of  properties  or the
conduct of its business requires such qualification, except where the failure to
so qualify would not impair the ability of the Lessee to perform its obligations
under the Operative Documents to which it is a party.

        (b) Binding Agreements.  This Lease and each other Operative Document to
which it is a party have been duly  authorized,  executed  and  delivered by the
Lessee and, assuming the due authorization, execution and delivery or acceptance
of this Lease and such Operative  Documents by the other parties  thereto,  this
Lease and each such Operative Document are legal, valid and binding  obligations
of the Lessee,  enforceable  according to their respective terms,  except (i) as
the same may be limited by applicable  bankruptcy,  insolvency,  reorganization,
moratorium or similar laws now or hereafter in effect  relating to creditor's or
lessor's rights generally and (ii) for the application of equitable  principles,
whether applied by a court of equity or law.

        (c) Compliance with Other Instruments. The execution and delivery by the
Lessee of this Lease and any other Operative Document to which it is a party and
the  performance  by the  Lessee of the  transactions  contemplated  hereby  and
thereby,  and the performance of any Material  Contract,  will not result in any
violation of any term of the certificate of  incorporation or the by-laws of the
Lessee,  do not require  stockholder  approval or the approval or consent of any
trustee or  holders  of  Indebtedness  of the  Lessee  except  such as have been
obtained  prior to the date  hereof  and will not  conflict  with or result in a
breach of any terms or provisions of, or constitute a default  under,  or result
in the creation or imposition of any Lien (other than a Permitted Lien) upon any
property  or  assets of the  Lessee  under,  any  indenture,  mortgage  or other
material  agreement or  instrument to which the Lessee is a party or by which it
or any  of  its  property  is  bound,  or any  existing  applicable  law,  rule,
regulation,  license, judgment, order or decree of any Governmental Authority or
court  having  jurisdiction  over  the  Lessee  or  any  of  its  activities  or
properties.

        (d)  Governmental  Consents.  There are no consents,  licenses,  orders,
authorizations, approvals, Environmental Approvals, permits, waivers, extensions
or variances of, or notices to or registrations or filings with any Governmental
Authority  (each  a  "Governmental  Action")  which  are  required  under  Legal
Requirements  applicable  to the Lessee or any of its  Affiliates  in connection
with the valid  execution,  delivery and  performance of this Lease or any other
Operative  Document,  and no Governmental  Action (i) is required to be obtained
during the term of this  Lease with  respect  to the  Facility,  the  Additional
Property  or  any  other  Property  or  Equipment,   solely  by  reason  of  any
participation by the Lessor,  any Related Assignee,  the Lessee,  Merrill Lynch,
Merrill  Leasing  or any  Affiliate  of the  foregoing  in  connection  with the
transactions  contemplated  by this Lease,  any other  Operative  Document,  the
Purchase  Agreement,  the Purchase  Agreement  Assignment,  or any bill of sale,
deed,  assignment,  assumption or ownership  agreement relating to the Facility,
the Additional Property or any other Property or Equipment,  or (ii) is required
in connection with the acquisition,  operation,  ownership, leasing or financing
of the Facility,  the Additional Property or any other Property or Equipment (or
any part  thereof) or the sale or delivery of electric  capacity and energy from
the Facility or any Turbine Unit, except such  Governmental  Actions (A) as have
been duly filed,  obtained,  given or  accomplished,  with true  copies  thereof
delivered to the Lessor and the Related  Assignee (except for filings to be made
upon the occurrence of a Recording Event),  (B) as may be required by applicable
law  not  now in  effect,  (C) as  are  building,  occupancy  or  other  routine
Governmental Actions, including without limitation the transfer into the name of
the Lessee of existing Governmental Actions with respect to the Facility,  which
are described on Exhibit G hereto and are  obtainable in the ordinary  course of
business,  but only if the  failure to obtain such  Governmental  Actions by the
date  hereof  could not (x)  impair the  ability  of the  Lessee to perform  its
obligations  under this Lease or the other Operative  Documents to which it is a
party,  (y)  reasonably  be  expected  to  materially  impair the ability of the
Facility or any Turbine Unit to perform in  commercial  operation and to operate
substantially at its Capacity or (z) result in an Event of Lease  Termination or
an event described in clause (A), (B) or (C) of Section 15(c) hereof, (D) as may
be required  upon the  exercise of  Possessory  Remedies,  or (E) which,  if not
obtained or effected,  would not,  individually or in the aggregate,  (x) impair
the  ability of the Lessee to perform  its  obligations  under this Lease or the
other Operative  Documents to which it is a party, (y) reasonably be expected to
materially  impair the ability of the Facility or any Turbine Unit to perform in
commercial operation and to operate  substantially at its Capacity or (z) result
in an Event of Lease Termination or an event described in clause (A), (B) or (C)
of Section  15(c)  hereof.  Governmental  Actions  referred to in clause (A) are
listed in  Exhibit G hereto  and are in full  force and  effect  and,  except as
otherwise  set forth on  Exhibit G hereto,  no such  Governmental  Action is the
subject of appeal or  reconsideration  or other review, and the time in which to
make an appeal or request the  reconsideration  of any such Governmental  Action
has expired without any appeal or request for review or  reconsideration  having
been taken or made.

        (e) Changes.  Since March 31, 1999,  there has been no material  adverse
change in the business,  assets,  properties,  revenues,  financial condition or
operations of the Lessee,  nor any change which could  reasonably be expected to
have a material  adverse  effect on (i) the ability of the Lessee to observe and
perform its  obligations  under this Lease or the other  Operative  Documents to
which it is a party in a timely  manner or (ii) the rights or  interests  of the
Lessor or any Related Assignee under the Operative Documents.

        (f) Litigation. There is no action, suit, proceeding or investigation at
law or in equity by or before any court,  governmental body, agency,  commission
or  other  tribunal  now  pending  or,  to the  best  knowledge  of the  Lessee,
threatened  against or  affecting  the Lessee or any  property  or rights of the
Lessee which (i)  questions  the  validity or  enforceability  of any  Operative
Document,  (ii) could reasonably be expected to materially  adversely affect the
Facility,  the  Additional  Property or any other  Parcel of Property or Unit of
Equipment,  (iii) could reasonably be expected to have a material adverse effect
on the business, assets, properties, revenues, financial condition or operations
of the Lessee or (iv) if adversely  determined,  would (x) materially impair the
ability of the Lessee to perform its obligations  under the Operative  Documents
to which  it is a party or (y)  result  in an Event of Lease  Termination  or an
event  described  in  clause  (A),  (B) or  (C) of  Section  15(c)  hereof.  The
representations  and  warranties  of the Lessee set forth in this  paragraph (f)
shall  not  apply  to   environmental   matters,   with  respect  to  which  the
representations and warranties set forth in paragraph (u) of Section 2(i) hereof
shall exclusively apply.

        (g) No Default, Etc. No Event of Lease Termination has occurred,  and no
event has occurred and no  condition  exists which would  constitute a Potential
Default or an Event of Default under this Lease.

        (h) Compliance with Legal Requirements and Insurance  Requirements.  The
operation,  use and physical condition of the Facility,  the Additional Property
and any  other  Property  and  Equipment  (i) are in full  compliance  with  all
Insurance  Requirements  and all  premiums  due with  respect to such  Insurance
Requirements  have  been  paid and (ii) are in full  compliance  with all  Legal
Requirements,  except  any Legal  Requirements  the  noncompliance  with  which,
individually or in the aggregate, would not (x) impair the ability of the Lessee
to perform its obligations under this Lease or the other Operative  Documents to
which it is a party, (y) reasonably be expected to materially impair the ability
of the  Facility  and each  Turbine  Unit to  perform  in  commercial  operation
substantially at its Capacity or (z) result in an Event of Lease  Termination or
an event  described  in clause  (A),  (B) or (C) of Section  15(c)  hereof.  The
representations  and  warranties  of the Lessee set forth in this  paragraph (h)
shall  not  apply  to   environmental   matters,   with  respect  to  which  the
representations and warranties set forth in paragraph (u) of Section 2(i) hereof
shall exclusively apply.

        (i) Liens.  Neither the Facility,  the Additional Property nor any other
Parcel of Property or Unit of Equipment is subject to any Lien, except Permitted
Liens,  and  none of such  Permitted  Liens  could  reasonably  be  expected  to
materially interfere with the use or possession of the Facility,  the Additional
Property  or such  Parcel or Unit or the use or  exercise  by the  Lessor of its
rights  under this Lease or any other  document  contemplated  hereby or entered
into in connection herewith.

        (j)  Status  of  Lessee.  All of the  Lessee's  common  stock  is  owned
beneficially and of record by the Guarantor.

        (k)  Guaranty.  The  Guaranty  has been duly  authorized,  executed  and
delivered by the Guarantor and is a legal,  valid and binding  obligation of the
Guarantor,  enforceable  according  to its terms,  except (i) as the same may be
limited by  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
similar  laws now or  hereafter  in effect  relating to  creditor's  or lessor's
rights generally and (ii) for the application of equitable  principles,  whether
applied by a court of equity or law.

        (l) Facility Support Agreement.  The Facility Support Agreement has been
duly  authorized,  executed and  delivered  by the Lessee and,  assuming the due
authorization,  execution and delivery of the Facility Support  Agreement by the
Lessor,  is a legal,  valid and binding  obligation  of the Lessee,  enforceable
according  to its terms,  except  (i) as the same may be  limited by  applicable
bankruptcy,  insolvency,  reorganization,  moratorium  or  similar  laws  now or
hereafter in effect relating to creditor's or lessor's rights generally and (ii)
for the  application  of  equitable  principles,  whether  applied by a court of
equity or law.

        (m) Ground  Lease.  The Site Lease and each other  Ground Lease has been
duly authorized,  executed and delivered by the Lessee, as the fee owner, and is
a legal, valid and binding obligation of the Lessee enforceable according to its
terms,  except  (i) as  the  same  may  be  limited  by  applicable  bankruptcy,
insolvency,  reorganization,  moratorium  or similar  laws now or  hereafter  in
effect  relating to  creditor's  or lessor's  rights  generally and (ii) for the
application  of equitable  principles,  whether  applied by a court of equity or
law. The Site Lease and each other Ground Lease is a  Mortgageable  Ground Lease
except to the extent  agreed to in writing by the Lessor and  Related  Assignee,
and is in full force and effect.

        (n) 1935 Act. The Lessee is not subject to  regulation  by the SEC under
the 1935 Act as a "public-utility  company" or a "holding  company",  within the
meaning of the 1935 Act.

        (o)  Regulation.  Neither the Lessor,  any Related  Assignee  nor any of
their  respective  Affiliates  shall,  solely by reason of (i) its entering into
this Lease or any other  document  contemplated  hereby,  (ii) the  acquisition,
ownership, leasing or financing of the Facility or any Turbine Unit (or any part
thereof) or (iii) the  operation by the Lessee or any Affiliate of the Lessee of
the Facility or any Turbine Unit in accordance  with and as  contemplated by the
Material  Contracts  and this  Lease,  be deemed  during  the Lease  Term or any
Renewal Term to be, and be subject to financial,  rate, utility or other similar
regulation  as, a public  utility,  or an electric  utility or a public  utility
holding company under any Legal Requirement (including any Legal Requirement (A)
under the 1935 Act, (B) imposed by any state or local public utility  commission
or other similar  regulatory body,  authority or group having  jurisdiction over
the Lessor or the Lessee or any such  transactions  or activities,  or (C) under
the Federal Power Act, as amended (the  "FPA")),  except (other than in the case
of (A)) in connection  with the exercise of any remedy under which the Lessor or
the  Related  Assignee  or any of their  respective  Affiliates  would  operate,
possess or control the Facility or any Turbine Unit (a "Possessory Remedy"). All
Governmental Actions necessary to accomplish this result are listed on Exhibit G
hereto and have been duly  obtained,  given or  accomplished,  with true  copies
thereof delivered to the Lessor.

        (p) Operation of the Facility and Turbine Units.  Except as set forth in
the Engineering  Report or on Schedule 2(i)(p) hereto,  to the best knowledge of
the Lessee, (i) the operation and maintenance  programs relating to the Facility
and each Turbine Unit are consistent  with Prudent  Utility  Practice,  (ii) the
Facility  and each Turbine  Unit have the  capacity  and  functional  ability to
perform in commercial operation  substantially at its Capacity and in accordance
with Prudent  Utility  Practice and (iii) there is no present event or condition
which would  materially  adversely  affect the capability of the Facility or any
Turbine Unit to operate  substantially at its Capacity.  (w) No real property or
equipment  of any kind  other  than  the  Additional  Property  is  required  in
connection with the operation of the Facility,  (x) the Easements granted to the
Lessor  under the Site Lease  provide the Lessor with access to the Facility and
each  Turbine  Unit  or  the  Additional   Property,   as  applicable,   (y)  no
condemnation, eminent domain or similar proceeding has been commenced or, to the
Lessee's  knowledge,  is contemplated  with respect to all or any portion of the
Facility  Site or the  Additional  Property  or for the  relocation  of roadways
providing  access to the Facility Site and (z) the Facility Site contains  valid
and enforceable rights of pedestrian and vehicular access to an open public road
by an Easement appurtenant to and running with the Facility Site.

        A true, correct and accurate list of all Facility Assets that the Lessor
owns is attached  hereto as Exhibit E. A true,  correct and accurate list of all
Additional Property is attached hereto as Exhibit I.

        True and correct copies of the Engineering Report have been delivered to
the Lessor and the  Related  Assignee,  and all  material  Governmental  Actions
relating to the operation or  maintenance  of the Facility and each Turbine Unit
are listed on Exhibit G hereto and, to the extent obtained on or before the date
hereof, have been delivered to the Lessor and the Related Assignee.

        (q) Title to Facility and Facility  Assets.  Good,  marketable and valid
title to, or a valid  leasehold  interest in, the Facility  (including,  without
limitation,  the Facility  Assets) and any other  Property or Equipment has been
duly,  validly and  effectively  conveyed and transferred to the Lessor free and
clear of all Liens, except Permitted Liens, which representation and warranty is
given by the Lessee to induce the Lessor to acquire the  Facility and such other
Property or  Equipment  and to lease such assets to the Lessee  pursuant to this
Lease.  The Lessee has good,  marketable  and valid title to or,  except for the
revocable consents described on Exhibit G hereto,  non-terminable  rights to use
the  Additional  Property  and the Site Lease  duly  provides  the  Lessor  with
non-terminable use and access rights to the Additional Property.

        (r) Utility  Availability.  All utilities  required for the operation of
the Facility and any other  Property and Equipment,  including,  but not limited
to, potable water supply, gas, electric and telephone  facilities,  are (i) with
respect to the Facility, to the best knowledge of the Lessee,  available for use
at the boundaries of the Facility Site,  (ii) with respect to any other Property
and  Equipment,  to the best  knowledge of the Lessee,  available for use at the
boundaries of, or a reasonable distance from, the Parcel of Property as to which
a Ground  Lease  has  been  executed  and  (iii) in any  case,  arrangements  on
commercially  reasonable terms have been made for the provision of such services
to the Facility or such other Parcel of Property, as the case may be.

        (s) Accuracy of Appraisals. (i) Any written information furnished by the
Lessee to the Appraiser  for use by the  Appraiser in its appraisal  report with
respect to the Facility or any other  Property or Equipment  was accurate in all
material  respects when furnished and is accurate in all material respects as of
the date hereof.  (ii) The projections  furnished by the Lessee to the Appraiser
for use by the  Appraiser in its  appraisal  report with respect to the Facility
were prepared in good faith and the Lessee believes that the assumptions used in
preparing such projections are reasonable.

        (t)  Intellectual  Property.  To the best  knowledge of the Lessee,  all
patents,  copyrights,  trademarks,  trade  secrets,  computer  software or other
intellectual  property  rights  that  are  material  and  are  required  for the
operation of the Facility and any Property or Equipment in  accordance  with and
as contemplated by this Lease, the Facility  Support  Agreement and the Material
Contracts,  have been timely  obtained and are and will remain in full force and
effect. To the best knowledge of the Lessee, the Lessee owns or has the right to
use all  technology,  licenses,  patents and other  proprietary  rights that are
material and are required to perform the Lessee's obligations under the Material
Contracts without any conflict with the rights of others.

        (u) Environmental Representations. Except as expressly identified in the
Pilko Environmental Report and except for such matters which, individually,  are
not reasonably  likely to result in or require  remedial  activities or fines or
penalties in excess of $10,000:

               (i) Except as set forth on Schedule  2(i)(u) hereto,  to the best
knowledge of the Lessee, the Lessee, the Facility,  the Additional  Property and
other Property and Equipment are in compliance  with, and have at all times been
in compliance with,  applicable  Environmental  Requirements with respect to the
business and operations of the Facility,  the Additional  Property and any other
Property and Equipment,  and no material capital expenditures are anticipated to
maintain or achieve compliance with Environmental Requirements;

               (ii) The Lessee has obtained or has taken  appropriate and timely
steps, as required by Environmental  Requirements,  to obtain all  Environmental
Approvals  required  in  connection  with the  ownership  and  operation  of the
Facility,  the Additional  Property and other  Property and Equipment,  all such
Environmental  Approvals  already obtained are in good standing,  and the Lessee
and the Facility,  the Additional  Property or such other Property and Equipment
are  currently  in material  compliance  with all terms and  conditions  of such
Environmental  Approvals.  To the best knowledge of the Lessee, no change in the
facts or  circumstances  reported  or  assumed  in the  applications  for or the
granting of such Environmental  Approvals exists.  There are not any proceedings
pending  or,  to the  best  knowledge  of the  Lessee,  threatened  which  would
jeopardize the validity of any such Environmental Approvals;

               (iii) Except as set forth on Schedule 2(i)(u) hereto,  the Lessee
has not received from any party,  and has no knowledge of, any written notice of
violation of, or potential liability under, any Environmental Requirement or any
written request for information  with respect  thereto,  nor has the Lessee been
notified or is otherwise  aware that it or any  predecessor in interest or title
is a potentially responsible party under the Federal Comprehensive Environmental
Response,  Compensation,  and Liability Act  ("CERCLA") or any similar state law
with respect to the Facility,  the Additional  Property or any other Property or
Equipment;

               (iv) Except as set forth on Schedule 2(i)(u) hereto, with respect
to the business and operations of the Facility,  the Additional Property and any
other  Property  and  Equipment,  the Lessee is not  subject to any  outstanding
judgment, decree or judicial order relating to compliance with any Environmental
Requirement or to investigation or cleanup of Contaminants  under any applicable
Environmental Requirement;

               (v) Except as set forth in Schedule 2(i)(u) hereto,  there are no
claims,  actions,  proceedings  or  investigations  pending,  or,  to  the  best
knowledge  of the Lessee,  threatened  against or  relating  to the Lessee,  the
Facility,  the Additional  Property or any other  Property and  Equipment,  with
respect to the exposure at the Facility,  the Additional Property and such other
Property and Equipment of any person to Contaminants, or otherwise arising under
Environmental Requirements;

               (vi) No  Environmental  Lien has  attached  to any portion of the
Facility, the Additional Property or other Property and Equipment;

               (vii) Except as set forth on Schedule 2(i)(u) hereto, to the best
knowledge of the Lessee, there has been no Release of any Contaminants for which
a Remedial  Action must be taken at, to, under,  from or affecting the Facility,
the Additional Property or other Property and Equipment;

               (viii)  To  the  best  knowledge  of  the  Lessee,  there  is not
constructed,  placed,  deposited,  stored,  disposed  nor located  on,  under or
affecting the Facility,  the Additional Property or other Property and Equipment
any  asbestos  in any form which has become or  threatens  to become  friable in
violation of Environmental Requirements;

               (ix) Except as set forth on Schedule 2(i)(u) hereto,  to the best
knowledge of the Lessee, the underground and above-ground storage tanks (whether
or not  currently  in use),  located on, under or affecting  the  Facility,  the
Additional  Property,  the Facility Site or other  Property and Equipment are in
compliance with applicable Environmental Requirements;

               (x)  Based on the  review  by the  Lessee  and its  agents of the
matters  referred to in  Schedule  2(i)(u)  hereto,  the Lessee has no reason to
believe as of the date of this Lease that such matters,  individually  or in the
aggregate, could reasonably be expected to have a material adverse effect on (1)
the  ability of the Lessee to observe and  perform  its  obligations  under this
Lease  or the  other  Operative  Documents  to  which  it is a party in a timely
manner,  (2) the ability of the Guarantor to perform its  obligations  under the
Guaranty in a timely manner,  (3) the business,  assets,  properties,  financial
condition or  operations  of the  Guarantor,  (4) the rights or interests of the
Lessor or the  Related  Assignee  under this Lease or the  applicable  Financing
Arrangements or (5) the leasing, ownership or value of the Facility.

        (ii) The Lessee covenants to the Lessor:

        (v)  Corporate  Existence.  The Lessee  will  remain a validly  existing
corporation  in good standing  under the laws of the State of New York until the
expiration or other  termination of this Lease and the  indefeasible  payment of
all amounts owing hereunder.

        (w) Liens. The Lessee will not create,  incur, assume or permit to exist
any Lien upon (i) the Facility,  the  Additional  Property or other Property and
Equipment,  other than  Permitted  Liens or those  Liens  placed  thereon by, or
arising from, the Lessor's own actions, or (ii) any of its rights or obligations
with respect to any Ground Lease, the Facility Support Agreement or any Material
Contract other than any Lien granted to the Lessor and assigned by the Lessor to
the Related  Assignee.  Notwithstanding  the foregoing,  the Lessee may create a
Lien upon the  Additional  Property  provided that it delivers to the Lessor and
each Related Assignee a subordination and non-disturbance  agreement in form and
substance reasonably satisfactory to the Lessor and each Related Assignee.

        (x)  Subsidiaries.  The  Lessee  will not  acquire  or  create an equity
interest in any Person.

        (y) Delivery of Information.  The Lessee shall deliver to the Lessor and
each  Related  Assignee,  from time to time,  (i) promptly  after a  Responsible
Officer of the  Lessee  obtains  knowledge  of any Event of  Default,  Potential
Default, Event of Loss or Event of Lease Termination hereunder, a certificate of
a  Responsible  Officer  of the  Lessee  specifying  the  nature  and  period of
existence of such Event of Default, Potential Default, Event of LOSS or Event of
Lease Termination  hereunder,  and what action, if any, the Lessee has taken, is
taking,  or  proposes  to take  with  respect  thereto,  (ii)  promptly  after a
Responsible  Officer of the Lessee  obtains  knowledge of any  material  adverse
change in the business, assets, properties, financial condition or operations of
the Lessee, or of any liabilities or obligations arising as a result of tortious
action  or  Environmental  Damages  or  in  respect  of  governmental  fines  or
obligations (other than taxes) or liabilities or obligations arising as a result
of  Environmental  Matters,  or of any  litigation  of  the  type  described  in
paragraph (f) of Section 2(i) hereof, a certificate of a Responsible  Officer of
the Lessee describing such change,  liabilities,  obligations or litigation,  as
the case may be, and what action,  if any, the Lessee has taken,  is taking,  or
proposes to take with respect thereto, (iii) simultaneously with the delivery by
the  Guarantor of each set of  quarterly  financial  statements  pursuant to the
Guaranty,  a certificate of a Responsible  Officer of the Lessee stating, to the
best knowledge of such  Responsible  Officer after reasonable  inquiry,  whether
there  exists on the date of such  certificate  any Event of Default,  Potential
Default, Event of Loss or Event of Lease Termination hereunder, and if any Event
of  Default,  Potential  Default,  Event of Loss or  Event of Lease  Termination
hereunder exists, specifying the nature and period of existence thereof and what
action,  if any,  the Lessee has taken,  is  taking,  or  proposes  to take with
respect thereto, (iv) promptly after a Responsible Officer of the Lessee obtains
knowledge of any legal,  governmental or regulatory proceeding that could have a
material adverse effect on (1) the operation,  maintenance,  leasing, ownership,
use, value or regulatory  status of the Facility or any other Parcel of Property
or Unit of  Equipment,  (2) the ability of the Lessee to observe and perform its
obligations  under this Lease or any other  Operative  Document to which it is a
party  in a timely  manner,  (3) the  business,  assets,  properties,  financial
condition  or  operations  of the Lessee,  or (4) the rights or interests of the
Lessor or Related  Assignee  under this Lease,  a  certificate  of a Responsible
Officer of the Lessee,  describing each such proceeding and what action, if any,
the Lessee has taken,  is taking,  or proposes to take with respect  thereto and
(v) with reasonable promptness,  such other data and information relating to the
business, operations,  affairs, financial condition, assets or properties of the
Lessee or  relating  to the  ability of the Lessee to  perform  its  obligations
hereunder as from time to time may be reasonably  requested by the Lessor or the
Related Assignee.

        (z) 1935 Act. The Lessee shall not become  subject to  regulation by the
SEC under the 1935 Act as a  "public-utility  company"  or a "holding  company",
within the meaning of the 1935 Act.

        (aa) Regulation.  Neither the Lessor nor any Related Assignee nor any of
their  respective  Affiliates  shall,  solely by reason of (i) its entering into
this Lease or any other  document  contemplated  hereby,  (ii) the  acquisition,
ownership, leasing or financing of the Facility or any Turbine Unit (or any part
thereof) or (iii) the  operation by the Lessee or any Affiliate of the Lessee of
the Facility or any Turbine Unit in accordance  with and as  contemplated by the
Material  Contracts and this Lease,  be deemed during the term of this Lease, to
be, and be subject to financial, rate, utility or other similar regulation as, a
public utility, or an electric utility or a public utility holding company under
a Legal Requirement (including any Legal Requirement (A) under the 1935 Act, (B)
imposed  by any  state or  local  public  utility  commission  or other  similar
regulatory body,  authority or group having  jurisdiction over the Lessor or the
Lessee or any such  transactions  or  activities  or (C) under the FPA),  except
(other  than in the  case  of  (A))  in  connection  with  the  exercise  of any
Possessory Remedy.

