MEMORANDUM OF UNDERSTANDING


THIS MEMORANDUM OF  UNDERSTANDING  ("MOU") is made and entered into as of this 3
day of  February,  1999 by and between  Empire State  Newsprint  LLC ("ESN") and
Besicorp Development, Inc. ("Besicorp").

WHEREAS ESN intends to develop a newspaper  recycling  plant  ("Paper  Mill") in
Kingston, New York, and

WHEREAS  Besicorp intends to develop a power plant (Power Plant) adjacent to the
Paper Mill, and

WHEREAS  ESN has an option to purchase  from  Tilcom 750 acres of real  property
("Real Property") in the City of Kingston and Town of Ulster.

NOW THEREFORE:

1. ESN  and  Besicorp  agree  to enter  into a formal agreement ("Agreement") to
     form a joint development partnership to mutually pursue both the Paper Mill
     and Power Plant  projects on a fully combined  and integrated  basis and to
     jointly  purchase  and  develop  the  Real  Property  (all  together,   the
     "Project").  The Parties agree to offer the first right of refusal to joint
     ventures as equal partners with any and all other projects so undertaken on
     the Real Property.

2. ESN and Besicorp hereby  commit to one  another to diligently work to execute
     the Agreement,  which  will incorporate  the terms set forth in  paragraphs
     3 through 20.

3. The  partnership  will  be  on a 50/50 ownership in  a  to-be-formed  special
     purpose  company  (SPC), which  will encompass  both  the paper  and  power
     portions in a truly integrated and common company. Should facility design,
     construction, financing or permitting  circumstances  preclude a successful
     financial  closing  of  a fully  integrated  facility, and  the decision is
     taken to proceed with  only  the paper mill,  or only the power plant,  the
     ownership interest(s) of the  facility being  completed will be on an equal
     ownership  basis for both Parties.

4. The  SPC  in turn will consist of two companies (sub-SPCs), one for executing
     the actual Paper Mill and one for the Power Plant.

5. ESN  shall have  primary  responsibility  for the sub-SPC for  the Paper Mill
     and Besicorp shall have the same for the Power Plant.

6. The profits and/or losses of each sub-SPC shall be rolled up into the SPC.

7.The  SPC  shall  be  jointly  managed  by ESN and  Besicorp  management  under
     a joint-venture management agreement to be established.

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8. The SPC will be responsible for all contracts,  costs and related efforts for
     all work  related to the  development  of the  Project  including,  but not
     limited to, the permitting, EPC contracts,  legal, owner's engineer and PR.
     It is the  intent  that  such 3rd party  contracts  will be  negotiated  to
     maximize the amount of contractor's "at risk" and Adeferred@ expenses.

9. The SPC will execute the land purchase option and make all payments.

10. The SPC will be responsible to raise all debt and equity for the Project.

11. Besicorp shall commit  $750,000 to the  project.  Besicorp agrees to make an
     initial  capital  investment  of $250,000  payable at the  execution of the
     Agreement  and  thereafter  monthly  or more  often as  conditions  require
     pursuant to draw  requests  submitted  by the SPC.  $100,000 of the initial
     capital  investment  of  $250,000  shall  be  directed  to the  SPC and the
     remaining  $150,000  shall be placed in an escrow  account  which  shall be
     irrevocably  committed  to the  business  of the SPC except in the event of
     project  termination,  in which case  residual  funds  shall be returned to
     Besicorp.  The  $750,000  shall  be used to fund  all  Project  development
     expenses  and  working  capital  requirements  not  covered  by  3rd  party
     development  capital and shall be paid to the SPC.  The  monthly  draws may
     include replenishment of working capital for the SPC to a level of $50,000.
     Draws shall be made pursuant to a budget  approved by the management of the
     SPC or for other approved  development expense categories of which shall be
     defined in the Agreement.

     In the event Besicorp fails to fund any draw submitted by the SPC, and such
     failure to fund remains uncured for 30 days after written notice,  Besicorp
     shall forfeit its rights to participate in the SPC as an equal partner.  In
     that event all prior Besicorp funding and billed time shall be converted to
     a development loan to be repaid out of the financial closing.

     Besicorp  reserves the right to terminate such funding with 30 days written
     notice  based on its  sole  and  reasonable  discretion  in the  event of a
     material  adverse change in the Project or it reaches a determination  that
     the  Project  can not be  permitted  or  financed.  If at  financial  close
     Besicorp has  contributed  less than $750,000,  there will be an adjustment
     between ESN and Besicorp to equalize funding levels.

12.   ESN represents that it has made a $750,000  out-of-pocket  cash investment
      in the newsprint project and shall provide documentation upon request.

13.   ESN agrees that it will try to use the matching grant it obtained from the
      Office of Recycling Market  Development and that these funds, if possible,
      will be made available to offset applicable Project development costs.

14.   Besicorp  and/or ESN may from time to time,  as the parties  shall  agree,
      decide to contribute  additional  (over and above that  specified  herein)
      development capital to the SPC.

15.   Besicorp and ESN shall enter into a temporary  loan  agreement in the form
      attached hereto as Exhibit "A," and incorporated herein by this reference,
      whereby Besicorp shall loan to ESN $22,500.00 to make an option payment to
      extend  ESN's  option to purchase  the Real  Property.  This loan shall be
      superceded by the Agreement.

<PAGE>

16.   The SPC may decide to delay or cancel either the paper project  portion or
      the power  project  portion of the Project if the  economic  circumstances
      indicate that it is the proper thing to do.

17.   Either party may at its sole discretion  decide to withdraw from the joint
      partnership if such party  reasonably  determines  that the Project is not
      economically  viable.  If the remaining party completes the Project,  then
      the withdrawing party may recover its development costs in accordance with
      paragraph 19.

18.   If the Paper Mill and/or the Power Plant,  combined and /or independently,
      successfully  reach financial  closure,  the Parties hereby agree that ESN
      and Besicorp  shall retain the full and exclusive  rights to the Sales and
      Marketing  of their  respective  portions of the  facility for a period of
      twenty-five years. Such rights shall be subject to the approval of project
      lenders and subsequent  equity investors.  The arrangements  shall be both
      commercially  reasonable and shall reflect bona fide  requirements for the
      projects to have such third-party  services  provided on a contract basis.
      Rates charged to the SPC for such services  shall be comparable to what an
      arms length party would charge for similar services.


19.   The  parties  shall  structure  the  financing  arrangements  to  maximize
      development  capital and internal cost  reimbursement.  Development  funds
      realized at financial  closure shall be shared prorata between the parties
      according to the total  development  cost incurred by each party, and then
      in accordance  with the ownership % of ESN and Besicorp.  Besicorp and ESN
      additionally commit such internal resources (key personnel,  office space,
      clerical  support  staff,  photocopy  and  fax  machines,   etc.)  as  are
      reasonably  required  for  continued  development  of  the  Project.  Such
      internal  resources  shall be calculated in accordance with Besicorp's and
      ESN's customary rates.  Such internal expenses shall be mutually agreed to
      be budgeted annually with  reimbursement for such internal resources to be
      made at financial closure.

20.   ESN's deferred legal fees in the amount of approximately  $400,000 will be
      transferred to the SPC.




Signatories:     For ESN          /s/ James Hustin
                                      ------------
                                      James Hustin
                                      President
                                                                   Date 2/16/99


                 For Besicorp     /s/ Michael F. Zinn
                                      ---------------             Date  2/16/99
                                      Michael F. Zinn
                                      President