Document:

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                                                                     EXHIBIT 4.2

                                                                  EXECUTION COPY

                                 A/B EXCHANGE
                         REGISTRATION RIGHTS AGREEMENT

                         Dated as of December 6, 1999
                                 by and among

                          Project Orange Funding L.P.
                          Project Orange Capital Corp.

                                      and

                         Donaldson, Lufkin & Jenrette
                            Securities Corporation
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     This Registration Rights Agreement (this "Agreement") is made and entered
into as of December 6, 1999 among Project Orange Funding, L.P. ("Funding L.P."),
a Delaware limited partnership (together with its successors, including Project
Orange Associates, L.P. ("Orange L.P."), a Delaware limited partnership, as the
survivor of the merger of Funding, L.P. with and into Orange L.P. concurrently
with the issuance of the Series A Notes (as defined below) under the Indenture
(as defined below) and the execution of this Indenture by the parties hereto,
"POA"), Project Orange Capital Corp., a Delaware corporation ("Capital Co." and,
together with POA, the "Issuers") and Donaldson, Lufkin & Jenrette Securities
Corporation, (the "Initial Purchaser") which has agreed to purchase the Issuers'
10.5% Series A Senior Notes due 2007 (the "Series A Notes") pursuant to the
Purchase Agreement (as defined below).

     This Agreement is made pursuant to the Purchase Agreement, dated December
6, 1999 (the "Purchase Agreement"), by and among Issuers and the Initial
Purchaser. In order to induce the Initial Purchaser to purchase the Series A
Notes, the Issuers have agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchaser set forth in Section 3 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture (the "Indenture"), dated December
6, 1999 among Issuers and U.S. Bank Trust National Association, as Trustee and
Collateral Agent, relating to the Series A Notes and the Series B Notes.

     The parties hereby agree as follows:

     Section 1.  Definitions.

     As used in this Agreement, the following capitalized terms shall have the
following meanings:

     Act:  The Securities Act of 1933, as amended.

     Affiliate:  As defined in Rule 144 of the Act.

     Broker-Dealer:  Any broker or dealer registered under the Exchange Act.

     Certificated Securities:  Definitive Notes, as defined in the Indenture.

     Closing Date:  The date hereof.

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     Commission:  The Securities and Exchange Commission.

     Consummate:  An Exchange Offer shall be deemed "Consummated" for purposes
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Series B
Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange
Offer Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the period required pursuant to
Section 3(b) hereof and (c) the delivery by the Issuers to the Registrar under
        ----
the Indenture of Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.

     Consummation Deadline:  As defined in Section 3(b) hereof.
                                                   ----

     Effectiveness Deadline:  As defined in Sections 3(a) and 4(a) hereof.
                                                     ----     ----

     Exchange Act:  The Securities Exchange Act of 1934, as amended.

     Exchange Offer:  The exchange and issuance by the Issuers of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.

     Exchange Offer Registration Statement:  The Registration Statement relating
to the Exchange Offer, including the related Prospectus.

     Exempt Resales:  The transactions in which the Initial Purchasers propose
to sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act and pursuant to Regulation S under
the Act.

     Filing Deadline:  As defined in Sections 3(a) and 4(a) hereof.
                                              ----     ----

     Holders:  As defined in Section 2 hereof.
                                     -

     Prospectus:  The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

     Recommencement Date:  As defined in Section 6(d) hereof.
                                                 ---

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     Registration Default:  As defined in Section 5 hereof.
                                                  -
     Registration Statement:  Any registration statement of the Issuers relating
to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) that is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.

     Regulation S:  Regulation S promulgated under the Act.

     Rule 144:  Rule 144 promulgated under the Act.

     Series B Notes:  The Issuers' 10.5% Series B Senior Notes due 2007 to be
issued pursuant to the Indenture:  (i) in the Exchange Offer or (ii) as
contemplated by Section 6(b) hereof.
                        ----

     Shelf Registration Statement:  As defined in Section 4 hereof.
                                                          -
     Suspension Notice:  As defined in Section 6(d) hereof.
                                               ----
     TIA:  The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
in effect on the date of the Indenture.

     Transfer Restricted Securities:  Each Series A Note, until the earliest to
occur of (a) the date on which such Series A Note is exchanged in the Exchange
Offer for a Series B Note which is entitled to be resold to the public by the
Holder thereof without complying with the prospectus delivery requirements of
the Act, (b) the date on which such Series A Note has been disposed of in
accordance with a Shelf Registration Statement (and the purchasers thereof have
been issued Series B Notes), or (c) the date on which such Series A Note is
distributed to the public pursuant to Rule 144 under the Act (and purchasers
thereof have been issued Series B Notes) and each Series B Note until the date
on which such Series B Note is disposed of by a Broker-Dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).

     Section 2.  Holders.

     A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "Holder") whenever such Person owns Transfer Restricted Securities.

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     Section 3.  Registered Exchange Offer.

     (a)  Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
                                                       -------
complied with), the Issuers shall (i) cause the Exchange Offer Registration
Statement to be filed with the Commission as soon as practicable after the
Closing Date, but in no event later than 90 days after the Closing Date (such
90th day being the "Filing Deadline"), (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective at the earliest
possible time, but in no event later than 180 days after the Closing Date (such
180th day being the "Effectiveness Deadline"), (iii) in connection with the
foregoing, (A) file all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause it to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer.  The Exchange Offer shall be on the
appropriate form permitting (i) registration of the Series B Notes to be offered
in exchange for the Series A Notes that are Transfer Restricted Securities and
(ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer Series A Notes that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Series A Notes acquired directly from the Issuers or any of their Affiliates) as
contemplated by Section 3(c) below.
                        ----

     (b)  The Issuers shall use their respective best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Issuers shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Series B Notes shall be included in the Exchange Offer Registration Statement.
The Issuers shall use their respective best efforts to cause the Exchange Offer
to be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
business days thereafter (such 30th day being the "Consummation Deadline").

     (c)  The Issuers shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the

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account of such Broker-Dealer as a result of market-making activities or other
trading activities (other than Series A Notes acquired directly from the Issuers
or any Affiliate of the Issuers), may exchange such Transfer Restricted
Securities pursuant to the Exchange Offer. Such "Plan of Distribution" section
shall also contain all other information with respect to such sales by such
Broker-Dealers that the Commission may require in order to permit such sales
pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Transfer Restricted Securities held by
any such Broker-Dealer, except to the extent required by the Commission as a
result of a change in policy, rules or regulations after the date of this
Agreement. See the Shearman & Sterling no-action letter (available July 2,
1993).

     Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Issuers shall
permit the use of the Prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such prospectus delivery requirement.
To the extent necessary to ensure that the prospectus contained in the Exchange
Offer Registration Statement is available for sales of Series B Notes by Broker-
Dealers, the Issuers agree to use their respective best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented,
amended and current as required by and subject to the provisions of Sections
6(a) and 6(c) hereof and in conformity with the requirements of this Agreement,
----     ----
the Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period of 30 days from the Consummation Deadline or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold pursuant thereto. The
Issuers shall provide sufficient copies of the latest version of such Prospectus
to such Broker-Dealers, promptly upon request, and in no event later than one
day after such request, at any time during such period.

     Section 4.  Shelf Registration.

     (a)  Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Issuers have complied with the procedures set forth in
Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Securities
        -------
shall notify the Issuers within 20 Business Days following the Consummation
Deadline that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the Series
B Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds

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Series A Notes acquired directly from the Issuers or any of their Affiliates,
then the Issuers shall:

          (x)  cause to be filed, on or prior to 45 days after the earlier of
     (i) the date on which the Issuers determine that the Exchange Offer
     Registration Statement cannot be filed as a result of clause 4(a)(i) above
                                                                  -------
     and (ii) the date on which the Issuers receive the notice specified in
     clause 4(a)(ii) above, (such earlier date, the "Filing Deadline"), a shelf
            --------
     registration statement pursuant to Rule 415 under the Act (which may be an
     amendment to the Exchange Offer Registration Statement (the "Shelf
     Registration Statement")), relating to all Transfer Restricted Securities,
     and

          (y)  shall use their respective best efforts to cause such Shelf
     Registration Statement to become effective on or prior to 90 days after the
     Filing Deadline for the Shelf Registration Statement (such 90th day the
     "Effectiveness Deadline").

     If, after the Issuers have filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Issuers are required
                                           ----
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., clause
4(a)(i) above), then the filing of the Exchange Offer Registration Statement
-------
shall be deemed to satisfy the requirements of clause (x) above; provided that,
in such event, the Issuers shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).

     To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
                                        ----
to be registered therein pursuant to Section 6(b)(ii) hereof, the Issuers shall
                                             --------
use their respective best efforts to keep any Shelf Registration Statement
required by this Section 4(a) continuously effective, supplemented, amended and
                         ----
current as required by and subject to the provisions of Sections 6(b) and 6(c)
                                                                 ----     ----
hereof and in conformity with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to Section 6(d))
                                                                          -----
following the Closing Date, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Shelf Registration Statement have
been sold pursuant thereto.

     (b)  Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement

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pursuant to this Agreement unless and until such Holder furnishes to the Issuers
in writing, within 20 days after receipt of a request therefor, the information
specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for
use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to liquidated damages pursuant to Section 5 hereof
                                                                       -
unless and until such Holder shall have provided all such information. Each
selling Holder agrees to promptly furnish additional information required to be
disclosed in order to make the information previously furnished to the Issuers
by such Holder not materially misleading.

     Section 5.  Liquidated Damages.

     If (a) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (b) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (c) the Exchange Offer has not
been Consummated on or prior to the Consummation Deadline or (d) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective immediately (each such event referred to in clauses
(a) through (d), a "Registration Default"), then the Issuers hereby jointly and
severally agree to pay to each Holder of Transfer Restricted Securities affected
thereby liquidated damages in an amount equal to $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities held by such Holder for each
week or portion thereof that the Registration Default continues for the first
90-day period immediately following the occurrence of such Registration Default.
The amount of the liquidated damages shall increase by an additional $.05 per
week per $1,000 in principal amount of Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.25 per week per
$1,000 in principal amount of Transfer Restricted Securities; provided that the
Issuers shall in no event be required to pay liquidated damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (i) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of clause (a) above, (ii) upon the effectiveness of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of clause (b) above, (iii) upon Consummation of the
Exchange Offer, in the case of clause (c) above, or (iv) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to

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again be declared effective or made usable in the case of clause (d) above, the
accrual of liquidated damages payable with respect to the Transfer Restricted
Securities as a result of such clause (a), (b), (c) or (d), as applicable, shall
cease.

     All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Senior Secured Notes. Notwithstanding the fact that any securities for which
liquidated damages are due cease to be Transfer Restricted Securities, all
obligations of the Issuers to pay accrued liquidated damages with respect to
securities shall survive until such time as such obligations with respect to
such securities shall have been satisfied in full.

     Section 6.  Registration Procedures.

     (a)  Exchange Offer Registration Statement. In connection with the Exchange
Offer, the Issuers shall (x) comply with all applicable provisions of Section
6(c) below, (y) use their respective best efforts to effect such exchange and to
----
permit the resale of Series B Notes by Broker-Dealers that tendered in the
Exchange Offer Series A Notes that such Broker-Dealer acquired for its own
account as a result of its market making activities or other trading activities
(other than Series A Notes acquired directly from the Issuers or any of their
Affiliates) being sold in accordance with the intended method or methods of
distribution thereof, and (z) comply with all of the following provisions:

          (i)   If, following the date hereof there has been announced a change
     in Commission policy with respect to exchange offers such as the Exchange
     Offer, that in the reasonable opinion of counsel to the Issuers raises a
     substantial question as to whether the Exchange Offer is permitted by
     applicable federal law, the Issuers hereby agree to seek a no-action letter
     or other favorable decision from the Commission allowing the Issuers to
     Consummate an Exchange Offer for such Transfer Restricted Securities. The
     Issuers hereby agree to pursue the issuance of such a decision to the
     Commission staff level. In connection with the foregoing, the Issuers
     hereby agree to take all such other actions as may be requested by the
     Commission or otherwise required in connection with the issuance of such
     decision, including without limitation (A) participating in telephonic
     conferences with the Commission, (B) delivering to the Commission staff an
     analysis prepared by counsel to the Issuers setting forth the legal bases,
     if any, upon which such counsel has concluded that such an Exchange Offer
     should be permitted and (C) diligently pursuing a resolution (which need
     not be favorable) by the Commission staff.

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          (ii)  As a condition to its participation in the Exchange Offer, each
     Holder of Transfer Restricted Securities (including, without limitation,
     any Holder who is a Broker Dealer) shall furnish, upon the request of the
     Issuers, prior to the Consummation of the Exchange Offer, a written
     representation to the Issuers (which may be contained in the letter of
     transmittal contemplated by the Exchange Offer Registration Statement) to
     the effect that (A) it is not an Affiliate of either Issuer, (B) it is not
     engaged in, and does not intend to engage in, and has no arrangement or
     understanding with any person to participate in, a distribution of the
     Series B Notes to be issued in the Exchange Offer and (C) it is acquiring
     the Series B Notes in its ordinary course of business. As a condition to
     its participation in the Exchange Offer each Holder using the Exchange
     Offer to participate in a distribution of the Series B Notes shall
     acknowledge and agree that, if the resales are of Series B Notes obtained
     by such Holder in exchange for Series A Notes acquired directly from the
     Issuers or an Affiliate thereof, it (1) could not, under Commission policy
     as in effect on the date of this Agreement, rely on the position of the
     Commission enunciated in Morgan Stanley and Co., Inc. (available June 5,
     1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as
     interpreted in the Commission's letter to Shearman & Sterling dated July 2,
     1993, and similar no-action letters (including, if applicable, any no-
     action letter obtained pursuant to Section 6(a)(i) above), and (2) must
                                                -------
     comply with the registration and prospectus delivery requirements of the
     Act in connection with a secondary resale transaction and that such a
     secondary resale transaction must be covered by an effective registration
     statement containing the selling security holder information required by
     Item 507 or 508, as applicable, of Regulation S-K.

          (iii) Prior to effectiveness of the Exchange Offer Registration
     Statement, the Issuers shall provide a supplemental letter to the
     Commission (A) stating that the Issuers are registering the Exchange Offer
     in reliance on the position of the Commission enunciated in Exxon Capital
     Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
     (available June 5, 1991) as interpreted in the Commission's letter to
     Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action
     letter obtained pursuant to Section 6(a)(i) above, (B) including a
                                         -------
     representation that neither of the Issuers have entered into any
     arrangement or understanding with any Person to distribute the Series B
     Notes to be received in the Exchange Offer and that, to the best of the
     Issuers' information and belief, each Holder participating in the Exchange
     Offer is acquiring the Series B Notes in its ordinary course of business
     and has no arrangement or understanding with any Person to participate in
     the distribution of the Series B Notes received in the Exchange

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     Offer and (C) any other undertaking or representation required by the
     Commission as set forth in any no-action letter obtained pursuant to
     Section 6(a)(i) above, if applicable.
             -------

     (b)  Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Issuers shall

             (i)  comply with all the provisions of Section 6(c) below and use
                                                            ----
     their respective best efforts to effect such registration to permit the
     sale of the Transfer Restricted Securities being sold in accordance with
     the intended method or methods of distribution thereof (as indicated in the
     information furnished to the Issuers pursuant to Section 4(b) hereof), and
                                                              ----
     pursuant thereto the Issuers will prepare and file with the Commission a
     Registration Statement relating to the registration on any appropriate form
     under the Act, which form shall be available for the sale of the Transfer
     Restricted Securities in accordance with the intended method or methods of
     distribution thereof within the time periods and otherwise in accordance
     with the provisions hereof, and

             (ii) issue, upon the request of any Holder or purchaser of Series
     A Notes covered by any Shelf Registration Statement contemplated by this
     Agreement, Series B Notes having an aggregate principal amount equal to the
     aggregate principal amount of Series A Notes sold pursuant to the Shelf
     Registration Statement and surrendered to the Issuers for cancellation; the
     Issuers shall register Series B Notes on the Shelf Registration Statement
     for this purpose and issue the Series B Notes to the purchaser(s) of
     securities subject to the Shelf Registration Statement in the names as such
     purchaser(s) shall designate.

     (c)  General Provisions.  In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Issuers shall:

             (i)  use their respective best efforts to keep such Registration
     Statement continuously effective and provide all requisite financial
     statements for the period specified in Section 3 or 4 of this Agreement, as
                                                    -    -
     applicable. Upon the occurrence of any event that would cause any such
     Registration Statement or the Prospectus contained therein (A) to contain
     an untrue statement of material fact or omit to state any material fact
     necessary to make the statements therein not misleading or (B) not to be
     effective and usable for resale of Transfer Restricted Securities during
     the period required by this Agreement, the Issuers shall file promptly an
     appropriate amendment to such Registration Statement curing such defect,
     and, if Commission review is

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<PAGE>

     required, use their respective best efforts to cause such amendment to be
     declared effective as soon as practicable.