        (bb)   Environmental Covenants:

               (i) The Lessee,  the Facility,  the  Additional  Property and any
other  Property and  Equipment  shall comply in all material  respects,  and the
Lessee shall use its best  efforts to cause the  compliance  by any  contractors
engaged in connection with the Facility or any other Property or Equipment, with
all applicable Environmental  Requirements,  including without limitation,  with
respect  to the  treatment,  remediation,  removal,  transport,  storage  and/or
disposal of any Contaminant.

               (ii)  The  Lessee  shall  maintain  all  Environmental  Approvals
necessary  for the operation of the Facility,  the  Additional  Property and any
other  Property or Equipment  and shall remain in material  compliance  with all
Environmental Approvals.

               (iii)  The  Lessee  shall  not  cause or  suffer  or  permit  the
attachment of any Environmental Lien to the Facility, the Additional Property or
any other Property or Equipment or any portion thereof.

               (iv) The Lessee  shall not cause or suffer or permit the  Release
or threatened Release at, to or from the Facility,  the Additional Property, any
Property or Equipment,  of any Contaminant for which a material  Remedial Action
must be taken.

               (v) The Lessee shall not cause the  transportation or arrange for
the disposal of any Contaminant  from the Facility,  the Additional  Property or
any other  Property or Equipment  except in  compliance  with the  Environmental
Requirements.

               (vi) The  Lessee  shall not cause or suffer or permit  the use of
any  asbestos-containing  material or any article  containing PCBs in connection
with the Facility, the Additional Property or any other Property or Equipment in
violation of the Environmental Requirements.

               (vii)  Notice of Environmental Events:

               (A)The Lessee shall promptly, but in any case within fifteen (15)
Business Days of receiving  actual or constructive  notice  thereof,  notify the
Lessor  and the  Related  Assignee  if,  after the date of this  Lease,  (1) any
Environmental  Matter relating to the Release of  Contaminants  in, on, beneath,
from or involving the Facility, the Additional Property or any other Property or
Equipment or any part thereof has occurred,  or any  proceeding has been brought
by a third  party  under  Environmental  Requirements  (other  than  proceedings
described in  subsection  (2)  hereof),  in each case that could  reasonably  be
expected to result in  Environmental  Damages in excess of $500,000,  or (2) the
Lessee has received notification that it, the Facility,  the Additional Property
or any other  Property  or  Equipment  or any part  thereof is the  subject of a
judicial  or   administrative   proceeding   arising  under  the   Environmental
Requirements  in which a  Governmental  Authority is a party,  unless the Lessee
reasonably  believes that such proceeding will result in no monetary  sanctions,
or in  monetary  sanctions,  exclusive  of  interest  and  costs,  of less  than
$100,000,  or (3) any Environmental Matter otherwise relating to compliance with
an  Environmental  Requirement has occurred that could reasonably be expected to
result in  Environmental  Damages in excess of $1,000,000  (each of (1), (2) and
(3) an "Environmental  Event").  Notice as required hereunder shall be deemed to
have been given with respect to  Environmental  Matters  identified  in Schedule
2(i)(u)  or in the Pilko  Environmental  Report;  provided,  however,  that this
presumption shall not apply to any adverse development in any such Environmental
Matter that occurs,  or of which Lessee  becomes  aware,  after the date hereof,
which adverse  development  would,  regardless of prior notice, in and of itself
constitute an Environmental Event.

               (B)Following  the receipt of a notice pursuant to (A) above,  the
Lessor and the  Related  Assignee,  in each case in their sole  discretion,  may
require  the  Lessee to  conduct,  or cause to be  conducted,  an  environmental
investigation  of the  Facility,  the  Additional  Property or such  Property or
Equipment,  the scope of which  investigation shall be limited to evaluating the
scope and  magnitude  of the  Environmental  Event and to  provide a copy of the
investigation report to the Lessor and the Related Assignee.  The Lessor and the
Related Assignee,  after receipt of the investigation  report, may in each case,
in their reasonable  discretion,  require an investigation of the  Environmental
Event by the Environmental Consultant.

               (C)The  Lessee shall take, or cause to be taken at no cost to the
Lessor or any Related  Assignee,  such  actions as may be necessary to comply in
all respects with all applicable Environmental Requirements and to alleviate any
unreasonable  risk to human health or the  environment if the same arises from a
condition on or in respect of the Facility, the Additional Property or any other
Property or  Equipment or any part  thereof,  whether  existing  prior to, on or
after the date of this Lease, provided, however, that it shall have the right to
contest  any such  Environmental  Requirements  pursuant to Section 28 hereof in
good faith,  and provided  further,  that the Lessee in all cases shall promptly
address any unreasonable risk to human health or the environment. At the request
of the Lessor or the Related  Assignee  during the Initial  Term or any Extended
Term, the Lessee shall give periodic progress reports on its compliance  efforts
and actions.

               (D)The Lessee shall, no later than January 15 and July 15 of each
year following the date hereof, provide the Lessor and the Related Assignee with
a report  describing  the  Environmental  Events that have  occurred  during the
previous  six  months  (but with  respect to the first  such  report,  that have
occurred since the date hereof), regardless of whether notice of such events was
given under subsection (A) of this paragraph (g)(vii) of Section 2(ii).

          (cc)  Information.  The  Lessee  shall  furnish  to the Lessor and the
     Related Assignee:

               (i) all material written  communications  relating to any pending
or, to the best knowledge of the Lessee,  threatened  investigations,  claims or
proceedings  with  respect to any  Governmental  Action or  proposing  to amend,
modify or affect any Governmental Action then required to be in effect; and

               (ii) written  notice of the  occurrence  of any event giving rise
(or that  could  reasonably  be  expected  to give  rise) to a claim  under  any
insurance  policy  maintained  pursuant  to the terms of this Lease in an amount
greater than $5,000,000  together with copies of any document  relating  thereto
(including  copies of any such  claim),  in the  possession  or  control  of the
Lessee.

        (dd)   Post-Closing Conditions.

               (i) As  promptly  as  practicable  but in no event later than two
hundred and forty (240) days  following  the Effective  Date (the  "Post-Closing
Period"), the Lessee shall:

          (x) furnish to the Lessor and each Related  Assignee  true and correct
     copies of all UCC search reports relating to the Facility;

          (y)  release or cause the  release or  termination  of any Liens on or
     otherwise  affecting  the Facility,  other than  Permitted  Liens  (without
     reference to the last proviso to the definition of "Permitted Liens"); and

          (z) deliver or cause to be  delivered  to the Lessor and each  Related
     Assignee  such  opinions  of counsel to the Lessee and other  documents  or
     instruments  relating to the first  priority of the Lien created  under the
     Financing  Arrangements  and  the  absence  of any  Liens  on or  otherwise
     affecting the Facility,  other than Permitted  Liens (without  reference to
     the last proviso to the definition of "Permitted Liens"),  each in form and
     substance reasonably  satisfactory to the Lessor and each Related Assignee,
     as the Lessor or any Related Assignee shall request.

               (ii) Not later than one hundred and eighty  (180) days  following
the Effective  Date,  the Lessee shall  complete the  undertakings  set forth in
Exhibit J hereto.

               (iii)  Provided that the Lessee is proceeding  diligently  and in
good faith to satisfy its post-closing obligations under clause (i) of paragraph
(i) of this Section 2(ii),  solely for the duration of the Post-Closing  Period,
an Event of Default under paragraph (k) of Section 18 hereof shall be deemed not
to exist by virtue of operation  of clause (i) of paragraph  (i) of this Section
2(ii).



     SECTION 3. LEASE OF THE FACILITY AND OTHER PROPERTY AND EQUIPMENT.

        (a)  Subject  to the  terms and  conditions  hereof,  including  without
limitation  Section 5 hereof,  the Lessor  shall  lease to the  Lessee,  and the
Lessee shall lease from the Lessor pursuant to this Lease,  the Facility and any
other Parcel of Property or Unit of Equipment of the type described on Exhibit A
hereto,  when and as the Lessee has need of such other  Property  or  Equipment;
provided that, in the case of such other Property or Equipment:

               (i)    such Property or Equipment is available for purchase;

               (ii) the Lessor has approved the  purchase  order or  acquisition
with respect to such Equipment or the acquisition  with respect to such Property
(which approval shall be in the sole discretion of the Lessor);

               (iii) at the time any such Property or Equipment is to be ordered
or leased hereunder there exists no Event of Default or Potential Default; and

               (iv)  the sum of (A) the  Acquisition  Cost of such  Property  or
Equipment and (B) the aggregate  Acquisition  Cost of the Facility and all other
Property or  Equipment  leased  hereunder at any time would not, at the time any
such Property or Equipment is to be leased hereunder,  exceed such amount as the
Lessor, the Related Assignee and the Lessee may from time to time agree.

        (b) The lease of the  Facility and each other Parcel of Property or Unit
of Equipment to the Lessee under this Lease shall be evidenced by a Unit Leasing
Record.  The Lessee shall prepare and execute a Unit Leasing Record with respect
to the Facility  and each other  Parcel of Property or Unit of Equipment  (which
Unit  Leasing  Record may relate to more than one Parcel of  Property or Unit of
Equipment)  and deliver it promptly  to the Lessor.  Contemporaneously  with the
payment required by paragraph (b) of Section 5 hereof,  the Lessor shall execute
the acceptance of such Unit Leasing Record and promptly  return one copy of such
Unit Leasing Record to the Lessee.

        (c) The Lessee shall  prepare each Unit Leasing  Record  pursuant to the
procedures  provided by the Lessor.  Each Unit Leasing  Record shall give a full
description  of the  Facility or each  Parcel of  Property or Unit of  Equipment
covered  thereby,  the  Acquisition  Cost of the Facility or each such Parcel or
Unit, the Lease Term for the Facility or each such Parcel or Unit and such other
details as the Lessor and the Lessee may from time to time agree.

        (d)  Execution by the Lessee of a Unit Leasing  Record shall  constitute
(i)  acknowledgment  by the  Lessee  that  the  Facility  or other  Property  or
Equipment specified in such Unit Leasing Record has been delivered to the Lessee
in good condition and has been accepted for lease  hereunder by the Lessee as of
the Effective Date, (ii) acknowledgment by the Lessee that the Facility or other
Property or Equipment specified in such Unit Leasing Record is subject to all of
the covenants,  terms and conditions of this Lease,  and (iii)  certification by
the Lessee that the  representations,  warranties  and  covenants  contained  in
Section 2 of this Lease as they  relate to the  Lessee,  the  Guarantor  and the
Facility  or any other  Property or  Equipment  specified  in such Unit  Leasing
Record,  as applicable,  are true and correct on and as of the Effective Date as
though  made on and as of the  Effective  Date  and  that  there  exists  on the
Effective Date no Event of Default or Potential Default.

        SECTION 4.        INTENT OF THE PARTIES; OPERATING LEASE.

        (a) It is the intent of the Lessee and the Lessor  that:  (i) this Lease
constitutes an operating lease from the Lessor to the Lessee for purposes of the
Lessee's   financial   reporting,   (ii)  this  Lease  and  other   transactions
contemplated  hereby  preserve  the  ownership  of the  Facility  and any  other
Property or Equipment in the Lessee for federal,  state and local income tax and
bankruptcy  purposes,  and (iii) this  Lease  grants to the Lessor a Lien on the
Facility.  The Lessee and the  Lessor  agree that the Lessor  shall be deemed to
have a valid and binding  security  interest in and Lien on the Facility and all
other Property and Equipment,  free and clear of all Liens, other than Permitted
Liens,  as security for the obligations of the Lessee under this Lease (it being
understood  and agreed  that the Lessee does  hereby  grant a Lien,  and convey,
transfer,  assign,  mortgage  and  warrant  to the  Lessor  and its  successors,
transferees  and  assigns,  for the  benefit of the  Lessor and its  successors,
transferees  and assigns,  on the Facility and all other  Property and Equipment
and any proceeds or products  thereof,  to have and hold the same as  collateral
security for the payment and  performance of the obligations of the Lessee under
this Lease).

        (b)  Specifically,  without  limiting the generality of paragraph (a) of
this Section 4, the Lessee and the Lessor  intend and agree that in the event of
any insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State  thereof  affecting the Lessee,  the Lessor,  any
Related Assignee or any collection  actions relating  thereto,  the transactions
evidenced  by this Lease  shall be  regarded  as loans made by the Lessor to the
Lessee.

        (c) LIC  Capital,  Inc.,  the general  partner of the  Lessor,  has been
incorporated as a close  corporation  under the laws of the State of Delaware by
an individual  completely  unaffiliated with the Lessee. Such individual and all
the officers and directors of LIC Capital,  Inc., have the full power, authority
and legal right to direct the  management  and  operations  of the  Lessor.  The
Lessor has been formed as a limited  partnership  under the laws of the State of
Delaware by LIC Capital, Inc., and is not directly or indirectly affiliated with
the Lessee.  The Lessee did not participate in the incorporation of LIC Capital,
Inc. or the formation of the Lessor.

        SECTION 5.        DELIVERY; ABSOLUTE OBLIGATION.

        (a) The Lessee  shall  acquire or order and accept the  Facility and any
other  Parcel  of  Property  or Unit of  Equipment  pursuant  to the  procedures
provided  by the  Lessor.  The Lessor  shall not be liable to the Lessee for any
failure to obtain, or delay in obtaining,  the Facility or any other Property or
Equipment or any delay in the delivery of title to the Lessor or  possession  of
the Facility or such other Property or Equipment to the Lessee.

        (b) The  Lessor's  acceptance  for  lease of the  Facility  or any other
Parcel of Property or Unit of  Equipment by the Lessee and the Lessor is subject
to receipt by the Lessor,  in the case of Property and Equipment (other than the
Facility),  at least seven (7) business days prior to the requested acquisition,
and, in the case of the Facility, prior to the requested acquisition, of:

               (i) in the case of a Unit of Equipment,  the vendor's  invoice or
invoices  and, if required  by the Lessor and the  Related  Assignee,  a bill of
sale,  for such Unit of Equipment  (in the case of the Facility and the Facility
Assets,  the  Purchase  Agreement  Assignment),  and in the case of a Parcel  of
Property,  the  executed  contract  of sale and deed  with  respect  to each fee
interest in such Parcel of Property (or with respect to a leasehold  interest in
a Parcel of Property, the executed Ground Lease or with respect to the leasehold
interest  in  the  Facility,   the  executed  Site  Lease),  and  such  estoppel
certificates,  consents,  recognition and attornment agreements and confirmation
of customary mortgagee protection as are reasonably acceptable to the Lessor and
the Related Assignee);

               (ii) invoices or other  evidence  satisfactory  to the Lessor for
any amounts  included in the Acquisition  Cost of such Parcel or Unit payable to
parties other than the vendor;

               (iii) invoices or other evidence  satisfactory  to the Lessor for
any amounts  included in the  Acquisition  Cost of such Parcel or Unit that have
been  paid to the  vendor  or other  parties  by the  Lessee  and for any  costs
included in the Acquisition Cost of such Parcel or Unit incurred by the Lessee;

               (iv) with respect to the Facility,  the  Additional  Property and
each  other  Parcel of  Property,  a  current  appraisal  in form and  substance
acceptable  and  addressed  to the Lessor  and each  Related  Assignee  from the
Appraiser  or another  independent  appraiser  with  respect to the value of the
Facility,  the Additional Property or such Property, as the case may be, at such
date and at the end of the Lease Term;

               (v) with respect to the  Facility,  the  Additional  Property and
each other Parcel of Property,  a satisfactory  Environmental  Report,  it being
expressly agreed that the Lessor or any Related Assignee shall have the right to
require a supplemental  or additional  environmental  study if the Lessor or any
Related Assignee reasonably  requires additional  assurance or information as to
any matter  contained or not addressed in such  Environmental  Report,  and with
respect to any other Property or Equipment,  such environmental  information and
certifications as the Lessor or any Related Assignee shall reasonably request;

               (vi) with respect to the Facility and the Additional  Property, a
current as-built survey in form and substance satisfactory to the Lessor and the
Related  Assignee and, with respect to each other Parcel of Property,  a current
as-built survey made in accordance with the minimum standard detail requirements
for land title  surveys  jointly  established  and adopted by the American  Land
Title  Association  and the  American  Congress  on  Surveying  and Mapping by a
licensed  registered  public  land  surveyor,  showing  the lines of all streets
abutting the Facility,  the  Additional  Property or such Property and the width
thereof,  all access and other  easements  appurtenant  to or used in connection
with the Facility,  the  Additional  Property  (including the Easements) or such
Property, all roadways, paths, driveways, easements, encroachments,  overhanging
projections, and similar encumbrances, whether recorded (and if so, reference to
the recording data), apparent from a physical inspection of the Facility or such
Property or otherwise known to the surveyor, and if the Property is described by
reference  to a filed  map,  a legend  relating  the  survey to such map,  and a
certification whether the Facility or such Property is located in a flood zone;

               (vii)  the Acquisition Certificate;

               (viii) other than in the case of the Facility, a reaffirmation of
the Guaranty by the Guarantor;

               (ix) with respect to the Facility,  an original executed deed and
a bill of sale with  respect to the  Facility  Assets,  an  original of the Site
Lease, two original executed counterparts of a memorandum of such Site Lease and
of this Lease, in each case in statutory recordable form for the jurisdiction in
which the  Facility is  located,  and an original  executed  counterpart  of the
Purchase  Agreement  Assignment,  and,  with  respect to each Parcel of Property
(other than the Facility), two original executed counterparts of a memorandum of
this Lease, an original of the deed or of the Ground Lease, as applicable,  with
respect to each Parcel of Property  (other than the Facility)  pursuant to which
the  interest of the Lessor in such Parcel of Property is created,  in each case
in  statutory  recordable  form for the  jurisdiction  in which  such  Parcel is
located;

               (x) with respect to the  Facility,  the  Additional  Property and
each  other  Parcel  of  Property,  a title  insurance  commitment  from a title
insurance company satisfactory to the Lessor,  subject to no title exceptions or
other matters other than those approved by the Lessor and the Related  Assignee,
and committing to insure the Lessor's and the Related Assignee's interest in the
Facility  and such  Parcel of  Property  upon  delivery  to the title  insurance
company of the title and  financing  documents  to be recorded,  and,  except as
otherwise  provided  in  Section  8(i)  hereof  or in the  applicable  Financing
Arrangements,  the actual  issuance and prompt  delivery of such policies to the
Lessor and the Related Assignee;

               (xi) two original executed  counterparts of a Unit Leasing Record
with  respect to the  Facility or such other  Parcel or Unit duly  prepared  and
executed by the Lessee;

               (xii) accurate wiring  instructions for all amounts to be paid by
the Lessor in connection with such acquisition;

               (xiii) the report  required under Section 10(f) hereof,  together
with  certificates of insurance or other evidence  reasonably  acceptable to the
Lessor and the Related  Assignee  certifying that (1) the insurance then carried
or maintained on the Facility,  the  Additional  Property or such Parcel or Unit
complies with the  requirements  of Section 10 hereof and (2) the  provisions of
Section 10 hereof are adequate and  reasonable  protection of the Lessor and the
Related Assignee;

               (xiv)  opinions of counsel for the Lessee,  in form and substance
reasonably satisfactory to the Lessor and the Related Assignee;

               (xv)  an  assignment  of or  security  interest  in  Governmental
Actions needed for the equipping, maintenance,  operation or use of the Facility
or such Parcel or Unit (or any part thereof),  and heretofore  obtained,  or now
owned or held, by the Lessee to the extent that such Governmental Actions may be
assigned in accordance with applicable law;

               (xvi) copies of each Material Contract, in each case certified by
a  Responsible  Officer  of the  Lessee to be true  copies of the  originals  as
executed; and

               (xvii)  such other  documentation  as the  Lessor or the  Related
Assignee may reasonably require.

        Upon receipt and  approval of all  documents  required by the  preceding
clauses,  the Lessor  shall (A) pay to such  vendor  the amount of the  vendor's
invoice or invoices  and/or the purchase price specified in the contract of sale
for such Parcel or Unit except to the extent previously paid by the Lessee,  (B)
pay to such other parties such amounts payable,  except to the extent previously
paid by the Lessee and (C)  reimburse or pay to the Lessee for such amounts paid
to the vendor or other  parties by the  Lessee,  for such costs  incurred by the
Lessee and, if agreed between the Lessor and the Lessee, for the appraised value
of the Property or Equipment;  provided, however, that in no event shall the sum
of all  payments  made  pursuant to clauses  (A),  (B) and (C) above  exceed the
Acquisition Cost of such Property or Equipment.

        (c) The Lessee  shall  ensure that the  installation  or erection of any
Equipment is in  accordance  with the  specifications  and  requirements  of the
vendor thereof.

        (d) The obligations of the Lessee to pay all amounts payable pursuant to
this Lease (including  specifically and without limitation amounts payable under
Sections  7, 11,  12,  13,  14,  15, 16 and 29  hereof)  shall be  absolute  and
unconditional under any and all circumstances of any character, and such amounts
shall be paid without notice, demand, defense, setoff, deduction or counterclaim
and without  abatement,  suspension,  deferment,  diminution or reduction of any
kind whatsoever,  except as herein expressly otherwise provided.  The obligation
of the Lessee to lease and pay Basic Rent,  any Debt  Yield-Maintenance  Premium
and Additional Rent and any other amounts due hereunder for the Facility and for
any and all other  Property or Equipment  leased  pursuant to this Lease and any
amounts  payable upon the termination of this Lease or upon an Event of Loss, an
event of Taking or an Event of Lease  Termination  is without  any  warranty  or
representation,  express or implied,  as to any matter whatsoever on the part of
the Lessor or any Related Assignee or any Affiliate of either,  or anyone acting
on behalf of any of them.

        THE LESSEE HAS  SELECTED  THE  FACILITY AND SHALL SELECT ALL PROPERTY OR
EQUIPMENT  ACQUIRED  OR ORDERED ON THE BASIS OF ITS OWN  JUDGMENT.  NEITHER  THE
LESSOR NOR ANY RELATED  ASSIGNEE NOR ANY AFFILIATE OF EITHER,  NOR ANYONE ACTING
ON  BEHALF OF ANY OF THEM  MAKES  ANY  REPRESENTATION  OR  WARRANTY  OF ANY KIND
WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE SAFETY,
TITLE,  CONDITION,   QUALITY,   QUANTITY,   FITNESS  FOR  USE,  MERCHANTABILITY,
CONFORMITY TO SPECIFICATION, OR ANY OTHER CHARACTERISTIC, OF THE FACILITY OR ANY
PROPERTY  OR  EQUIPMENT,  OR AS TO WHETHER  THE  FACILITY  OR SUCH  PROPERTY  OR
EQUIPMENT OR THE OWNERSHIP,  USE,  OCCUPANCY OR POSSESSION THEREOF COMPLIES WITH
ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS OF ANY KIND.

        AS BETWEEN  THE LESSEE  AND THE  LESSOR,  ANY  RELATED  ASSIGNEE  OR ANY
INDEMNIFIED  PERSON,  THE  LESSEE  ASSUMES  ALL  RISKS  AND  WAIVES  ANY AND ALL
DEFENSES,  SET-OFFS,  DEDUCTIONS,  COUNTERCLAIMS (OR OTHER RIGHTS),  EXISTING OR
FUTURE,  AS TO THE LESSEE'S  OBLIGATION  TO PAY BASIC RENT AND ALL OTHER AMOUNTS
PAYABLE HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:

     (A)THE  SAFETY,  TITLE,  CONDITION,  QUALITY,  QUANTITY,  FITNESS  FOR USE,
MERCHANTABILITY,   CONFORMITY  TO   SPECIFICATION,   OR  ANY  OTHER  QUALITY  OR
CHARACTERISTIC OF THE FACILITY OR ANY PROPERTY OR EQUIPMENT, LATENT OR NOT;

               (B)ANY SET-OFF, COUNTERCLAIM,  RECOUPMENT,  ABATEMENT, DEFENSE OR
OTHER RIGHT WHICH THE LESSEE MAY HAVE AGAINST THE LESSOR,  ANY RELATED  ASSIGNEE
OR ANY INDEMNIFIED  PERSON FOR ANY REASON WHATSOEVER  ARISING OUT OF THIS OR ANY
OTHER TRANSACTION OR MATTER;

               (C)ANY  DEFECT  IN  TITLE OR  OWNERSHIP  OF THE  FACILITY  OR ANY
PROPERTY OR EQUIPMENT OR ANY TITLE  ENCUMBRANCE  NOW OR HEREAFTER  EXISTING WITH
RESPECT TO THE FACILITY OR ANY PROPERTY OR EQUIPMENT;

               (D)ANY  FAILURE  OR  DELAY  IN  DELIVERY  OR ANY  LOSS,  THEFT OR
DESTRUCTION  OF, OR DAMAGE TO, THE  FACILITY OR ANY  PROPERTY OR  EQUIPMENT,  IN
WHOLE OR IN PART,  OR CESSATION OF THE USE OR  POSSESSION OF THE FACILITY OR ANY
PROPERTY OR  EQUIPMENT BY THE LESSEE FOR ANY REASON  WHATSOEVER  AND OF WHATEVER
DURATION, OR ANY CONDEMNATION,  CONFISCATION,  REQUISITION,  SEIZURE,  PURCHASE,
TAKING OR FORFEITURE  OF THE FACILITY OR ANY PROPERTY OR EQUIPMENT,  IN WHOLE OR
IN PART;

     (E)ANY  INABILITY  OR  ILLEGALITY  WITH  RESPECT  TO  THE  USE,  OWNERSHIP,
OCCUPANCY  OR  POSSESSION  OF THE  FACILITY OR ANY  PROPERTY OR EQUIPMENT BY THE
LESSEE;

     (F)ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING BY OR
AGAINST THE LESSEE OR THE LESSOR OR ANY RELATED ASSIGNEE;

     (G)ANY FAILURE TO OBTAIN,  OR EXPIRATION,  SUSPENSION OR OTHER  TERMINATION
OF,  OR   INTERRUPTION   TO,   ANY   REQUIRED   LICENSES,   PERMITS,   CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;

     (H)THE INVALIDITY OR  UNENFORCEABILITY OF THIS LEASE OR ANY OTHER INFIRMITY
HEREIN OR ANY LACK OF POWER OR  AUTHORITY  OF THE  LESSOR OR THE LESSEE TO ENTER
INTO THIS CONTRACT;

               (I)THE INVALIDITY OR  UNENFORCEABILITY OF ANY BILL OF SALE OF THE
FACILITY OR ANY PROPERTY OR EQUIPMENT  EXECUTED IN CONNECTION WITH THIS LEASE OR
ANY OTHER  INFIRMITY  THEREIN OR LACK OF POWER OR AUTHORITY OF ANY PARTY THERETO
TO ENTER INTO SUCH BILL OF SALE; OR

               (J)ANY OTHER  CIRCUMSTANCES OR HAPPENING  WHATSOEVER,  WHETHER OR
NOT SIMILAR TO ANY OF THE FOREGOING.