          (ii)  prepare and file with the Commission such amendments and post-
     effective amendments to the applicable Registration Statement as may be
     necessary to keep such Registration Statement effective for the applicable
     period set forth in Section 3 or 4 hereof, as the case may be; cause the
                                 -    -
     Prospectus to be supplemented by any required Prospectus supplement, and as
     so supplemented to be filed pursuant to Rule 424 under the Act, and to
     comply fully with Rules 424, 430A and 462, as applicable, under the Act in
     a timely manner; and comply with the provisions of the Act with respect to
     the disposition of all securities covered by such Registration Statement
     during the applicable period in accordance with the intended method or
     methods of distribution by the sellers thereof set forth in such
     Registration Statement or supplement to the Prospectus;

          (iii) advise each Holder promptly and, if requested by such, confirm
     such advice in writing, (A) when the Prospectus or any Prospectus
     supplement or post-effective amendment has been filed, and, with respect to
     any applicable Registration Statement or any post-effective amendment
     thereto, when the same has become effective, (B) of any request by the
     Commission for amendments to the Registration Statement or amendments or
     supplements to the Prospectus or for additional information relating
     thereto, (C) of the issuance by the Commission of any stop order suspending
     the effectiveness of the Registration Statement under the Act or of the
     suspension by any state securities commission of the qualification of the
     Transfer Restricted Securities for offering or sale in any jurisdiction, or
     the initiation of any proceeding for any of the preceding purposes, and (D)
     of the existence of any fact or the happening of any event that makes any
     statement of a material fact made in the Registration Statement, the
     Prospectus, any amendment or supplement thereto or any document
     incorporated by reference therein untrue, or that requires the making of
     any additions to or changes in the Registration Statement in order to make
     the statements therein not misleading, or that requires the making of any
     additions to or changes in the Prospectus in order to make the statements
     therein, in the light of the circumstances under which they were made, not
     misleading. If at any time the Commission shall issue any stop order
     suspending the effectiveness of the Registration Statement, or any state
     securities commission or other regulatory authority shall issue an order
     suspending the qualification or exemption from qualification of the
     Transfer Restricted Securities under state securities or Blue Sky laws, the
     Issuers shall use their

                                       12
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     respective best efforts to obtain the withdrawal or lifting of such order
     at the earliest possible time;

          (iv)  subject to Section 6(c)(i), if any fact or event contemplated by
                                   -------
     Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
             ------------
     supplement or post-effective amendment to the Registration Statement or
     related Prospectus or any document incorporated therein by reference or
     file any other required document so that, as thereafter delivered to the
     purchasers of Transfer Restricted Securities, the Prospectus will not
     contain an untrue statement of a material fact or omit to state any
     material fact necessary to make the statements therein, in the light of the
     circumstances under which they were made, not misleading;

          (v)   furnish to each Holder in connection with such exchange or sale,
     if any, before filing with the Commission, copies of any Registration
     Statement or any Prospectus included therein or any amendments or
     supplements to any such Registration Statement or Prospectus (including all
     documents incorporated by reference after the initial filing of such
     Registration Statement), which documents will be subject to the review and
     comment of such Holders in connection with such sale, if any, for a period
     of at least five Business Days, and the Issuers will not file any such
     Registration Statement or Prospectus or any amendment or supplement to any
     such Registration Statement or Prospectus (including all such documents
     incorporated by reference) to which such Holders shall reasonably object
     within five Business Days after the receipt thereof. A Holder shall be
     deemed to have reasonably objected to such filing if such Registration
     Statement, amendment, Prospectus or supplement, as applicable, as proposed
     to be filed, contains an untrue statement of a material fact or omit to
     state any material fact necessary to make the statements therein not
     misleading or fails to comply with the applicable requirements of the Act;

          (vi)  promptly prior to the filing of any document that is to be
     incorporated by reference into a Registration Statement or Prospectus,
     provide copies of such document to each Holder in connection with such
     exchange or sale, if any, make the Issuer's representatives available for
     discussion of such document and other customary due diligence matters, and
     include such information in such document prior to the filing thereof as
     such Holders may reasonably request;

          (vii) make available, at reasonable times, for inspection by each
     Holder and any attorney or accountant retained by such Holders, all
     financial and other records, pertinent corporate documents of the Issuers
     and cause the

                                       13
<PAGE>

     Issuers' officers, directors and employees to supply all information
     reasonably requested by any such Holder, attorney or accountant in
     connection with such Registration Statement or any post-effective amendment
     thereto subsequent to the filing thereof and prior to its effectiveness;

          (viii)  if requested by any Holders in connection with such exchange
     or sale, promptly include in any Registration Statement or Prospectus,
     pursuant to a supplement or post-effective amendment if necessary, such
     information as such Holders may reasonably request to have included
     therein, including, without limitation, information relating to the "Plan
     of Distribution" of the Transfer Restricted Securities; and make all
     required filings of such Prospectus supplement or post-effective amendment
     as soon as practicable after the Issuers are notified of the matters to be
     included in such Prospectus supplement or post-effective amendment;

          (ix)    furnish to each Holder in connection with such exchange or
     sale, without charge, at least one copy of the Registration Statement, as
     first filed with the Commission, and of each amendment thereto, including
     all documents incorporated by reference therein and all exhibits (including
     exhibits incorporated therein by reference);

          (x)     deliver to each Holder without charge, as many copies of the
     Prospectus (including each preliminary prospectus) and any amendment or
     supplement thereto as such Persons reasonably may request; the Issuers
     hereby consent to the use (in accordance with law) of the Prospectus and
     any amendment or supplement thereto by each selling Holder in connection
     with the offering and the sale of the Transfer Restricted Securities
     covered by the Prospectus or any amendment or supplement thereto;

          (xi)    upon the request of any Holder, enter into such agreements
     (including underwriting agreements) and make such representations and
     warranties and take all such other actions in connection therewith in order
     to expedite or facilitate the disposition of the Transfer Restricted
     Securities pursuant to any applicable Registration Statement contemplated
     by this Agreement as may be reasonably requested by any Holder in
     connection with any sale or resale pursuant to any applicable Registration
     Statement. In such connection, the Issuers shall:

                  (A)  upon request of any Holder, furnish (or in the case of
          Sections 6(c)(xi)(A)(2) and 6(c)(xi)(A)(3), use its best efforts to
                   --------------     --------------
          cause to be furnished) to each Holder, upon Consummation of the
          Exchange

                                       14
<PAGE>

          Offer or upon the effectiveness of the Shelf Registration Statement,
          as the case may be:

                    (1)  a certificate, dated such date, signed on behalf of
               each Issuer by a Responsible Officer of each Issuer confirming,
               as of the date thereof, the matters set forth in Sections 6(t),
               9(a) and 9(b) of the Purchase Agreement and such other similar
               matters as such Holders may reasonably request;

                    (2)  an opinion, dated the date of Consummation of the
               Exchange Offer or the date of effectiveness of the Shelf
               Registration Statement, as the case may be, of counsel for the
               Issuers covering matters similar to those set forth in paragraph
               (e) of Section 9 of the Purchase Agreement and such other matter
               as such Holder may reasonably request, and in any event including
               a statement to the effect that such counsel has participated in
               conferences with officers and other representatives of the
               Issuers, representatives of the independent public accountants
               for the Issuers and have considered the matters required to be
               stated therein and the statements contained therein, although
               such counsel has not independently verified the accuracy,
               completeness or fairness of such statements; and that such
               counsel advises that, on the basis of the foregoing (relying as
               to materiality to the extent such counsel deems appropriate upon
               the statements of officers and other representatives of the
               Issuers) and without independent check or verification), no facts
               came to such counsel's attention that caused such counsel to
               believe that the applicable Registration Statement, at the time
               such Registration Statement or any post-effective amendment
               thereto became effective and, in the case of the Exchange Offer
               Registration Statement, as of the date of Consummation of the
               Exchange Offer, contained an untrue statement of a material fact
               or omitted to state a material fact required to be stated therein
               or necessary to make the statements therein not misleading, or
               that the Prospectus contained in such Registration Statement as
               of its date and, in the case of the opinion dated the date of
               Consummation of the Exchange Offer, as of the date of
               Consummation, contained an untrue statement of a material fact or
               omitted to state a material fact necessary in order to make the
               statements therein, in the light of the circumstances under

                                       15
<PAGE>

               which they were made, not misleading. Without limiting the
               foregoing, such counsel may state further that such counsel
               assumes no responsibility for, and has not independently
               verified, the accuracy, completeness or fairness of the financial
               statements, notes and schedules and other financial data included
               in any Registration Statement contemplated by this Agreement or
               the related Prospectus; and

                      (3)  a customary comfort letter, dated the date of
               Consummation of the Exchange Offer, or as of the date of
               effectiveness of the Shelf Registration Statement, as the case
               may be, from the Issuers' independent accountants, in the
               customary form and covering matters of the type customarily
               covered in comfort letters to underwriters in connection with
               underwritten offerings, and affirming the matters set forth in
               the comfort letters delivered pursuant to Section 9(g) of the
               Purchase Agreement; and

               (B)  deliver such other documents and certificates as may be
          reasonably requested by the selling Holders to evidence compliance
          with the matters covered in Section 6(c)(xi)(A) above and with any
                                              -----------
          customary conditions contained in any agreement entered into by the
          Issuers pursuant to this Section 6(c)(xi);
                                           --------

          (xii)  prior to any public offering of Transfer Restricted Securities,
     cooperate with the selling Holders and their counsel in connection with the
     registration and qualification of the Transfer Restricted Securities under
     the securities or Blue Sky laws of such jurisdictions as the selling
     Holders may request and do any and all other acts or things necessary or
     advisable to enable the disposition in such jurisdictions of the Transfer
     Restricted Securities covered by the applicable Registration Statement;
     provided, however, that neither of the Issuers shall be required to
     register or qualify as a foreign corporation where it is not now so
     qualified or to take any action that would subject it to the service of
     process in suits or to taxation, other than as to matters and transactions
     relating to the Registration Statement, in any jurisdiction where it is not
     now so subject;

          (xiii) in connection with any sale of Transfer Restricted Securities
     that will result in such securities no longer being Transfer Restricted
     Securities, cooperate with the Holders to facilitate the timely preparation
     and delivery of certificates representing Transfer Restricted Securities to
     be sold and not

                                       16
<PAGE>

     bearing any restrictive legends; and to register such Transfer Restricted
     Securities in such denominations and such names as the selling Holders may
     request at least two Business Days prior to such sale of Transfer
     Restricted Securities;

          (xiv)     use their respective best efforts to cause the disposition
     of the Transfer Restricted Securities covered by the Registration Statement
     to be registered with or approved by such other governmental agencies or
     authorities as may be necessary to enable the seller or sellers thereof to
     consummate the disposition of such Transfer Restricted Securities, subject
     to the proviso contained in Section 6(c)(xii) above;
                                         ---------

          (xv)      provide a CUSIP number for all Transfer Restricted
     Securities not later than the effective date of a Registration Statement
     covering such Transfer Restricted Securities and provide the Trustee under
     the Indenture with printed certificates for the Transfer Restricted
     Securities which are in a form eligible for deposit with the Depository
     Trust Company;

          (xvi)     otherwise use their respective best efforts to comply with
     all applicable rules and regulations of the Commission, and make generally
     available to its security holders with regard to any applicable
     Registration Statement, as soon as practicable, a consolidated earnings
     statement meeting the requirements of Rule 158 (which need not be audited)
     covering a twelve-month period beginning after the effective date of the
     Registration Statement (as such term is defined in paragraph (c) of Rule
     158 under the Act);

          (xvii)    cause the Indenture to be qualified under the TIA not later
     than the effective date of the first Registration Statement required by
     this Agreement and, in connection therewith, cooperate with the Trustee and
     the Holders to effect such changes to the Indenture as may be required for
     such Indenture to be so qualified in accordance with the terms of the TIA;
     and execute and use its best efforts to cause the Trustee to execute, all
     documents that may be required to effect such changes and all other forms
     and documents required to be filed with the Commission to enable such
     Indenture to be so qualified in a timely manner; and

          (xviii)   provide promptly to each Holder, upon request, each document
     filed with the Commission pursuant to the requirements of Section 13 or
     Section 15(d) of the Exchange Act.

                                       17
<PAGE>

       (d)  Restrictions on Holders.  Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from either Issuer of the existence of any
        ------------
fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
                                      ------------
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
                                   --------
advised in writing by the Issuers that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "Recommencement
Date"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Issuers with more
recently dated Prospectuses or (ii) deliver to the Issuers (at the Issuers'
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
-    -
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.

     Section 7. Registration Expenses.

     (a)  All expenses incident to the Issuers' performance of or compliance
with this Agreement will be borne by the Issuers, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses; (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Series B Notes
to be issued in the Exchange Offer and printing of Prospectuses, messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Issuers and the Holders of Transfer Restricted Securities; (v) all
application and filing fees in connection with listing the Series B Notes on a
national securities exchange or automated quotation system pursuant to the
requirements hereof; and (vi) all fees and disbursements of independent
certified public accountants of the Issuers (including the expenses of any
special audit and comfort letters required by or incident to such performance).

The Issuers will, in any event, bear their internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or

                                      18
<PAGE>

accounting duties), the expenses of any annual audit and the fees and expenses
of any Person, including special experts, retained by the Issuers.

     (b)  In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Issuers  will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities who are
tendering Series A Notes in the Exchange Offer and/or selling or reselling
Series A Notes or Series B Notes pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Davis Polk & Wardwell, unless another firm shall
be chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.

     Section 8.  Indemnification.

     (a)  The Issuers agree, jointly and severally, to indemnify and hold
harmless each Holder, its directors, officers and each Person, if any, who
controls such Holder (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act), from and against any and all losses, claims, damages,
liabilities, judgments, (including without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
provided by the Issuers to any Holder or any prospective purchaser of Series B
Notes or registered Series A Notes, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based
upon information relating to any of the Holders furnished in writing to the
Issuers by any of the Holders.

     (b)  Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Issuers, and their respective
directors, officers, and partners, and each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the
Issuers, to the same extent as the foregoing indemnity from the Issuers set
forth in Section 8(a)  above, but only with reference to information relating to
                 ----
such Holder furnished in writing to the Issuers by such Holder expressly for use
in any Registration Statement. In no event

                                       19
<PAGE>

shall any Holder, its directors, officers or any Person who controls such Holder
be liable or responsible for any amount in excess of the amount by which the
total amount received by such Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages that such Holder, its directors, officers or any Person
who controls such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.

     (c)  In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
                                                             ----    ----
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
                 ----     ----
defense of such action pursuant to this Section 8(c), but may employ separate
                                                ----
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 8(a), and
                                                                    ----
by the Issuers, in the case of parties indemnified pursuant to Section 8(b). The
                                                                       ----
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any

                                       20
<PAGE>

action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.

     (d)  To the extent that the indemnification provided for in this Section
8 is unavailable to an indemnified party in respect of any losses, claims,
-
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Issuers, on the one
hand, and the Holders, on the other hand, from their sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted
                                                       -------
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
                                        -------
fault of the Issuers, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Issuers, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Issuers, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

     The Issuers and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
                                         ----
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party

                                       21
<PAGE>

as a result of the losses, claims, damages, liabilities or judgments referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Holder, its directors, its officers or any Person, if any, who
        -
controls such Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total received by such Holder with
respect to the sale of Transfer Restricted Securities pursuant to a Registration
Statement exceeds (i) the amount paid by such Holder for such Transfer
Restricted Securities and (ii) the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to con tribute pursuant to this
Section 8(d) are several in proportion to the respective principal amount of
        ----
Transfer Restricted Securities held by each Holder hereunder and not joint.

     Section 9. Rule 144A and Rule 144.

     The Issuers agree with each Holder, for so long as any Transfer Restricted
Securities remain outstanding and during any period in which the Issuers (i) is
not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder, to such Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.

     Section 10. Miscellaneous.

     (a)  Remedies.  The Issuers acknowledge and agree that any failure by the
Issuers to comply with their respective obligations under Sections 3 and 4
                                                                   -     -
hereof may result in material irreparable injury to the Initial Purchasers or
the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Issuers' obligations under
Sections 3 and 4 hereof.  The Issuers further agree to waive
         -     -

                                       22
<PAGE>

the defense in any action for specific performance that a remedy at law would be
adequate.

     (b)  No Inconsistent Agreements.  Neither Issuer will, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof.  Neither Issuer has previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Issuers' securities under any agreement in effect on the date
hereof.

     (c)  Amendments and Waivers.  The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
                                                                         -
hereof and this clause 10(c)(i), the Issuers have obtained the written consent
                       --------
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Issuers have obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Issuers or their Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.

     (d)  Third Party Beneficiary.  The Holders shall be third party
beneficiaries to the agreements made hereunder between the Issuers, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.

     (e)  Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:

                                       23
<PAGE>

          (i)  if to a Holder, at the address set forth on the records of the
     Registrar under the Indenture, with a copy to the Registrar under the
     Indenture; and

          (ii) if to either Issuer:

                c/o Scolaro, Shulman, Cohen, Lawler & Burstein, P.C.
                90 Presidential Plaza
                Syracuse, New York 13202-2200
                Telecopier No.: (315) 471-1355
                Attn: Richard S. Scolaro

                With a copy to:

                U.S. Bank Trust National Association
                100 Wall Street, Suite 1600
                New York, New York, 10005
                Attention: Corporate Trust Services
                Telecopier No.: 212-809-5459

     All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.

     Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

       (f)  Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders; provided, that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Transfer Restricted Securities in violation of
the terms hereof or of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the

                                       24
<PAGE>

terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.

       (g)  Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

       (h)  Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

       (i)  Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.

       (j)  Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.

       (k)  Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities.  This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

                                       25
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

                              PROJECT ORANGE FUNDING, L.P.

                              By G.A.S. Orange Associates, L.L.C., a
                              Delaware limited liability company, its
                              General Partner

                              By: /s/ Douglas Corbett
                                 _____________________________
                                 Name: Douglas Corbett
                                 Title: Vice President

                              PROJECT ORANGE CAPITAL CORP.