        THE LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL  RIGHTS  WHICH IT MAY NOW HAVE OR  WHICH  AT ANY TIME  HEREAFTER  MAY BE
CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE,  CANCEL, QUIT, RESCIND
OR SURRENDER THIS LEASE EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS HEREOF. Each
payment of Basic Rent, any Debt Yield-Maintenance  Premium,  Additional Rent and
any other  amount  due  hereunder  made by the  Lessee  shall be final,  and the
Lessee,  without  waiving any other remedies it may have,  will not seek or have
any right to  recover  all or any part of such  payment  from the  Lessor or any
Related Assignee for any reason whatsoever.

        (e)  Notwithstanding  any other provision contained in this Lease, it is
specifically  understood  and agreed  that  neither  the Lessor nor any  Related
Assignee nor any Affiliate of either, nor anyone acting on behalf of any of them
makes any warranties or  representations  or has any  responsibility to disclose
any relevant  information,  or has any other responsibility or duty, nor, except
as set forth in Section 22 of this Lease, has the Lessor or any Related Assignee
or any  Affiliate of either,  or anyone acting on behalf of any of them made any
covenants or  undertakings,  as to the  accounting  treatment to be accorded the
Lessee  or as to the  U.S.  Federal  or  any  state  income  or  any  other  tax
consequences,  if  any,  to  the  Lessee  as a  result  of or by  virtue  of the
transactions contemplated by this Lease.

        SECTION 6.        INITIAL TERM; EXTENDED TERM.

        (a) The "Initial  Term" with respect to the Facility or any other Parcel
of  Property  or  Unit of  Equipment  leased  hereunder  shall  commence  on the
Effective  Date set forth in the Unit  Leasing  Record for the  Facility or such
Property  or  Equipment  and  shall  continue  through  June  20,  2004,  unless
terminated earlier pursuant to Section 12, 13, 14, 15, 16, 19 or 29 hereof.

        (b) The "Extended Term" with respect to the Facility or any other Parcel
of Property or Unit of Equipment  shall  commence on the later of the  Effective
Date set forth in the Unit Leasing Record with respect thereto and the first day
after the last day of the  Initial  Term of the  Facility or such Parcel or Unit
and shall continue through June 20, 2009, unless terminated  earlier pursuant to
Section 12, 13, 14, 15, 16, 19 or 29 hereof.

        (c) Notwithstanding anything contained in this Section 6, the provisions
of Sections 10 and 11 hereof and  paragraph (a) of Section 15 hereof shall apply
with  respect  to any  Property  or  Equipment  from the time such  Property  or
Equipment is ordered by the Lessee, with the approval of the Lessor, pursuant to
procedures supplied by the Lessor.

        SECTION 7.        RENT AND OTHER PAYMENTS.

        (a) The  Lessee  hereby  agrees  to pay the  Lessor on each  Basic  Rent
Payment Date, in immediately  available  funds,  as provided in paragraph (e) of
this Section 7, Basic Rent for the  semi-annual  period (or part thereof) ending
in the month in which such Basic Rent  Payment  Date occurs  (which  semi-annual
periods  shall  end on June 20 and  December  20 in each  calendar  year),  with
respect to the Facility and each other Parcel of Property or Unit of  Equipment;
provided  that, if the Effective  Date is on or after the Lease Rate Date in any
first  semi-annual  period of the Initial  Term with  respect to the Facility or
such Parcel or Unit,  Basic Rent for such  partial  semi-annual  period shall be
payable on the next succeeding Basic Rent Payment Date.

        (b) The  Lessor  shall  furnish  to the  Lessee  on the  16th day of the
calendar  month prior to each calendar  month in which a Basic Rent Payment Date
falls the Semi-Annual Cost of Debt for such semi-annual  period, or, if such day
is not a Business  Day,  on the next  succeeding  Business  Day (the "Lease Rate
Date").  Prior to each Basic Rent  Payment  Date the Lessor  shall  furnish  the
Lessee  with a summary  of the  calculations  of Basic  Rent for such Basic Rent
Payment Date.

        (c) The Lessee  hereby  agrees to pay on demand all amounts  (other than
Basic  Rent)  payable  hereunder,  including,  without  limitation,  all amounts
payable to any Indemnified Person pursuant to Section 11 hereof.

        (d) Without  prejudice to the full  exercise by the Lessor of its rights
under Sections 18 and 19 hereof, the Lessee shall pay to the Lessor from time to
time, on demand, as additional rent ("Additional  Rent") (i) amounts required to
reimburse the Lessor for its  obligations,  costs and expenses  (not  previously
included  in Basic Rent)  incurred in  acquiring,  financing  (including  equity
financing and  maintaining  security for and  exercising  remedies in connection
with any such financing and costs incurred in connection with obligations of the
Lessor  under or in respect of the  Derivative  Option) and leasing the Facility
and  any  other  Property  or  Equipment  (including,  without  limitation,  all
obligations,  costs and expenses of the Lessor  arising in  connection  with the
termination  of any  Financing  Arrangement  (whether  as a result  of a default
thereunder or otherwise), all interest (including, without limitation,  interest
at any default rate), the Debt  Yield-Maintenance  Premium and other costs, fees
and expenses incurred by the Lessor under any Financing  Arrangement  (including
any such accruing after the commencement of a bankruptcy or similar proceeding),
rent under the Site Lease and any other Ground  Lease,  amounts  owing under any
other  Operative  Document and all obligations of the Lessor under or in respect
of any  interest  rate swap,  cap,  collar,  option or other  financial  hedging
arrangement  approved  by the  Lessee  (such  approval  not  to be  unreasonably
withheld) and any amounts  payable by the Lessor under any such  arrangement  to
reduce  the  notional  amount  thereof by the  amount of any  prepayment  of any
borrowing  to which  such  interest  rate  swap,  cap,  collar,  option or other
financial  hedging  arrangement  relates),   and  (ii)  to  the  extent  legally
enforceable,  an amount  computed  by  multiplying  (A) all sums not paid by the
Lessee  to the  Lessor as  provided  in this  Lease on or  before  the date such
payments are due, by (B) the decimal  equivalent of the Semi-Annual Cost of Debt
as most  recently  furnished  by the  Lessor,  and by (C) a  fraction  having  a
numerator  equal to the number of days in the period from but excluding such due
date to and  including  the  date of  payment  thereof  (provided  that all full
calendar  months  during such period  shall be computed on the basis of a 30-day
month) and a  denominator  of 360.  The  Lessee  shall also pay to the Lessor on
demand an amount equal to any expenses incurred by the Lessor in collecting such
unpaid sums.

        (e) Basic Rent, any Debt  Yield-Maintenance  Premium and Additional Rent
and any other amount payable by the Lessee to the Lessor shall be paid such that
immediately  available  funds in the full amount due are  available  on the date
due, to the account of the Lessor at such bank, or to such account of such other
Person at such bank, or otherwise as the Lessor may from time to time designate.

     SECTION 8. RESTRICTED USE; COMPLIANCE WITH LAWS, FURTHER ASSURANCES.

        (a)  So  long  as no  Event  of  Default  shall  have  occurred  and  be
continuing, the Lessee may use the Facility and the Property or Equipment in the
regular course of its business for any lawful purpose,  provided that the Lessee
agrees that the Facility  will be used to produce and sell electric  power.  The
Lessee will not do or permit any act or thing which could reasonably be expected
to materially  impair the value or usefulness  of the Facility,  the  Additional
Property  or any Parcel of Property or Unit of  Equipment,  except for  ordinary
wear and tear  resulting  from the normal use thereof  consistent  with  Prudent
Utility Practice.

        (b) The Lessee shall promptly and duly execute,  deliver and, subject to
paragraph (i) of this Section 8, file and record, at the Lessee's  expense,  all
such documents,  statements,  filings and  registrations,  and take such further
action, as the Lessor or the Related Assignee shall from time to time reasonably
request in order to  establish,  perfect and maintain the Lessor's  title to and
interest  in the  Facility  and  any  Property  or  Equipment  and  the  Related
Assignee's  interest  in  this  Lease  or in the  Facility  or any  Property  or
Equipment  as  against  the  Lessee  or  any  third  party  in  any   applicable
jurisdiction.   Equipment,   machinery,   apparatus,  fixtures,  structures  and
installations  may be substituted for portions of the Facility or the Additional
Property,  as the case may be (other  than  Removable  Improvements)  if (i) the
Lessor and the Related Assignee consent to such  substitution,  such consent not
to be unreasonably  withheld or denied or (ii) such substitution is performed by
the Lessee in the normal course of operating and maintaining the Facility or the
Additional  Property  and could not  reasonably  be expected  to (x)  materially
adversely  affect the  Lessee's  ability to perform  its  obligations  under any
Operative  Document  to which it is a party,  (y)  materially  impair the value,
utility or remaining economic useful life of the Facility (assuming the Facility
is in the  condition  required  hereby),  or (z)  result  in an  Event  of Lease
Termination  or an event  described in clause (A),  (B) or (C) of Section  15(c)
hereof.   As  equipment,   machinery,   apparatus,   fixtures,   structures  and
installations  are added to, or  substituted  for,  Facility  Assets (other than
Removable  Improvements),  title to such  additional  or  substitute  equipment,
machinery, apparatus, fixtures, structures and installations shall automatically
be transferred to the Lessor and such equipment, machinery, apparatus, fixtures,
structures and  installations  shall become Facility Assets and shall be subject
to this  Lease  and  title  to the  existing  equipment,  machinery,  apparatus,
fixtures,  structures and  installations  which are being substituted for (other
than Removable  Improvements) shall be released by the Lessor to the Lessee. The
Lessee may, so long as no Potential Default,  Event of Default, Event of Loss or
Event of Lease Termination has occurred and is continuing,  remove any Removable
Improvement in its entirety.  "Removable Improvement",  for the purposes hereof,
shall mean any part that (i) is in  addition  to, and not in  replacement  of or
substitution  for  (x) any  part  originally  incorporated  or  installed  in or
attached to the Facility on the  Effective  Date or (y) any part in  replacement
of, or substitution  for, any such part, (ii) is not required to be incorporated
or installed  in or attached or added to the  Facility  pursuant to the terms of
any Operative  Document or pursuant to applicable  Legal  Requirements and (iii)
can be removed from the Facility (x) without adversely  affecting the ability of
the  Facility to operate in  accordance  with the  Operative  Documents  and (y)
without  materially  impairing the value,  utility or remaining  economic useful
life  which  the  Facility  would  have had at such  time had such part not been
incorporated or installed in or attached to the Facility  (assuming the Facility
is in the  condition  required  hereby).  Upon the  removal by the Lessee of any
Removable  Improvement as provided in the  immediately  preceding two sentences,
title thereto shall,  without further act, vest in the Lessee and such Removable
Improvement  will no  longer  be  deemed  part of the  Facility.  Any  Removable
Improvement not removed by the Lessee prior to the return of the Facility to the
Lessor  hereunder  shall  remain the  property  of the  Lessor.  Nothing in this
Section  8(b) shall be deemed to  prohibit  the  Lessee in the normal  course of
operating and  maintaining the Facility from  substituting or adding  equipment,
machinery,  apparatus,  fixtures,  structures and installations which are not of
the same  specifications or quality as the items being replaced or supplemented,
but only if such  substitution  or addition is consistent  with Prudent  Utility
Practice  and could not  reasonably  be  expected to result in an Event of Lease
Termination  or an event  described in clause (A),  (B) or (C) of Section  15(c)
hereof.  The  Lessee  may,  after  notice in  writing  to the  Lessor and at the
Lessee's  own cost and expense,  change the place of  principal  location of any
Equipment other than Facility Assets.  Notwithstanding the foregoing,  no change
of location shall be undertaken (except for purposes of undertaking  maintenance
or repairs to such  Equipment or for  temporary  relocation  of any Equipment to
premises in the State of New York owned or leased by the Lessee or an  Affiliate
of the Lessee;  provided that the Lessee  delivers to the Lessor and the Related
Assignee  an  agreement  of such owner or lessee  acknowledging  the  respective
rights and interests of the Lessor and the Related  Assignee in such  Equipment)
unless and until all Legal Requirements shall have been met and the Lessee shall
have  executed,  delivered  and filed or  recorded  all  documents,  statements,
filings and registrations as the Lessor or the Related Assignee shall reasonably
request  in  connection  therewith.  At  least  once  each  year  prior  to  the
anniversary  of the date of this Lease,  and more  frequently at the  reasonable
request of the  Lessor,  the  Lessee  shall  advise  the Lessor and the  Related
Assignee in writing  where all  Equipment  leased  hereunder  as of such date is
principally located.

        (c) The  Lessee  shall  use  all  commercially  reasonable  precautions,
consistent  with  Prudent  Utility  Practice,  to prevent  loss or damage to the
Facility  or any other  Property  or  Equipment  and to prevent  injury to third
persons or property of third persons.  The Lessee shall cooperate fully with the
Lessor and all insurance  companies  providing  insurance pursuant to Section 10
hereof in the  investigation and defense of any claims or suits arising from the
ownership or operation of any Equipment or  ownership,  use, or occupancy of the
Facility  or any  other  Property;  provided,  that  nothing  contained  in this
paragraph  (c)  shall  be  construed  as  imposing  on the  Lessor  any  duty to
investigate  or defend any such claims or suits.  The Facility,  the  Additional
Property and all other Property and Equipment shall comply, and the Lessee shall
comply and shall use its best  efforts to cause all Persons  using or  operating
Equipment or using or occupying the  Facility,  the  Additional  Property or any
Property  to comply,  with all  Insurance  Requirements  and Legal  Requirements
applicable to the Facility,  the  Additional  Property or such other Property or
Equipment and to the acquiring, titling, registering,  leasing, insuring, using,
occupying,  operating and disposing of the Facility,  the Additional Property or
such other Property or Equipment, and the licensing of operators thereof, except
for any Legal Requirements the non-compliance with which, individually or in the
aggregate,  would not (x)  impair  the  ability  of the  Lessee to  perform  its
obligations  under this Lease or the other Operative  Documents to which it is a
party,  (y)  reasonably  be  expected  to  materially  impair the ability of the
Facility or any other Turbine Unit, as the case may be, to perform in commercial
operation  substantially at its Capacity or (z) reasonably be expected to result
in an Event of Lease Termination or an event described in clause (A), (B) or (C)
of Section 15(c) hereof.

        (d) The Lessor and any Related Assignee or any authorized representative
of either may during  reasonable  business hours, and subject to compliance with
applicable  safety  procedures  of the  Lessee,  from time to time  inspect  the
Facility,  the  Additional  Property  or any  Property or  Equipment  and deeds,
registration certificates,  certificates of title and related documents covering
the Facility, the Additional Property or such Property or Equipment wherever the
same may be located,  but neither the Lessor nor any Related Assignee shall have
any duty to make any such inspection.

        (e) The  Lessee  shall not,  without  the prior  written  consent of the
Lessor and the Related Assignee permit, or suffer to exist, any Lien, other than
Permitted  Liens or those Liens placed thereon by, or arising from, the Lessor's
own actions,  nor may it assign any right or interest  herein or in the Facility
or any other Property or Equipment.  The Lessee shall not relinquish  possession
of the Facility or any  Additional  Property or any other Property or Equipment,
except to any contractor for use in performing repair work for the Lessee on the
Facility or such Property or Equipment;  provided,  that such  relinquishment of
possession shall in no way affect the obligations of the Lessee or the rights of
the Lessor  hereunder  and with  respect to the  Facility  or such  Property  or
Equipment.  The Lessee may  sublease  the  Facility or any Parcel of Property or
Unit of Equipment or lease any Additional Property; provided, that (A) the terms
of the instrument of sublease and the identity of the sublessee shall be subject
to the prior written approval of the Lessor and any Related  Assignee,  (B) each
such sublease shall  expressly be made subject and subordinate to the provisions
hereof and shall, at the sole option of the Lessor and any Related Assignee,  by
its terms be subject to termination  upon the termination for any reason of this
Lease,  (C) no such  sublease  shall  modify  or limit any right or power of the
Lessor or any Related  Assignee  hereunder or affect or reduce any obligation of
the Lessee hereunder,  and all such obligations shall continue in full force and
effect as obligations of a principal and not of a guarantor or surety, as though
no such  subletting had been made, and (D) any such sublease made otherwise than
as expressly  permitted by this  paragraph (e) shall be void and of no force and
effect. As additional security to the Lessor for the performance of the Lessee's
obligations under this Lease, the Lessee hereby assigns to the Lessor all of its
right, title and interest in and to all subleases permitted hereby and agrees to
cause any sublessee to enter into  attornment  agreements with the Lessor as the
Lessor or the Related Assignee shall request.  The Lessor shall have the present
and  continuing  right to  collect  and enjoy all rents and other  sums of money
payable under any such sublease,  and the Lessee hereby irrevocably assigns such
rents and other sums to the Lessor for the benefit and protection of the Lessor;
provided,  that  unless a  Potential  Default or an Event of Default  shall have
occurred and be  continuing  hereunder,  the Lessee shall be entitled to collect
and enjoy such rents and other sums.  The Lessee shall,  within thirty (30) days
after the execution of any such  sublease,  deliver a conformed  copy thereof to
the Lessor and the Related  Assignee.  Nothing  contained in this Lease shall be
construed  as  constituting  the  consent or request of the  Lessor,  express or
implied,  to or for the performance by any contractor,  laborer,  materialman or
vendor of any labor or services or for the  furnishing  of any materials for any
construction,  alteration,  addition, repair or demolition of or to the Facility
or any Property or Equipment  or any part  thereof.  Notice is hereby given that
the Lessor will not be liable for any labor,  services or materials furnished or
to be furnished to the Lessee, or to anyone holding the Facility or any Property
or  Equipment  or any part  thereof  through  or under the  Lessee,  and that no
mechanics' or other liens for any such labor, services or materials shall attach
to or affect the  interest of the Lessor in and to the  Facility or any Property
or Equipment.

        (f) Upon the reasonable  request of the Lessor or the Related  Assignee,
the Lessee shall affix or cause to be affixed to each Unit of Equipment,  in the
place  designated  by the Lessor or such Related  Assignee (or, if no such place
shall have been  designated,  in a  prominent  place),  labels,  plates or other
markings stating that such Unit of Equipment is owned by the Lessor.  The Lessee
shall not without the prior  permission  of the Lessor or such Related  Assignee
change or remove (or permit to be  changed  or  removed  or  otherwise  permit a
decrease  in the  visibility  of) any  insignia  or  lettering  which  is on any
Equipment at the time of delivery thereof or which is thereafter  placed thereon
indicating the Lessor's ownership thereof.

        (g) If any Lien or charge of any kind or any  judgment,  decree or order
of any court or other Governmental Authority (including, without limitation, any
state or local tax lien affecting the Facility,  the Additional  Property or any
Property or Equipment), whether or not valid, shall be asserted or entered which
could reasonably be expected to interfere with the due and timely payment of any
sum payable or the  exercise of any of the rights or the  performance  of any of
the  duties or  responsibilities  under  this  Lease,  the  Lessee  shall,  upon
obtaining  knowledge  thereof or upon  receipt of notice to that effect from the
Lessor,  promptly  take such action as may be  necessary to prevent or terminate
such interference.

        (h) (A) The Lessee  shall not take any action  which (x) would cause the
Facility or any Turbine  Unit to cease to be an "eligible  facility"  within the
meaning of  Section  32(a)(2)  of the 1935 Act or (y) would  cause the Lessor to
cease to be an EWG  under  the 1935  Act,  and (B) the  Lessee  shall at its own
expense  take all actions as may from time to time be  necessary so that neither
the Lessor,  any Related  Assignee nor any of their  respective  Affiliates will
(other than in connection with a Possessory  Remedy),  solely as a result of (i)
entering into this Lease or any other  document  contemplated  hereby,  (ii) the
acquisition, ownership, leasing or financing of the Facility or any Turbine Unit
(or any part  thereof) or (iii) the  operation by the Lessee or any Affiliate of
the  Lessee  of the  Facility  or any  Turbine  Unit in  accordance  with and as
contemplated  by the Material  Contracts  and this Lease be deemed to be, and be
subject to financial,  rate,  utility or other similar  regulation  as, a public
utility, an electric utility or a public utility holding company under any Legal
Requirement,  and the Lessee shall  promptly and duly prepare and, if necessary,
execute  and file,  and prepare  for  execution  and filing by the Lessor or any
Affiliate of the Lessor, such notices, applications and other documents as shall
be  necessary  so that  the  Lessor,  each  Related  Assignee  and each of their
respective Affiliates, as the case may be, shall be free of all such regulation.
The Lessor shall  reasonably  cooperate  with the Lessee in connection  with the
preparation,  execution  and  filing  of such  notices,  applications  and other
documents  as  necessary  for the Lessee to perform its  obligations  under this
Section 8(h).

        (i) Upon the first to occur of (w) the  Guarantor  being rated less than
Baa3 by Moody's Investors  Service,  Inc. (or any successor agency) or less than
BBB- by Standard & Poor's Ratings  Services (or any successor  agency),  (x) the
Lessee failing to pay any amount payable by the Lessee under this Lease and such
failure  continuing  for more than ten (10) days after notice  thereof  shall be
given to the Lessee by the Lessor or the Related  Assignee,  (y) the Guarantor's
Consolidated Net Worth falling below $1.6 billion or (z) the mortgage  recording
tax  due in  connection  with  the  recording  of any  Recordable  Document  (as
hereinafter  defined) being eliminated or reduced to a rate that would result in
a  mortgage  recording  tax  equal  to or  less  than  $2  million  or  becoming
unenforceable  in the City of New York,  Queens County,  New York State (each, a
"Recording  Event"),  (A) the Lessee shall within three (3) Business Days pay to
the Lessor the full amount of any filing fees,  mortgage recording tax, transfer
and other taxes due in connection with the recording of the Recordable Documents
and cause to be provided,  at its sole expense,  a title insurance policy from a
title insurance  company  satisfactory to the Lessor and each Related  Assignee,
subject to no title exceptions or other matters other than those approved by the
Lessor and each  Related  Assignee,  and  insuring the Lessor's and each Related
Assignee's  interest in the Facility  and any other Parcel of Property,  (B) the
Lessor  and the Lessee  shall  execute or cause to be  executed  the  Recordable
Documents in recordable  form,  (C) within three (3) Business Days after receipt
from the Lessee of the filing fees,  mortgage  recording tax, transfer and other
taxes (or evidence  satisfactory  to the  recording  office that such taxes have
been paid) due in connection with the recording of the Recordable Documents, the
Lessor or the Related  Assignee  shall  record or cause to be  recorded,  at the
Lessee's  sole cost and  expense,  such  instruments  or  documents ,  including
without  limitation  this  Lease (or  memorandum  thereof),  the Site  Lease (or
memorandum  thereof),  the SNDA, the Landlord's  Consent (each as defined in the
Note  Purchase  Agreement),  any deed in  respect  of the  Facility  or any part
thereof, the Leasehold Mortgage and any security agreement, indenture, mortgage,
deed of  trust,  assignment  of  rents  and any  other  instrument  directly  or
indirectly relating to the Lessor's financing of the Facility, including without
limitation  Uniform   Commercial  Code  financing   statements  related  thereto
(collectively,  the "Recordable Documents"), and (D) the Lessee shall deliver or
cause to be delivered to each Related Assignee such opinions of counsel relating
to the  enforceability of the Recordable  Documents and this Lease, each in form
and substance  satisfactory to each Related  Assignee,  as any Related  Assignee
shall request.  The Related  Assignee shall be entitled to record or cause to be
recorded,  at its cost and expense,  any of the Recordable Documents at any time
prior to a Recording  Event;  provided,  that the Lessee  shall not be liable to
indemnify or reimburse  the Related  Assignee  under Section 11 or otherwise for
such mortgage  recording tax until the occurrence of a Recording Event described
in clause (w),  (x), (y) or (z) (in the case of a reduction  and in such reduced
amount) of this Section  8(i).  Nothing  contained in this Section 8(i) shall be
deemed to limit the Lessee's  indemnification  obligations  under  Section 11 of
this Lease.

     SECTION 9. MAINTENANCE, IMPROVEMENT AND REPAIR OF THE FACILITY, PROPERTY OR
EQUIPMENT.

        (a) Upon the request of the Lessee, the Lessor will, so long as no Event
of Default or Event of Lease  Termination shall have occurred and be continuing,
assign or otherwise  make  available to the Lessee any and all rights the Lessor
may have under any vendor's or  manufacturer's  warranties or undertakings  with
respect  to any  equipment  constituting  a part of the  Facility  or any  other
Property or Equipment.