                              By: /s/ Douglas Corbett
                                 ______________________________
                                 Name: Douglas Corbett
                                 Title: Vice President

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

By: /s/ Gavin H. Wolfe
   ________________________
   Name: Gavin H. Wolfe
   Title: Vice President

                                       26
<PAGE>

                                                                       EXHIBIT A

                              NOTICE OF FILING OF
                   A/B EXCHANGE OFFER REGISTRATION STATEMENT

                                             Date: _____________

To:    Donaldson, Lufkin & Jenrette Securities Corporation
       277 Park Avenue
       New York, New York  10172
       Attention:  Louise Guarneri (Compliance Department)
       Fax: (212) 892-7272

From:  Project Orange Funding, L.P.
       Project Orange Capital Corp.
       10.5% Senior Secured Notes due 2007

For your information only (NO ACTION REQUIRED):

       Today, ______, 2000, we filed an A/B Exchange Registration Statement/a
Shelf Registration Statement with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.<PAGE>

                                                                     EXHIBIT 4.3

                                                                  EXECUTION COPY

                      DEPOSIT AND DISBURSEMENT AGREEMENT

                                    between

                         PROJECT ORANGE FUNDING, L.P.,

                     U.S. BANK TRUST NATIONAL ASSOCIATION,
                              as Collateral Agent
                          and Securities Intermediary

                                      and

                     U.S. BANK TRUST NATIONAL ASSOCIATION,
                                  as Trustee

                         Dated as of December 6, 1999
<PAGE>

                               TABLE OF CONTENTS

                                ______________

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
     <S>                                                                   <C>
                                   Article 1
                                   ---------
                                  Definitions
                                  -----------

     Section 1.01.  Capitalized Terms...................................    2
                                                                            -
     Section 1.02.  Definitions, Construction...........................    2
                                                                            -

                                   Article 2
                                   ---------
                           Establishment of Accounts
                           -------------------------

     Section 2.01.  Acceptance of Appointment as Collateral Agent.......   11
                                                                           --
     Section 2.02.  Establishment of Funds and Sub-funds................   12
                                                                           --
     Section 2.03.  Security Interest...................................   14
                                                                           --
     Section 2.04.  Termination.........................................   14
                                                                           --

                                   Article 3
                                   ---------
                                   The Funds
                                   ---------

     Section 3.01.  Revenue Account.....................................   14
                                                                           --
     Section 3.02.  Principal Account...................................   18
                                                                           --
     Section 3.03.  Interest Account....................................   18
                                                                           --
     Section 3.04.  Debt Service Reserve Account........................   19
                                                                           --
     Section 3.05.  Gas Reserve Account.................................   21
                                                                           --
     Section 3.06.  Capital Expenditure Reserve Account.................   21
                                                                           --
     Section 3.07.  Subordinated Asset Management Fee Account...........   22
                                                                           --
     Section 3.08.  Distribution Account................................   23
                                                                           --
     Section 3.09.  Distribution Suspense Account.......................   24
                                                                           --
     Section 3.10.  Loss Proceeds Account...............................   25
                                                                           --
     Section 3.11.  Redemption Account..................................   31
                                                                           --
     Section 3.12.  Investment of Accounts..............................   32
                                                                           --
     Section 3.13.  Disposition of Accounts upon Retirement of
                    Senior Secured Notes................................   33
                                                                           --
     Section 3.14.  Account Balance Statements..........................   33
                                                                           --
     Section 3.15.  Events of Default...................................   34
                                                                           --
     Section 3.16.  Accounts Maintained as UCC "Securities Accounts"....   34
                                                                           --
     Section 3.17.  Stipulation Reserve Account.........................   35
                                                                           --
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
     <S>                                                                   <C>
                                   Article 4
                                   ---------
                               Collateral Agent
                               ----------------

     Section 4.01.  Appointment of Collateral Agent, Power and
                    Immunities..........................................     36
                                                                             --
     Section 4.02.  Reliance by Collateral Agent........................     37
                                                                             --
     Section 4.03.  Court Orders........................................     38
                                                                             --
     Section 4.04.  Resignation or Removal..............................     38
                                                                             --

                                   Article 5
                                   ---------
                        Expenses; Indemnification; Fees
                        -------------------------------

     Section 5.01.  Expenses............................................    40
                                                                            --
     Section 5.02.  Indemnification.....................................    40
                                                                            --
     Section 5.03.  Fees................................................    40
                                                                            --

                                   Article 6
                                   ---------
                                 Miscellaneous
                                 -------------

     Section 6.01.  Amendments; Etc.....................................   40
                                                                           --
     Section 6.02.  Addresses for Notices...............................   41
                                                                           --
     Section 6.03.  Governing Law.......................................   41
                                                                           --
     Section 6.04.  Waiver of Jury Trial................................   41
                                                                           --
     Section 6.05.  Headings............................................   42
                                                                           --
     Section 6.06.  No Third Party Beneficiaries........................   42
                                                                           --
     Section 6.07.  No Waiver...........................................   42
                                                                           --
     Section 6.08.  Severability........................................   42
                                                                           --
     Section 6.09.  Successors and Assigns..............................   42
                                                                           --
     Section 6.10.  Execution in Counterparts...........................   42
                                                                           --
     Section 6.11.  Consequential Damages...............................   42
                                                                           --
     Section 6.12.  Limitation of Liability.............................   43
                                                                           --
     Section 6.13.  Regarding the Collateral Agent......................   44
                                                                           --
     Section 6.14.  Dispute Resolution..................................   44
                                                                           --
</TABLE>

                                      ii
<PAGE>

     This DEPOSIT AND DISBURSEMENT AGREEMENT (this "Depositary Agreement") dated
as of December 6, 1999 between Project Orange Funding, L.P., a Delaware limited
partnership (together with its successors, including Project Orange Associates,
L.P., a Delaware limited partnership, as the survivor of the merger of Project
Orange Funding L.P. with and into Project Orange Associates, L.P. concurrently
with the issuance and sale of the Senior Secured Notes referred to below and the
execution and delivery of this Agreement by the parties hereto, the "Issuer"),
and U.S. Bank Trust National Association, a national banking association, in its
separate capacities as Trustee (as defined below), as Collateral Agent (together
with its successors and permitted assigns in such capacity, the "Collateral
Agent"), for the benefit of the holders of all senior secured notes (the "Senior
Secured Notes") issued pursuant to the Indenture (as defined below) and the
other Secured Parties (as defined below), and as securities intermediary
(together with its successors and permitted assigns in such capacity, the
"Securities Intermediary").

                                   RECITALS

     A.  The Issuer leases and operates an 80 megawatt (net) natural gas fired
simple cycle cogeneration facility, including an electric transmission line, a
9.5 mile gas pipeline and certain easements (the "Project"), located on the
campus of Syracuse University in Syracuse, New York.

     B.  The Issuer will issue the Senior Secured Notes under the Indenture
dated as of the date hereof (the "Indenture") between the Issuer and U.S. Bank
Trust National Association, a national banking association, in its capacity as
Trustee (together with its successors and permitted assignees in such capacity
the "Trustee").

     C.  Pursuant to the Indenture, the Issuer will use the proceeds of the
Senior Secured Notes for the purposes and in the amounts described in the
Indenture.

     D.  The Senior Secured Notes will be secured by a senior first priority
Lien on substantially all of the assets of the Issuer and a pledge of the
partnership interests in the Issuer.

     E.  The Trustee desires to appoint the Collateral Agent to administer money
deposited in the various accounts established pursuant to this Depositary
Agreement and funded with, among other things, revenues received by the Issuer
from the Project and proceeds of insurance and condemnation and the Issuer
consents to such appointment.
<PAGE>

                                   AGREEMENT

     In consideration of the premises and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:

                                   ARTICLE 1

                                  Definitions

     Section 1.01.  Capitalized Terms.  Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to them in the indenture.

     Section 1.02.  Definitions, Construction.  For all purposes of this
Depositary Agreement, except as otherwise expressly provided or unless the
context otherwise requires:

     (a)  all terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;

     (b)  all references in this Depositary Agreement to designated "Articles,"
"Sections," "Exhibits" and other subdivisions are to be designated Articles,
Sections, Exhibits and other subdivisions of this Depositary Agreement;

     (c)  the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Depositary Agreement as a whole and not to any
particular Article, Section or other subdivision;

     (d)  unless otherwise expressly specified, any agreement, contract or
document defined or referred to herein shall mean such agreement, contract or
document as in effect as of the date hereof, as the same may thereafter be
amended, restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof and the Indenture and the other Financing
Documents and including any agreement, contract or document in substitution or
replacement of any of the foregoing;

     (e)  unless the context clearly intends to the contrary, pronouns having a
masculine or feminine gender shall be deemed to include the other;

     (f)  unless otherwise specified, all references to the credit ratings of
any person shall mean those assigned to the senior unsecured long-term debt
securities of such person without third-party credit enhancement, and any rating
assigned to any other debt security of such person shall be disregarded; and

                                       2
<PAGE>

     (g)  any reference to any Person shall include its successors and assigns.

     "Account Collateral" has the meaning specified in Section 2.03 hereof.
                                                               ----

     "Accounts" has the meaning specified in Section 2.02.
                                                     ----

     "Administrative Costs" means all obligations of the Issuer, now or
hereafter existing, to pay administrative fees, costs and expenses to any
trustee or agent of the holders of the Senior Secured Notes, including the
Collateral Agent, the Securities Intermediary and the Trustee (including,
without limitation, the reasonable fees and expenses of counsel, agents and
experts).

     "Allocation Certificate" means each certificate provided by the Issuer or
the Trustee, as applicable, setting forth the allocation of Loss Proceeds,
Eminent Domain Proceeds, Title Event Proceeds, or cash proceeds resulting from
liquidation of the Collateral (to the extent the Obligations of such Holders of
the Senior Secured Notes may be redeemed or prepaid from such amounts under the
Indenture).

     "Canadian Hunter" means Canadian Hunter Exploration Ltd., an Alberta,
Canada corporation.

     "Capital Expenditure Reserve Account" means the Account of such name
established pursuant to Section 2.02.
                                ----

     "Capital Expenditure Reserve Required Balance" means an amount equal to:

     (1) the aggregate Capital Expenditures budgeted for the next succeeding
twelve-month period (A) as approved by the Independent Engineer and delivered to
the Trustee and the Collateral Agent at least annually and (B) as adjusted by
management and set forth in an Officers' Certificate delivered to the Trustee
and the Collateral Agent six (6) months following each budget approved by the
Independent Engineer plus

     (2) $3.5 million until such time as a life extension program for the Steam
Plant is approved by the Issuer and the Independent Engineer, at which time the
portion of the Capital Expenditures Reserve Required Balance required by this
clause (2) shall be reduced to an amount equal to the discounted present value
of the Capital Expenditures contemplated by the approved life extension program
for the Steam Plant (or, in the event of a dispute between the two, the Required
Capital Expenditure Reserve Balance shall be reduced to the discounted present
value of the Capital Expenditures

                                       3
<PAGE>

contemplated by the life extension program approved by the Independent Engineer
and then, if the net present value of the Capital Expenditures contemplated by
the life extension program approved by a third party pursuant to expedited
dispute resolution procedures set forth in Section 6.14 hereof, is lower, the
                                                   ----
Required Capital Expenditure Reserve Balance shall be further reduced to such
lower amount).

     "Contract Termination Event" means:

          (i)  the occurrence of an early termination event (whether by default
     or otherwise) under the Indexed Swap Agreement with respect to which
     Niagara Mohawk is required to make a termination payment under the Indexed
     Swap Agreement to the Issuer; or

          (ii) any event of force majeure under, or the termination of, the Gas
     Purchase Agreement with respect to which Canadian Hunter is required to
     refund or repay any portion of the lump-sum payment corresponding to the
     unused portion of the Maximum Entitlement (as defined in the Gas Purchase
     Agreement).

     "Creditors" means the Trustee, the Collateral Agent and the Securities
Intermediary.

     "Debt Service Coverage Ratio" means for any period, without duplication,
the ratio of (i) the sum of (A) all revenues (including interest and fee income
but excluding any insurance proceeds and all other similar non-recurring
receipts) of the Issuer for such period, minus (B) the aggregate amount of
Operating and Maintenance Costs of the Issuer for such period, minus (C) all
Capital Expenditures during such period, to (ii) the sum of (A) all principal,
premium (if any) and interest payable with respect to Permitted Indebtedness
outstanding for such period, plus (B) the aggregate amount of overdue principal,
premium (if any) and interest payments owed with respect to Permitted
Indebtedness outstanding from previous periods; all as determined on a cash
basis in accordance with GAAP.

     "Debt Service Reserve Account" means the Account of such name established
pursuant to Section 2.02.
                    ----

     "Debt Service Reserve Letter of Credit" one or more irrevocable, direct pay
letters of credit issued by the Debt Service Reserve LOC Provider in favor of
the Collateral Agent where the account party is not the Issuer.

                                       4
<PAGE>

     "Debt Service Reserve LOC Provider" means any commercial bank(s) or
financial institution(s) issuing the Debt Service Reserve Letter of Credit,
which institution shall be rated not less than A by S&P and A2 by Moody's.

     "Debt Service Reserve Required Balance" means, on the Closing Date,
$6,200,000, and thereafter an amount equal to the aggregate amount of the
principal and interest due on the Senior Secured Notes on the next succeeding
semi-annual scheduled payment date.

     "Distribution Account" means the Account of such name established pursuant
to Section 2.02.
           ----

     "Distribution Suspense Account" means the Account of such name established
pursuant to Section 2.02.
                    ----

     "Funding Date" means any day from the 10th through the 15th day of each
month, as determined by the Issuer in an officer's certificate received by the
Collateral Agent at least three (3) Business Days prior to such Funding Date,
provided that there shall only be a single Funding Date for any month (except in
the case of an immediate need to pay Operating and  Maintenance Costs referred
to below), or if no earlier date is so determined, then the 15th day of each
month, or in each case if such day is not a Business Day the next succeeding
Business Day, or in the case of an immediate need to pay Operating and
Maintenance Costs, any Business Day of the month; provided that notice of such
funding shall have been provided to Collateral Agent at least one Business Day
prior to such Funding Date.

     "Gas Purchase Agreement"  means (i) the Restated Gas Sale and Purchase
Agreement dated as of March 18, 1991, between POA and Noranda, which was
assigned by Noranda to, and assumed by, Canadian Hunter pursuant to an
Assignment, Amendment and Release Agreement dated on or prior to the Closing
Date among Noranda, Canadian Hunter and Orange L.P. and (ii) the agreements
between Orange L.P. and Canadian Hunter and UPR, respectively, to be entered
into in replacement of the Restated Gas Sale and Purchase Agreement in
accordance with the terms of a letter agreement dated on or prior to the Closing
Date among Orange L.P., Canadian Hunter and UPR as in effect on the date hereof.

     "Gas Reserve Account" means the Account of such name established pursuant
to Section 2.02.
           ----

     "Gas Reserve Deficit" means, at any time, the amount that equals (i) the
amount of gas necessary, in the judgment of the Independent Engineer, to operate
the

                                       5
<PAGE>

Project through the Final Maturity Date so that electric output of the Project
for such period will average at least 663,000 MWh per year and the Issuer can
meet its obligations to deliver steam under the Steam Contract, less (ii) the
sum of (A) the "Unconsumed Entitlement" (as such term is used in the Gas
Purchase Agreement) at such time plus (B) the unconsumed quantity, at such time,
of any natural gas (in addition to the Unconsumed Entitlement), purchased and
paid for by the Issuer and as to which transportation pursuant to arrangements
approved by the Independent Engineer as being consistent with prudent industry
practice are in place plus (C) the Btu equivalent of energy and associated
capacity that the Issuer has purchased the right to acquire in connection with
permitted sales of natural gas as described in Section 4.18 of the Indenture.

     "Gas Reserve Required Balance" means, at any time, the amount equal to the
Gas Reserve Deficit at such time multiplied by the highest average "Niagara
Border Spot Price" for natural gas (delivered to pipe as stated in U.S. dollars)
at any time during the previous twelve (12) months in the weekly Canadian Price
Report published by Natural Gas Week (on an MMBtu basis).

     "Indemnified Party" has the meaning specified in Section 5.02.
                                                              ----

     "Indexed Swap Agreement" means the ISDA Master Agreement and the related
Confirmation each dated as of June 30, 1998 between Orange L.P. and Niagara
Mohawk.

     "Interest Account" means the Account of such name established pursuant to
Section 2.02.
        ----

     "Interest Payment Date" means each March 15 and September 15 commencing
March 15, 2000 and concluding on the Final Maturity Date.

     "Loss Proceeds Account" means the Account of such name established pursuant
to Section 2.02.
           ----

     "Niagara Mohawk" means the Niagara Mohawk Power Corporation, a New York
corporation.

     "Non-Budgeted Operating and Maintenance Costs Certificate" has the meaning
specified in Section 3.01.
                     ----

     "O&M Agreement" means (i) the Cogeneration Facility Operation and
Maintenance Agreement dated as of November 1, 1998 between Orange L.P. and

                                       6
<PAGE>

Operator and (ii) any subsequent operation and maintenance agreement entered
into by POA with the Operator having terms and conditions that are, in the
opinion of the Independent Engineer, reasonable and customary for agreements of
its type and which are consistent with prudent industry practice.

     "Operating and Maintenance Costs" means, for any periods, all amounts
disbursed by or on behalf of the Issuer for operation, maintenance (excluding
Capital Expenditures), administration, repair, or improvement of the Project,
including, without limitation, premiums on insurance policies, property and
other taxes, payments under the relevant Lease Documents and under agreements,
or options, to purchase energy and associated capacity in connection with
permitted sales of natural gas, operating and maintenance agreements, leases,
royalty and other land use agreements and fees, expenses, and any other payments
required under the Project Documents (excluding Subordinated Asset Management
Charges).

     "Operator" means General Electric International, Inc., a Delaware
corporation, or such other Person with technical expertise and industry standing
of at least that of General Electric International, Inc. as the operator of the
Project pursuant to the O&M Agreement.

     "Payment Date" means any Interest Payment Date or Principal Payment Date.

     "Permitted Investments" means an Investment in any of the following:

     (1) direct obligations of the Department of the Treasury of the United
States of America;

     (2) obligations, representing full faith and credit of the United States of
America, of any of the following federal agencies: Export-Import Bank, Farmers
Home Administration, General Services Administration, U.S. Maritime
Administration, Small Business Administration, Government National Mortgage
Association (GNMA), U.S. Department of Housing & Urban Development (PHA's) and
Federal Housing Administration;

     (3) obligations issued or fully guaranteed by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof and, at the time of the acquisition, having one of the
two highest ratings obtainable from either S&P's or Moody's;

                                       7
<PAGE>

       (4)  certificates of deposit and Eurodollar time deposits, bankers'
acceptances and overnight bank deposits, in each case with any domestic or
foreign commercial bank having capital and surplus in excess of $250.0 million;

       (5)  notes, bonds, collateralized mortgage obligations or other evidences
of indebtedness rated "AAA" by S&P's and "Aaa" by Moody's issued by the Federal
Home Loan Bank, the Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation;

       (6)  commercial paper rated in any one of the two highest rating
categories by Moody's or S&P's;

       (7)  investment agreements with banks (foreign and domestic),
broker/dealers, and other financial institutions rated at the time of bid in any
one of the three highest rating categories by Moody's and S&P's;

       (8)  repurchase agreements with banks (foreign and domestic),
broker/dealers, and other financial institutions rated at the time of bid in any
one of the three highest rating categories by Moody's and S&P's, provided, (a)
collateral is limited to the securities specified in clauses (1) through (5)
above, (b) the margin levels for collateral must be maintained at a minimum of
102% including principal and interest, (c) the Trustee shall have a first
perfected security interest in the collateral, (d) the collateral will be
delivered to a third party custodian, designated by the Issuer, acting for the
benefit of the Trustee and all fees and expenses related to collateral custody
will be the responsibility of the Issuer, (e) the collateral must have been or
will be acquired at the market price and marked to market weekly and collateral
level shortfalls cured within 24 hours, (f) unlimited right of substitution of
collateral is allowed provided that substitution of collateral must be permitted
collateral substituted at a current market price and substitution fees of the
custodian shall be paid by the Issuer;

       (9)  asset-backed securities having the highest rating obtainable from
either S&P's or Moody's;

       (10) forward purchase agreements delivering securities specified in
clauses (1) and (6) above with banks (foreign and domestic), broker/dealers, and
other financial institutions maintaining a long-term rating on the day of bid no
lower than investment grade by both S&P's and Moody's (such rating may be at
either the parent or subsidiary level); and

                                       8
<PAGE>

     (11) money market funds rated "AAAm" or "AAAm-G" or better by S&P's and
other financial funds investing exclusively in investments of the types
described in clauses (1) through this clause (11) of this definition.

     "Principal Account" means the Account of such name established pursuant to
Section 2.02.
        ----

     "Principal Payment Date" hen used with respect to any Senior Secured Note
means the date on which all or a portion of the principal of such Senior Secured
Note becomes due and payable as provided therein or in this Indenture, whether
on a scheduled date for payment of principal at a Redemption Date, the Final
Maturity Date, a date of declaration of acceleration, or otherwise.

     "Project Revenues" means all income and receipts of the Issuer derived from
the ownership or operation of the Project, including payments due the Issuer
under the Niagara Mohawk Agreements, the Canadian Hunter Agreements or the O&M
Agreement, proceeds of any business interruption or other insurance, income
derived from the sale or use of electric energy or steam transmitted or
distributed by the Project, together with any receipts derived from the sale of
natural gas and any other property pertaining to the Project or incidental to
the operation of the Project, all as determined in conformity with cash
accounting principles, the investment income on amounts in the Accounts
established under the Depositary Agreement, the proceeds of any insurance or
condemnation awards relating to the Project and proceeds from the Collateral
Documents, and any payments to the Issuer (to the extent not included within
other items listed in this definition) under the Master Lease, but not including
sums paid to the Issuer in satisfaction of a contractual obligation to indemnify
the Issuer for third party liability to the extent such sums do not exceed the
actual damage, loss or cost suffered by the Issuer in connection therewith.

     "Redemption Account" means the Account of such name established pursuant to
Section 2.02.
        ----

     "Requisition" means a Non-Budgeted Operating and Maintenance Costs
Certificate, a Restoration Requisition or a Title Event Requisition.

     "Reserve Account" means the Capital Expenditure Reserve Account, the Debt
Service Reserve Account and the Gas Reserve Account.

     "Responsible Officer" means, (i) with respect to knowledge of any default
under the Indenture, the chief executive officer, president, managing member,
managing partner, chief financial officer, general counsel, principal accounting
officer, treasurer, or

                                       9
<PAGE>

any vice president of the Issuer or the General Partner, as applicable, or other
officer of such corporation who in the normal performance of his or her
operational duties would have knowledge of the subject matter relating to such
default or (ii) with respect to the Asset Manager, the chief executive officer,
president, chief financial officer, general counsel, principal accounting
officer, treasurer, or any vice president of the Asset Manager, or other officer
of such corporation who in the normal performance of his or her operational
duties would have knowledge of the subject matter relating to the performance by
the Asset Manager of its obligations under the Asset Management Agreement.

     "Restoration Budget" has the meaning specified in Section 3.10.
                                                               ----

     "Restoration Progress Payment Schedule" has the meaning specified in
Section 3.10.
        ----

     "Restoration Requisition" has the meaning specified in Section 3.10.
                                                                    ----

     "Restoration Sub-Account" means the Account of such name established
pursuant to Section 2.02.
                    ----

     "Revenue Account" means the Account of such name established pursuant to
Section 2.02.
        ----

     "Secured Obligations" means all amounts owing to the Secured Parties
pursuant to the terms of the Indenture, the Senior Secured Notes and the
Collateral Documents, including, without limitation: (a) the principal, premium,
if any, or interest on the Senior Secured Notes (including any interest accruing
after the commencement of any bankruptcy or insolvency proceeding relating to
the Issuer, whether or not such interest is allowed or allowable as a claim in
any such proceeding), and all other obligations and liabilities of the Issuers
including, without limitation, indemnities, fees and interest incurred under,
arising out of or in connection with the Indenture, the Senior Secured Notes and
the Collateral Documents, (b) any and all sums advanced by or on behalf of the
Issuers in order to preserve the Collateral or preserve its interest in the
Collateral, and (c) in the event of any proceeding for collection or enforcement
by or on behalf of any Secured Party after an Event of Default shall have
occurred and be continuing and unwaived, the expenses of retaking, holding,
preparing for sale or lease, selling or otherwise disposing of or realizing on
the Collateral, or of any exercise by or on behalf of any Secured Party of its
rights under the Indenture, the Senior Secured Notes and the Collateral
Documents, together with attorneys' fees and court costs.

     "Secured Parties" means the Holders, the Trustee, the Collateral Agent.

                                       10
<PAGE>

     "Stipulation" means the Stipulation dated November 14, 1994 and Order of
the Bankruptcy Court dated December 8, 1994 among Kronish Lieb, Adam Victor and
GAS LP.

     "Stipulation Reserve Account" means the Account of such name established
pursuant to Section 2.02.
                    ----

     "Subordinated Asset Management Fees" means fees and other amounts payable
to the Asset Manager pursuant to the Asset Management Agreements and the Asset
Manager Consent and Agreement.

     "Subordinated Asset Management Fee Account" means the Account of such name
established pursuant to Section 2.02.
                                ----

     "Title Company" means Ticor Title Insurance Company.

     "Title Event" means the existence of any defect of title or lien or
encumbrance on the Project (other than certain Permitted Liens) in effect on the
Closing Date that entitles the Collateral Agent to make a claim under the policy
or policies of title insurance issued to it pursuant to the Financing Documents
or that entitles the Issuer to make a claim under any policy or policies of
title insurance held by it.

     "Title Event Requisition" has the meaning specified in Section 3.10.
                                                                    ----

     "Title Event Sub-Account" means the Account of such name established
pursuant to Section 2.02.
                    ----

     "Title Policy" means the policy or policies of title insurance required
pursuant to the Indenture.

     "Trigger Event Date" has the meaning specified in Section 3.15.
                                                               ----
     "UPR" means Union Pacific Resources Inc.

     "Withdrawal Certificate" shall mean a certificate signed by a Responsible
Officer of the Issuer, or in the case of a withdrawal from the Revenue Account
to pay Operating and Maintenance Costs or from the Capital Expenditures Reserve
Account to pay Capital Expenditures or from the Gas Reserve Account, signed by a
Responsible Officer of the Asset Manager.

                                       11
<PAGE>

                                   Article 2

                           Establishment of Accounts

         Section 2.01.  Acceptance of Appointment as Collateral Agent.

         (a)   U.S. Bank Trust National Association hereby agrees to act as
Collateral Agent and to accept all cash, payments, other amounts and Permitted
Investments to be delivered to or held by the Collateral Agent pursuant to the
terms of this Depositary Agreement and the Indenture.  The Collateral Agent
shall hold and safeguard the Accounts during the term of this Depositary
Agreement and shall treat the cash, instruments and notices in the Accounts as
monies, instruments and securities pledged by the Issuer to the Collateral Agent
for the benefit of the Secured Parties to be held in the custody of the
Collateral Agent, in accordance with the provisions of this Depositary
Agreement.  Until such time as the Secured Obligations have been fully repaid
or, provision for such payment has been made in accordance with the provision of
the Indenture, in performing its functions and duties under this Depositary
Agreement, the Collateral Agent shall act solely as agent for the Secured
Parties and, except in such capacity, does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for the Issuer.

         (b)   The Issuer shall not have any rights against or to monies held in
the Accounts, as third party beneficiary or otherwise, except the right to
receive or make requisitions of monies held in the Accounts, as permitted by
this Depositary Agreement and the Indenture, and to direct the investment of
monies held in the Accounts as permitted by Section 3.12.

         Section 2.02.  Establishment of Funds and Sub-funds. The Collateral
Agent hereby establishes the following accounts (the "Accounts") in the form of
non-interest bearing trust accounts and sub-accounts thereof, which shall be
maintained at all times until the termination of this Depositary Agreement:

         (a)  Revenue Account;

         (b)  Principal Account;

         (c)  Interest Account;

         (d)  Debt Service Reserve Account;

         (e)  Gas Reserve Account;

                                       12
<PAGE>

       (f) Capital Expenditure Reserve Account;

       (g) Subordinated Asset Management Fee Account;

       (h) Distribution Account;

       (i) Distribution Suspense Account;

       (j) Loss Proceeds Account;

       (k) Stipulation Reserve Accounts; and

       (l) Redemption Account.

     The accounts referred to in clauses (b), (c), (h) and (i) are not required
to be separate accounts but may be maintained as sub-accounts of the Revenue
Account.  For administrative purposes, the Collateral Agent shall be permitted
to establish sub-accounts as separate non-interest bearing trust accounts.

     The following two sub-accounts are hereby established and created within
the Loss Proceeds Accounts:

     (i)  Restoration Sub-Account; and

     (ii) Title Event Sub-Account.

     The following sub-account is hereby established and created within the
Redemption Account:

     (i)  Mandatory Redemption Sub-Account.

     Certain additional sub-accounts within certain of the Accounts may be
established and created from time to time in accordance with this Depositary
Agreement.

     All amounts from time to time held in each Account shall be held (a) in the
name of the Collateral Agent for the benefit of the Secured Parties, and (b) in
the sole custody and control of the Collateral Agent for the purposes and on the
terms set forth in this Depositary Agreement and the Indenture and all such
amounts shall constitute a part of the Collateral and shall not constitute
payment of any Secured Obligation or any other obligation of the Issuer until
applied as hereinafter provided.

                                       13
<PAGE>

     In addition to the Accounts, the Issuer may establish, fund and maintain
other accounts ("Excluded Accounts") with any bank, securities brokerage firm,
or financial institution, provided that such accounts are funded exclusively
with one or more of the following: (i) funds contributed to the Issuer by any
Partner, (ii) funds lent to the Issuer that constitute Permitted Indebtedness,
(iii) funds which have been properly released or otherwise properly paid to the
Issuer pursuant to the terms of this Agreement, (iv) pending the release
thereof, cash collateral subject to a Lien in favor of a person other than the
Collateral Agent that is permitted pursuant to the Indenture and/or (v) any
interest or other income earned on any of the Excluded Accounts.  All Excluded
Accounts shall be free of any Liens and security interests in favor of the
Collateral Agent and/or the Secured and shall be free of any and all operating
restrictions and investment restrictions imposed under this Agreement, subject
to the requirement that monies released to an Excluded Account to provide for
the payment of Operating and Maintenance Costs and Capital Expenditures shall be
so used.

     Section 2.03. Security Interest.  As collateral security for the prompt and
complete payment and performance when due of all its Secured Obligations, the
Issuer hereby pledges, assigns, hypothecates and transfers to the Collateral
Agent, and hereby grants to the Collateral Agent for the benefit of the Secured
Parties a Lien on and security interest in and to, (i) each Account and (ii) all
cash, investments and securities at any time on deposit in any Account,
including all income or gain earned thereon and any proceeds thereof
(collectively, the "Account Collateral").  The Collateral Agent is the agent of
the Trustee for the purpose of receiving payments contemplated hereunder and for
the purpose of perfecting the Lien of the Trustee for the benefit of the Secured
Parties in and to the Accounts and all cash, investments and securities and any
proceeds thereof at any time on deposit in the Accounts; provided that the
Collateral Agent shall not be responsible to take any action to perfect such
Lien except through the performance of its express obligations hereunder or upon
the written direction of the Trustee complying with this Depositary Agreement.
Each of the Accounts shall at all times be in the exclusive possession of, and
under the exclusive domain and control of, the Collateral Agent, as agent for
the Trustee.

     Section 2.04. Termination.  This Depositary Agreement shall remain in full
force and effect until the later of (i) the date on which all the Secured
Obligations have been fully paid or, provision for such payment has been made in
accordance with the provisions of the Indenture, (ii) the termination for the
Indenture pursuant to Article 8 thereof, and (iii) the date on which the actions
contemplated by Section 313(b) have been taken.
                        ------

                                       14
<PAGE>

                                   Article 3

                                   The Funds

     Section 3.01.  Revenue Account.

     (a)  The following amounts shall (subject to Section 3.08 hereof) be
                                                          ----
deposited into the Revenue Account directly, in accordance with this Section
3.01(a):
-------

           (i)  all Project Revenues;

           (ii) to the extent amounts in any Reserve Account equal the balance
     required to be maintained therein under this Depositary Agreement, the
     income, if any, from the investment of the monies in such Account pursuant
     to Section 3.12; and
                ----

          (iii) all amounts required to be transferred to the Revenue Account
     from any other Account as contemplated under this Depositary Agreement.

If any of the foregoing amounts required to be deposited with the Collateral
Agent in accordance with the terms of this Depositary Agreement are received by
the Issuer (or any Affiliate of the Issuer), the Issuer shall (or shall cause
any such Affiliate to) hold such payments in trust for the Collateral Agent and
shall promptly remit such payments to the Collateral Agent deposit in the
Revenue Account, in the form received, with any necessary endorsement.

     (b)  In the event the Collateral Agent receives monies without adequate
instruction with respect to the proper Account in which such monies are to be
deposited, the Collateral Agent shall deposit such monies into the Revenue
Account and segregate such monies from all other amounts on deposit in the
Revenue Account and notify the Issuer of the receipt of such monies. Upon
receipt of written instructions from the Issuer, the Collateral Agent shall
transfer such monies from the Revenue Account to the Account specified by such
instructions (other than the Distribution Account or the Distribution Suspense
Account).