        (b) The Lessee shall pay all costs, expenses,  fees and charges incurred
in connection with the ownership,  use or occupancy of the Facility or any other
Parcel of  Property or the  ownership,  use and  operation  of any other Unit of
Equipment.  The Lessee  shall  operate and  maintain  the Facility and all other
Property and Equipment in accordance  with Prudent Utility  Practice.  Except as
otherwise  provided in Section 15 hereof,  the Lessee shall at all times, at its
own expense,  and subject to ordinary  wear and tear,  keep the Facility and all
other  Property or Equipment in good  operating  order,  repair and condition in
accordance  with  Prudent  Utility  Practice.  Except as  otherwise  provided in
Section 15 hereof,  the foregoing  undertaking  to maintain the Facility and all
other  Property or Equipment in good repair shall apply  regardless of the cause
necessitating  repair and regardless of whether the Lessee has possession of the
Facility or such other Property or Equipment,  and as between the Lessor and the
Lessee all risks of damage to the Facility  and all other  Property or Equipment
are assumed by the Lessee.  With  respect to the Facility or any other Parcel of
Property or Unit of Equipment,  the undertaking to maintain in good repair shall
include,  without  limitation,  all interior and  exterior  repairs  required by
Prudent  Utility  Practice,  whether  structural or  nonstructural,  foreseen or
unforeseen, ordinary or extraordinary and all common area maintenance including,
without  limitation,  removal of dirt, snow, ice, rubbish and other obstructions
and maintenance of sidewalks and landscaping.  In addition, the Lessee shall, at
its own  expense,  operate,  service,  maintain  and repair the Facility and any
other  Parcel of Property or Unit of  Equipment  and  replace all  necessary  or
useful parts or  components  thereof,  in each case in  accordance  with Prudent
Utility  Practice,  and such  operating  standards  as shall be required to take
advantage of and enforce all available  warranties to the extent such warranties
are  material to the value or  operation of the Facility and any other Parcel of
Property or Unit of Equipment.

        (c) The Lessee shall pay: (i) all taxes  (including  mortgage  recording
tax,  transfer and other taxes  pursuant to Section 8(i)  hereof),  assessments,
levies,  fees,  water and sewer rents and  charges,  and all other  governmental
charges,  general  and  special,   ordinary  and  extraordinary,   foreseen  and
unforeseen,  which are, at any time,  imposed or levied upon or assessed against
(A) the Facility  (including without limitation the tax lot or lots on which the
Facility Site is located,  even if such tax lot or lots cover more property than
the  Facility  Site,  and even if such tax lot or lots cover real  property  not
owned or leased by the Lessee), or any other Parcel or Unit, (B) any Basic Rent,
any  Additional  Rent or other sum  payable  hereunder  or (C) this  Lease,  the
leasehold estate hereby created,  the Recordable  Documents,  or which arises in
respect of the ownership,  operation, occupancy, financing, possession or use of
the Facility or Parcel;  (ii) all gross  receipts or similar taxes (i.e.,  taxes
based  upon  gross  income  which  fail  to  take  into  account  all  customary
deductions)  (e.g.,  ordinary  operating  expenses,  depreciation  and interest)
relating to the  Facility or any other  Parcel or Unit  imposed or levied  upon,
assessed  against or measured by any Basic Rent, or any Additional Rent or other
sum payable  hereunder;  (iii) all sales,  value added, use and similar taxes at
any time levied,  assessed or payable on account of the acquisition,  leasing or
use of the  Facility  or any  other  Parcel  or Unit;  and (iv) all  charges  of
utilities and  communications  services serving the Facility or any other Parcel
or  Unit.  The  Lessee  shall  not be  required  to pay any  franchise,  estate,
inheritance, income or similar tax of the Lessor (other than any tax referred to
in  clause  (ii)  above  unless  such tax is  imposed  in lieu of an  income  or
franchise  tax) unless such tax is imposed,  levied or assessed in  substitution
for any other tax,  assessment,  charge or levy which the Lessee is  required to
pay  pursuant to this  paragraph  (c);  provided,  however,  that if at any time
during the term of this Lease,  the method of taxation  shall be such that there
shall be levied,  assessed or imposed on the Lessor a capital  levy or other tax
directly on the rents received  therefrom,  or upon the value of the Facility or
any  other  Parcel  or  Unit  or  any  present  or  any  future  improvement  or
improvements  on the Facility or any other Parcel or Unit,  then all such taxes,
assessments,  levies or charges or the part thereof so measured or based,  shall
be payable by the Lessee,  and the Lessee  shall pay and  discharge  the same as
herein  provided.  The Lessee will furnish to the Lessor,  promptly after demand
therefor,  proof of payment of all items  referred to above which are payable by
the Lessee.  If any such  assessments may legally be paid in  installments,  the
Lessee  may pay  such  assessment  in  installments.  The  Lessee  will  pay and
discharge,  or cause to be paid  and  discharged,  all  taxes,  assessments  and
governmental  charges or levies  imposed  upon it or its  income or  properties,
prior to the date on which penalties  attach thereto,  except to the extent that
any such  tax,  assessment,  governmental  charge  or levy is the  subject  of a
Permitted Contest.

        (d) Any  improvements  or  additions to any  Equipment  shall become and
remain the property of the Lessor, except that any addition to Equipment made by
the Lessee  shall  remain the  property of the Lessee if it can be removed  from
such Equipment without impairing the functioning of such Equipment or its resale
value,  excluding  such  addition.  Subject to the  provisions  of Section  8(b)
hereof, any improvements or additions which do not remain property of the Lessee
shall be evidenced by a revised Unit Leasing Record.

        (e) So long as no Event of Default or Event of Lease  Termination  shall
have occurred and be continuing,  the Lessee may, at its expense, make additions
to  and  alterations  to the  Facility  (including  the  Facility  Assets),  the
Additional  Property  or any  other  Parcel  of  Property;  provided,  that upon
completion of such  additions or alterations  (or within a reasonable  period of
time thereafter,  consistent with Prudent Utility Practice) (i) neither the fair
market  value of the  Facility or such Parcel of  Property  shall be  materially
lessened  thereby nor the  condition  of the Facility or such Parcel of Property
materially  impaired below the value,  utility or condition thereof  immediately
prior  to such  action  (assuming  the  Facility  or such  Parcel  was then of a
condition  and repair  required to be  maintained  pursuant to paragraph  (b) of
Section 9 hereof),  (ii) such  additions  or  alterations  shall not result in a
change of use of the Facility,  the  Additional  Property or such Parcel,  (iii)
such work shall be completed in accordance with Prudent Utility  Practice and in
compliance with all applicable Legal  Requirements in all material  respects and
all Insurance  Requirements,  (iv) such work could not reasonably be expected to
result in an Event of Lease Termination or an event described in clause (A), (B)
or (C) of Section  15(c) hereof,  (v) in the case of the Facility,  the Facility
will be capable of producing electricity  substantially at or above the level of
its capability  prior to the  undertaking of such additions and  alterations and
the Lessee will be able to fully  perform its  obligations  under this Lease and
the other Operative  Documents to which it is a party and (vi) no exterior walls
of any  building or other  improvement  constituting  a part of the  Facility or
Parcel shall be  demolished  unless (A) the Lessee has made  adequate  provision
according  to  nationally   recognized   sound  and  prudent   engineering   and
architectural standards to preserve and maintain the structural integrity of the
Facility or such Parcel and for the  restoration  of the Facility or such Parcel
to a  structurally  sound  architectural  whole  and  (B) if  such  addition  or
alteration  costs more than $10,000,000 with respect to the Facility or any such
Parcel,  the  obligations  of the Lessee to  preserve,  maintain and restore are
bonded,  for the benefit of the Lessor and the Related Assignee and in an amount
not less than one hundred percent (100%) of the amount  reasonably  estimated by
an  independent  qualified  architect  licensed in New York,  or a contractor of
recognized  standing  and  reputation,   to  be  necessary  to  accomplish  such
preservation,  maintenance and restoration, by a nationally recognized insurance
company  rated in one of the two highest  categories  by the then  current  Best
Insurance  Reports  (or if such is no  longer  published,  a  similar  insurance
industry standard  publication) or otherwise  reasonably assured to the Lessor's
satisfaction.  Any and all such  additions and  alterations  shall be and remain
part of the Facility or such Parcel and shall be subject to this Lease.

        (f) Except as otherwise  provided in Section 15 hereof, the Facility and
any other Property or Equipment  shall be maintained,  repaired,  refurbished or
replaced by the Lessee when  necessary  in order to ensure that the Facility and
such Property or Equipment or replacements  for any Property or Equipment leased
hereunder are of the kind,  quality and in the  quantities  included in the Unit
Leasing  Record  (provided that the Lessee may replace any Property or Equipment
leased hereunder with equipment,  machinery, apparatus, fixtures, structures and
installations  of different  kind,  quality and in different  quantities if such
replacement   equipment,   machinery,   apparatus,   fixtures,   structures  and
installations  is consistent with Prudent Utility Practice and would not, in the
Lessee's good faith judgment,  diminish in any material respect the value of the
Facility or such Property or Equipment) will be in such condition and sufficient
to allow the  Facility  and any other  Property or  Equipment  to be operated in
accordance  with Prudent Utility  Practice and any other  standards  required by
this Lease. The Lessee shall comply in all material respects with all applicable
Federal,  state and local laws and  regulations  relating  to the records of the
Facility, the Additional Property or such Property or Equipment, as the case may
be. The  Lessee  shall  obtain or cause to be  obtained  in a timely  manner and
maintain  or cause to be  maintained  in full force and effect all  Governmental
Actions  (other  than those  which,  if not  obtained  or  effected,  would not,
individually  or in the  aggregate,  (x)  impair  the  ability  of the Lessee to
perform its  obligations  under this Lease or the other  Operative  Documents to
which it is a party, (y) reasonably be expected to materially impair the ability
of the  Facility or any other  Turbine  Unit,  as the case may be, to perform in
commercial operation and to operate  substantially at its Capacity or (z) result
in an Event of Lease Termination or an event described in clause (A), (B) or (C)
of Section  15(c) hereof)  required for the  ownership,  leasing,  operation and
maintenance  of the  Facility and any other  Property or  Equipment  (including,
without limitation, any Turbine Unit or any part thereof) in accordance with and
as  contemplated  by the  Facility  Support  Agreement  and  this  Lease  and as
otherwise  necessary  to perform  its  obligations  under the  Facility  Support
Agreement and this Lease and will promptly upon the request of the Lessor or the
Related Assignee provide a copy of each such  Governmental  Action to the Lessor
and the Related Assignee.  The Lessee shall obtain and maintain,  or cause to be
obtained and  maintained,  all  patents,  licenses  and  proprietary  rights and
technology that are necessary in connection with the acquisition,  operation and
maintenance of the Facility,  the Additional  Property and any other Property or
Equipment (including, without limitation, any Turbine Unit or any part thereof).

        SECTION 10.       INSURANCE.

        (a) The Lessee shall  procure at its own cost and expense and  maintain,
or cause to be procured  and  maintained,  in full force and effect at all times
throughout  the term of this Lease with respect to the Facility,  the Additional
Property  and  all  other  Property  and  Equipment,   insurance  policies  with
responsible  insurance  companies  authorized to do business in the State of New
York with a Best Insurance  Reports rating of "A" or better and a financial size
category  of "VIII" or  higher,  or if not rated by Best,  a  Standard  & Poor's
Ratings Services,  a division of The McGraw-Hill  Companies,  Inc. claims paying
ability rating of BBB+ or higher (or such other company acceptable to the Lessor
and the Related  Assignee),  with limits and coverage  provisions  sufficient to
satisfy the requirements (if any) set forth in the Material Contracts, but in no
event less than the limits and coverage provisions set forth below:

               (i)  Workers'  Compensation   Insurance.   Workers'  compensation
insurance in accordance  with and as required under the laws of the State of New
York.  A  maximum  deductible  or  self-insured   retention  of  $1,000,000  per
occurrence shall be allowed.

               (ii)  Employer's   Liability   Insurance.   Employer's  liability
insurance,  if  the  Lessee  has  any  employees,   providing  compensation  for
occupational  diseases  and for  injuries  sustained  by or death  resulting  to
employees of the Lessee or its  subcontractors as required by law, including the
laws of each  state  wherein  any work is  performed  under  the Lease and where
employment contracts of such employees were made, including employer's liability
insurance  coverage  with a $10,000,000  minimum  limit per accident.  A maximum
deductible or  self-insured  retention of  $1,000,000  per  occurrence  shall be
allowed.

               (iii)  General  Liability  Insurance.  Liability  insurance on an
occurrence  (or  claims-made  form) basis  against  claims for  personal  injury
(including  bodily injury and death) and property  damage.  Such insurance shall
provide  coverage  for  products-completed   operations,   blanket  contractual,
explosion,  collapse  and  underground  coverage,  broad form  property  damage,
personal  injury  insurance,  and the hostile fire  exception  to the  pollution
liability  exclusion with a $5,000,000 minimum limit per occurrence for combined
bodily  injury  and  property  damage.  A  maximum  deductible  or  self-insured
retention of $5,000,000 per occurrence shall be allowed.

               (iv)  Automobile   Liability   Insurance.   Automobile  liability
insurance against claims for personal injury (including bodily injury and death)
and  property  damage  covering  all owned,  leased  non-owned  and hired  motor
vehicles,  including loading and unloading,  with a $5,000,000 minimum limit per
occurrence  for  combined  bodily  injury and  property  damage  and  containing
appropriate  no-fault  insurance  provisions  wherever  applicable.   A  maximum
deductible or  self-insured  retention of  $5,000,000  per  occurrence  shall be
allowed.

               (v) Excess Insurance. Excess liability insurance on an occurrence
(or  claims-made  form)  basis  covering  claims  in  excess  of the  underlying
insurance  described  in the  foregoing  clauses  (ii),  (iii) and (iv),  with a
$100,000,000 minimum limit per occurrence;  provided,  however, in the event the
available limit of liability is less than $50,000,000 due to claims against such
excess liability  insurance,  the Lessee shall purchase  additional  coverage so
that the available limit of liability under such excess  liability  insurance is
not less than $100,000,000.

               The amounts of insurance  required in the foregoing clauses (ii),
(iii),  (iv) and this  clause  (v) may be  satisfied  by the  Lessee  purchasing
coverage in the amounts  specified or by any  combination  of primary and excess
insurance,  so long as the total  amount  of  insurance  meets the  requirements
specified above.

               (vi) Physical  Damage  Insurance to the Facility,  the Additional
Property  and any other  Property.  Property  damage  insurance on an "all risk"
basis,  boiler and machinery  insurance on a  comprehensive  basis (covering all
production machinery,  including but not limited to pressure vessels, electrical
turbines,  generators,  transformers and other related  equipment,  motors,  air
tanks,  boilers,  machinery,  pressure  piping  or any  other  similar  objects)
including  coverage  against damage or loss caused by earth movement  (including
but not limited to  earthquake,  landslide,  subsidence  and volcanic  eruption)
fire,  lightning  and flood and  providing  coverage for (1) the  Facility,  the
Additional  Property  and each  Parcel of  Property  in an  amount  equal to the
greater of (A) one hundred  percent  (100%) of the "full  insurable  replacement
value"  of the  Facility  or  such  Parcel  or (B) the  Acquisition  Cost of the
Facility  or such  Parcel,  (2)  transit  including  ocean  marine  transit,  if
applicable,  with  sub-limits of $5,000,000,  (3) foundations and other property
below the surface of the ground and (4) attorneys'  fees,  engineering and other
consulting  costs,  and  permit  fees  directly  incurred  in order to repair or
replace damaged insured property in a minimum amount of $1,000,000. For purposes
of this clause (vi) and clause (vii),  "full insurable  replacement value" shall
mean the full  replacement  value of the  Facility  or any  Parcel  of  Property
including any improvements,  equipment,  spare parts, fuel and supplies, without
deduction for physical depreciation and/or obsolescence.  All such insurance may
have  deductibles of not greater than $5,000,000 per occurrence.  Such insurance
shall (x) not include any coinsurance provision,  (y) provide for increased cost
of construction  and loss to undamaged  property as the result of enforcement of
building  laws or  ordinances  with  sub-limits  not less  than 10% of the "full
insurable  replacement value" of the Facility,  the Additional  Property or such
other  Parcel,  and (z) include  debris  removal with  sub-limits  not less than
$1,000,000  or 25% of the loss,  whichever  is greater.  The earth  movement and
flood coverage may be of the type usually carried by corporations engaged in the
same or similar business,  similarly situated with the Lessee or its Affiliates,
and owning or  operating  similar  equipment  and which  cover risks of the kind
customarily  insured  against by such  corporations,  and in  substantially  the
amount  applicable to similar  equipment owned,  leased or held by the Lessee or
its Affiliates.  The property damage coverage shall not contain an exclusion for
freezing,  mechanical  breakdown,  loss or damage covered under any guarantee or
warranty, or resultant damage caused by faulty workmanship, design or materials.

               If the insurance  company providing the physical damage insurance
is different  from the  insurance  company  providing  the boiler and  machinery
insurance  required in this Section 10, then a joint loss agreement between such
companies will be required and included as part of the respective policies.

               (vii) Physical  Damage  Insurance to Equipment.  Physical  damage
insurance with respect to all Equipment  (other than any Equipment which is part
of the Facility),  which is of the type usually carried by corporations  engaged
in the same or  similar  business,  similarly  situated  with the  Lessee or its
Affiliates,  and owning or operating  similar equipment and which cover risks of
the kind customarily insured against by such corporations,  and in substantially
the amount applicable to similar  equipment owned,  leased or held by the Lessee
or its  Affiliates;  provided,  that such  insurance  shall at all times be in a
minimum aggregate amount not less than the Acquisition Cost of such Equipment.

        (b) Endorsements.  All policies of insurance required by this Section 10
shall provide for waivers of subrogation by the insurers in favor of the Lessor,
Merrill  Lynch,  Merrill  Leasing,  the  general  partner  of the Lessor and its
shareholders, officers and directors, the limited partners of the Lessor and the
Related Assignee and their respective officers, directors, members, trustees and
employees.

               All policies of liability  insurance required to be maintained by
        the Lessee under clauses (a)(iii), (iv) and (v) of this Section 10 shall
        be endorsed as follows:

               (1)  To provide a  severability  of interest  or cross  liability
                    clause;

               (2)    Such that the insurance shall be primary and not excess to
                      or  contributing  with  any  insurance  or  self-insurance
                      maintained by the Lessor,  Merrill Lynch, Merrill Leasing,
                      the  general  partner of the Lessor and its  shareholders,
                      officers and directors, the limited partners of the Lessor
                      or the Related Assignee; and

               (3)    To name the Lessor,  Merrill Lynch,  Merrill Leasing,  the
                      general  partner  of  the  Lessor  and  its  shareholders,
                      officers and directors, the limited partners of the Lessor
                      and the Related  Assignee and their  respective  officers,
                      directors,  members,  trustees and employees as additional
                      insureds.

        All policies of insurance  required to be maintained by the Lessee under
clauses (a)(vi) and (vii) of this Section 10 shall name the Related  Assignee as
a loss payee and (subject to the  provisions  of clause  (d)(ii) of this Section
10) shall name the Lessor,  Merrill Lynch,  Merrill Leasing, the general partner
of the Lessor and its shareholders, officers and directors, the limited partners
of the Lessor and their  respective  officers and employees as  additional  loss
payees,  as their respective  interests in the Facility or any other Property or
Equipment may appear.

        (c) Waiver of  Subrogation.  The Lessee hereby waives any and all claims
for  recovery  from the Lessor,  Merrill  Lynch,  Merrill  Leasing,  the general
partner of the Lessor and its shareholders,  officers and directors, the limited
partners of the Lessor and the Related Assignee and their  respective  officers,
directors,  members,  trustees  and  employees  for any and all  loss or  damage
covered by any of the insurance  policies to be  maintained  under this Lease to
the extent that such loss or damage is recovered under any such policy. Inasmuch
as the foregoing  waiver will  preclude the  assignment of any such claim to the
extent of such recovery, by subrogation (or otherwise),  to an insurance company
(or other  Person),  the Lessee shall give  written  notice of the terms of such
waiver to each  insurance  company  which has issued,  or which may issue in the
future,  any such  policy  of  insurance  (if such  notice  is  required  by the
insurance  policy)  and shall  cause each such  insurance  policy to be properly
endorsed by the issuer thereof,  or to otherwise  contain one or more provisions
that prevent the invalidation of the insurance  coverage provided  thereunder by
reason of such waiver.

        (d)    Additional Requirements.

               (i) The Lessee shall promptly  notify the Lessor and each Related
Assignee of any loss in excess of $5,000,000 covered by any insurance maintained
pursuant to clauses (a)(vi) and (vii) of this Section 10.

               (ii) All policies of insurance required to be maintained pursuant
to clauses  (a)(vi) and (vii) of this Section 10 shall provide that the proceeds
of such policies shall be payable solely to the Related  Assignee  pursuant to a
standard first mortgage endorsement substantially equivalent to the Lenders Loss
Payable Endorsement 438BFU or ISO endorsement CP12181091,  without contribution.
The Lessor and the Related  Assignee  shall have the right to join the Lessee in
adjusting any loss in excess of $5,000,000.  All policies (other than in respect
to liability or workers  compensation  insurance)  shall insure the interests of
the Lessor,  Merrill Lynch,  Merrill Leasing, the general partner of the Lessor,
the limited  partners of the Lessor and the Related  Assignee  regardless of any
breach or violation by the Lessee or Lessor of any  warranties,  declarations or
conditions  contained in such policies,  any action or inaction of the Lessee or
the  Lessor  or  others,  or  any  foreclosure  relating  to the  Facility,  the
Additional  Property or any other Parcel of Property or Unit of Equipment or any
change in  ownership  of all or any portion of the Facility or such other Parcel
or Unit.

               (iii) A loss under any  insurance  required  to be carried  under
clauses (a)(vi) or (vii) of this Section 10 shall be adjusted with the insurance
companies, including the filing in a timely manner of appropriate proceedings by
the Lessee,  subject to the  approval of the Lessor and the Related  Assignee if
such  loss is in  excess  of  $5,000,000.  In  addition  the  Lessee  may in its
reasonable judgment consent to the settlement of any loss; provided that, in the
event  that  the  amount  of the  loss  exceeds  $5,000,000,  the  terms of such
settlement shall be consented to by the Lessor and the Related Assignee.

               (iv) All policies of insurance required to be maintained pursuant
to  paragraph  (a) of this  Section 10 shall be  endorsed so that if at any time
they  should  be  canceled,  or  coverage  shall be  reduced  in a manner  which
adversely affects the interests of the Lessor,  Merrill Lynch,  Merrill Leasing,
the  general  partner of the Lessor,  the limited  partners of the Lessor or the
Related  Assignee,  such cancellation or reductions shall not be effective as to
the Lessor,  Merrill Lynch,  Merrill Leasing, the general partner of the Lessor,
officers  and  directors,  the  limited  partners  of the Lessor and the Related
Assignee  until sixty (60) days (except for  non-payment  of any premium,  which
shall be for ten  (10)  days),  after  receipt  by the  Lessor  and the  Related
Assignee of written notice from such insurer of such cancellation or reduction.

               (v) The Lessee may, at its own cost and  expense,  prosecute  any
claim against any insurer or contest any settlement proposed by any insurer, and
the Lessee may bring any such  prosecution or contest in the name of the Lessor,
the Lessee,  or both, and the Lessor will join therein at the Lessee's  request,
provided that the Lessee shall indemnify the Lessor against any losses, costs or
expenses  (including  reasonable  attorneys' fees) which the Lessor may incur in
connection with such prosecution or contest.

        (e) Evidence of Insurance. On the date of this Lease with respect to the
Facility and the Additional Property,  on the Effective Date with respect to any
other  Property or Equipment and on an annual basis at least ten (10) days prior
to each policy anniversary, the Lessee shall furnish the Lessor and each Related
Assignee with (i) approved  certification  of all insurance  required under this
Section  10 and (ii) a schedule  of the  insurance  policies  held by or for the
benefit of the Lessee and required to be in force by the provisions of paragraph
(a) of this Section 10. Such certification  shall be executed by each insurer or
by an  authorized  representative  of each insurer where it is not practical for
such  insurer  to execute  the  certificate  itself.  Such  certification  shall
identify  underwriters,  the type of  insurance,  the  insurance  limits and the
policy term and shall  specifically list the special  provisions  enumerated for
such insurance  required by paragraph (a) of this Section 10. Upon request,  the
Lessee will promptly furnish the Lessor and each Related Assignee with copies of
all  insurance  policies,  binders  and cover  notes or other  evidence  of such
insurance relating to the insurance required to be maintained by the Lessee. The
schedule of  insurance  shall  include,  to the extent such  information  is not
included  on the  insurance  certificates,  the name of the  insurance  company,
policy number, type of insurance,  major limits of liability and expiration date
of the insurance policies.

        (f)  Reports.  Upon the request of the Lessor or any  Related  Assignee,
concurrently with the furnishing of the  certification  referred to in paragraph
(e) above,  the Lessee shall furnish the Lessor and such Related Assignee with a
report of an  independent  broker,  signed by an officer of the broker,  stating
that in the opinion of such broker,  the insurance then carried or to be renewed
is in  accordance  with the terms of  paragraphs  (a),  (b), (d) and (m) of this
Section 10 and  attaching an updated copy of the schedule of insurance  required
by  paragraph  (e) above.  In  addition,  the Lessee  will advise the Lessor and
Related  Assignee  in writing  promptly  of any  default  in the  payment of any
premium  and of any other act or  omission  on the part of the Lessee  which may
invalidate or render  unenforceable,  in whole or in part,  any insurance  being
maintained by the Lessee pursuant to paragraph (a) of this Section 10.