     (c)  The Issuer hereby irrevocably authorizes and directs the Collateral
Agent to make withdrawals and transfers of monies on each Funding Date (via wire
transfer or by internal transfer between Accounts and/or sub-accounts, if
applicable) to the extent then available in the Revenue Account, upon the
delivery of a Withdrawal Certificate of the Issuer (or any of its duly
authorized agents for such purposes) to the Collateral Agent three Business Days
prior to the Funding Date setting forth the amounts to be withdrawn from the
Revenue Account and the amounts to be transferred pursuant to his

                                       15
<PAGE>

clause (c) pursuant to the terms of this Depositary Agreement in the following
order of priority all in accordance with such Withdrawal Certificate:

          (i)  First: As and when required, to pay when due the amount of
     Operating and Maintenance Costs of the Issuer (or to provide for the
     payment when due by transfer to an Excluded Account from which the Issuer
     shall pay Operating and Maintenance Costs) as set forth in a Withdrawal
     Certificate and certified in such Withdrawal Certificate to be the good
     faith estimate of the amounts payable for Operating and Maintenance costs
     during the period commencing on the first day of the next calendar month
     and ending on the last day of such month, and stating that the proviso
     immediately below does not apply to such withdrawal; provided that if the
     aggregate cumulative Operating and Maintenance Costs of the Issuer in any
     fiscal year, including the amounts set forth in such Withdrawal
     Certificate, either exceed or fall short of the aggregate cumulative
     projected Operating and Maintenance Costs in the applicable annual
     Operational Budget of the Issuer by more than 10%, then no amounts may be
     withdrawn on behalf of the Issuer to pay such Operating and Maintenance
     Costs that exceed or fall short of the Operating and Maintenance Costs in
     the Operating Budget by more than 10% unless there shall be filed with the
     Collateral Agent:

               (A)  a certificate of the Issuer substantially in the form
          attached hereto as Exhibit A (the "Non-Budgeted Operating and
          Maintenance Costs Certificate") including, without limitation, a
          representation that such additional non-budgeted (or reduced under-
          budget) costs are reasonably designed to permit (or shall not
          adversely affect the ability of) the Issuer to satisfy its obligations
          in respect of the Secured Obligations and maximize its revenue and net
          income; and

               (B)  an Independent Engineer's Certificate, in substantially the
          form attached as Appendix I to Exhibit A, dated not more than three
          Business Days prior to such requested Funding Date, certifying that
          the excess (or reduced) Operating and Maintenance Costs are prudent
          and reasonable (except to the extent that Permitted Indebtedness other
          than Indebtedness described in clause (i) of the definition of
          Permitted Indebtedness as set forth in the Indenture is otherwise
          available to pay such Costs);

          (ii) Second: After making each applicable withdrawal and transfer
     specified in clause (i) above, withdraw and transfer from the Revenue
     Account, to the Trustee and the Collateral Agent, any amounts set forth in
     a Withdrawal

                                       16
<PAGE>

     Certificate of the Issuer then due and payable to each of them as
     Administrative Costs; provided, however, that if funds in the Revenue
     Account are insufficient on any date to make the payments specified in this
     clause (ii), distribution of funds shall be made ratably to the specified
     receipts based on the respective amounts owed such recipients;

          (iii)  Third: After making each applicable withdrawal and transfer
     specified in clauses (i) and (ii) above, transfer an amount set forth in a
     Withdrawal Certificate of the Issuer from the Revenue Account (A) to the
     Interest Account an amount which, together with the amount then in such
     Account, equals all of the interest due or becoming due on the Senior
     Secured Notes on the next succeeding Interest Payment Date; (B) to the
     Principal Account an amount which, together with the amount then in such
     Account, equals all of the principal and premium (if any) due or becoming
     due on the Senior Secured Notes on the next succeeding Principal Payment
     Date; (C) to a sub-account within the Principal Account an amount which,
     together with the amounts then in such sub-account, equals all of the
     principal due or becoming due on any Permitted Indebtedness other than the
     Senior Secured Notes within the succeeding six-month period; and (D) to a
     sub-account within the Interest Account an amount which, together with the
     amounts then in such sub-account, equals all of the interest due or
     becoming due on any Permitted Indebtedness other than the Senior Secured
     Notes within the succeeding six month period; provided, however, that if
     monies in the Revenue Account are insufficient on any date to make the
     transfers specified in this clause (iii), distribution of monies shall be
     made, first, ratably to the Accounts referred to in clauses (A) and (B) of
     this paragraph Third based on the respective amounts owed such Accounts and
     second, ratably to the Accounts referred to in clauses (C) and (D) of this
     paragraph Third based on the respective amounts owed such Accounts;

          (iv)   Fourth: After making each applicable withdrawal and transfer
     specified in clauses (i) through (iii) above, transfer, if the amount
     available to be drawn under any Debt Service Reserve Letter of Credit is
     less than the Debt Service Reserve Required Balance, to the Debt Service
     Reserve Account so that the sum of the amount available to be drawn under
     the Debt Service Reserve Letter of Credit plus the balance in the Debt
     Service Reserve Account equals the Debt Service Reserve Required Balance;

          (v)    Fifth: After making each applicable withdrawal and transfer
     specified in clauses (i) through (iv) above, transfer to the Gas Reserve
     Account an amount necessary to cause the balance thereof to be equal to the
     Gas Reserve Required Balance;

                                       17
<PAGE>

          (vi)  Sixth: After making each applicable withdrawal and transfer
     specified in clauses (i) through (v) above, transfer to the Capital
     Expenditure Reserve Account, an amount necessary to cause the balance
     thereof to be equal to the Capital Expenditure Reserve Required Balance;

          (vi)  Seventh: After making each applicable withdrawal and transfer
     specified in clauses (i) through (vi) above, transfer to the Subordinated
     Asset Management Fee Account an amount necessary for the payment of
     Subordinated Asset Management Fee then due and owing;

          (vi)  Eighth: After making each applicable withdrawal and transfer
     specified in clauses (i) through (vii) above, transfer any remaining
     amounts to the Distribution Account; and

          (ix)  Ninth: After making each applicable withdrawal and transfer
     specified in clauses (i) through (viii) above, transfer, any amounts in the
     Distribution Account which cannot be distributed because of the failure to
     satisfy certain conditions to distributions, to the Distribution Suspense
     Account.

     Section 3.02.  Principal Account.

     (a)  Except as otherwise provided in this Depositary Agreement, monies
deposited in the Principal Account on any Funding Date shall be allocated
ratably among sub-accounts of the Principal Account established for payment of
the principal and premium, if any, with respect to the Senior Secured Notes and
any other outstanding Permitted Indebtedness when due and payable (whether at
the Principal Payment Date or otherwise).

     (b)  On any date that amounts for the payment of principal of and premium,
if any, on the Senior Secured Notes and any other outstanding Permitted
Indebtedness are due and payable and for which a Withdrawal Certificate has been
delivered in accordance with Section 3.01(c) (or if such day is not a Business
                                     -------
Day, then on the next succeeding Business Day), the Collateral Agent shall
withdraw the monies on deposit in the relevant sub-account of the Principal
Account, and remit such monies to the Persons entitled thereto for the payment
of such principal and premium, if any; provided, however, that the Collateral
Agent shall segregate such amounts from any other amounts on deposit in the
Principal Account until such time as payment is made to Persons entitled
thereto.

                                       18
<PAGE>

       (c)  In the event that monies in the Principal Account exceed the amount
of money required by this Depositary Agreement to be deposited therein, the
Collateral Agent shall transfer such excess monies from the Principal Account to
the Revenue Account on the Business Day following the next Funding Date.

       Section 3.03.  Interest Account.

       (a)  Except as otherwise provided in this Depositary Agreement, monies
deposited in the Interest Account on any Funding Date shall be allocated ratably
among sub-accounts of the Interest Account established for the payment of
interest on (i) the Senior Secured Notes and (ii) any other outstanding
Permitted Indebtedness based on the interest with respect to the Senior Secured
Notes or such other outstanding Permitted Indebtedness when due and payable
(whether at the Interest Payment Date or otherwise).

       (b) On any date that amounts for the payment of interest on the Senior
Secured Notes and any other Permitted Indebtedness are due and payable and for
which a Withdrawal Certificate has been delivered in accordance with Section
3.01(c) (or if such day is not a Business Day, then on the next succeeding
-------
Business Day), the Collateral Agent shall withdraw the monies on deposit in the
relevant sub-account of the Interest Account, and remit such monies to the
Persons entitled thereto for the payment of such interest, as requisitioned
pursuant to Section 3.01(c); provided, however, that the Collateral Agent shall
                    -------
segregate such amounts from any other amounts on deposit in the Interest Account
until such time as payment is made to Persons entitled thereto.

       (c)  In the event that monies in the Interest Account exceed the amount
of money required by this Depositary Agreement to be deposited therein, the
Collateral Agent shall transfer such excess monies from the Interest Account to
the Revenue Account on the Business Day following the next Funding Date.

       Section 3.04.  Debt Service Reserve Account.

       (a)  The Debt Service Reserve Account shall be funded as of the date of
this Depositary Agreement with proceeds from the sale of the Senior Secured
Notes in the amount equal to the Debt Service Reserve Required Balance.  At any
time thereafter, the Issuer may replace amounts in the Debt Service Reserve
Account with a Debt Service Reserve Letter of Credit having a stated amount
equal to the amount being withdrawn from the Debt Service Reserve Account. These
deposits, in conjunction with the Debt Service Reserve Letter of Credit, if any,
will be available to the Collateral Agent to transfer to the applicable Account
in the event the Revenue Account, the

                                       19
<PAGE>

Principal Account and the Interest Account lack sufficient funds on a Payment
Date to meet payments of principal, premium, if any and interest on the Senior
Secured Notes.

       (b)  If Issuer elects to replace amounts in the Debt Service Reserve
Account with a Debt Service Reserve Letter of Credit, Issuer shall provide to
the Collateral Agent an unconditional, irrevocable direct-pay letter of credit,
issued in a stated amount equal to the amount replaced in the Debt Service
Reserve Account.  The Debt Service Reserve Letter of Credit shall be for the
benefit of the Collateral Agent, naming the Collateral Agent, on behalf of the
Trustee and the holders of the Senior Secured Notes as the beneficiary and
containing customary terms and provisions, including a provision that (i) such
letter of credit shall automatically renew upon the expiration thereof unless,
at least sixty (60) days prior to such expiration, the issuer thereof shall
provide the Collateral Agent with a notice of non-renewal of such letter of
credit and (ii) there are no conditions to drawing other than that any documents
required to be delivered in connection therewith comply on their face with the
requirements thereof.

       (c)  At any time that the sum of the amount available to be drawn under
the Debt Service Reserve Letter of Credit plus the amount then on deposit in the
Debt Service Reserve Account is less than the Debt Service Reserve Required
Balance, funds shall be accumulated in the Debt Service Reserve Account from
cash available from, and in the following order of priority:

            (i)   transfers from the Revenue Account, as provided under Section
       3.01(c);
       ------

            (ii)  net interest, if any, earned on amounts deposited in the Debt
       Service Reserve Account; and

            (iii) amounts then on deposit in the Subordinated User Charge
       Account.

       (d)  In the event that the Debt Service Reserve Required Balance is
reached, (i) all interest income on amounts in the Debt Service Reserve Account
and other amounts in excess of the Debt Service Reserve Required Balance shall
be transferred, on a daily basis, to the Revenue Account and (ii) the sum of the
amount available to be drawn under the Debt Service Reserve Letter of Credit may
be reduced so long as the reduced amount available to be drawn under the Debt
Service Reserve Letter of Credit plus the amount then on deposit in the Debt
Service Reserve Account is equal to or greater than the Debt Service Reserve
Required Balance.

                                       20
<PAGE>

       (e)  In addition to and without limiting the foregoing, the Debt Service
Reserve Letter of Credit (i) shall have an initial expiration date of at least
one (1) year beyond the date of issuance, (ii) except as set forth in Section
3.02(b) or Section 3.03(b), shall not obligate the Collateral Agent to make any
-------            -------
reimbursement or any other payment to the issuer or otherwise with respect
thereto, or provide the issuer or any other Person with any claim against the
Collateral Agent, the Trustee or the holders of the Senior Secured Notes,
whether for costs of maintenance, reimbursement of amounts drawn thereunder or
otherwise and (iii) shall be issued by a financial institution whose long-term
debt is rated at least "A" or equivalent by S&P and Moody's.

       Section 3.05.  Gas Reserve Account. (a) The Gas Reserve Account shall be
funded in accordance with the provisions set forth in Section 3.05(b) of this
                                                              -------
Depositary Agreement. Funds in the Gas Reserve Account shall be transferred to
the Revenue Account as set forth in a Withdrawal Certificate and as certified in
such Withdrawal Certificate to be the good faith estimate of full costs payable
by the Issuer within the 30 days following such transfer.

       (b)  At any time that the sum of the amount on deposit in the Gas Reserve
Account is less than the Gas Reserve Required Balance, funds shall be
accumulated in the Gas Reserve Account from cash available from, and in the
following order of priority:

            (i)   transfer from the Reserve Account, as provided under Section
       3.01(c); and
       -------

            (ii)  net interest, if any, earned on amounts deposited in the Gas
       Reserve Account; and

            (iii) amounts then on deposit in the Subordinated Asset Management
       Fee Account (after giving effect to any funding of the Debt Service
       Reserve Account pursuant to Section 3.04(c)(iii)).

       (c)  In the event that the Gas Reserve Required Balance is reached, all
interest income on amounts in the Gas Reserve Account and other amounts in
excess of the Gas Reserve Required Balance shall be transferred, on a daily
basis, to the Revenue Account.

       Section 3.06.  Capital Expenditure Reserve Account.

       (a)  The Capital Expenditure Reserve Account shall be funded as of the
date of this Depositary Agreement with proceeds from the sale of the Senior
Secured Notes

                                       21
<PAGE>

in the amount equal to the Capital Expenditure Reserve Required Balance.
Thereafter, the Capital Expenditure Reserve Account shall be funded from amounts
available therefor pursuant to the priority of payments specified in such
Section 3.01(c) in accordance with (i) the provisions set forth in Section
        ------
3.01(c) of this Depositary Agreement and (ii) the Operating Budget and schedules
-------
thereto approved by the Independent Engineer prior to the end of each calendar
year (and, in good faith, so as to implement even monthly contributions) or with
such variation from such Operating Budget and schedules as the Issuer certifies
to the Trustee and the Collateral Agent is reasonable and necessary and in
accordance with prudent industry practice. Amounts on deposit in the Capital
Expenditure Reserve Account shall be used for Capital Expenditures for which a
Withdrawal Certificate has been delivered to the Collateral Agent certifying
that such Capital Expenditures are to be made in accordance with prudent
industry practice and the Operating Budget and as may be required pursuant to
the terms of the Indenture.

       (b)  At any time that the sum of the amount on deposit in the Capital
Expenditure Reserve Account is less than the Capital Expenditure Reserve
Required Balance, funds shall be accumulated in the Capital Expenditure Reserve
Account from cash available from:

            (i)   transfers from the Revenue Account, as provided under Section
       3.01(c);
       -------

            (ii)  net interest, if any, earned on amounts deposited in the
       Capital Expenditure Reserve Account; and

            (iii) amounts then on deposit in the Subordinated Asset Management
       Fee Account (after giving effect to any funding of the Debt Service
       Reserve Account pursuant to Section 3.04(c)(iii) and after giving effect
       to any funding of the Gas Reserve Account pursuant to Section
       3.05(b)(iii)).

       (c)  In the event that the Capital Expenditure Reserve Required Balance
is reached, all interest income on amounts in the Capital Expenditure Reserve
Account and other amounts in excess of the Capital Expenditure Required Balance
shall be transferred, on a daily basis, to the Revenue Account; provided,
however, that any such excess arising solely as a consequence of a reduction of
the Capital Expenditure Reserve Required Balance by operation of clause (2) of
the definition thereof shall be transferred as specified in a Withdrawal
Certificate of the Issuer; provided that there shall have been filed with the
Collateral Agent a Certificate of the Independent Engineer or an Independent
Expert (as defined in Section 6.14) certifying as to the amount of such
                              ----
reduction.

                                       22
<PAGE>

       Section 3.07. Subordinated Asset Management Fee Account. The Subordinated
Asset Management Fee Account shall be funded in accordance with the provisions
set forth in Section 3.01(c) of this Depositary Agreement. Funds in the
                     -------
Subordinated Asset Management Fee Account shall be used for the payment of
Subordinated Asset Management Fees due and owing under the Asset Management
Agreement as specified in a Withdrawal Certificate of the Issuer.

       In addition, funds in the Subordinated User Charge Account shall be
transferred to the Debt Service Reserve Account, the Gas Reserve Account and the
Capital Expenditure Reserve Account under the circumstances set forth in
Sections 3.04, 3.05 and 3.06, respectively, of this Depositary Agreement.
         ----  ----     ----

       Section 3.08.  Distribution Account.

       (a) On any Business Day that all of the conditions set forth in Section
3.08(b) are satisfied, the Collateral Agent shall make payment from the
-------
Distribution Account but from no other Account to such Persons as may be
directed in writing by the Issuer; provided that payments from the Distribution
Account shall be made no more frequently than once every six months.

       (b) The Distribution Account will be funded from monies transferred from
the Revenue Account after all other then-required amounts have been transferred
as provided in Section 3.01(c). Restricted Payments may be made only from and to
                       -------
the extent of monies on deposit in the Distribution Account. Such Restricted
Payments are subject to the prior satisfaction of the following conditions:

            (i)   the amount then on deposit in the Principal Account shall be
       equal to or greater than the aggregate payments of principal and premium,
       if any, due on the Senior Secured Notes on the next succeeding Principal
       Payment Date and on other outstanding Permitted Indebtedness within the
       succeeding six-month period;

            (ii)  the amount then on deposit in the Interest Account shall be
       equal to or greater than the aggregate payments of interest due on the
       Senior Secured Notes on the next succeeding Interest Payment Date and on
       other outstanding Permitted Indebtedness within the succeeding six-month
       period;

            (iii) (A) the amount available to be drawn under the Debt Service
       Reserve Letter of Credit plus the amount on deposit in the Debt Service
       Reserve Account equals or exceeds the Debt Service Reserve Required

                                       23
<PAGE>

       Balance, (B) the amount on deposit in the Gas Reserve Account equals or
       exceeds the Gas Reserve Required Balance and (C) the amount on deposit in
       the Capital Expenditure Reserve Account equals or exceeds the Capital
       Expenditure Reserve Required Balance;

            (iv)   no Default or Event of Default under the Indenture shall have
       occurred and be continuing;

            (v)    the Debt Service Coverage Ratio for the most recently ended
       four full fiscal quarters for which internal financial statements are
       available immediately preceding the date on which such distribution is to
       be made (or in the case of any proposed distribution date prior to the
       date on which internal financial statements are available for a period of
       four full fiscal quarters after the Closing Date, the Debt Service
       Coverage Ratio for the period commencing on the Closing Date and ending
       on the last date of the most recently ended month for which internal
       financial statements are available immediately preceding the date on
       which such distribution is to be made) is equal to or greater than 1.40
       to 1 in the opinion of the Independent Engineer;

            (vi)   the projected Debt Service Coverage Ratio for the next
       succeeding four full fiscal quarters is equal to or greater than 1.40 to
       1 in the opinion of the Independent Engineer;

            (vii)  the amount then on deposit in the Revenue Account, after
       giving effect to the payment of such distributions, is at least $1.0
       million;

            (viii) either (i) the average of the "Market Price" (as defined in
       the Indexed Swap Agreement) for preceding six months is less than 80% of
       the then applicable "Indexed Contract Price" (as so defined) or (ii) if
       the average Market Price for such period equals or exceeds 80% of the
       then applicable Indexed Contract Price, then the average operating
       availability for the immediately preceding four fiscal quarters for which
       such information is available and the projected operating availability
       for the next succeeding for fiscal quarters are, in each case, at least
       94.61% in the opinion of the Independent Engineer; and

            (ix)   there are no pending or threatened actions or proceedings of
       any kind, including actions or proceedings of or before any Governmental
       Authority, that could, if determined adversely, have a Material Adverse
       Effect.

                                       24
<PAGE>

The Collateral Agent may conclusively rely on such certificate of a Responsible
Officer certifying that all conditions for disbursement from the Distribution
Account have been met except that the Independent Engineer must certify as to
the satisfaction of the conditions set forth in clauses (v), (vi) and (viii) to
the extent therein provided.

       Section 3.09. Distribution Suspense Account. On any Funding Date on which
any of the conditions precedent to Restricted Payments in Section 3.08(b) have
                                                                  -------
not been satisfied, the Collateral Agent shall transfer all monies held in the
Distribution Account to the Distribution Suspension Account. On any Business Day
thereafter on which the conditions to Restricted Payments set forth in Section
3.08(b) are satisfied, upon delivery to the Trustee and the Collateral Agent of
-------
a certificate of a Responsible Officer of the Issuer certifying that all such
conditions to Restricted Payments are now satisfied, the Collateral Agent shall
withdraw and transfer all monies in the Distribution Suspense Account to the
Distribution Account and then to such Persons as may be directed in writing by
the Issuer. The Collateral Agent may conclusively rely on such certificate of a
Responsible Officer of the Issuer certifying that all conditions for
disbursement from the Distribution Account have been met. At any time that funds
in the Revenue Account are not sufficient to pay any amounts which are due and
payable and required to be paid with proceeds of the Revenue Account, then funds
in the Distribution Suspense Account shall be transferred to the Revenue Account
for distribution as provided therein.

     Section 3.10.  Loss Proceeds Account.

            (i)   All Loss Proceeds and Eminent Domain Proceeds received by the
     Issuer shall be deposited in the Loss Proceeds Account. The Collateral
     Agent shall separately segregate such Loss Proceeds and Eminent Domain
     Proceeds for distribution in the manner as set forth below:

                  (A) All costs, if any, incurred by the Collateral Agent or the
            Trustee in connection with any negotiation, action or proceeding to
            collect the Loss Proceeds or Eminent Domain Proceeds in question
            shall be withdrawn by the Collateral Agent and paid to the
            Collateral Agent or the Trustee, as applicable (or reimbursed to the
            extent the same have been paid or satisfied by the Issuer; provided
            that no less than three Business Days prior to any such withdrawal a
            Responsible Officer of the Collateral Agent or the Trustee, as
            applicable, shall provide the Issuer with a certificate with the
            relevant invoices, receipts or other documentation attached
            indicating the aggregate amount of costs actually incurred in
            connection with any of the negotiations, actions or proceedings
            described above;

                                       25
<PAGE>

                  (B)  In the event that the Issuer determines that the Project
            cannot be rebuilt, repaired or restored to permit operation of all
            or a portion of the Project on a commercially reasonable basis
            following an Event of Eminent Domain or Event of Loss, or that the
            Loss Proceeds or the Eminent Domain Proceeds together with any other
            amounts available to the Issuer for such rebuilding, repair or
            restoration are not sufficient to permit such rebuilding, repair or
            restoration, upon delivery to the Collateral Agent and Trustee of a
            certificate of a Responsible Officer of the Issuer (containing
            customary assumptions and qualifications and information concerning
            the amount of Loss Proceeds or Eminent Domain Proceeds to be
            transferred to the Redemption Account) certifying to the foregoing
            and specifying the amount of the Loss Proceeds or Eminent Domain
            Proceeds, as applicable. Upon receipt of such certificate from the
            Issuer, the Collateral Agent shall withdraw, transfer or distribute
            the monies representing the Loss Proceeds or the Eminent Domain
            Proceeds in the Loss Proceeds Account to the Redemption Account.

                  (C)  In the event that the Issuer determines not to rebuild,
            repair or restore the Project following an Event of Eminent Domain
            or Event of Loss, upon delivery to the Collateral Agent and Trustee
            of a certificate of a Responsible Officer of the Issuer certifying
            that the Issuer has determined not to rebuild, repair or restore the
            affected Project and information concerning the amount of Loss
            Proceeds or Eminent Domain Proceeds to be transferred to the
            Redemption Account. If only a portion of the Project is capable of
            being rebuilt or replaced, the Issuer shall deliver to the
            Collateral Agent and the Trustee certificate setting forth the
            amount of the Loss Proceeds or the Eminent Domain Proceeds in excess
            of the cost of repairing or replacing the Project. Upon receipt of
            the certificate, the Collateral Agent shall withdraw, transfer or
            distribute the monies representing the excess Loss Proceeds or the
            excess Eminent Domain Proceeds in the Loss Proceeds Account to the
            Redemption Account.

                  (D)  (1) In the event that the Issuer has determined to
            rebuild, repair or restore all or a portion of the Project, upon
            delivery to the Collateral Agent and Trustee of a certificate of a
            Responsible Officer of the Issuer certifying that all or a portion,
            as applicable, of the Project will be rebuilt, repaired or restored,
            the Collateral Agent shall transfer the applicable Loss

                                       26
<PAGE>

            Proceeds or Eminent Domain Proceeds, as the case may be, in the Loss
            Proceeds Account to the Restoration Sub-Account. Amounts held in the
            Restoration Sub-Account shall be applied solely for the payment of
            the cost of rebuilding, restoration or repair of the Project as set
            forth below or as otherwise contemplated herein. If the amount
            deposited in the Restoration Sub-Account with respect to a
            particular Event or Loss or Event of Eminent Domain exceeds
            $1,000,000, the Issuer shall deliver to the Collateral Agent and the
            Trustee (x) a restoration budget with respect to such Event of Loss
            or Event of Eminent Domain (as amended, modified or supplemented
            from time to time, the "Restoration Budget") prepared by the Issuer
            identifying all categories and approximate amounts reasonably
            anticipated to be incurred in connection with the rebuilding,
            restoration or repair, together with a statement of uses of proceeds
            of the Restoration Sub-Account and any other monies necessary to
            complete the rebuilding, restoration or repair and (y) a restoration
            progress payment schedule with respect to such Event of Loss or
            Event of Eminent Domain (as amended, modified or supplemented from
            time to time, the "Restoration Progress Payment Schedule")
            determined by the Issuer for the projected requisitions to be made
            from the Restoration Sub-Account.

                       (2)  Before any withdrawal or transfer shall be made from
            the Restoration Sub-Account, there shall be filed with the
            Collateral Agent with respect to each Funding Date:

                            (I)  a requisition from the Issuer substantially in
                       the form attached hereto as Exhibit B (a "Restoration
                       Requisition"), dated not more than three Business Days
                       prior to such Funding Date as set forth therein on which
                       such withdrawal and transfer is requested to be made,
                       signed by a Responsible Officer of the Issuer;

                            (II) if the amount deposited in the Restoration Sub-
                       Account with respect to any Event of Loss or Event of
                       Eminent Domain in question exceeds $1,000,000, an
                       Independent Engineer's Certificate in the form attached
                       hereto as Appendix I to Exhibit B,

                                       27
<PAGE>

               dated not more than three Business Days prior to the Funding
               Date;

                    (III) if clause (II) above does not apply, the Restoration
               Requisition shall so state; and

                    (IV)  a certification by the Title Company dated the Funding
               Date to the effect that there are then no mechanics', workmen's,
               materialmen's, supplier's, construction or other like Liens filed
               of record against the Project, except such that are referred to
               in clauses (a) and (b) of paragraph 7 of Exhibit B hereto.

               (3)  On the Funding Date referred to in Section 3.10(i)(D)(2) or
          as soon thereafter as practicable following receipt of the documents
          described in Sections 3.10(i)(D)(2)(I) through (III) above, the
          Collateral Agent shall withdraw and transfer from the Restoration Sub-
          Account and shall pay to the Issuer or to Persons directed by it in
          writing the amounts set forth in the Restoration Requisition.

               (4)  Upon completion of any rebuilding, restoration or repair of
          all or a portion of the Project, there shall be filed with the
          Collateral Agent and the Trustee a certificate of a Responsible
          Officer of the Issuer certifying that the completion of the
          rebuilding, restoration or repair has been performed in accordance
          with standard industry practices and the amount, if any, required in
          its opinion to be retained in the Restoration Sub-Account for the
          payment of any remaining costs of rebuilding, restoration or repair
          not then due and payable or the liability for payment of which is
          being contested or disputed by the Issuer and for the payment of
          reasonable contingencies following completion of the rebuilding,
          restoration or repair. Upon receipt of such certificate of a
          Responsible Officer, the Collateral Agent shall transfer first the
          amount remaining in the Restoration Sub-Account in excess of the
          amounts to remain in the Restoration Sub-Account as stated in the
          certificate of a Responsible Officer of the Issuer, to the Issuer or
          to Persons directed by the Issuer in writing to the extent of any
          amounts which have been expended in connection with such rebuilding,
          restoration or repair (as set forth in such certificate of a

                                       28
<PAGE>

          Responsible Officer) and not previously reimbursed and second,
          segregate the remaining excess in the Restoration Sub-Account from any
          other amounts therein. The Collateral Agent shall transfer any monies
          remaining in the Restoration Sub-Account after the application of the
          monies therein as provided in the preceding two sentences to the
          Redemption Account for application pursuant to Section 3.11.
                                                                 ----
          Thereafter, upon receipt of a certificate of a Responsible Officer of
          the Issuer certifying payment of all costs of rebuilding, restoration
          or repair of the Project, the Collateral Agent shall transfer any
          amounts remaining in the Restoration Sub-Account to the Revenue
          Account. Any monies retained in the Restoration Sub-Account pursuant
          to the first sentence of this paragraph (4) and not used for the
          purposes set forth in said sentence within one (1) year shall be
          transferred to the Redemption Account for application pursuant to
          Section 3.11.

          (E)  Notwithstanding the foregoing, if an Event of Default has
     occurred and is continuing, (1) the Collateral Agent may at its option (and
     without obligation to do so) use the Loss Proceeds and Eminent Domain
     Proceeds held by it to pay for the cost of restoration, rebuilding or
     repair effect by the Collateral Agent; and (2) at the direction of the
     Trustee shall transfer all Loss Proceeds and Eminent Domain Proceeds then
     held by it (or so much thereof as the Trustee shall direct) to the
     Redemption Account for application as provided in Section 3.11.

     (ii) All Title Event Proceeds received by the Issuer shall be paid to the
Collateral Agent.  All Title Event Proceeds received by the Collateral Agent
shall be deposited in the Loss Proceeds Account.  The Collateral Agent shall
separately segregate such Title Event Proceeds for distribution in the manner
set forth below:

          (A)  All costs, if any, incurred by the Collateral Agent or the
     Trustee in connection with any negotiation, retain or proceeding to collect
     the Title Event Proceeds in question shall be withdrawn by the Collateral
     Agent and paid to the Collateral Agent or the Trustee, as applicable (or
     reimbursed to the extent the same have been paid or satisfied by the
     Issuer); provided that no less than three Business Days prior to any such
     withdrawal a Responsible Officer of the Collateral Agent or the Trustee, as
     applicable, shall provide the Issuer with a

                                       29
<PAGE>

     certificate with the relevant invoices, receipts or other documentation
     attached, indicating the aggregate amount of costs actually incurred in
     connection with any of the negotiations, actions or proceedings described
     above;

          (B)  Title Event Proceeds in respect of any particular Title Event
     remaining following the withdrawal of any amounts pursuant to paragraph (A)
     above shall be applied in an effort to remedy the Title Event and for
     payment of expenses incurred in connection therewith, as set forth below.

          (C)  Except for amounts withdrawn pursuant to Section 3.10(ii)(A)
     above, before any withdrawal and transfer shall be made from the Title
     Event Sub-Account, there shall be filed with the Collateral Agent and the
     Trustee with respect to each Funding Date a requisition from the Issuer
     substantially in the form attached hereto as Exhibit C (a "Title Event
     Requisition"), dated not more than three Business Days prior to such
     Funding Date as set forth therein on which such withdrawal and transfer is
     requested to be made, signed by a Responsible Officer of the Issuer.

          (D)  On the Funding Date referred to in Section 3.10(ii)(C) or as soon
     thereafter as practicable following receipt of the Title Event Requisition
     described in Section 3.10(ii)(C) above, the Collateral Agent shall withdraw
     and transfer from the Title Event Sub-Account and shall pay to the Issuer
     or Persons directed by the Issuer in writing the amounts set forth in such
     Title Event Requisition.

          (E)  Upon completion of the effort to remedy the Title Event there
     shall be filed with the Collateral Agent and the Trustee a certificate of a
     Responsible Officer of the Issuer certifying the result of the effort to
     remedy the Title Event and the amount, if any, required in its opinion to
     be retained in the Title Event Sub-Account for the payment of any remaining
     expenses. Upon receipt of the documents described in the immediately
     preceding sentence, the Collateral Agent shall, first, transfer the amount
     remaining in the Title Event Sub-Account in excess of the amounts to remain
     in the Title Event Sub-Account as stated in the certificate of a
     Responsible Officer of the Issuer, to the Issuer or Persons directed by it
     in writing to the extent of any amounts expended in connection with such
     effort to remedy and not previously reimbursed and second, segregate the
     remainder in the Title Event Sub-

                                       30
<PAGE>

          Account from any other amounts therein. The Collateral Agent shall
          transfer any monies remaining in the Title Event Sub-Account after
          application of the monies therein as provided in the preceding
          sentence to the Redemption Account for application pursuant to Section
          3.11. Thereafter, upon receipt of a certificate of a Responsible
          ----
          Officer of the Issuer certifying payment of all costs of remedying the
          Title Event, the Collateral Agent shall transfer any amounts remaining
          in the Title Event Sub-Account to the Revenue Account. Any monies
          retained in the Title Event Sub-Account pursuant to the first sentence
          of this paragraph E and not used for the purposes set forth in said
          sentence within one (1) year shall be transferred to the Redemption
          Account for application pursuant to Section 3.11.

               (F)  Notwithstanding the foregoing, if an Event of Default has
          occurred and is continuing, (1) the Collateral Agent may at its option
          (and without obligation to do so) use the Title Event Proceeds held by
          it to pay for the cost of curing the Title Event in question; and (2)
          at the direction of the Trustee shall transfer all Title Event
          Proceeds then held by it (or so much thereof as the Trustee shall
          direct) to the Redemption Account for application pursuant to Section
          3.11.

               (G)  Notwithstanding the foregoing, any Title Event Proceeds
          payable with respect to any New York mortgage recording tax with
          respect to the First Mortgage and any penalties and interest relating
          thereto shall be used solely to pay such mortgage recording tax,
          penalties and interest.

       Section 3.11.  Redemption Account.

       (a)  The following amounts shall be deposited into the Redemption Account
directly, or if received by the Issuer, as soon as practicable upon receipt, in
either case in accordance with this Section 3.11(a), to the extent such amounts
                                            -------
are available for redemption of Senior Secured Notes under the Indenture:

               (i)    certain amounts from the Loss Proceeds Account received by
          the Issuer in connection with an Event of Loss, an Event of Eminent
          Domain or a Title Event, to the extent such amounts are required to be
          transferred to the Redemption Account in accordance with Section 3.10;
                                                                           ----
               (ii)   certain amounts received in connection with a Contract
          Termination Event; and

                                       31
<PAGE>

               (iii)  proceeds received as a result of foreclosure on the
          Collateral securing the obligations of the Issuer following an Event
          of Default under the Indenture.

          If any of the foregoing amounts required to be deposited with the
     Collateral Agent in the Redemption Account are received by the Issuer (or
     any Affiliate of the Issuer) the Issuer shall (or shall cause any such
     Affiliate to) hold such payments in trust for the Trustee and shall
     promptly remit such payments to the Collateral Agent for deposit in the
     Redemption Account, in the form received, with any necessary endorsements.

          (b)  The Collateral Agent shall ledger the amounts referred to in
     Sections 3.11(a)(i) through (iii) above for distribution in the manner set
              ----------
     forth below:

               (i)    Upon the receipt of those amounts described in Section
          3.11(a)(i) or 3.11(a)(ii), the Collateral Agent shall so notify the
          ----------
          Trustee, and shall separately segregate such monies. The Collateral
          Agent shall withdraw, transfer or distribute the amounts described in
          Section 3.11(a)(i) or 3.11(a)(ii) no later than one Business Day
                  ----------
          prior to the Redemption Date established pursuant to Section 3.01 of
                                                                       ----
          the Indenture, provided, however, that if funds in the Loss Proceeds
          Account are insufficient on any date to make the payments specified in
          this clause (i), distribution of funds shall be made ratably to the
          specified recipients based on the respective amounts owed such
          recipients.

               (ii)   Upon the receipt of those amounts described in Section
          3.11(a)(iii), the Collateral Agent shall so notify the Trustee, and
          ------------
          separately ledger such monies. The Collateral Agent shall withdraw,
          transfer or distribute the amounts described in Section 3.11(a)(iii)
          as directed by the Trustee hereof for the payments described in
          Section 5.10 of the Indenture.