        (g)  Failure to  Maintain  Insurance.  In the event the Lessee  fails to
maintain the full insurance  coverage  required by paragraph (a) of this Section
10, the Lessor or the Related  Assignee,  upon  thirty  (30) days' prior  notice
(unless the  aforementioned  insurance would lapse within such period,  in which
event notice  should be given as soon as  reasonably  possible) to the Lessee of
any such  failure,  may (but shall not be  obligated  to) take out the  required
policies of insurance and pay the premiums on the same.

        (h) No Duty of the Lessor or the  Related  Assignee to Verify or Review.
No provision of this Section 10, or any provision of this Lease, shall impose on
the  Lessor  or the  Related  Assignee  any duty or  obligation  to  verify  the
existence or adequacy of the insurance  coverage  maintained by the Lessee,  nor
shall the Lessor or the Related Assignee be responsible for any  representations
or  warranties  made by or on behalf of the Lessee to any  insurance  company or
underwriter.  Any failure on the part of the Lessor or the  Related  Assignee to
pursue or obtain  the  evidence  of  insurance  required  by this Lease from the
Lessee  and/or  failure of the Lessor or the  Related  Assignee to point out any
non-compliance  of such evidence of insurance  shall not  constitute a waiver of
any of the insurance requirements in this Lease.

        (i) Application of Insurance Proceeds for Loss or Taking. As between the
Lessor and the Lessee it is agreed that any insurance  payments  received as the
result of the  occurrence of (i) any event of loss described in paragraph (c) of
Section 15 hereof with  respect to the  Facility or any other Parcel of Property
or Unit of Equipment,  or (ii) any event of Taking described in paragraph (a) of
Section 16 hereof,  shall be paid to an  account  of the Lessor  established  in
connection  with the  Facility or such  Parcel or Unit,  as the case may be, and
disposed of as set forth in paragraph (c) of Section 15 hereof.

        (j) Application of Insurance  Proceeds for Other than Loss or Taking. As
between  the Lessor and the Lessee,  so long as no Event of  Default,  Potential
Default under paragraphs (a), (d) or (h) of Section 18 hereof,  Event of Loss or
Event of Lease Termination shall have occurred and be continuing,  the insurance
proceeds of any  property  damage or loss to the Facility or any other Parcel of
Property or Unit of Equipment or any event of Taking  described in paragraph (b)
of Section 16 hereof  will be held in an  account of the Lessor  established  in
connection  with the Facility or such other Parcel or Unit,  as the case may be,
and applied in payment (or to reimburse  the Lessee) for repairs or  replacement
in accordance  with the terms of paragraph (b) of Section 15 hereof.  The Lessee
shall be entitled,  subject to its compliance  with the  immediately  succeeding
sentence, (i) to receive the amounts so deposited against certificates, invoices
or bills  satisfactory to the Lessor,  delivered to the Lessor from time to time
as such work or repair  progresses,  and (ii) to direct  the  investment  of the
amounts so  deposited  as provided in  paragraph  (k) of this Section 10. To the
extent  that the  Lessor  estimates  that the cost of such work or repair  shall
exceed the amount of such  proceeds,  the Lessee shall make adequate  provisions
for the payment thereof,  which provisions shall be acceptable to the Lessor and
the Related Assignee.  Any moneys remaining in the aforesaid account after final
payment for repairs has been made shall be paid to the Lessee.

        (k) Investment.  The Lessor, at the Lessee's  instruction,  shall invest
the amounts  deposited with the Lessor pursuant to paragraph (j) of this Section
10 in any investments permitted under a Financing Arrangement.  Such investments
shall  mature in such  amounts and on such dates so as to provide  that  amounts
shall be available on the draw dates sufficient to pay the amounts  requested by
and due to the Lessee. Any interest earned on investments of such funds shall be
paid to the Lessee.  The Lessor shall not be liable for any loss  resulting from
the  liquidation of each and every such investment and the Lessee shall bear the
risk of such loss, if any.

        (l)  Application in Default.  Any amount  referred to in paragraphs (i),
(j) or (k) of this  Section 10 which is payable to the Lessee  shall not be paid
to the Lessee or, if it has been  previously  paid to the  Lessee,  shall not be
retained  by the  Lessee,  if at the time of such  payment an Event of  Default,
Potential  Default under paragraphs (a), (d) or (h) of Section 18 hereof,  Event
of Loss or Event of Lease Termination shall have occurred and be continuing.  In
such event, all such amounts shall be paid to and held by the Lessor as security
for the obligations of the Lessee hereunder or, at the Lessor's option,  applied
by the Lessor  toward  payment of any of such  obligations  of the Lessee at the
time due  hereunder as the Lessor may elect.  At such time as there shall not be
continuing any Event of Default, Potential Default under the paragraphs (a), (d)
or (h) of Section 18 hereof,  Event of Loss or Event of Lease  Termination,  all
such  amounts  at the time held by the Lessor in excess of the  amount,  if any,
which the Lessor shall have elected to apply as above  provided shall be paid to
the Lessee.

        (m) "Claims  Made"  Policies  for  Certain  Types of  Insurance.  If any
liability  insurance required under the provisions of this Section 10 is allowed
to be written on a "claims made" basis,  then such  insurance  shall include the
following:

               (i) the  retroactive  date (as such term is  specified in each of
such policies) shall be no later than the date of this Lease; and

               (ii) each time any policy written on a "claims made" basis is not
renewed or the  retroactive  date of such  policy is to be  changed,  the Lessee
shall  obtain or cause to be  obtained  for each such  policy  or  policies  the
broadest extended reporting period coverage,  or "tail" reasonably  available in
the commercial insurance market for each such policy or policies,  as determined
in the  reasonable  judgment of the Lessor and the Related  Assignee,  but in no
event less than two years after the expiration of such policy or policies.

        (n) Use or Operation of the Facility,  and other Property and Equipment.
The LESSEE  covenants  that it will not use or operate the Facility or any other
Equipment or use or occupy the Facility or any other  Property or permit the use
or occupancy  of the  Facility or any other  Property or the use or operation of
the  Facility or any other  Equipment at a time when the  insurance  required by
this Section 10 is not in force.

        SECTION 11.       INDEMNITIES.

        (a) The Lessee shall  indemnify,  protect,  defend and hold harmless the
Lessor, each general and limited partner of the Lessor,  Merrill Lynch,  Merrill
Leasing, each Related Assignee,  and their respective successors or assigns, and
each  Affiliate  of each of them,  and  their  respective  officers,  directors,
trustees, incorporators, shareholders, partners (general and limited, including,
without limitation, the general and limited partners of the Lessor),  employees,
agents and servants  (each of the  foregoing an  "Indemnified  Person") from and
against all liabilities  (including,  without limitation,  Environmental Damages
and strict liability in tort), taxes,  losses,  obligations,  claims (including,
without limitation, Environmental Damages and strict liability in tort), damages
(including,  without limitation,  direct, indirect,  consequential,  special and
punitive damages payable to third parties),  penalties, causes of action, suits,
costs  and  expenses  (including,  without  limitation,   attorneys',  experts',
consultants'  and  accountants'  fees and  expenses)  or judgments of any nature
relating to or in any way arising out of:

               (i) the ordering, delivery,  acquisition,  purchase agreement for
the acquisition,  construction, title on acquisition,  rejection,  installation,
possession, titling, retitling, registration, custody by the Lessee of title and
registration documents,  ownership,  use, non-use,  misuse, lease under the Site
Lease or any Ground  Lease,  any  Operative  Document,  financing  including any
indentures related thereto (including,  without  limitation,  all obligations of
the Lessor under or in respect of the  Derivative  Option and any interest  rate
swap, cap, collar, option or other financial hedging arrangement and any amounts
payable by the Lessor under any such  arrangement to reduce the notional  amount
thereof by the amount of any  prepayment of any borrowing to which such interest
rate swap, cap, collar,  option or other financial hedging arrangement relates),
lease,  sublease,  security  interest in, operation,  transportation,  repair or
control of the  Facility,  the  Additional  Property  or any other  Property  or
Equipment leased or to be leased  hereunder,  (i) except to the extent that such
costs are  included in the  Acquisition  Cost of the  Facility,  the  Additional
Property or such other  Property or Equipment or have been paid by the Lessee as
Basic  Rent or  Additional  Rent,  (ii)  except for any  general  administrative
expenses  of the Lessor,  (iii)  except the income  taxes with  respect to which
indemnification  is excluded  under  paragraph  (b) of this  Section 11 and (iv)
except that this indemnity  shall not duplicate any payment  required to be made
by the Lessee pursuant to paragraph  (b)(iii)(A) or (c)(iii)(A) of Section 12 of
this Lease;

               (ii)  the  assertion  of any  claim  or  demand  based  upon  any
infringement  or alleged  infringement  of any patent or other  right,  by or in
respect of the  Facility,  the  Additional  Property  or any other  Property  or
Equipment;  provided, however, that, upon request of the Lessee, the Lessor will
make   available   to  the  Lessee  the   Lessor's   rights  under  any  similar
indemnification  arising  from any  manufacturer's  or  vendor's  warranties  or
undertakings  with respect to any equipment  constituting a part of the Facility
or any other Property or Equipment;

               (iii) any violation,  or alleged violation, by the Lessee of this
Lease or of any other  Operative  Documents to which the Lessee is a party or of
any  contracts  or  agreements  to which the Lessee is a party or by which it is
bound or of any laws, rules, regulations,  orders, writs, injunctions,  decrees,
consents, approvals,  exemptions,  authorizations,  licenses and withholdings of
objection,  of any  governmental or public body or authority and all other Legal
Requirements  applicable to the Facility,  the Additional  Property or any other
Property or Equipment;

               (iv) Environmental  Damages relating to or in any way arising out
of the Facility, the Additional Property or any other Parcel of Property or Unit
of Equipment, including, without limitation:

                             A.  any  violation  or  alleged  violation  of,  or
               compliance or noncompliance with, any Environmental  Requirements
               (i)  in  connection  with  the  ownership  or  operation  of  the
               Facility,  the  Additional  Property  or any  other  Property  or
               Equipment  or (ii) any prior owner or  operator  of the  Facility
               Site, the Additional Property or any other Property in connection
               with  the  ownership  or  operation  of the  Facility  Site,  the
               Additional Property or any other Property;

                             B. any Release or threatened Release at, to or from
               any  location  of  any   Contaminants,   or  Remedial  Action  or
               corrective action (as the latter term is used in Section 3004(u),
               3004(v),  and 3008(h) of the Resource  Conservation  and Recovery
               Act or any equivalent state, local or foreign law) to address any
               Contaminants,   (i)   generated,   treated,   recycled,   stored,
               processed,  used or  disposed by or on behalf of the Lessee at or
               in connection with the Facility,  the Additional  Property or any
               other Property or Equipment, (ii) generated,  treated,  recycled,
               stored,  processed, used or disposed by or on behalf of any prior
               owner or operator of the Facility Site,  the Additional  Property
               or any  other  Property  in  connection  with  the  ownership  or
               operation of the Facility Site,  the  Additional  Property or any
               other Property,  (iii)  transported by or on behalf of the Lessee
               or any  other  Person  to or from the  Facility,  the  Additional
               Property  or  any  other  Property  for   treatment,   recycling,
               processing,  use or disposal at any location,  or (iv) removed by
               any Person  from any  portion  of the  Facility,  the  Additional
               Property or any other Property;

                    C. the presence of any  Contaminant  at, in, on or under the
               Facility,  the  Additional  Property  or any  other  Property  or
               Equipment;

                             D. the failure to report, disclose or remediate any
               of the foregoing or to comply with any  applicable  consent order
               or voluntary  agreement with any Governmental  Authority relating
               to any of the foregoing; and

                   E. allegations of any of the foregoing; and

               (v)    [intentionally omitted]

               (vi)  the   failure  for  any  reason,   whether   voluntary   or
involuntary, by act or omission, and irrespective of whether or when a Recording
Event  occurs,  to have  executed and recorded  any  Recordable  Document in the
appropriate locations necessary to perfect the security interests created under,
or  to  transfer  the  real  property  interests  conveyed  by,  the  Recordable
Documents, as the case may be, at any time from the date of this Lease until the
repayment  in  full by the  Lessor  of all  obligations  outstanding  under  any
Financing Arrangement.

        (b) The Lessee  agrees to indemnify,  protect,  defend and hold harmless
each Indemnified  Person for matters arising from and against all U.S.  Federal,
state, county, municipal,  foreign or other fees and taxes of whatsoever nature,
including,  but not  limited  to,  license,  qualification,  franchise,  rental,
withholding,  sales, use, net income, gross income, gross receipts,  ad valorem,
business,  personal property,  real estate,  value added, excise, motor vehicle,
occupation fees and stamp or other taxes or tolls of any nature whatsoever,  and
penalties and interest thereon,  whether assessed,  levied against or payable by
the Lessor or otherwise,  with respect to the Facility or any other  Property or
Equipment or the acquisition, purchase, sale, rental, use, operation, control or
ownership of the Facility or any other Property or Equipment (including, without
limitation,  any claim by any Governmental  Authority for transfer tax, transfer
gains tax,  mortgage  recording  tax,  filing or other  similar taxes or fees in
connection  with the  acquisition  of the  Facility  or any  other  Property  or
Equipment by the Lessor or otherwise in connection  with this Lease) or measured
in any way by the  value  thereof  or by the  business  of,  investment  in,  or
ownership by the Lessor with respect thereto; provided that this indemnity shall
not apply to (x) Federal,  state or local net income or franchise  taxes imposed
directly  upon any of the limited or general  partners of LIC  Funding,  Limited
Partnership, except that such indemnity shall apply to (1) such net income taxes
imposed by a state or local government or other taxing authority  thereof (A) as
a result  of the  location  or use of the  Facility  or any  other  Property  or
Equipment  within the jurisdiction of such government or taxing authority or (B)
to the  extent  imposed  in  whole or in part by  reason  of a  relationship  or
asserted  relationship between such government or other taxing authority and the
Facility or any other  Property or  Equipment or the  transactions  contemplated
herein or (2) such net  income  taxes to the  extent  imposed as a result of the
inability to claim,  or  disallowance  or other loss of  deductions  customarily
allowed  in  computing   net  income   (e.g.,   interest   expense,   financing,
administrative,  ordinary operating expenses and other fees and expenses) or (y)
the New York Unincorporated Business Tax.

        (c) The Lessee shall  forthwith upon demand,  reimburse any  Indemnified
Person for any sum or sums  expended  with respect to any of the  foregoing  or,
upon request from any Indemnified Person,  shall pay such amounts directly.  Any
payment made to or on behalf of any Indemnified  Person pursuant to this Section
11 shall be  increased  to such amount as will,  after  taking into  account all
taxes  imposed  with  respect to the accrual or receipt of such  payment (as the
same may be  increased  pursuant  to this  sentence),  equal  the  amount of the
payment, reduced by the amount of any savings in such taxes actually realized by
the  Indemnified  Person as a result of the payment or accrual of the amounts in
respect of which the payment to or on behalf of the Indemnified Person hereunder
is made.  To the extent  that the  Lessee in fact  indemnifies  any  Indemnified
Person  under the  indemnity  provisions  of this  Lease,  the  Lessee  shall be
subrogated to such Indemnified  Person's rights in the affected  transaction and
shall have a right to determine the settlement of claims therein.

        (d) The  indemnities  contained in this Section 11 shall not be affected
by, and shall survive, any termination or expiration of this Lease.

        (e)  Notwithstanding  any provisions of this Section 11 to the contrary,
the Lessee shall not indemnify and hold harmless any Indemnified  Person against
any claims and  liabilities to the extent  arising from the gross  negligence or
willful misconduct of such Indemnified Person.

        (f) In the event the Lessor or any  Indemnified  Person shall be a party
defendant  to any  investigation  or  litigation  arising  out of any  provision
contained  in this  Lease for which the Lessee  has given  indemnification,  the
Lessor or such other Indemnified  Person shall give prompt notice thereof to the
Lessee by  telephone  and in writing  and shall  consult and  cooperate,  at the
Lessee's  expense with the Lessee,  and if the Lessor or such other  Indemnified
Person shall not have  appeared or pleaded to any such action then the Lessor or
such other  Indemnified  Person,  as the case may be,  does  hereby  empower any
attorney of any court of record  appointed  by the Lessee (who shall give prompt
written  notice  to  the  Lessor  or  such  other  Indemnified  Person  of  such
appointment),  with the  prior  written  consent  of the  Lessor  or such  other
Indemnified Person, which consent shall not be unreasonably  withheld, to appear
for the Lessor or such other  Indemnified  Person and in good faith and with due
diligence  defend such action,  to enter  counterclaims,  to  institute  actions
against  third  parties  and to do all  things  necessary  or  desirable  in the
judgment  of such  attorney  after  consultation  with the  Lessor or such other
Indemnified  Person and the Lessee to preserve  the rights of the Lessor or such
other  Indemnified  Person  and the  Lessee,  all at the  Lessee's  own cost and
expense. In the event that an Indemnified Person shall have reasonably concluded
that there are defenses  available to the Indemnified Person which conflict with
those available to the Lessee, the Lessee shall not have the right to assume the
defense  of any  such  action  on  behalf  of the  Indemnified  Person  if  such
Indemnified  Person  chooses to defend such action,  and all  reasonable  costs,
expenses and  attorneys'  fees incurred by the  Indemnified  Person in defending
such action shall be borne by the Lessee;  provided,  that in no event shall the
Lessee be liable for the fees and expenses of more than one counsel representing
all Related  Assignees  with  respect to the  Facility or any other  Property or
Equipment,  as  applicable,  in  respect  of  any  action.  Notwithstanding  the
assumption  of its defense by the Lessee  pursuant to this  paragraph  (f),  any
Indemnified  Person  shall  have the right to  employ  separate  counsel  and to
participate  in its  defense,  but,  except  as  set  forth  in the  immediately
preceding sentence,  the fees and expenses of such counsel shall be borne by the
Indemnified  Person.  In  addition,  the  Lessee  will  not be  liable  for  any
settlement  of any  claim,  action,  proceeding  or suit  unless  the Lessee has
consented thereto in writing (such consent not to be unreasonably withheld). Any
decision by an Indemnified  Person to employ its own counsel rather than counsel
selected by the Lessee (whether or not at the Lessee's  expense) shall in no way
affect any rights of such Indemnified Person otherwise arising under this Lease.
No failure or delay of the Lessor or such other  Indemnified  Person to give the
notice  required by this Section 11 shall excuse the obligation of the Lessee to
indemnify  the  Lessor or such other  Indemnified  Person  with  respect to such
litigation  except to the extent  that any  increase  in  liability  is a direct
result of such failure or delay.


<PAGE>


*SECTION  12(b)(i),  (ii) AND (iii) AND SECTION  12(c)(i),  (ii) AND (iii), HAVE
BEEN OMITTED AND FILED  SEPARATELY  WITH THE SECURITIES AND EXCHANGE  COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THESE SECTIONS APPEAR ON PAGES
60 AND 61 OF THE COMPLETE DOCUMENT.


        SECTION 12.       LESSEE'S RIGHT TO TERMINATE.

        (a) So long as the Lessee can satisfy the Termination  Covenants and the
provisions of this Section 12, and subject to the last sentence of paragraph (a)
of Section  13 hereof,  the Lessee  shall  have the right,  upon  eighteen  (18)
months'  notice  (the  "Termination  Notice")  to the  Lessor  and  the  Related
Assignee,  to  terminate  the lease of the Facility in its entirety or any other
Parcel of Property or Unit of  Equipment  on the Basic Rent  Payment Date at the
end of the Initial Term or the Extended Term, by arranging,  at its own cost and
expense,  for the sale of the Facility or any other  Property or Equipment in an
arm's  length  transaction  on the  date  of  termination  and,  subject  to the
provisions  of  paragraph  (b) of this  Section 12, the receipt by the Lessor of
cash in an amount equal to the sale price thereof (the "Cash Proceeds").  In the
event the Lessee delivers the eighteen month notice described in the immediately
preceding sentence,  the Lessee shall be required,  on the date it delivers such
notice,  to pay to the  Lessor  all  amounts  owing  by  the  Lessor  under  the
Derivative Option to enable the Lessor to exercise the option described therein.
In the event the  Lessee is unable to satisfy  the  Termination  Covenants,  the
Lessee shall not terminate  this Lease  pursuant to this paragraph (a) as to the
Facility in its entirety or any other  Property or  Equipment  unless the Lessee
has obtained the prior written consent of the Lessor to such termination of this
Lease and the sale of the Facility or such other  Property or Equipment  and the
Related  Assignee has been given  notice of such  termination  and  consent.  In
addition,  if an Event of Default or Event of Lease Termination has occurred and
is continuing, and, prior to the termination of this Lease, in whole or in part,
pursuant to this paragraph (a), the Lessor arranges for the sale of the Facility
or such other Property or Equipment to a third party purchaser,  the Termination
Notice  shall be  invalidated  and the Lessee  shall no longer have the right to
cause the termination of the lease of the Facility or such Property or Equipment
and sale of the  Facility  or such  Property  or  Equipment  to its  designee in
accordance  with the terms of this  paragraph  (a). At the time the  Facility or
other  Property or Equipment is sold pursuant to this  paragraph (a), the Lessor
shall deliver the documents described in paragraph (g) of Section 30 hereof, and
the  Lessor's  rights  and  obligations  in  respect  of the Site  Lease and the
Easements,  or the Ground Lease,  as applicable to the leased assets being sold,
as the case may be, shall be assumed by the purchaser,  with the Lessor released
from liability in respect  thereof.  In addition,  as a condition to the sale of
the Facility or any Turbine Unit,  (i) the Lessee shall assign to the purchaser,
at no cost and to the extent  permitted by applicable law, all right,  title and
interest  of  the  Lessee  in,  to  and  under  all  Governmental   Actions  and
Intellectual Property Rights needed for the equipping, maintenance, operation or
use of the Facility or such Turbine Unit (or any part  thereof) and obtained and
held by the Lessee at that time,  (ii) the Lessee shall assign to the purchaser,
at no cost, and the purchaser shall assume, all right, title and interest of the
Lessee  in, to and under the  Material  Contracts  related to such  Facility  or
Turbine Unit, and in the event any  additional  consent of any party to any such
Material  Contract is required as a precondition  thereunder to an assignment to
any such  non-foreclosure  purchaser  designated by the Lessee,  to use its best
efforts to obtain any such  required  consent to such  proposed  non-foreclosure
assignment  and  assumption  of the Material  Contracts,  (iii) the Lessee shall
assign to the purchaser, at no cost, all right, title and interest of the Lessee
in, to and under all service  agreements in existence at that time in connection
with the  equipping,  maintenance,  service,  fueling,  operation  or use of the
Facility or such  Turbine Unit and, in the event any  additional  consent of any
party other than an Affiliate of the Lessee is required for such assignment, the
Lessee shall use its best  efforts to obtain such  required  consent,  (iv) as a
condition to the sale of the Facility in its entirety,  the  purchaser  shall be
entitled to succeed to the Lessor's  rights and  obligations  under the Facility
Support  Agreement and (v) as a condition to the sale of any Turbine  Unit,  the
purchaser   shall  be  entitled  to  receive  an  agreement   with  the  Lessee,
substantially  similar to the terms of the Facility Support Agreement,  relating
to such Turbine Unit and the facilities  and services  related  thereto.  In the
event the Lessee fails to obtain any  consents  required in clause (ii) or (iii)
of the immediately  preceding  sentence,  at the request of such purchaser,  the
Lessee shall agree to (1) at the expense of such purchaser,  continue to perform
under and maintain in full force and effect the Material  Contracts  and service
agreements  and pay all sums received  under the Material  Contracts and service
agreements to such purchaser,  (2) at the expense of such purchaser, and subject
to the receipt of indemnification  reasonably acceptable to the Lessee, take all
actions requested by such purchaser with respect to such Material  Contracts and
service agreements (including all actions with respect to the enforcement of the
Lessee's  rights  and  remedies  under  such  Material   Contracts  and  service
agreements),  and (3) not amend, modify, supplement, waive a provision of, grant
any consent under or terminate any such Material  Contract or service  agreement
without the prior written consent of such purchaser.

        (b)   *

        (c)   *

        (d) All payments and credits referred to in paragraphs (b) and (c) above
shall be made on the termination date of the lease of the Facility or such other
Property or Equipment,  as the case may be, pursuant to this Section 12, and the
parties  shall  account to each other for such  payments  and  credits,  and the
Lessee shall pay to the Lessor (without  duplication) (i) all Basic Rent accrued
in respect of the  Facility or such other  Property or Equipment  sold,  (ii) if
such  termination  occurs pursuant to paragraph (b) of this Section 12, the Debt
Yield-Maintenance  Premium  payable  in respect  of the  Facility  or such other
Property or Equipment  sold,  (iii) any Additional  Rent owing in respect of the
Facility or such other  Property or  Equipment  sold,  (iv) all amounts  payable
pursuant to Sections 11, 25 and 27 hereof,  (v) all losses,  damages,  costs and
expenses  (including,   without  limitation,   reasonable  attorneys'  fees  and
expenses, commissions, filing fees and sales or transfer taxes) sustained by the
Lessor by reason of such sale, and (vi) all other amounts owing hereunder (after
taking into account the  application  under the Financing  Arrangements  of such
purchase price and other payments  hereunder),  each as of the termination date.
Upon  indefeasible  receipt  by the  Lessor of the Cash  Proceeds  and all other
amounts then due and owing hereunder,  including, without limitation, the amount
of excess wear and tear determined pursuant to paragraph (b)(iii) or (c)(iii) of
this  Section  12, as the case may be, the Lessor  shall  transfer  title to the
Facility  or such other  Property  or  Equipment  to the  purchaser  at the sale
designated by the Lessee.  The "Cash Proceeds" referred to in paragraphs (b) and
(c) of this Section 12 shall mean the cash  proceeds of sale  without  reduction
for any  amounts  paid by the  Lessee.  In the event of a sale  pursuant to this
Section 12,  neither the Lessee nor any  Affiliate of the Lessee shall  purchase
the Facility or such other Property or Equipment sold.