          Section 3.12.  Investment of Accounts. Monies held in any Account
     created by and held under this Depositary Agreement shall be invested and
     reinvested in Permitted Investments at the written direction (which may be
     in the form of a standing instruction) of a Responsible Officer of the
     Issuer; provided, however, that at any time when (a) a Responsible Officer
     of the Collateral Agent has received written notice that an Event of
     Default under the Indenture shall have occurred and be continuing or (b) a
     Responsible Officer of the Issuer has not timely furnished such a written
     direction or, after a request by the Collateral Agent, has not so confirmed
     a standing instruction to the Collateral Agent, the Collateral Agent shall
     invest such monies only in Permitted Investments described in clause (viii)
     of such definition of a maturity of thirty days or

                                       32
<PAGE>

     less. Such investments shall mature in such amounts and have maturity dates
     or be subject to redemption at the option of the holder thereof on or prior
     to maturity as needed for the purposes of such Accounts, but in no event
     shall such investments mature more than one year after the date acquired.
     The Collateral Agent shall at any time and from time to time liquidate any
     or all of such investments prior to their maturity as needed in order to
     effect the transfers and withdrawals contemplated by this Depositary
     Agreement in accordance with a certificate of a Responsible Officer of the
     Issuer; provided that, in the absence of timely receipt of such
     certificate, the Collateral Agent shall liquidate any or all such
     investments as so needed in such manner as will minimize, to the extent
     reasonably practicable, the costs, penalties and losses associated with
     such liquidation. Any income or gain realized from such investments shall
     be deposited into the Revenue Account. Any loss shall be charged to the
     applicable Account. Except as otherwise provided in this Section 3.12, the
                                                                      ----
     Collateral Agent shall have no obligation to invest and reinvest any cash
     held in the Accounts in the absence of timely and specific written
     investment direction from the required party. Other than by reason of its
     willful misconduct or gross negligence, the Collateral Agent shall not be
     liable for the selection of investments or for investment losses incurred
     thereon. Other than by reason of its willful misconduct or negligence, the
     Collateral Agent shall have no liability in respect of losses incurred as a
     result of the liquidation of any investment prior to its stated maturity or
     the failure of the required party to provide timely written investment
     direction. For purposes of any income tax payable on account of any income
     or gain on an investment, such income or gain shall be for the account of
     the Issuer.

          Section 3.13.  Disposition of Accounts upon Retirement of Senior
     Secured Notes.

          (a)  Upon the payment in full of the principal, premium, if any, and
     interest on the Senior Secured Notes such that the Senior Secured Notes are
     no longer outstanding, all amounts held in the Interest Account, the
     Principal Account and the Debt Service Reserve Account allocated to the
     Senior Secured Notes, as the case may be, shall upon the written direction
     of the Issuer be transferred to the Revenue Account.

          (b)  Upon termination of the Indenture and after payment in full of
     the principal of, premium, if any, and interest on and all other amounts
     due in respect of all the additional Senior Indebtedness, all Senior
     Secured Notes Outstanding and after payment in full of all Administrative
     Costs, and all other Secured Obligations, all amounts remaining in any
     Account established in Section 2.02 shall be paid by the Collateral Agent
                                    ----
     to the Issuer.

                                       33
<PAGE>

          Section 3.14.  Account Balance Statements. The Collateral Agent shall,
     on a monthly basis and at such other times as the Trustee or the Issuer may
     from time to time reasonably request, provide to the Trustee and the
     Issuer, statements in respect of each of the Accounts, sub-accounts and
     amounts segregated in any of the Accounts showing the Account balance,
     amount of all receipts, the net investment income or gain received and
     collected and shall also include withdrawals and transfers from and to any
     Account and sub-accounts.

          Section 3.15.  Events of Default.

          (a)  On and after any date on which the Collateral Agent receives
     written notice from the Trustee pursuant to Section 5.01 of the Indenture
                                                         ----
     that an Event of Default has occurred under the Indenture (the date of
     receipt of such notice, the "Trigger Event Date"), the Collateral Agent
     shall thereafter accept all notices and instructions required to be given
     to the Collateral Agent pursuant to the terms of this Depositary Agreement
     only from the Trustee and not from any other Person and the Collateral
     Agent shall not withdraw, transfer, pay or otherwise distribute any monies
     in any of the Accounts except pursuant to such notices and instructions
     from the Trustee unless such Event of Default has been waived pursuant to
     Section 5.04 of the Indenture or cured, in which event the terms of this
     provision will be inapplicable to such Event of Default.

          (b)  On the Trigger Event Date, the Collateral Agent shall render an
     accounting of all monies in the Accounts as of the Trigger Event Date to
     the Trustee.

          (c)  On and after the Trigger Event Date, the Collateral Agent shall
     distribute all money then held in any Account to the Trustee. The proceeds
     of any sale, disposition or other realization with respect to Collateral
     shall be applied in the order of priorities specified in Section 5.10 of
     the Indenture, as directed by the Trustee.

          Section 3.16.  Accounts Maintained as UCC "Securities Accounts".  The
     Securities Intermediary hereby agrees and confirms that it has established
     the Accounts as set forth and defined in this Depositary Agreement. The
     Securities Intermediary agrees that (i) each such Account established by
     the Securities Intermediary is and will be maintained as a "securities
     account" (within the meaning of Section 8-501 of the Uniform Commercial
     Code as adopted in the State of New York (the "UCC"); (ii) the Issuer is an
     "entitlement holder" (within the meaning of Section 8-102(a)(7) of the UCC)
     in respect of the "financial assets" (within the meaning of Section
     8-102(a)(9) of the UCC, the "Financial Assets") credited to such accounts;
     (iii) all Financial Assets in registered form or payable to or to order and
     credited to any such Account shall be registered in the name of, payable to
     or to the order of, or specially endorsed to, the

                                       34
<PAGE>

     Securities Intermediary or in blank, or credited to another securities
     account maintained in the name of the Securities Intermediary, and in no
     case will any Financial Asset credited to any such Account be registered in
     the name of, payable to or to the order of, or endorsed to, the Issuer
     except to the extent the foregoing have been subsequently endorsed by the
     Issuer to the Securities Intermediary or in blank. Each item of property
     (including a security, security entitlement, investment property,
     instrument or obligation, share, participation, interest or other property
     whatsoever) credited to any Account shall be treated as a Financial Asset.
     Until this Depositary Agreement shall terminate in accordance with the
     terms hereof, the Collateral Agent shall have "control" (within the meaning
     of Section 8-106(d)(2) of the UCC) of the Issuer's "security entitlements"
     (within the meaning of Section 8-102(a)(17) of the UCC) with respect to the
     Financial Assets credited to the Accounts. All property delivered to the
     Securities Intermediary pursuant to this Depositary Agreement will be
     promptly credited to the Accounts. If at any time the Securities
     Intermediary shall receive any order from the Collateral Agent on behalf of
     the Secured Parties directing transfer or redemption of any Financial Asset
     relating to any Account, the Securities Intermediary shall comply with such
     entitlement order without further consent by the Issuer or any other
     Person.

          Section 3.17.  Stipulation Reserve Account. The Stipulation Reserve
     Account will be funded as of the date of this Depositary Agreement with
     proceeds of the Senior Secured Notes in the amount of $3.0 million. Amounts
     on deposit to the Stipulation Reserve Account will be applied as certified
     in a Withdrawal Certificate of the Issuer to make payments to Kronish Lieb
     of amounts which it is entitled to receive from time to time under the
     Stipulation or to make provision for other payments to Kronish Lieb in
     respect of such amounts or Kronish Lieb's entitlement thereto, including
     payments for the extinguishment of Kronish Lieb's entitlement to payment of
     such amounts or the resolution of claims relating thereto and payments into
     the escrow arrangement described in the Covenant. If the Issuer provides a
     written certification to the Collateral Agent to the effect that the
     likelihood is remote that all or any part of the amount on deposit to the
     Stipulation Reserve Account will be required to make payments to Kronish
     Lieb of amounts which it is entitled to receive from time to time under the
     Stipulation or to make other payments to Kronish Lieb in respect of such
     amounts or Kronish Lieb's entitlement thereto, or if Kronish Lieb has
     consented in a writing, filed with the Collateral Agent, to the release of
     the amount on deposit in the Stipulation Reserve Account, then the
     Collateral Agent will distribute all or any such portion of the amounts on
     deposit as directed in a Withdrawal Certificate of the Issuer.

                                       35
<PAGE>

                                   Article 4

                               Collateral Agent

          Section 4.01. Appointment of Collateral Agent, Power and Immunities.
     The Trustee on behalf of and for the benefit of the Secured Parties, hereby
     appoints the Collateral Agent to act as its collateral agent hereunder and
     under the other Collateral Documents (as defined in the Indenture), with
     such powers as are expressly delegated to the Collateral Agent by the terms
     of this Depositary Agreement and the terms of the other Collateral
     Documents, together with such other powers as are reasonably incidental
     thereto, and the Issuer hereby consents to such appointment. The Collateral
     Agent shall not have any duties or responsibilities except those expressly
     set forth in this Depositary Agreement and the other Collateral Documents
     and no implied duties or covenants shall be read against the Collateral
     Agent. Without limiting the generality of the foregoing, the Collateral
     Agent shall take all actions as the Trustee shall direct it to perform in
     accordance with the express provisions of this Depositary Agreement or the
     other Collateral Documents or as the Trustee may otherwise direct it to
     perform in accordance with the provisions of this Depositary Agreement or
     the other Collateral Documents. Notwithstanding anything to the contrary
     contained herein, the Collateral Agent shall not be required to take any
     action which is contrary to this Depositary Agreement or the other
     Collateral Documents or applicable law. Neither the Collateral Agent nor
     any of its Affiliates shall be responsible to the Secured Parties for any
     recitals, statements, representations or warranties made by the Issuer
     contained in this Depositary Agreement or any other Project Document (as
     defined in the Indenture) or Financing Document (as defined in the
     Indenture) or in any certificate or other document referred to or provided
     for in, or received by the Trustee under, the Indenture, this Depositary
     Agreement or any other Project Document or Financing Document for the
     value, validity, effectiveness, genuineness, enforceability or sufficiency
     of this Depositary Agreement or any Project Document or Financing Document
     or any other document referred to or provided for herein or therein or for
     any failure by the Issuer to perform its obligations hereunder or
     thereunder. The Collateral Agent shall not be required to ascertain or
     inquire as to the performance by the Issuer of any of its obligations under
     the Indenture, any other Financing Document, this Depositary Agreement or
     any other document or agreement contemplated hereby or thereby. The
     Collateral Agent shall not be (a) required to initiate or conduct any
     litigation or collection proceeding hereunder or under any other Collateral
     Document or (b) responsible for any action taken or permitted to be taken
     by it hereunder or in connection with any other Collateral Document (except
     for its own gross negligence or willful misconduct). Except as otherwise
     provided under this Depositary Agreement and the other Collateral
     Documents, the Collateral Agent shall take action under this Depositary
     Agreement and the other Collateral Documents only as it shall be directed
     in writing. Whenever in the administration of this Depositary Agreement or
     any other

                                       36
<PAGE>

Collateral Document the Collateral Agent shall deem it necessary or desirable
that a factual matter be proved or established in connection with the Collateral
Agent taking, suffering or omitting to take any action hereunder, such matter
(unless other evidence in respect thereof is herein specifically prescribed) may
be deemed to be conclusively proved or established by a certificate of a
Responsible Officer of the Issuer, or the Trustee, if appropriate. The
Collateral Agent shall have the right at any time to seek instructions
concerning the administration of this Depositary Agreement or any other
Collateral Document from the Trustee, the Issuer or any court of competent
jurisdiction. If the payment by the Issuer of, or the right of any partner of
the Issuer to receive, any permitted distribution or other payment by the Issuer
to any of its partners, is disputed pursuant to any pending or threatened legal
proceeding, the Collateral Agent shall have the right to deposit the disputed
amount of such distribution or payment in an interest bearing escrow account
pending the final resolution of such dispute. The Collateral Agent shall have no
obligation to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder. The Collateral
Agent shall not be liable for any error of judgment made in good faith by an
officer or officers of the Collateral Agent, unless it shall be conclusively
determined by a court of competent jurisdiction that the Collateral Agent was
grossly negligent in ascertaining the pertinent facts. The Collateral Agent may
execute any of the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents, attorneys, custodians or nominees
appointed with due care, and shall not be responsible for any willful misconduct
or negligence on the part of, or for the supervision of, any agent, attorney,
custodian or nominee so appointed. Neither the Collateral Agent nor any of its
officers, directors, employees or agents shall be liable for any action taken or
omitted under this Depositary Agreement or any other Collateral Document or in
connection therewith except to the extent caused by the Collateral Agent's gross
negligence or willful misconduct, as determined by the final judgment of a court
of competent jurisdiction, no longer subject to appeal or review. The Collateral
Agent shall not be deemed to have knowledge of an Event of Default unless a
Responsible Officer of the Collateral Agent shall have received written notice
thereof.

     Section 4.02.  Reliance by Collateral Agent. The Collateral Agent shall be
entitled to conclusively rely upon and shall not be bound to make any
investigation into the facts or matters stated in any certificate, certificate
of a Responsible Officer of the Issuer, Independent Engineer's certificate,
Insurance Consultant's certificate, Trustee's certificate or any other notice or
document (including any cable, telegram, telecopy or telex) believed by it to be
genuine and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statement of legal counsel, independent accountants
and other experts selected by the Collateral Agent and shall have no liability
for its actions taken thereupon, unless due to the Collateral Agent's willful
misconduct or negligence. Without limiting the foregoing, the Collateral Agent

                                       37
<PAGE>

shall be required to make payments to the Secured Parties only as set forth
herein. The Collateral Agent shall be fully justified in failing or refusing to
take any action under this Depositary Agreement or any other Collateral Document
(i) if such action would, in the reasonable opinion of the Collateral Agent, be
contrary to applicable law or the terms of this Depositary Agreement or any
other Collateral Document, (ii) if such action is not specifically provided for
in this Depositary Agreement or any other Collateral Document, it shall not have
received any such advice or concurrence of the Trustee as it deems appropriate
or (iii) if, in connection with the taking of any such action that would
constitute an exercise of remedies under this Depositary Agreement or any other
Collateral Document (whether such action is or is intended to be an action of
the Collateral Agent of the Trustee), it shall not first be indemnified to its
satisfaction by the Secured Parties (other than the Trustee (in its individual
capacity) or the Collateral Agent (in its individual capacity) or any other
agent or trustee under any of the Financing Documents (in their respective
individual capacities)) against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Collateral Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Depositary Agreement or any other Collateral
Document in accordance with a request of the Trustee (to the extent that the
Trustee is expressly authorized to direct the Collateral Agent to take or
refrain from taking such action), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Secured Parties.

     Section 4.03.  Court Orders. The Collateral Agent is hereby authorized, in
its exclusive discretion, to obey and comply with all writs, orders, judgments
or decrees issued by any court or administrative agency affection any money,
documents or things held by the Collateral Agent. The Collateral Agent shall not
be liable to any of the parties hereto or any of the Secured Parties, their
successors, heirs or personal representatives by reason of the Collateral
Agent's compliance with such writs, orders, judgments or decrees,
notwithstanding such writ, order, judgment or decree is later reversed,
modified, set aside or vacated.

     Section 4.04.  Resignation or Removal. Subject to the appointment and
acceptance of a successor Collateral Agent as provided below, the Collateral
Agent may resign at any time by giving 30 days written notice thereof to the
Trustee and the Issuer, provided that in the event the Collateral Agent is also
the Collateral Agent and Trustee, it must also at the same time resign as
Collateral Agent and Trustee. The Collateral Agent may be removed at any time
with cause by the Trustee. Issuer shall have the right to remove the Collateral
Agent upon thirty (30) days' notice to the Trustee with or without cause,
effective upon the appointment of a successor Collateral Agent under this
Section 4.04, which is reasonably acceptable to the Trustee. In the event that
        ----
the Collateral Agent shall decline to take any action without first receiving

                                       38
<PAGE>

adequate indemnity from the Issuer or the Secured Parties, as the case may be
and, having received an indemnity, shall continue to decline to take such
action, the Trustee shall be deemed to have sufficient cause to remove the
Collateral Agent. In the event that the Collateral Agent is also the Trustee,
the Trustee shall have the right to remove the Collateral Agent with or without
cause. Upon any such resignation or removal, the Issuer shall have the right to
appoint a successor Collateral Agent, which Collateral Agent shall be reasonable
acceptable to the Issuer.  If no successor Collateral Agent shall have been
appointed by the Issuer and shall have accepted such appointment within 30 days
after the retiring Collateral Agent's giving of notice of resignation or the
removal of the retiring Collateral Agent, then the retiring Collateral Agent may
appoint a successor Collateral Agent, which shall be a bank or trust company
reasonable acceptable to the Issuer.  Upon the acceptance of any appointment as
Collateral Agent hereunder by the successor Collateral Agent, (a) such successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Collateral Agent, and the
retiring Collateral Agent shall be discharged from its duties and obligations
hereunder and (b) the retiring Collateral Agent shall promptly transfer all
monies and Permitted Investments within its possession or control to the
possession or control of the successor Collateral Agent and shall execute and
deliver such notices, instructions and assignments as may be necessary or
desirable to transfer the rights of the Collateral Agent with respect to the
monies and Permitted Investments to the successor Collateral Agent. After the
retiring Collateral Agent's resignation or removal hereunder as Collateral
Agent, the provisions of Article IV and of Article V shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Collateral Agent. Any corporation into which the
Collateral Agent may be merged or converted or with which it may be consolidated
or any corporation resulting from any merger, conversion or consolidation to
which the Collateral Agent shall be a party, or any corporation succeeding to
the business of the Collateral Agent shall be the successor of the Collateral
Agent hereunder without the execution or filing of any paper with any party
hereto or any further act on the part of any of the parties hereto except where
an instrument of transfer or assignment is required by law to effect such
succession, anything herein to the contrary notwithstanding.

                                       39
<PAGE>

                                   Article 5

                        Expenses; Indemnification; Fees

     Section 5.01. Expenses. Subject to the terms of the agreement referenced in
Section 5.03, the Issuer agrees to pay or reimburse all reasonable out-of-pocket
        ----
expenses of the Collateral Agent (including reasonable fees and expenses for
legal services) in respect of, or incident to, the administration or enforcement
of any of the provisions of the Depositary Agreement or any other Collateral
Document or in connection with any amendment, waiver or consent relating to this
Depositary Agreement or any other Collateral Document.