        (e) In its notice given  pursuant to  paragraph  (a) of this Section 12,
the Lessee shall advise the Lessor if the sale  provided for in such notice will
result in the  applicability  of paragraph  (b)(iii) or (c)(iii) of this Section
12. If the  Lessee  advises  the  Lessor  that  either  such  paragraph  will be
applicable,  the  Lessor  shall  have  the  right to  arrange  for a sale of the
Facility  or  such  other  Property  or  Equipment  to be  made  to a  purchaser
designated  by the Lessor,  pursuant to paragraph (b) or (c) of this Section 12,
as the case may be, if such purchaser will pay an amount greater than the amount
offered by the Lessee's purchaser. Unless the Lessor shall arrange for such sale
and shall give the Lessee notice  thereof within sixty (60) days of the Lessor's
receipt  of the  Lessee's  notice,  the Lessee  may  proceed  with the sale to a
purchaser  designated by it. Within thirty (30) days of the Lessee's  receipt of
the Lessor's  notice  provided  for in the  preceding  sentence,  the Lessee may
arrange for such sale to be made to another purchaser  designated by it pursuant
to  paragraph  (b) or (c) of this  Section  12, if such  purchaser  shall pay an
amount  sufficient to render  paragraph  (b)(iii) or (c)(iii) of this Section 12
inapplicable.

<PAGE>


        SECTION 13.       LESSEE'S RIGHTS OF PURCHASE AND RENEWAL.

        (a) The Lessee  shall have the right,  upon  ninety  (90) days'  written
notice to the Lessor and the Related Assignee, to purchase the Lessor's interest
in the Facility (or any Turbine Unit) or any other Parcel of Property or Unit of
Equipment  on (i) on the last  Business  Day of the Initial  Term or (ii) on any
Basic Rent  Payment  Date during the  Extended  Term or any Renewal  Term for an
amount equal to its Acquisition Cost;  provided,  however,  that, if an Event of
Default or Event of Lease Termination has occurred and is continuing, the Lessor
may  arrange  for a sale of the  entire  Facility  to a third  party  purchaser,
provided,  that the  Lessee  shall  have the right to effect a  purchase  of the
entire  Facility  pursuant to this  paragraph  (a) not less than sixty (60) days
prior  to the  Lessor's  sale to a third  party;  provided,  further,  that  the
purchase  option  contained in this paragraph (a) shall only be available to the
Lessee if the purchase price will not in the circumstances in which such payment
is made constitute a preferential  payment or avoidable transfer or otherwise be
subject to recapture  pursuant to the provisions of the Federal  Bankruptcy Code
in a  bankruptcy  proceeding  by or against  the  Lessee and will not  otherwise
result in the payment being subject to recapture  from the Lessor as a result of
an act or  omission  of the  Lessee or as a result of the  Lessee's  status.  In
connection with, and as a condition to, any purchase under this paragraph (a) on
the date upon which such  purchase  occurs,  the Lessee  shall pay to the Lessor
(without  duplication)  (i) the Acquisition Cost of the Facility or such Unit or
other  Property or  Equipment,  (ii) all Basic Rent accrued  through the date of
purchase in respect of the Facility or such Unit or other  Property or Equipment
sold,  (iii)  the Debt  Yield-Maintenance  Premium  payable  in  respect  of the
Facility or such Unit or other Property or Equipment  sold,  (iv) any Additional
Rent  owing  in  respect  of the  Facility  or such  Unit or other  Property  or
Equipment  sold,  (v) all amounts  payable  pursuant  to Sections  11, 25 and 27
hereof,  (vi) all  losses,  damages,  costs  and  expenses  (including,  without
limitation,  attorneys' fees and expenses, commissions, filing fees and sales or
transfer  taxes)  sustained by the Lessor by reason of such purchase,  and (vii)
all other amounts  owing  hereunder  (after taking into account the  application
under any  Financing  Arrangement  of such  purchase  price  and other  payments
hereunder). At the time the Facility or such Unit or other Property or Equipment
is sold pursuant to this  paragraph  (a), the Lessor shall deliver the documents
described in paragraph (g) of Section 30 hereof,  and (x) if the entire Facility
is sold,  the Lessor's  rights and  obligations in respect of the Site Lease and
the Easements  shall be assumed by the Lessee,  and (y) if any other Property or
Equipment  is sold,  the  Lessor's  rights  and  obligations  in  respect of any
applicable  Ground  Lease shall be assumed by the Lessee,  in each case with the
Lessor released from liability in respect  thereof.  If any of Unit l, Unit 2 or
Unit 3 and any Equipment  exclusively  related thereto (a "Segregated  Unit") is
sold, the Segregated  Unit shall cease to be subject to the terms and provisions
of this Lease  (other than  paragraph  (b) below) and the terms  "Facility"  and
"Facility Assets" shall thereafter be deemed to exclude the Segregated Unit, but
the Site Lease and Easements (including the Lessee's leasehold interests therein
established  under this  Lease)  shall  continue  in full force and effect  with
respect to the entire  Facility Site and all  Easements.  In addition,  upon the
Lessee's  purchase of any Segregated  Unit, the Lessee shall not be permitted to
cause a sale of the remaining  portion of the Facility to a third party pursuant
to Section 12 hereof until such time as the Facility is in  compliance  with the
standards described in clauses (x) and (y) of paragraph (b)(ii) below.

        (b) If the Lessee  purchases any Segregated  Unit pursuant to Section 13
(a) (other than as part of the  purchase of the entire  Facility),  the purchase
price for such Segregated Unit (the "Unit Purchase Price") shall equal the total
Acquisition Cost for the Facility at the time of such purchase,  multiplied by a
fraction the numerator of which is the Capacity  (expressed in megawatts) of the
Segregated  Unit and the  denominator  of which is the  Capacity  (expressed  in
megawatts)  of the  entire  Facility  at the  time of such  purchase.  Upon  the
purchase of such  Segregated  Unit, the applicable  Unit Leasing Record shall be
revised to reflect a reduction in the Acquisition Cost for the Facility equal to
the Unit Purchase Price for such Segregated  Unit. The Lessee's right to acquire
any  Segregated  Unit  pursuant  to  Section 13 (a) is subject to receipt by the
Lessor and each Related  Assignee,  at least ten (10) Business Days prior to the
requested date of acquisition, of:

               (i) a current appraisal  addressed to the Lessor and each Related
Assignee from the Appraiser (or another independent  appraiser acceptable to the
Lessor and each Related  Assignee in their sole  discretion) with respect to (x)
the value of the Facility  after giving effect to the purchase of the Segregated
Unit and (y) the value of the Facility  without  giving effect to such purchase,
both at the date of such  purchase  and at the end of the  Lease  Term;  and the
appraised  values of the Facility  (excluding the Segregated  Unit) at both such
dates shall at least equal the appraised  value of the Facility  (including  the
Segregated  Unit)  multiplied  by  a  fraction  (the  "Adjustment  Factor")  the
numerator  of which is the Capacity  (expressed  in  megawatts)  of the Facility
(excluding  the  Segregated  Unit) and the  denominator of which is the Capacity
(expressed in megawatts) of the Facility (including the Segregated Unit);

               (ii) a report of an  independent  engineering  firm with national
reputation and experience in the electric generating industry that addresses the
impact of excluding  the  Segregated  Unit from the combined  operations  of the
remaining  portion of Facility and concludes  that, upon completion of such work
as may be required to implement  the exclusion of the  Segregated  Unit from the
Facility  (or within a reasonable  period of time  thereafter,  consistent  with
Prudent Utility Practice), (x) the operational integrity, safety and reliability
of the  remaining  portion of  Facility  will not be  impaired  in any  material
respect below the condition thereof  immediately prior to such exclusion and (y)
the  remaining  portion  of the  Facility  will have the  functional  ability to
perform  in  commercial  operation  substantially  at a capacity  (expressed  in
megawatts) at least equal to the Capacity of the Facility  immediately  prior to
such exclusion, multiplied by the Adjustment Factor;

               (iii) a  certificate  from a  Responsible  Officer  of the Lessee
certifying  that (x) any work that may be required to implement the exclusion of
the  Segregated  Unit from the Facility  will be completed (at the Lessee's sole
cost and expense),  and the remaining portion of the Facility will be capable of
operating,  in accordance with Prudent  Utility  Practice and in compliance with
all applicable  Legal  Requirements  in all material  respects and all Insurance
Requirements and (y) after giving effect to the purchase of the Segregated Unit,
the Lessee will be able to fully  perform its  obligations  under this Lease and
the other Operative Documents; and

               (iv)  such  other  documentation  as the  Lessor  or any  Related
Assignee may reasonably request.

        (c)  Subject  to  arranging  for   refinancing   of  the  Lessor's  debt
obligations upon terms reasonably  acceptable to the Lessor,  and so long as (i)
no Event of Default,  Event of Loss or Event of Lease  Termination  has occurred
and is continuing  and (ii) all amounts  owing under any  Financing  Arrangement
have been paid in full (after  taking into  account  the  application  under any
Financing  Arrangement  of all  payments  hereunder),  the Lessee shall have the
right,  upon ninety (90) days' written notice to the Lessor,  to renew the lease
of the Facility or such other Property or Equipment for an additional  term (the
"Renewal  Term") to be determined by the Lessee,  commencing on the first day of
the calendar  month  following  the last day of the Extended  Term,  on the same
terms and conditions (including, without limitation, being subject to all rights
and  remedies  of the  Lessor and any  Related  Assignee  relating  to Events of
Default,  Events of Loss and Events of Lease  Termination) as existed during the
Lease Term, at the fair market value rental.

        (d) The fair market  value rental of the Facility or any other Parcel of
Property or Unit of Equipment  for purposes of paragraph  (c) of this Section 13
shall be an amount  equal to 0.125%  per  month of the  Acquisition  Cost of the
Facility or such other Parcel or Unit, as the case may be.

        (e) In the event  the lease of the  Facility  or any other  Property  or
Equipment  is not renewed at the end of the  Extended  Term with  respect to the
Facility or such other  Property or Equipment in accordance  with the provisions
of paragraph  (c) of this Section 13, the Lessee shall be required to select one
of the following two options:  (i) to purchase,  on the last day of the Extended
Term, the Lessor's interest in the Facility or such other Property or Equipment,
as the case may be, for cash at its  Acquisition  Cost, in  accordance  with the
provisions  of  paragraph  (a) of this  Section  13 or (ii) to  arrange  for the
Facility or such other  Property or Equipment to be sold in accordance  with the
provisions  of  Section  12 hereof and with the  consequences  therein  provided
(including,  without limitation,  indefeasible receipt by the Lessor of the Cash
Proceeds and all other amounts due and owing to the Lessor  thereunder),  except
that such  sale  must  occur on the last day of such  Extended  Term;  provided,
however,  that if the  Facility or such other  Property or Equipment is not sold
pursuant to Section 12 hereof prior to the last day of the Extended  Term of the
Facility  or such other  Property or  Equipment,  as the case may be, the Lessee
shall be deemed to have  selected  the  option  described  in clause (i) of this
sentence.

        SECTION 14.       TERMINATION UPON CERTAIN EVENTS.

        This Lease shall  terminate and the Lessee shall be required to purchase
the Facility and all other  Parcels of Property and Units of Equipment  from the
Lessor upon the happening of the following  events during the term of this Lease
with  respect to the  Facility or such other  Parcels of  Property  and Units of
Equipment (each an "Event of Lease Termination"): (A) solely as a result of this
Lease,  a Financing  Arrangement,  the Material  Contracts and the  transactions
contemplated hereby or thereby,  the Lessor becomes (or with the passage of time
would  become),  or is declared by the SEC to be,  subject to  financial,  rate,
utility or other similar regulation as a public utility,  an electric utility or
a public  utility  holding  company  under the 1935 Act, or the Lessor,  Merrill
Lynch, Merrill Leasing, any Related Assignee,  any Affiliate of the foregoing or
their respective officers, directors, shareholders,  members, trustees, partners
(general and limited,  including,  without  limitation,  the general and limited
partners of the Lessor) or  employees  shall become  subject to such  regulation
under  the  1935  Act;  (B)  solely  as a  result  of this  Lease,  a  Financing
Arrangement,  the Material Contracts and the transactions contemplated hereby or
thereby,  the Lessor becomes (or with the passage of time would become),  and is
declared by the  Secretary of Energy (or any  successor  thereto) or the FERC to
be, subject to financial,  rate,  utility or other similar  regulation under the
FPA as a public utility, an electric utility or a public utility holding company
or the  Lessor,  Merrill  Lynch,  Merrill  Leasing,  any Related  Assignee,  any
Affiliate  of  the   foregoing   or  their   respective   officers,   directors,
shareholders,  members,  trustees,  partners  (general and  limited,  including,
without limitation, the general and limited partners of the Lessor) or employees
shall become  subject to such  regulation by the FERC; (C) solely as a result of
this Lease, a Financing Arrangement, the Material Contracts and the transactions
contemplated hereby or thereby,  the Lessor becomes (or with the passage of time
would  become),  and is declared by any  relevant  governmental  body or similar
entity  under the laws of any state or  locality  having  jurisdiction  over the
Lessor,  the Lessee or any such  transactions  or activities,  to be, subject to
financial,  rate,  utility or other similar  regulation as a public utility,  an
electric  utility or a public  utility  holding  company or the Lessor,  Merrill
Lynch, Merrill Leasing, any Related Assignee,  any Affiliate of the foregoing or
their respective officers, directors, shareholders,  members, trustees, partners
(general and limited,  including,  without  limitation,  the general and limited
partners of the Lessor) or  employees  shall become  subject to such  regulation
under any such  laws;  (D)  after  the date  hereof,  any law or  regulation  or
interpretation  of any law or  regulation  shall be adopted or  enforced  by any
governmental  or  regulatory  authority  (including,   without  limitation,  the
Secretary of Energy,  the SEC, the FERC,  the public  service  commission of any
state or any similar  commission of any locality  having  jurisdiction  over the
Lessor, the Lessee or any such  transactions),  and as a result of such adoption
or  enforcement,  approval  of  this  Lease,  a  Financing  Arrangement  and the
transactions contemplated hereby or thereby shall be required and shall not have
been obtained  within any grace period after such adoption or enforcement or, as
a result of which adoption or enforcement of this Lease, a Financing Arrangement
and any transaction contemplated hereby or thereby, including any payments to be
made by or to the Lessee or the ownership of the Facility or any other Equipment
or Property or interest  therein by the Lessor,  shall be or become  unlawful or
unenforceable  or the performance of this Lease, a Financing  Arrangement or the
transactions  contemplated hereby or thereby shall be rendered  impracticable in
any material way; or (E) the occurrence of any event or circumstance relating to
Environmental Matters,  Environmental Damages or Environmental Requirements with
respect to the  Facility  or any Parcel of Property  or Unit of  Equipment  that
could  reasonably  be  expected  to have a  material  adverse  effect on (i) the
ability of the Lessee to observe and perform its obligations under this Lease or
the other  Operative  Documents to which it is a party in a timely manner,  (ii)
the ability of the Guarantor to perform its obligations  under the Guaranty in a
timely manner, (iii) the business,  assets,  properties,  financial condition or
operations of the  Guarantor,  (iv) the rights or interests of the Lessor or the
Related  Assignee under this Lease or the applicable  Financing  Arrangements or
(v) the  leasing,  ownership  or  value of the  Facility  . Upon the date of the
occurrence of any Event of Lease  Termination  (the first such date being herein
called the "Termination  Event Date"),  this Lease shall terminate,  except with
respect to  obligations  and  liabilities  of the Lessee,  actual or contingent,
which  arose  under  this  Lease on or prior to the  Termination  Event Date and
except for the Lessee's  obligations  set forth in Sections 7, 8, 9, 10, 15, 16,
17, 18, 19, 25 and 27 hereof,  and in this Section 14, all of which  obligations
will  continue  until  the  delivery  of a  bill  of  sale,  a deed  or  similar
documentation  by the Lessor and the payment by the Lessee  provided for herein,
and except that the Lessee's  obligations under Section 11 hereof shall continue
as set forth  herein,  and  forthwith  also upon such  termination,  the  entire
interest of the Lessor in the  Facility  and all other  Property  and  Equipment
shall  automatically  transfer  to and be  vested  in the  Lessee,  without  the
necessity  of any action by either the Lessor or the Lessee,  but subject to the
rights of any  Related  Assignee.  Promptly  upon  learning  of any  pending  or
threatened  action,  the  effect  of  which  could  result  in an Event of Lease
Termination  described  under  subclause (D), the Lessee shall notify the Lessor
and each Related  Assignee of such action.  As soon as possible after either the
Lessor  or the  Lessee  shall  learn  of the  happening  of any  Event  of Lease
Termination (for purposes of this provision,  if there shall be any grace period
applicable to an Event of Lease Termination  described under subclause (D), such
Event of Lease  Termination  shall be deemed to have  happened upon the day next
preceding the date on which such applicable  grace period  expires),  such party
shall give  notice  thereof to the other party  hereto  which  notice  shall (i)
acknowledge   that  this  Lease  has  terminated,   subject  to  the  continuing
obligations of the Lessee mentioned above, and that the Lessor's interest in the
Facility and all other  Property and Equipment has  transferred to and vested in
the Lessee, subject as aforesaid and (ii) state that on the twentieth day of the
calendar month next  succeeding  the  Termination  Event Date (the  "Termination
Settlement  Date"),  the Lessee shall be obligated to pay to the Lessor,  as the
purchase price for the Lessor's  interest in the Facility and all other Property
and  Equipment,  the sum of the  Acquisition  Cost of the Facility and all other
Property and Equipment as of the Termination Settlement Date. In connection with
any purchase  under this Section 14, on the  Termination  Settlement  Date,  the
Lessee shall pay to the Lessor,  in addition to any purchase price payable,  all
other  amounts  owing  hereunder,  including,  without  limitation  but  without
duplication,  (i) all Basic Rent accrued through the date of termination of this
Lease and the Debt Yield-Maintenance  Premium payable in respect of the Facility
or such other Property or Equipment,  (ii) any Additional Rent owing,  (iii) all
amounts  payable  pursuant  to Sections  11, 25 and 27 hereof,  (iv) all losses,
damages,   costs  and  expenses  (including,   without  limitation,   reasonable
attorneys'  fees and  expenses,  commissions,  filing fees and sales or transfer
taxes)  sustained  by the  Lessor by reason of such  purchase  and (v) all other
amounts  owing  hereunder,  each taking into  account  the  application  under a
Financing Arrangement of such purchase price and other payments hereunder), each
as  of  the  Termination  Settlement  Date.  Upon  the  delivery  of  notice  of
termination  of this Lease as  provided  in this  Section  14, the Lessee  shall
become obligated to make the payment required on the Termination Settlement Date
to the same extent as if it had acknowledged in writing its obligation to do so.
The  Lessee's  obligation  to make  such  payment  shall  be  unconditional  and
unaffected by any event or matter  whatsoever and shall survive the  termination
of this Lease.  At the time the Facility or such other Property and Equipment is
sold  pursuant  to this  Section  14, the Lessor  shall  deliver  the  documents
described in  paragraph  (g) of Section 30 hereof,  and the Lessor's  rights and
obligations  in respect of the Site Lease,  the  Easements  and any Ground Lease
shall be assumed by the  Lessee,  with the Lessor  released  from  liability  in
respect thereof.

        SECTION 15.       LOSS OF OR DAMAGE TO PROPERTY OR EQUIPMENT.

        (a) The  Lessee  hereby  assumes  all risk of loss of or  damage  to the
Facility and any other  Property or  Equipment,  however  caused.  No loss of or
damage to the  Facility or any other  Property  or  Equipment  shall  impair any
obligation  of the Lessee under this Lease,  which shall  continue in full force
and effect regardless of such loss or damage.

        (b) In the event of damage of any kind whatsoever to the Facility or any
other  Property or Equipment  (unless the same is determined by the Lessee to be
damaged  beyond  repair),  the Lessee shall  promptly  notify the Lessor and the
Related  Assignee  in  writing  of such  event  and  shall,  at its own cost and
expense,  consistent with Prudent Utility  Practice,  promptly place the same in
good operating order,  repair and condition and restore the Facility to at least
substantially  the same value and usefulness  that existed prior to such damage.
The Lessee's  right to any proceeds paid under any insurance  policy or policies
required  under  Section 10 of this Lease with respect to any such damage to the
Facility  or any other  Property  or  Equipment  which has been so placed by the
Lessee in good  operating  order,  repair and condition is governed by paragraph
(j) of Section 10 hereof.

        (c) If (A) an Event of Loss with  respect to the  Facility  or any other
Property or Equipment has occurred and is  continuing,  (B) the Facility or such
other  Property  or  Equipment  is attached  (other than on a claim  against the
Lessor as to which the Lessee is not  obligated to indemnify the Lessor) and the
attachment is not removed  within one hundred eighty (180) days, or (C) a Taking
of the  Facility or such other  Property or Equipment as described in Section 16
(a) hereof shall occur,  then in any such event,  (i) the Lessee shall  promptly
notify the Lessor and the Related Assignee in writing of such event, (ii) within
one hundred  eighty  (180) days of such event the Lessee shall pay to the Lessor
an amount equal to the  Acquisition  Cost of the Facility or such other Property
or Equipment  and (iii) the Initial  Term,  Extended Term or Renewal Term of the
Facility or such Property or Equipment  shall continue until the Lessor receives
payment from the Lessee of the amount  payable  pursuant to this  paragraph  (c)
including,  without  limitation,  (1) all Basic Rent accrued through the date of
payment,  (2) any Additional  Rent owing,  (3) all amounts  payable  pursuant to
Sections  11, 25 and 27 hereof,  (4) all  losses,  damages,  costs and  expenses
(including,  without  limitation,  attorneys'  fees and  expenses,  commissions,
filing fees and sales or transfer  taxes)  sustained  by the Lessor by reason of
such event and (5) all other amounts owing  hereunder  after taking into account
the application under a Financing  Arrangement of such payments  hereunder,  and
shall thereupon  terminate.  Upon the indefeasible  payment by the Lessee of all
amounts referred to in the immediately preceding sentence, (i) all insurance and
condemnation  proceeds (net of all collection costs) shall be paid by the Lessor
to the  Lessee,  (ii) the Lessee  shall be  subrogated  to the  Lessor's  rights
resulting from the events  described in clauses (A) through (C) above, and (iii)
the  Lessor  shall  convey  title to the  Facility  or such  other  Property  or
Equipment  pursuant to the  documents  described in paragraph  (g) of Section 30
hereof, including,  without limitation, the Lessor's interest in the Site Lease,
the  Easements  and any Ground  Lease  applicable  to the Facility or such other
Property or Equipment, to the Lessee, free and clear of any Lien pursuant to any
Financing Arrangement.

     SECTION 16.  CONDEMNATION  AND  DEDICATION  OF THE FACILITY  AND  PROPERTY;
EASEMENTS.

        (a) If the use,  occupancy or title to all or a  substantial  portion of
the Facility or any other Parcel of Property is taken, requisitioned or sold in,
by or on account of actual or threatened  eminent  domain  proceedings  or other
action by any  person or  authority  having the power of  eminent  domain  (such
events collectively  referred to as a "Taking"),  then the Lessee shall make the
payment  provided in, and the Initial Term,  Extended Term or Renewal Term shall
terminate  as provided  in,  paragraph  (c) of Section 15 hereof.  The  Lessee's
obligation to make such payment shall survive the  expiration or  termination of
this  Lease.  The  portion  of the  proceeds  from  any  award  or sale  made in
connection  with  such  Taking  attributable  to the  Lessor's  interest  in the
Facility or any other  Property  shall be  retained by the Lessor and,  upon the
indefeasible  payment by the Lessee of all amounts  referred to in paragraph (c)
of Section 15 hereof, such amount shall be paid to the Lessee. A Taking shall be
deemed to affect a  "substantial  portion" of the Facility or any other Property
if, in the  reasonable  judgment of the Lessor and the Related  Assignee,  after
such Taking,  (i) the Lessee is not able to fully perform its obligations  under
this Lease or (ii) a material  diminution  in the  value,  utility or  remaining
economic useful life of the Facility or such other Property will occur.

        (b) If less than a  substantial  portion  of the  Facility  or any other
Parcel of  Property is subject to a Taking,  then this Lease  shall  continue in
effect as to the portion of the Facility or Parcel not taken and, so long as (i)
no  Potential  Default,  Event  of  Default,  Event  of Loss or  Event  of Lease
Termination has occurred and is continuing,  and (ii) the Lessor and the Related
Assignee shall determine that restoration of the Facility or such other Property
is  consistent  with  Prudent  Utility  Practice and that  sufficient  funds are
available to complete such  restoration,  any net proceeds  shall be paid to the
Lessee for the  restoration of the Facility or such other Property in accordance
with  paragraph  (j) of  Section  10  hereof;  provided  that,  if either of the
conditions set forth in clause (i) or (ii) above are not satisfied, then the net
proceeds shall be paid to the Lessor and if and to the extent that such proceeds
are not applied to (or paid to the Lessee in reimbursement  for) the restoration
of the Facility or such Property,  the Acquisition  Cost shall be reduced by the
Lessor by the amount of such proceeds.  Thereupon,  the applicable  Unit Leasing
Record shall be revised to reflect such reduction in Acquisition Cost.

        (c) So long  as no  Event  of  Default  hereunder  has  occurred  and is
continuing, the Lessee shall have the right (i) to grant minor easements for the
benefit of the  Facility or any other Parcel of  Property,  (ii) to  voluntarily
dedicate or convey, as required, portions of the Facility or any other Parcel of
Property for road,  highway and other public  purposes and (iii) to  voluntarily
execute  petitions  to have the  Facility  or any other  Parcel of Property or a
portion  thereof  annexed to any  municipality  or included  within any utility,
highway or other  improvement  or service  district,  provided that no more than
minor  restoration is required.  If any monetary  consideration is paid for such
easement or  dedication,  the Lessee shall be entitled to receive or retain such
consideration.

        The Lessee shall  exercise the above power to grant  without the joinder
of the Lessor, except that the Lessor will cooperate, without unreasonable delay
and at the Lessee's  expense,  as  necessary,  and join in the  execution of any
appropriate instrument or shall execute any separate instrument as necessary. As
a condition  precedent  to the Lessee's  exercise of any of the Lessee's  powers
under this  Section 16, (i) the Lessee  shall give the Lessor five (5)  Business
Days' prior  written  notice of the  proposed  action and (ii) the Lessee  shall
provide to the Lessor a certificate  of the Lessee stating that such action will
not adversely  affect either the fair market value of the Facility or such other
Property or the use of the  Facility  or such other  Property  for its  intended
purpose,  will not  affect  the  Lessor's  ability  to  exercise  its rights and
remedies  under this Lease and that the Lessee  undertakes  to remain  obligated
under this  Lease to the same  extent as if the  Lessee  had not  exercised  its
powers under this Section 16 and the Lessee will perform all  obligations  under
such  instrument and shall prepare all required  documents and provide all other
instruments and certificates as the Lessor may reasonably request.

        SECTION 17.       SURRENDER OF PROPERTY OR EQUIPMENT.

        (a) Subject to the  provisions of Sections 12, 13, 14, 15, 16, 19 and 29
hereof,  upon  termination of the lease of the Facility or any other Property or
Equipment  hereunder,  the Lessee  shall  surrender  the  Facility or such other
Property  or  Equipment  to  the  Lessor.  Equipment  shall  be  surrendered  by
delivering  the same to the Lessor at such location as the Lessor and the Lessee
may agree and, if they are unable to agree,  at such  location as the Lessor may
reasonably  direct.  Such  Property or  Equipment  shall be  surrendered  in the
condition  required by  paragraph  (b) of Section 9 of this  Lease.  Any cost of
removal and delivery of Equipment to the Lessor, shall be paid by the Lessee.

        (b) The Lessee  shall be obligated  to obtain all  Governmental  Actions
necessary  for such  surrender.  In  connection  with the Lessee's  surrender of
possession of the Facility or any other Property or Equipment to the Lessor, the
Lessee shall furnish to the Lessor (i) copies certified by a Responsible Officer
of the Lessee of all Governmental  Action necessary to effect such surrender and
receipt of  possession  and  permitting  the Lessor  (without  the Lessor  being
required to change its  business  structure  or  otherwise to suffer any rule or
potential  adverse  effect on its business or that of its Affiliates as a result
of such  surrender  and receipt of  possession)  to possess the Facility or such
Property or Equipment  with or without the continued  involvement of the Lessee,
which Governmental  Action shall be in full force and effect, (ii) an opinion of
counsel reasonably satisfactory to the Lessor, to the effect that (1) the Lessee
has obtained all  Governmental  Action necessary to effect such surrender by the
Lessee and receipt of  possession by the Lessor of the Facility or such Property
or  Equipment  without  the Lessor  being  required  to change its  business  or
otherwise to suffer any real or potential adverse effect on its business or that
of its  Affiliates as a result of such  surrender and receipt of possession  and
without  regard  to  the  continued  involvement  of the  Lessee  and  (2)  such
Governmental  Action is in full force and effect and not subject to any judicial
or  administrative  contest,  challenge  or review and (iii) all logs,  manuals,
inspection  data,  books and records or copies  thereof  and other  information,
which are  necessary to operate the Facility or such  Property or Equipment  and
which are in accordance with Prudent Utility Practice  customarily  retained (or
that the Lessee  actually did retain) or are required by law to be retained with
respect to similar property and equipment,  including,  without limitation,  all
software and manuals  applicable  to the Facility or such  Property or Equipment
and all design  plans,  know-how,  records  and  information  used by the Lessee
during the prior 12 months of  operation  of the  Facility  or such  Property or
Equipment.

        SECTION 18.       EVENTS OF DEFAULT.

        Any of the  following  events of default  shall  constitute an "Event of
Default"  and shall give rise to the rights on the part of the Lessor  described
in Section 19 hereof:

        (a)  Failure of the Lessee to pay  amounts due to the Lessor at the time
of any scheduled  sale of the Facility or any other Parcel of Property,  Unit of
Equipment or Turbine Unit hereunder, failure of the Lessee to pay Basic Rent for
more than five (5) days after such  payment is due pursuant to Section 7 hereof,
or failure of the Lessee to pay any other amount payable by the Lessee hereunder
for more than ten (10) days after such payment is due; or

        (b) Failure to comply with the Insurance Requirements, or default in the
performance of the covenants  contained in paragraphs  (a), (b), (c), (e) or (i)
of Section 2(ii) hereof,  paragraph (i) of Section 8 hereof, or paragraph (n) of
Section 10 hereof; or

        (c) Default in the  performance  of any other  obligation or covenant of
the Lessee pursuant to this Lease or any other  Operative  Document to which the
Lessee is a party and the continuance of such default for thirty (30) days after
the Lessee obtains actual knowledge thereof;  provided,  that if such default is
of a nature  that is not  capable of being  cured  within  such  thirty (30) day
period and the Lessee shall have  diligently  commenced  curing such default and
proceeds  diligently  and in good  faith  thereafter  to  complete  curing  such
default,  such  thirty  (30) day period  shall be  extended to ninety (90) days;
provided,  further,  that if such default is a default in the performance of any
obligation or covenant of the Lessee  relating to  Environmental  Matters (other
than any  obligation  or  covenant  of the Lessee  under  paragraph  (g)(vii) of
Section 2(ii)), such thirty (30) day period shall be extended for so long as (x)
such default is susceptible to being cured, (y) the Lessee shall have diligently
commenced  curing  such  default  and  proceeds  diligently  and in  good  faith
thereafter  to complete  curing such default in accordance  with all  applicable
requirements of any Governmental Authority with jurisdiction over the matter and
the Lessee and (z) such  default  could not  reasonably  be  expected  to have a
material  adverse effect on (1) the ability of the Lessee to observe and perform
its obligations under this Lease or the other Operative Documents to which it is
a party in a timely  manner,  (2) the  ability of the  Guarantor  to perform its
obligations  under the Guaranty in a timely  manner,  (3) the business,  assets,
properties,  financial condition or operations of the Guarantor,  (4) the rights
or  interests  of the  Lessor or the  Related  Assignee  under this Lease or the
applicable Financing Arrangements or (5) the leasing,  ownership or value of the
Facility; or

        (d) The entry of a decree or order for  relief in  respect of the Lessee
or  the  Guarantor  by a  court  having  jurisdiction  in  the  premises  in  an
involuntary  case  under  the  Federal  bankruptcy  laws,  as now  or  hereafter
constituted, or any other applicable Federal or state bankruptcy,  insolvency or
other similar law, or appointing a receiver,  liquidator,  assignee,  custodian,
trustee, sequestrator (or similar official) of the Lessee or the Guarantor or of
any substantial  part of the Lessee's or the Guarantor's  property,  or ordering
the winding up or liquidation of the Lessee's or the  Guarantor's  affairs,  and
the  continuance of any such decree or order unstayed and in effect for a period
of sixty (60) consecutive days; or

        (e) The suspension or  discontinuance of the Lessee's or the Guarantor's
business  operations,  the  Lessee's  or  the  Guarantor's  insolvency  (however
evidenced)  or the  Lessee's  or the  Guarantor's  admission  of  insolvency  or
bankruptcy,  or the  commencement  by the Lessee or the Guarantor of a voluntary
case under the Federal bankruptcy laws, as now or hereafter constituted,  or any
other applicable  Federal or state bankruptcy,  insolvency or other similar law,
or the consent by the Lessee or the  Guarantor to the  appointment  of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the Lessee or the Guarantor or of any substantial
part of the Lessee's or the Guarantor's property, or the making by the Lessee or
the Guarantor of an assignment  for the benefit of creditors,  or the failure of
the Lessee or the  Guarantor  generally  to pay their debts as such debts become
due,  or the  taking of  corporate  action by the  Lessee  or the  Guarantor  in
furtherance of any such action; or

        (f) A default or event of default,  the effect of which is to permit the
holder or holders of any Indebtedness of the Lessee, the Guarantor or a Material
Subsidiary in excess of $5,000,000  in the  aggregate,  or a trustee or agent on
behalf of such holder or holders, to cause such Indebtedness to become due prior
to its stated  maturity,  shall occur and be continuing  under the provisions of
any  agreement  pursuant to which such  Indebtedness  was created or  instrument
evidencing such  Indebtedness or any obligation of the Lessee,  the Guarantor or
such Material Subsidiary for the payment of such Indebtedness shall become or be
declared to be due and  payable  prior to its stated  maturity,  or shall not be
paid when due (after giving effect to any applicable grace period); or

        (g) Any  representation  or warranty made by the Lessee in this Lease or
in any other  Operative  Document  to which the Lessee is a party shall prove to
have been false or inaccurate in any material  respect on or as of the date made
or deemed made, unless, solely in the case of the representations and warranties
contained in paragraphs  (d), (f), (h), (r) and (t) of Section 2(i) hereof) each
of the following shall exist:

               (i) such  representation  or  warranty  is of a nature that it is
capable of being cured within  thirty (30) days after the Lessee became aware of
the falsity or inaccuracy of such representation or warranty;


               (ii) the  Lessee  shall have  diligently  commenced  curing  such
default  and is  proceeding  diligently  and in good faith to cure such false or
inaccurate  representation  or warranty and shall have cured such default within
such thirty (30) day period;


               (iii) no  Responsible  Officer  shall  have been  aware that such
representation  or warranty was false or inaccurate when such  representation or
warranty was made or deemed made; and

               (iv) such false or inaccurate  representation or warranty has not
resulted  in a  material  adverse  effect  on (i) the use,  operation,  leasing,
ownership  or value of the  Facility  or any  Property  or  Equipment,  (ii) the
ability of the Lessee to observe and perform its obligations under this Lease or
any other Operative  Document to which the Lessee is a party in a timely manner,
(iii) the business, properties or financial condition of the Lessee, or (iv) the
rights or interests of the Lessor or any Related  Assignee  under this Lease and
has not created a reasonable  likelihood  of the Lessor or any Related  Assignee
incurring Environmental Damages; or

        (h) Any final non-appealable judgment for the payment of money in excess
of $5,000,000 shall be rendered against the Lessee,  the Guarantor or a Material
Subsidiary  by any court of  competent  jurisdiction  and the same shall  remain
undischarged  for a period of thirty (30) days during  which  execution  of such
judgment or judgments shall not be effectively stayed; or

        (i) The Guaranty  ceases to be in full force and effect or the Guarantor
asserts the same in writing or an Event of Default (as defined in the  Guaranty)
shall occur and be continuing; or

        (j)    [intentionally omitted]

        (k) Subject to Section 8(i) hereof, the Financing  Arrangements cease to
create a valid and perfected first priority Lien, subject to Permitted Liens, in
any portion of the Facility or any other  Property or  Equipment,  this Lease or
the rights or  interests  thereunder  (to the extent such  documents  purport to
create such a Lien).

        SECTION 19.       RIGHTS UPON DEFAULT.

        Upon the occurrence and  continuation of any Event of Default the Lessor
may do any one or more of the following:

     (a) Terminate the lease of the Facility or any or all Property or Equipment
leased hereunder;

        (b) Whether or not the lease of the  Facility  or any other  Property or
Equipment is  terminated,  take  immediate  possession  of and remove any or all
equipment or property of the Lessor in the  possession  of the Lessee,  wherever
situated, and for such purpose, enter upon any premises without liability to the
Lessee for so doing;

        (c) Whether or not any action has been taken under  paragraph (a) or (b)
above, sell the Facility or any other Property or Equipment (with or without the
concurrence or request of the Lessee);

        (d) Hold, use, occupy, operate,  maintain, repair, remove, lease or keep
idle the Facility or any or all other Property or Equipment as the Lessor in its
sole  discretion may  determine,  without any duty to account to the Lessee with
respect  to any such  action  or  inaction  or for any  proceeds  thereof  or to
mitigate damages; and

        (e)  Exercise  any other right or remedy  which may be  available  under
applicable  law and in general  proceed  by  appropriate  judicial  proceedings,
either at law or in equity,  to enforce the terms  hereof or to recover  damages
for the breach hereof.

        Suit or suits for the  recovery of any default in the payment of any sum
due  hereunder  or for damages may be brought by the Lessor from time to time at
the Lessor's  election,  and nothing herein contained shall be deemed to require
the Lessor to await the date  whereon  this Lease or the term hereof  would have
expired by  limitation  had there been no such  default by the Lessee or no such
termination or cancellation.

        The  receipt  of any  payments  under  this  Lease  by the  Lessor  with
knowledge  of any breach of this  Lease by the  Lessee or of any  default by the
Lessee in the  performance of any of the terms,  covenants or conditions of this
Lease, shall not be deemed to be a waiver of any provision of this Lease.

        No receipt of moneys by the Lessor from the Lessee after the termination
or cancellation hereof in any lawful manner shall reinstate,  continue or extend
the Lease Term or any Renewal  Term, or affect any notice  theretofore  given to
the  Lessee,  or operate  as a waiver of the right of the Lessor to enforce  the
payment of Basic Rent or Additional Rent or other charges payable hereunder,  or
operate  as a waiver of the right of the  Lessor to  recover  possession  of the
Facility or any other Unit of  Equipment  or Parcel of Property by proper  suit,
action, proceedings or remedy; it being agreed that, after the service of notice
to  terminate  or cancel  this Lease,  and the  expiration  of the time  therein
specified,  if the  default  has not been  cured in the  meantime,  or after the
commencement of suit,  action or summary  proceedings or of any other remedy, or
after a final order,  warrant or judgment for the  possession of the Facility or
any other Unit of  Equipment  or Parcel of  Property,  the  Lessor  may  demand,
receive  and  collect  any  moneys  payable  hereunder,  without  in any  manner
affecting such notice,  proceedings,  suit, action,  order, warrant or judgment;
and any and all such  moneys so  collected  shall be deemed  to be  payments  on
account  of the  Lessee's  liability  hereunder.  Acceptance  of the keys to the
Facility or any other Parcel of Property,  or any similar act, by the Lessor, or
any Lessee or  employee,  during the term  hereof,  shall not be deemed to be an
acceptance of a surrender of the Facility or any other Parcel of Property unless
the Lessor shall consent thereto in writing.

        After any Event of  Default,  the Lessee  shall be liable  for,  and the
Lessor may recover  from the  Lessee,  without  duplication,  (i) all Basic Rent
accrued  through  the date of receipt of all  liquidated  damages  payable  upon
termination of this Lease and the Debt  Yield-Maintenance  Premium payable, (ii)
any Additional Rent owing, (iii) all amounts payable pursuant to Sections 11, 25
and 27 hereof, (iv) all losses, damages, costs and expenses (including,  without
limitation,  attorneys' fees and expenses, commissions, filing fees and sales or
transfer  taxes  and all  costs  and  expenses  related  to (x) the  conduct  of
investigations,  studies,  sampling and/or testing of the Facility and any other
Property and (y) the taking of any action,  including,  without limitation,  any
remedial  measures  or  removal  with  respect  to the  Facility  and any  other
Property,  each as required by the Related  Assignee  pursuant to the terms of a
Financing  Arrangement)  sustained  by the Lessor or by the Related  Assignee by
reason of such Event of Default and the exercise of the Lessor's  remedies  with
respect thereto,  including  without  limitation,  in the event of a sale by the
Lessor of the  Facility  or any other  Property  or  Equipment  pursuant to this
Section 19, all costs and expenses  associated  with such sale and (v) all other
amounts  owing  hereunder  (after  taking into account the  application  under a
Financing Arrangement of any payments made under this Section 19) excluding,  in
all cases,  costs or expenses  included in Acquisition Cost. The amounts payable
in clauses (i) through (v) above are  hereinafter  sometimes  referred to as the
"Accrued Default Obligations".

        After  termination  of this  Lease  as a result  of an Event of  Default
pursuant  to Section  19(a)  hereof,  the Lessor  may sell its  interest  in the
Facility  and any other  Property and  Equipment  upon any terms that the Lessor
deems  satisfactory,  free of any rights of the  Lessee or any  Person  claiming
through  or  under  the  Lessee  (including,   without  limitation,  any  rights
hereunder).  In the event of any such sale,  in addition to the Accrued  Default
Obligations,  the Lessor  shall be  entitled  to  recover  from the  Lessee,  as
liquidated damages and not as a penalty, an amount equal to the Acquisition Cost
of the Facility and all other  Property and Equipment  under this Lease.  In the
case of the sale of the  Facility,  proceeds of such sale received by the Lessor
shall be credited  against the Accrued  Default  Obligations and the Acquisition
Cost of the Facility the Lessee is required to pay under this Section 19. In the
case of other  Property  and  Equipment,  proceeds of sale of such  Property and
Equipment  received by the Lessor shall be credited  against the Accrued Default
Obligations  and the  Acquisition  Cost of such other Property and Equipment the
Lessee is required to pay under this Section 19. If such proceeds, together with
any amounts paid by the Lessee under the preceding paragraph,  exceed the sum of
(i) the  Accrued  Default  Obligations  and  (ii)  the  Acquisition  Cost of the
Facility and all Property and Equipment, such excess shall be paid by the Lessor
to the Lessee.  As an  alternative  to any such sale, in addition to the Accrued
Default Obligations, the Lessor may require the Lessee to pay to the Lessor, and
the Lessee shall pay to the Lessor, as liquidated  damages and not as a penalty,
an amount equal to the  Acquisition  Cost of the Facility and all other Property
and Equipment under this Lease. If the Lessor subsequently sells its interest in
the Facility or such other Property or Equipment,  the proceeds of any such sale
(net of any  unreimbursed  costs or  liabilities  incurred  by the Lessor or the
Related  Assignee  with  respect  to the  Facility  or such  other  Property  or
Equipment  after the  termination  of the Lease,  which are not  included in the
Accrued Default  Obligations)  shall be distributed as provided in the third and
fourth  sentences of this  paragraph.  In addition,  if the Lessee  converts the
Facility or any other  Property or Equipment or any part thereof  after an Event
of Default,  or if the  Facility or any other  Property or  Equipment is lost or
destroyed  at the time of the  Event of  Default,  in  addition  to the  Accrued
Default Obligations, the Lessor may require the Lessee to pay to the Lessor, and
the Lessee shall pay to the Lessor, as liquidated  damages and not as a penalty,
an amount equal to the  Acquisition  Cost of the Facility and all other Property
and Equipment under this Lease.  In the event the Lessor  receives  indefeasible
payment  pursuant to this paragraph from the Lessee of the  Acquisition  Cost of
the  Facility  and all other  Property  and  Equipment  and the Accrued  Default
Obligations,  the Lessor shall  transfer all of the  Lessor's  right,  title and
interest in and to the  Facility and such other  Property  and  Equipment to the
Lessee.

        Upon the occurrence and continuance of any Event of Default,  the Lessee
shall  (unless the Lessee has  purchased  the Facility  pursuant to this Section
19),  upon the  request  of the Lessor or the  Related  Assignee,  exercise  all
commercially  reasonable  efforts  (i) to provide  the  Lessor (or a  designated
assignee of the Lessor or the Related  Assignee) with all  easements,  licenses,
manuals,  manufacturer's  warranties and other matters and services necessary to
enable the Facility and any Turbine Unit to operate as an EWG in connection with
the sale of electricity  to third parties on  commercially  reasonable  terms no
less  favorable  to the Lessor  than those that  existed  prior to such Event of
Default,  (ii) to provide the Lessor (or a designated  assignee of the Lessor or
the Related  Assignee) with any Governmental  Actions and Intellectual  Property
Rights that are necessary to enable the Facility and any Turbine Unit to operate
as an EWG in  connection  with  the sale of  electricity  to  third  parties  on
commercially  reasonable  terms no less  favorable to the Lessor than those that
existed  prior to such  Event of  Default,  (iii) to  provide  the  Lessor (or a
designated  assignee  of the  Lessor  or the  Related  Assignee)  with any other
permits or licenses  required to enable such party to operate the  Facility  and
any Turbine Unit as an EWG in connection  with the sale of  electricity to third
parties on  commercially  reasonable  terms no less favorable to the Lessor than
those  that  existed  immediately  prior to such  Event of  Default  and (iv) to
provide  the  Lessor (or a  designated  assignee  of the  Lessor or the  Related
Assignee)  with any  other  fuel  supply  agreements,  transmission  agreements,
service  agreements and contracts or  subcontracts  relating to the provision of
services,  materials, supplies and benefits contemplated by the Facility Support
Agreement in existence at such time to enable such party to operate the Facility
and any Turbine Unit as an EWG in  connection  with the sale of  electricity  to
third parties on commercially  reasonable  terms no less favorable to the Lessor
than those that existed immediately prior to such Event of Default. The Lessee's
obligations  contained in this subsection  shall survive the expiration or other
termination of this Lease until the Lessor  receives  payment of (1) all amounts
owing  pursuant  to this  Lease,  (2) all losses,  damages,  costs and  expenses
(including,  without  limitation,  attorneys'  fees and  expenses,  commissions,
filing  fees and sales or  transfer  taxes)  sustained  by the  Lessor,  (3) all
amounts owing under all Financing  Arrangements and (4) any  unreimbursed  costs
incurred  by the Lessor or the Related  Assignee  with  respect to the  Facility
after the term of this Lease, net of any revenues received from the operation of
the Facility.

        In the event of a sale  pursuant to this  Section 19, upon  indefeasible
receipt  by the  Lessor of the  amounts  payable  hereunder,  the  Lessor  shall
transfer  all of the Lessor's  right,  title and interest in and to the Facility
and all other Property and Equipment to the Lessee or a purchaser other than the
Lessee, as the case may be.

        No remedy  referred to in this  Section 19 is intended to be  exclusive,
but each shall be  cumulative  and in addition to any other  remedy  referred to
above or otherwise available to the Lessor at law or in equity, and the exercise
in whole or in part by the Lessor of any one or more of such remedies  shall not
preclude  the  simultaneous  or later  exercise by the Lessor of any or all such
other remedies.

        No waiver by the Lessor of any Event of Default  hereunder  shall in any
way be, or be  construed  to be, a waiver of any future or  subsequent  Event of
Default.

        In  addition  to its other  rights in this  Section  19,  the Lessor may
exercise its various  rights under the  Facility  Support  Agreement or transfer
such rights to the  purchaser in a sale and the Lessee  acknowledges  hereby its
agreement to perform its obligations thereunder.

        With respect to the  termination of this Lease as to the Facility or any
other Parcel of Property as a result of an Event of Default,  the Lessee  hereby
waives service of any notice of intention to re-enter.  To the extent  permitted
by  applicable  law, the Lessee  hereby  waives any and all rights to recover or
regain  possession  of the  Facility  or any  other  Parcel  of  Property  or to
reinstate  this Lease as permitted  or provided by or under any statute,  law or
decision now or hereafter in force and effect.


        SECTION 20.       EQUIPMENT TO BE PERSONAL PROPERTY.

        It is the intention and  understanding of the Lessor and the Lessee that
all Equipment  shall be and at all times remain  personal  property.  The Lessee
shall obtain and record such instruments and take such steps as may be necessary
to prevent any Person from  acquiring  any rights in Equipment  paramount to the
rights  of the  Lessor  by  reason  of such  Equipment  being  deemed to be real
property.

        SECTION 21.       SALE OR ASSIGNMENT BY LESSOR.

        (a) The  Lessor  shall  have the right to finance  the  acquisition  and
ownership  of the  Facility  or any other  Property or  Equipment  by selling or
assigning  its  right,  title and  interest  in this  Lease,  including  without
limitation  any or all amounts due from the Lessee or any third party under this
Lease and granting a security  interest in this Lease, the Facility or any other
Property or  Equipment to the  Collateral  Trustee or, to the extent and for the
purposes permitted hereby to a lender or lenders under a Financing  Arrangement;
provided,  that any such sale or  assignment  shall be subject to the rights and
interests of the Lessee under this Lease,  and provided  further,  that any such
sale or assignment or grant of a security interest in this Lease for the benefit
of a Person other than the Collateral Trustee shall be limited to amounts due in
respect of only the Property or  Equipment  leased to or financed by such Person
(but in no event including any of the Facility or any of the Facility Assets) or
a security  interest in such  Property or Equipment  (other than the Facility or
the Facility Assets).

        (b) Any Related Assignee shall, except as otherwise agreed by the Lessor
and such Related Assignee, have all the rights, powers,  privileges and remedies
of the Lessor hereunder, and the Lessee's obligations as between itself and such
Related  Assignee  hereunder  shall not be subject to any claims or defense that
the Lessee may have against the Lessor. Upon written notice to the Lessee of any
such  assignment,  the Lessee  shall  thereafter  make  payments  of Basic Rent,
Additional  Rent and other sums due  hereunder in respect of the Facility to the
Collateral  Trustee and, in respect of any other  Property or Equipment,  to the
Related  Assignee,  to the extent  specified in such notice,  and such  payments
shall  discharge  the  obligation  of the Lessee to the Lessor  hereunder to the
extent  of  such   payments.   Anything   contained   herein  to  the   contrary
notwithstanding,  no Related  Assignee  shall be  obligated to perform any duty,
covenant or condition required to be performed by the Lessor hereunder,  and any
such duty,  covenant or condition shall be and remain the sole obligation of the
Lessor.

        SECTION 22.       INCOME TAXES.

        Except as may be required in Section 8(i) hereof, the Lessor agrees that
the  Lessor  will not file any  Federal,  state or local  income,  franchise  or
similar tax returns  during or with respect to the Initial Term, or any Extended
Term or Renewal  Term or take any  position  with respect to any such return (on
audit or  otherwise)  with  respect to the  Facility  or any other  Property  or
Equipment that are inconsistent with the treatment of the Lessee as owner of the
Facility or of such other  Property or Equipment  for  Federal,  state and local
income tax purposes.  The Lessor agrees to covenant in its partnership agreement
that  neither  the  general  partner  nor the  limited  partners  shall file any
Federal,  state or local  income  tax  returns  that are  inconsistent  with the
treatment  of the Lessee as owner of the  Facility or of such other  Property or
Equipment for Federal,  state and local income tax purposes.  The Lessor further
covenants  and  agrees  that  none of its  partners  will be or become a utility
principally   engaged  in  the  business  of  supplying  water,  steam,  gas  or
electricity during the term of this Lease.

        SECTION 23.       NOTICES AND REQUESTS.

        All notices, offers, acceptances,  approvals, waivers, requests, demands
and other communications hereunder or under any other instrument, certificate or
other document  delivered in connection with the  transactions  described herein
shall  be in  writing,  shall  be  addressed  as  provided  below  and  shall be
considered as properly given (a) if delivered in person,  (b) if sent by express
courier service  (including,  without limitation,  Federal Express,  Emery, DHL,
Airborne Express, and other similar express delivery services), (c) in the event
overnight  delivery  services are not readily  available,  if mailed through the
United States Postal  Service,  postage  prepaid,  registered or certified  with
return receipt  requested,  or (d) if sent by telecopy and  confirmed;  provided
that, in the case of a notice by telecopy,  the sender shall in addition confirm
such notice by writing sent in the manner specified in clause (a), (b) or (c) of
this Section 23. All notices shall be effective  upon receipt by the  addressee;
provided,  however,  that,  if any notice is  tendered to an  addressee  and the
delivery  thereof is refused by such  addressee,  such notice shall be effective
upon such tender. For the purposes of notice, the addresses of the parties shall
be as set forth below; provided, however, that any party shall have the right to
change its address for notice  hereunder to any other location by giving written
notice to the other party in the manner set forth herein.  The initial addresses
of the parties hereto are as follows:

               If to the Lessor:

               LIC Funding, Limited Partnership
               c/o LIC Capital, Inc.
               c/o ML Leasing Equipment Corp.
               North Tower
               World Financial Center
               250 Vesey Street
               New York, New York 10281

               Attention:  Jean M. Tomaselli
               Telephone: (212) 449-7925
               Telecopy: (212) 449-2854

With a copy of each such notice to be simultaneously given,  delivered or served
to Kira Toone at the following address:

               ML Leasing Equipment Corp.
               Controller's Office
               World Financial Center
               South Tower - 14th Floor
               225 Liberty Street
               New York, New York 10080

               Attention: Kira Toone
               Telephone: (212) 236-7203
               Telecopy: (212) 236-7584

               If to the Lessee:

               KeySpan-Ravenswood, Inc.
               c/o KeySpan Corporation
               One MetroTech Center
               Brooklyn, New York  11201

               Attention: General Counsel
               Telephone: (718) 403-1000
               Telecopy: (718) 696-7139

With a copy of all notices  under this  Section 23 to each  Related  Assignee at
such  address as such  Related  Assignee  may  specify by written  notice to the
Lessor and the Lessee.

        SECTION 24.       COVENANT OF QUIET ENJOYMENT.

        During the Initial  Term,  or any  Extended  Term or Renewal Term of the
Facility or any other Property or Equipment hereunder and so long as no Event of
Default  shall  have  occurred  and be  continuing,  the Lessor  recognizes  the
Lessee's  right to quiet  enjoyment of the Facility and of any other Property or
Equipment  on the  terms and  conditions  provided  in this  Lease  without  any
interference from the Lessor or anyone claiming through or under the Lessor.

        SECTION 25.       RIGHT TO PERFORM FOR LESSEE.

        (a) If the Lessee  fails to perform or comply with any of its  covenants
or agreements  contained in this Lease,  and any period to cure such failure has
expired  without the Lessee curing such failure,  the Lessor may, upon notice to
the Lessee but without waiving or releasing any  obligations or default,  itself
perform  or comply  with  such  covenant  or  agreement,  and the  amount of the
reasonable  expenses of the Lessor incurred in connection with such  performance
or compliance shall be payable by the Lessee, not later than ten (10) days after
written notice by the Lessor.

        (b) Without in any way limiting the obligations of the Lessee hereunder,
the Lessee hereby  irrevocably  appoints the Lessor as its agent and attorney at
the time at which the Lessee is obligated to deliver  possession of the Facility
or any other Parcel of Property or Unit of  Equipment  to the Lessor,  to demand
and take  possession of the Facility or such other Parcel of Property or Unit of
Equipment  in the name and on behalf of the Lessee from  whomsoever  shall be at
the time in possession thereof.

        SECTION 26.       MERGER, CONSOLIDATION OR SALE OF ASSETS, ETC.

        The Lessee may not consolidate with or merge into any other  corporation
or sell all or  substantially  all of its assets to any Person,  except that the
Lessee  may  consolidate  with or merge into any other  corporation  which is an
Affiliate of the Lessee,  or sell all or substantially  all of its assets to any
Person  which is an Affiliate of the Lessee;  provided,  that (a) the  surviving
corporation  or  transferee  Person shall  assume,  by execution and delivery of
instruments satisfactory to the Lessor and the Related Assignee, the obligations
of the Lessee hereunder and become successor to the Lessee, (b) the Lessee shall
not thereby be released from its obligations hereunder,  (c) the Guarantor shall
own  beneficially  and of record greater than fifty percent (50%) of the capital
stock of the surviving  corporation or transferee Person, (d) the Guaranty shall
be applicable to the obligations  under this Lease with respect to the surviving
corporation  or  transferee  Person,  and (e) no  Potential  Default or Event of
Default shall occur by reason of giving effect to such merger,  consolidation or
sale.  The terms and provisions of this Lease shall be binding upon and inure to
the benefit of the Lessee and its respective successors and assigns.

        SECTION 27.       EXPENSES.

        The  Lessee  shall  pay all of the  reasonable  out-of-pocket  costs and
expenses incurred by the Lessor and each Related Assignee in connection with the
Operative  Documents,  the  Recordable  Documents  (upon  the  occurrence  of  a
Recording Event) and any amendments, supplements or restatements of any thereof,
including,  without limitation, the reasonable fees and disbursements of counsel
to the Lessor and counsel to any Related Assignee.

        SECTION 28.       PERMITTED CONTESTS.

        (a) The Lessee  shall not be  required,  nor shall the  Lessor  have the
right, to pay, discharge or remove any tax, assessment,  levy, fee, rent, charge
or Lien,  or to comply or cause the  Facility or any other Parcel of Property or
Unit of  Equipment  to  comply  with any  Legal  Requirements  or  Environmental
Requirements  applicable to the Facility or any other Parcel of Property or Unit
of Equipment or the occupancy,  use or operation thereof, so long as no Event of
Default or  Potential  Default  exists  under this Lease and, in the  reasonable
judgment of the Lessee's  counsel,  the Lessee shall have reasonable  grounds to
contest the existence,  amount, applicability or validity thereof by appropriate
proceedings,  which proceedings in the reasonable judgment of the Lessor and the
Related Assignee, (i) shall not involve any material danger that the Facility or
any other  Parcel of  Property  or Unit of  Equipment  or any Basic  Rent or any
Additional  Rent would be subject to sale,  forfeiture  or loss,  as a result of
failure to comply therewith, (ii) shall not affect the payment of any Basic Rent
or any Additional Rent or other sums due and payable  hereunder or result in any
such sums  being  payable to any  Person  other  than the Lessor or any  Related
Assignee,  (iii) will not place either the Lessor or any Related Assignee in any
danger of civil  liability  for which the  Lessor  or  Related  Assignee  is not
adequately  indemnified  or subject  the Lessor or any  Related  Assignee to any
danger of  criminal  liability,  (iv) if  involving  taxes,  shall  suspend  the
collection  of taxes,  and (v) shall be  permitted  under  and be  conducted  in
accordance  with the  provisions of any other  instrument to which the Lessee or
the Facility or any other Parcel of Property or Unit of Equipment is subject and
shall not constitute a default thereunder (the "Permitted Contest").  The Lessee
shall  conduct all  Permitted  Contests in good faith and with due diligence and
shall  promptly  after  the  final  determination  (including  appeals)  of  any
Permitted  Contest pay and discharge all amounts which shall be determined to be
payable  therein.  The Lessor shall cooperate in good faith with the Lessee with
respect to all  Permitted  Contests  conducted  by the Lessee  pursuant  to this
Section 28.

        (b) In the  event the  Lessor  or any  Related  Assignee  deems,  in its
reasonable discretion, that its interests under this Lease or in the Facility or
any other Parcel of Property or Unit of Equipment are not  adequately  protected
in connection with a Permitted  Contest brought by the Lessee under this Section
28, the Lessee shall give such  reasonable  security,  as may be demanded by the
Lessor or any Related Assignee, to ensure payment of such tax, assessment, levy,
fee, rent, charge or Lien and compliance with Legal  Requirements and to prevent
any sale or  forfeiture  of the Facility or any other Parcel of Property or Unit
of Equipment, any Basic Rent or any Additional Rent by reason of such nonpayment
or  noncompliance.  The Lessee  hereby  agrees  that the Lessor may assign  such
security provided by the Lessee to the Related Assignee.

        (c) At least ten (10) days prior to the  commencement  of any  Permitted
Contest,  the Lessee shall notify the Lessor and the Related Assignee in writing
of any such  proceeding in which the amount in contest exceeds  $3,000,000,  and
shall describe such proceeding in reasonable  detail. In the event that a taxing
authority or subdivision  thereof  proposes an additional  assessment or levy of
any tax for which the Lessee is  obligated  to  reimburse  the Lessor under this
Lease,  or in the event that the Lessor is  notified of the  commencement  of an
audit or similar proceeding which could result in such an additional assessment,
then the Lessor  shall in a timely  manner  notify  the  Lessee and the  Related
Assignee in writing of such proposed levy or proceeding.

        SECTION 29.       LEASEHOLD INTERESTS.

        (a) The Lessee hereunder  covenants and agrees to perform and to observe
all of the terms,  covenants,  provisions,  conditions  and  agreements  of each
Ground  Lease  (including  the  Site  Lease)  on the  Lessor's  part  as  lessee
thereunder to be performed and observed (including,  without limitation, payment
of all rent,  additional  rent and other amounts payable by the Lessor as lessee
under any  Ground  Lease)  to the end that all  things  shall be done  which are
necessary to keep unimpaired the rights of the Lessor as lessee under any Ground
Lease  and as  grantee  with  respect  to the  Easements,  and to  maintain  the
leasehold  interest  and  position of the Lessor with respect to the Facility or
any Parcel of Property.  The Lessee further  covenants that it shall cause to be
exercised  any renewal  option  contained in the Ground  Lease which  relates to
renewal occurring in whole or in part during the term of this Lease.

        (b) The Lessee  covenants  and agrees  pursuant  to Section 11 hereof to
indemnify and hold harmless the Lessor and any Related Assignee from and against
any and all liability,  loss, damage,  suits,  penalties,  claims and demands of
every kind and nature (including, without limitation, reasonable attorneys' fees
and expenses) by reason of the Lessee's failure to comply with any Ground Lease,
the Easements or the provisions of this Section 29.

        (c) The  Lessor  and the  Lessee  agree  that the  Lessor  shall have no
obligation or  responsibility  to provide  services or equipment  required to be
provided or repairs or  restorations  required to be made in accordance with the
provisions of any Ground Lease by the lessee or grantee  thereunder.  The Lessor
shall in no event be liable to the  Lessee  nor  shall  the  obligations  of the
Lessee  hereunder be impaired or the performance  thereof excused because of any
failure or delay on the part of the Lessor as the lessee  under any Ground Lease
or as grantee  with  respect to the  Easements  in  providing  such  services or
equipment or making such restorations or repairs and such failure or delay shall
not  constitute a basis for any claim  against the Lessor or any offset  against
any amount payable to the Lessor under this Lease.

        (d) If the  Lessor's  interest  under the Site Lease or any Ground Lease
shall  expire,   terminate  or  otherwise  be  extinguished  (including  without
limitation  by virtue of a rejection  of the Site Lease or any Ground Lease in a
bankruptcy  proceeding),  the lease of the Facility  Site or any other Parcel of
Property  to which such  Ground  Lease  relates  shall  thereupon  terminate  as
provided  in  this   paragraph  (d).  Upon  such   expiration,   termination  or
extinguishment,  the Lessee shall be required to purchase the Lessor's  interest
in the Facility or such other Parcel of Property at its Acquisition Cost. If the
Lessee shall be required to purchase  the  Lessor's  interest in the Facility or
such  other  affected  Parcel,  then (i) on the  Basic  Rent  Payment  Date next
succeeding such event, the Lessee shall pay to the Lessor (without  duplication)
an amount equal to the Acquisition  Cost of the Facility or such other Property,
all Basic Rent accrued  through such date,  the Debt  Yield-Maintenance  Premium
payable with respect to the Facility or such other  Property and any  Additional
Rent and other amounts owing  hereunder,  (ii) the Lease Term or Renewal Term of
the Facility or such other  Property  shall continue until the date on which the
Lessor receives  payment from the Lessee of the amount payable  pursuant to this
paragraph  (d) and shall then  terminate  upon the  payment of such  amounts and
(iii) the Lessor shall on such date transfer  title to the Lessor's  interest in
the Facility or such other Parcel to the Lessee.

        (e)  The  Lessee  shall  ensure  that  each  Ground  Lease  shall  be  a
Mortgageable Ground Lease.

        SECTION 30.       MISCELLANEOUS.

        (a) All agreements, indemnities, representations and warranties, and the
obligation to pay Basic Rent,  any Debt  Yield-Maintenance  Premium,  Additional
Rent,  Acquisition  Cost and other  amounts  contained in this Lease  (including
without limitation all amounts payable upon the termination of this Lease) shall
survive the  expiration  or other  termination  hereof or the  rejection of this
Lease in any bankruptcy proceeding.

        (b) This Lease and the Unit  Leasing  Records  covering the Facility and
other  Property  or  Equipment  leased  pursuant  hereto  and  the  instruments,
documents  or  agreements  referred to herein  constitute  the entire  agreement
between the parties and no representations,  warranties, promises, guarantees or
agreements,  oral or written,  express or  implied,  have been made by any party
hereto with respect to this Lease, the Facility and other Property or Equipment,
except as provided herein or therein.

        (c) This Lease may not be amended,  modified or terminated,  nor may any
obligation  hereunder be waived  orally,  and no such  amendment,  modification,
termination  or  waiver  shall be  effective  for any  purpose  unless  it is in
writing,  signed by the party  against  whom  enforcement  thereof is sought.  A
waiver on one occasion shall not be construed to be a waiver with respect to any
other occasion.

        (d) The captions in this Lease are for convenience of reference only and
shall  not be  deemed  to  affect  the  meaning  or  construction  of any of the
provisions  hereof.  Any  provision of this Lease which is  prohibited by law or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining  provisions  hereof,  and the parties  hereto shall  negotiate in good
faith  appropriate  modifications  to reflect such changes as may be required by
law, and, as nearly as possible, to produce the same economic, financial and tax
effects as the  provision  which is prohibited  or  unenforceable;  and any such
prohibition  or  unenforceability  in any  jurisdiction  shall not invalidate or
render  unenforceable  such provision in any other  jurisdiction.  To the extent
permitted  by  applicable  law,  the  Lessee  and the  Lessor  hereby  waive any
provision of law which renders any provision hereof  prohibited or unenforceable
in any respect.  THIS LEASE HAS BEEN  EXECUTED AND DELIVERED IN THE STATE OF NEW
YORK. THE LESSEE AND THE LESSOR AGREE THAT, TO THE MAXIMUM  EXTENT  PERMITTED BY
THE LAW OF THE STATE OF NEW YORK,  THIS LEASE,  AND THE RIGHTS AND DUTIES OF THE
LESSEE  AND THE  LESSOR  HEREUNDER,  SHALL BE  GOVERNED  BY,  AND  CONSTRUED  IN
ACCORDANCE  WITH,  THE  LAWS  OF THE  STATE  OF  NEW  YORK  (INCLUDING,  WITHOUT
LIMITATION,  SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW)
IN ALL RESPECTS,  INCLUDING,  WITHOUT  LIMITATION,  IN RESPECT OF ALL MATTERS OF
CONSTRUCTION,  VALIDITY  AND  PERFORMANCE.  THE LESSEE  AGREES  THAT  SERVICE OF
PROCESS MAY BE MADE UPON IT BY CERTIFIED OR  REGISTERED  MAIL TO THE ADDRESS FOR
NOTICES  SET FORTH IN THIS  LEASE OR ANY  METHOD  AUTHORIZED  BY THE LAWS OF NEW
YORK.  THE LESSOR AND THE LESSEE  EXPRESSLY  WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM RELATED TO THIS LEASE OR THE TRANSACTIONS
CONTEMPLATED  HEREBY.  THE LESSOR AND THE LESSEE ACKNOWLEDGE THAT THE PROVISIONS
OF THIS  PARAGRAPH (D) OF SECTION 30 HAVE BEEN  BARGAINED FOR AND THAT THEY HAVE
BEEN REPRESENTED BY COUNSEL IN CONNECTION THEREWITH.

        (e) In  connection  with  any  sale of the  Facility,  any  Property  or
Equipment  or any Turbine  Unit  pursuant to Section 12, 13, 14, 15, 19 or 29 of
this Lease, when the Lessor transfers title, such transfer shall be on an as-is,
non-installment  sale basis,  without  warranty  by, or recourse  to, the Lessor
other  than  that the  Lessor is  transferring  title  free of any Lien  created
pursuant to any Financing Arrangement.

        (f) In  connection  with  the  sale or  purchase  of the  Facility,  any
Property or Equipment or any Turbine Unit pursuant to Section 12, 13, 14, 15, 19
or 29,  the  Lessee  shall pay or shall  cause the  purchaser  thereof to pay in
addition to the  purchase  price,  all  transfer  taxes,  transfer  gains taxes,
mortgage  recording tax, if any, recording and filing fees and all other similar
taxes, fees, expenses and closing costs (including  reasonable  attorneys' fees)
in  connection  with the  conveyance  of the Facility or such other  Property or
Equipment or Turbine Unit to the Lessee or any purchaser.

        (g) In  connection  with the purchase of the  Facility,  any Property or
Equipment or any Turbine  Unit by the Lessee or any third party  pursuant to the
provisions  of this Lease,  the Lessor shall deliver to the Lessee or such third
party,  as the case may be, a bill of sale, deed or similar  document  assigning
and  conveying  to the Lessee or such third  party,  as the case may be, and the
Lessee or such third party,  as the case may be, shall accept an assignment  of,
the Lessor's interest in the Site Lease, the Easements, and, if applicable,  any
other Ground Lease or other documents to be without warranty by, or recourse to,
the Lessor,  but free of the Lien created pursuant to any Financing  Arrangement
(provided that the purchase price paid by the Lessee to the Lessor, exclusive of
the other amounts  payable  hereunder in connection  with such  purchase,  shall
equal the  Acquisition  Cost of the  Facility  or such  Property,  Equipment  or
Turbine Unit).

        (h) Each time that the  Acquisition  Cost of the  Facility  or any other
Property or  Equipment  is  decreased  pursuant to the terms of this Lease,  the
Lessor shall promptly  revise the applicable Unit Leasing Record to reflect such
decrease and shall  provide the Lessee and the Related  Assignee  with a copy of
such revised Unit Leasing Record.

        SECTION 31.       NO RECOURSE.

        The Lessor's obligations hereunder are intended to be the obligations of
the limited  partnership  and of the  corporation  which is the general  partner
thereof only and no recourse for the payment of any amount due under this Lease,
any Ground Lease, the Site Lease or any other agreement  contemplated hereby, or
for any claim based hereon or thereon or otherwise in respect thereof,  shall be
had against any limited partner of the Lessor or any incorporator,  shareholder,
officer,  director  or  Affiliate,  as such,  past,  present  or  future of such
corporate  general  partner  or of  any  corporate  limited  partner  or of  any
successor  corporation  to such  corporate  general  partner or to any corporate
limited  partner  of the  Lessor,  or  against  any  direct or  indirect  parent
corporation of such corporate  general  partner or of any limited partner of the
Lessor or any other  subsidiary  or  Affiliate  of any such  direct or  indirect
parent  corporation or any incorporator,  shareholder,  officer or director,  as
such,  past,  present  or  future,  of any such  parent or other  subsidiary  or
Affiliate.  Nothing contained in this Section 31 shall be construed to limit the
exercise  or  enforcement,  in  accordance  with the terms of this Lease and any
other documents  referred to herein,  of rights and remedies against the limited
partnership or the corporate  general partner of the Lessor or the assets of the
limited partnership or the corporate general partner of the Lessor.

        SECTION 32.       NO MERGER.

        There shall be no merger of this Lease or of the leasehold estate hereby
created  with the fee estate or any other  interest  in the  Facility  or in any
other  Parcel of Property or any portion  thereof by reason of the fact that the
same  person  acquires  or holds,  directly  or  indirectly,  this  Lease or the
leasehold  estate  hereby  created or any interest  herein or in such  leasehold
estate as well as the fee  estate  in the  Facility  or in any  other  Parcel of
Property or any interest in such fee estate.




<PAGE>



        IN WITNESS WHEREOF,  the Lessor and the Lessee have caused this Lease to
be executed and  delivered by their duly  authorized  officers as of the day and
year first above written.

                        LIC Funding, Limited Partnership

                                    By LIC Capital, Inc.,
                                     its General Partner


                                    By      __________________________
                                         Name:
                                         Title:





                            KeySpan-Ravenswood, Inc.



                                    By      __________________________
                                         Name:
                                         Title:



<PAGE>



                                 CONFIDENTIAL AND PROPRIETARY



                                       LEASE AGREEMENT

                                   Dated as of June 9, 1999


                               LIC Funding, Limited Partnership

                                          as Lessor

                                             AND


                                   KeySpan-Ravenswood, Inc.

                                          as Lessee





                            THIS LEASE MAY BE ASSIGNED AS SECURITY

                       FOR INDEBTEDNESS OF THE LESSOR. SEE SECTION 21.




This Lease has been manually executed in 40 counterparts, numbered consecutively
from 1 through 40 of which this is No. _____.  To the extent,  if any, that this
Lease  constitutes  chattel  paper  (as  such  term is  defined  in the  Uniform
Commercial  Code as in  effect  in any  applicable  jurisdiction),  no  security
interest  in this Lease may be created or  perfected  through  the  transfer  or
possession of any counterpart other than the original executed counterpart which
shall be the counterpart identified as counterpart No. 1.


<PAGE>



                                      TABLE OF CONTENTS

SECTION 1         DEFINED TERMS................................................1
SECTION 2.        REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.        19
SECTION 3.        LEASE OF THE FACILITY AND OTHER PROPERTY
                  AND EQUIPMENT...............................................30
SECTION 4.        INTENT OF THE PARTIES; OPERATING LEASE......................31
SECTION 5.        DELIVERY; ABSOLUTE OBLIGATION...............................32
SECTION 6.        INITIAL TERM; EXTENDED TERM.................................36
SECTION 7.        RENT AND OTHER PAYMENTS.....................................37
SECTION 8.        RESTRICTED USE; COMPLIANCE WITH LAWS, FURTHER
                  ASSURANCES..................................................38
SECTION 9.        MAINTENANCE, IMPROVEMENT AND REPAIR OF THE
                  FACILITY, PROPERTY OR EQUIPMENT.............................43
SECTION 10.       INSURANCE...................................................46
SECTION 11.       INDEMNITIES.................................................52
SECTION 12.       [CONFIDENTIAL TREATMENT]....................................56
SECTION 13.       LESSEE'S RIGHTS OF PURCHASE AND RENEWAL.....................59
SECTION 14.       TERMINATION UPON CERTAIN EVENTS.............................62
SECTION 15.       LOSS OF OR DAMAGE TO PROPERTY OR EQUIPMENT..................64
SECTION 16.       CONDEMNATION AND DEDICATION OF THE FACILITY AND
                  PROPERTY; EASEMENTS.........................................65
SECTION 17.       SURRENDER OF PROPERTY OR EQUIPMENT..........................66
SECTION 18.       EVENTS OF DEFAULT...........................................67
SECTION 19.       RIGHTS UPON DEFAULT.........................................69
SECTION 20.       EQUIPMENT TO BE PERSONAL PROPERTY...........................73
SECTION 21.       SALE OR ASSIGNMENT BY LESSOR................................73
SECTION 22.       INCOME TAXES................................................74
SECTION 23.       NOTICES AND REQUESTS........................................74
SECTION 24.       COVENANT OF QUIET ENJOYMENT.................................75
SECTION 25.       RIGHT TO PERFORM FOR LESSEE.................................76
SECTION 26.       MERGER, CONSOLIDATION OR SALE OF ASSETS, ETC................76
SECTION 27.       EXPENSES....................................................76
SECTION 28.       PERMITTED CONTESTS..........................................77
SECTION 29.       LEASEHOLD INTERESTS.........................................78
SECTION 30.       MISCELLANEOUS...............................................79
SECTION 31.       NO RECOURSE.................................................80
SECTION 32.       NO MERGER...................................................81