     Section 5.02. Indemnification. The Issuer agrees to indemnify the
Collateral Agent in its capacity as such, and in their capacity as such, its
officers, directors, shareholder, controlling persons, employees, agents and
servants (each an "Indemnified Party") from and against any and all claims,
losses, liabilities and expenses (including the reasonable fees and expenses of
counsel) growing out of or resulting from this Depositary Agreement or any other
Collateral Document (including, without limitation, performance under or
enforcement of this Depositary Agreement or any other Collateral Document, but
excluding any such claims, losses or liabilities resulting from the Indemnified
Party's gross negligence or willful misconduct). This indemnity shall survive
the termination of this Depositary Agreement or any other Collateral Document,
and the resignation or removal of the Collateral Agent.

     Section 5.03. Fees. On the Closing Date, and on each anniversary of the
Closing Date to and including the Final Maturity Date, the Issuer shall pay the
Collateral Agent an annual fee in an amount mutually agreed on in a separate
agreement between the Issuer and the Collateral Agent. The payment of the
Collateral Agent's reasonable out-of-pocket expenses (including fees and expense
of counsel) for its administration of any provisions of this Depositary
Agreement or any other Collateral Document shall be subject to the terms of such
separate agreement.

                                   Article 6

                                 Miscellaneous

     Section 6.01.  Amendments; Etc. No amendment or waiver of any provision of
the Depositary Agreement nor consent to any departure by the Issuer herefrom
shall in any event be effective unless the same shall be in writing and signed
by the Trustee, the Collateral Agent and the Issuer. Any such amendment, waiver
or

                                       40
<PAGE>

consent shall be effective only in the specific instance and from the specified
purpose for which given.

     Section 6.02.  Addresses for Notices. All notices, requests and other
communication provided for hereunder shall be in writing and, except as
otherwise required by the provisions of the Depositary Agreement, shall be
sufficiently given and shall be deemed given when delivered or mailed by
registered or certified mail, postage prepaid, or sent by overnight delivery,
telecopy, telegram or telex, addressed to the parties as follows:

The Issuer:         Project Orange Associates, L.P.
                    c/o Scolaro, Shulman, Cohen, Lawler & Burstein, P.C.
                    90 Presidential Plaza
                    Syracuse, New York 13202-2200
                    Fax: (315) 471-1355
                    Attention: Richard S. Scolaro

Collateral Agent:   U.S. Bank Trust National Association
                    100 Wall Street, Suite 1600
                    New York, New York, 10005
                    Attention: Corporate Trust Services
                    Fax: 212-809-5459

Section 6.03. Governing Law. This Depositary Agreement, including all matters of
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Depositary
Agreement in or upon the Accounts shall be governed by the laws of the State of
New York, without reference to conflicts of law (other than Section 5-1401 of
the New York General Obligations law), except as required by mandatory
provisions of law and except to the extent that the validity or perfection of
the lien and security interest hereunder, or remedies hereunder, in respect of
any particular Account are governed by the laws of a jurisdiction other than the
State of New York.

Section 6.04. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF, IN CONNECTION WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP AMONG THEM ESTABLISHED BY THIS
AGREEMENT.

Section 6.05. Headings. Headings used in this Depositary Agreement are for
convenience of reference only and do not constitute part of this Depositary
Agreement for any purpose.

                                       41
<PAGE>

Section 6.06. No Third Party Beneficiaries. The agreements of the parties hereto
are solely for the benefit of the Issuer, the Collateral Agent, the Trustee and
the other Secured Parties and their respective successors and assigns and no
Person (other than the parties hereto and the Secured Parties) shall have any
rights hereunder.

Section 6.07. No Waiver. No failure on the part of the Collateral Agent, the
Collateral Agent, the Secured Parties or any of their respective nominees or
representatives to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Collateral
Agent, the Collateral Agent, the Secured Parties or any of their nominees or
representatives of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.

Section 6.08. Severability. If any provision of the Depositary Agreement or the
application thereof shall be invalid or unenforceable to any extent (a) the
remainder of this Depositary Agreement and the application of such remaining
provisions shall not be affected thereby and (b) each such remaining provision
shall be enforced to the greatest extent permitted by law.

Section 6.09. Successors and Assigns. All covenants, agreements, representations
and warranties in this Depositary Agreement by the Trustee, the Collateral Agent
and the Issuer shall bind and, to the extent permitted hereby, shall inure to
the benefit of and be enforceable by their respective successors and assigns,
whether so expressed or not.

Section 6.10. Execution in Counterparts. This Depositary Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.

Section 6.11. Consequential Damages. In no event shall the Collateral Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Collateral
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.

Section 6.12. Limitation of Liability. Notwithstanding anything to the contrary
contained in the Depositary Agreement and the Transaction Documents, no officer,
director, manager, management committee, employee, shareholder or partner of the
Issuer nor any director, officer, manager, management committee, employee,
incorporator, shareholder, partner or member of any partner of the Issuer or any
Affiliate of any such party (collectively, the "Nonrecourse Parties") shall be
personally liable under this Depositary Agreement for the payment of any sums or
for the performance of any obligation contained in, this Depositary Agreement.
Collateral Agent agrees that its rights shall be limited to proceeding against
the Issuer, and the security provided or intended to be provided pursuant to the
Security Documents and that it shall have no right to proceed against the
Nonrecourse Parties for (a) the

                                       42
<PAGE>

satisfaction of any monetary obligation of, or enforcement of any monetary claim
against, the Issuer, (b) the performance of any obligation, covenant or
agreement arising under this Depositary Agreement, or (c) any deficiency
judgment remaining after foreclosure of any property securing the obligations
hereunder; provided that (a) the foregoing provisions of the Section 6.12 shall
                                                                     ----
not constitute a waiver, release or discharge of any of the indebtedness, or of
any of the terms, covenants, conditions or provisions of the Depositary
Agreement or any Financing Document and the same shall continue until fully
paid, discharged, observed or performed; (b) the foregoing provisions of this
Section 6.12 shall not limit or restrict the right of any Secured Party to name
        ----
the Issuer or any other Person as a defendant in any action or suit for a
judicial foreclosure or for the exercise of any other remedy under or with
respect to this Depositary Agreement or any other Financing Document, or for
injunction or specific performance, so long as no judgment in the nature of a
deficiency judgment shall be enforced against any Nonrecourse Party, except as
set forth in the Section 6.12; (c) the foregoing provisions of the Section 6.12
                         ----                                              ----
shall not in any way limit or restrict any right or remedy of any Secured Party
with respect to, and all of the Nonrecourse Parties shall remain fully liable to
the extent that it would otherwise be liable for its own actions with respect
to, any fraud, negligence or willful misrepresentation, or misappropriation of
any revenues derived from the Project and the proceeds thereof or any other
earnings, revenues, rents, issues, profits or proceeds that are subject of the
Security Documents that should or would have been paid as provided therein or
paid or delivered to the Secured Parties towards any payment required under this
Depositary Agreement or any other Financing Document; (d) the foregoing
provisions of this Section 6.12 shall not affect or diminish or constitute a
                           ----
waiver, release or discharge of any specific written obligation, covenant, or
agreement in respect of the Project made by any of the Nonrecourse Parties or
any security granted by the Nonrecourse Parties as security for the obligations
of the Issuer; and (e) nothing contained herein shall limit the liability of (i)
any Person who is a party to any Project Document or has issued any certificate
or statement in connection therewith with respect to such liability as may arise
by reason of the terms and conditions of such Project Document, certificate or
statement, or (ii any Person rendering a legal opinion, in each case under this
clause (e) relating solely to such liability of such Person as may arise under
such referenced instrument, agreement or opinion.

     Section 6.13.  Regarding the Collateral Agent. The Collateral Agent shall
be afforded all of the rights, powers, protections, immunities and indemnities
set forth in those certain Collateral Documents dated as of the date hereof,
between the Collateral Agent and the Issuer as if the same were specifically set
forth herein.

     Section 6.14.  Dispute Resolution. In the event of any dispute or
disagreement arising out of or relating to the determination of the amount, if
any, by which the Capital Expenditure Reserve Required Balance is to be reduced
by way of operation of clause (2) of the definition thereof that the
representatives of the Issuer and the Independent

                                       43
<PAGE>

Engineer have been unable to settle or agree upon within a period of 15 days
after the dispute or disagreement arises, the Issuer and the Independent
Engineer shall each nominate and commit a senior officer to meet at a mutually
agreed time and place not later than 30 days after the dispute or disagreement
has arisen to attempt to resolve such dispute or disagreement. Should a
resolution of such dispute or disagreement not be obtained within 15 days after
such meeting of senior officers for such purposes, or such longer period as may
be mutually agreed, then the Issuer and the Independent Engineer shall each have
the right, by written notice to the other, to resolve the dispute or
disagreement through a mutually acceptable independent expert (the "Independent
Expert") agreed upon by the parties at the time of their agreement to submit
such dispute to an Independent Expert for resolution. Such disputes shall be
resolved by the Independent Expert in accordance with such mutually agreed
procedures and rules. The Independent Expert shall resolve such dispute as soon
as practicable in light of the circumstances, but in no event later than 30 days
after submission to him/her of such dispute. The Issuer agrees that any decision
and/or award of the Independent Expert shall be binding on the Issuer and, to
the extent permitted by applicable Law, any rights to appeal from or cause a
review of any such decision and/or award are hereby waived by the Issuer.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       44
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Deposit and Disbursement
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.

                              PROJECT ORANGE FUNDING, L.P.

                              By: G.A.S. Orange Associates, L.L.C.,
                              a Delaware limited liability company,
                              its General Partner

                              By: /s/ Douglas Corbett
                                 _____________________________________
                              Name: Douglas Corbett
                              Title: Vice President

                              U.S. BANK TRUST NATIONAL
                              ASSOCIATION, as Collateral Agent and
                              Securities Intermediary

                              By: /s/ Ward A. Spooner
                                 _____________________________________
                              Name: Ward A. Spooner
                              Title: Vice President

                                       45
<PAGE>

                                                                    Exhibit A to
                                                            Depositary Agreement

                    NON-BUDGETED OPERATING AND MAINTENANCE

                               COSTS CERTIFICATE

                                   No. ____

                                    [Date]

U.S. Bank Trust National Association, as Collateral Agent
  under the Depositary Agreement
  referred to below
[Address]

Attention: [__________________________]

Re:  DEPOSIT AND DISBURSEMENT AGREEMENT (as amended, modified or otherwise
     supplemented from time to time, the "Depositary Agreement") dated as of
     December 6, 1999 among Project Orange Associates, L.P. (as successor by
     merger to Project Orange Funding, L.P., the "Issuer"), a Delaware limited
     partnership, U.S. Bank Trust National Association, a national banking
     association, in its capacity as Collateral Agent and in its capacity as
     Collateral Agent.

Ladies and Gentlemen:

     This certificate (the "Non-budgeted Operating and Maintenance costs
Certificate") is delivered to you pursuant to Section 3.01(c)(i)(A) of the
                                                      -------------
Depositary Agreement. Capitalized terms used and not otherwise defined herein
shall have the meanings assigned thereto in the Depositary Agreement. The
information relating to this Non-Budgeted Operating and Maintenance Costs
Certificate is as follows:

1.   The aggregate amount requested to be withdrawn from the Revenue Account in
     accordance with this Non-Budgeted Operating and Maintenance Costs
     Certificate is $______________.

2.   The Funding Date on which the withdrawals and transfers pursuant to this
     Non-budgeted Operating and Maintenance Costs Certificate are to be made is
     _________, _____.

                                      A-1
<PAGE>

3.   Set forth on Schedule I attached hereto is the name of each Person to whom
     any payment is to be made, the aggregate amount due and payable on the
     Funding Date or reasonably expected to be due and payable within the thirty
     (30) day period following the Funding Date to such Person and a summary
     description of the work performed, services rendered, materials, equipment
     or supplies delivered or any other purpose for which each payment was or is
     to be made.

4.   The proceeds received pursuant to this Non-Budgeted Operating and
     Maintenance Costs Certificate to be withdrawn from the Revenue Account will
     be used to pay Operating and Maintenance Costs which exceed the aggregate
     projected Operating and Maintenance Costs in the annual Operating Budgets
     of the Issuer by more than ten percent (10%).

5.   The Operating and Maintenance Costs for which payment is requested under
     this Non-Budgeted Operating and Maintenance Costs Certificate have not been
     the basis for any prior requisition by the Issuer.

6.   All proceeds of prior requisitions under any Non-Budgeted Operating and
     Maintenance Costs Certificate have been expended or applied pursuant to the
     provisions of the Indenture.

7.   Attached hereto as Appendix I is an Independent Engineer's Certificate in
     respect of this Non-Budgeted Operating and Maintenance Costs Certificate
     confirming that the Operating and Maintenance Costs for which payment is
     requested hereunder are prudent and reasonable.

8.   The Operating and Maintenance Costs for which payment is requested under
     the Non-Budgeted Operating and Maintenance Costs Certificate are reasonably
     designed to permit the Issuer to satisfy its obligations in respect of the
     Senior Secured Notes and maximize its revenue and net income.

                                      A-2
<PAGE>

                         PROJECT ORANGE ASSOCIATES, L.P.

                         By:   G.A.S. Orange Associates, L.L.C.,
                               a Delaware limited liability company,
                               its General Partner

                               By: _________________________________

                         U.S. BANK TRUST NATIONAL ASSOCIATION,
                          as Collateral Agent and Securities Intermediary

                               By: _________________________________
                               Name:
                               Title:

                                      A-3
<PAGE>

                                                                      Schedule 1
                                                                    to Exhibit A
                                                         to Depositary Agreement

     Name                Amount of Payment             Purpose

                                      A-4
<PAGE>

                                                                      Appendix I
                                                                    to Exhibit A
                                                         to Depositary Agreement

                      INDEPENDENT ENGINEER'S CERTIFICATE

                                    [Date]

[Name],   as Collateral Agent
          under the Depositary Agreement
          referred to below
[Address]

Attention: [______________]

Re:  DEPOSIT AND DISBURSEMENT AGREEMENT (as amended, modified or otherwise
     supplemented from time to time, the "Depositary Agreement") dated as of
     December 6, 1999 among Project Orange Associates, L.P. (as successor by
     merger to Project Orange Funding, L.P., the "Issuer"), a Delaware limited
     partnership, U.S. Bank Trust National Association, a national banking
     association, in its capacity as Collateral Agent and in its capacity as
     Securities Intermediary.

Ladies and Gentlemen:

     This certificate (the "Non-Budgeted Operating and Maintenance Costs
Certificate") is delivered to you pursuant to Section 3.01(c)(i)(B) of the
Depositary Agreement. Capitalized terms used and not otherwise defined herein
shall have the meanings assigned thereto in the Depositary Agreement and the
Indenture.

     We hereby certify to the Collateral Agent as of the date hereof that:

1.   We have reviewed the Non-Budgeted Operating and Maintenance Costs
     Certificate dated _____ of the Issuer relating to the Project (the
     "Project").

2.   Based on our review of the aforementioned information and date provided to
     us by the Issuer and such other investigation as is referenced on the Annex
     hereto, and the understanding and assumption that we have been provided
     true, correct and complete information, and [insert customary exceptions
     and qualifications] we are of the opinion that, as of the date hereof, the
     expenditures described in

                                      A-5
<PAGE>

     the Non-Budgeted Operating and Maintenance Costs Certificate delivered by
     the Issuer to the Collateral Agent are prudent and reasonable.

     The person signing this Certificate is a duly qualified representative of
the Independent Engineer and as such is authorized to execute this Certificate
on behalf of the Independent Engineer.

                                        [Name of Independent Engineer]

                                        By:___________________________
                                           Name:
                                           Title:

                                      A-6
<PAGE>

                                                                    Exhibit B to
                                                            Depositary Agreement

                            RESTORATION REQUISITION

                                 No. ________

                                    [Date]

[Name],   as Collateral Agent
          under the Depositary Agreement
          referred to below
[Address]

Attention: [______________]

Re:  DEPOSIT AND DISBURSEMENT AGREEMENT (as amended, modified or otherwise
     supplemented from time to time, the "Depositary Agreement") dated as of
     December 6, 1999 among Project Orange Associates, L.P. (as successor by
     merger to Project Orange Funding, L.P., the "Issuer"), a Delaware limited
     partnership, U.S. Bank Trust National Association, a national banking
     association, in its capacity as Collateral Agent and in its capacity as
     Securities Intermediary.

Ladies and Gentlemen:

     This requisition (this "Restoration Requisition") is delivered to you
pursuant to Section 3.10(i)(D)(2) of the Depositary Agreement.  Capitalized
terms used and not otherwise defined herein shall have the meanings assigned
thereto in the Depositary Agreement.  The information relating to the
Restoration Requisition is as follows:

1.   The aggregate amount requested to be withdrawn from the Restoration Sub-
     Account in accordance with this Restoration Requisition is $____________.

2.   The Funding Date on which the withdrawals and transfers pursuant to this
     Restoration Requisition are to be made is ________, ___.

3.   Set forth on Schedule I attached hereto is the name of each Person to whom
     any payment is to be made, the aggregate amount incurred on or prior to the
     Funding Date or reasonably expected to be incurred within the thirty (30)
     day period following the Funding Date by such Person and a summary
     description

                                      B-1
<PAGE>

     of the work performed, services rendered, materials, equipment or supplies
     delivered or any other purpose for which each payment was or is to be made.

4.   The proceeds of this Restoration Requisition withdrawn from the Restoration
     Sub-Account will be used to pay the costs of rebuilding, restoration or
     repair of ________ (the "Project") in accordance with the Restoration
     Budget and the Restoration Progress Payment Schedule, and the Collateral
     Agent may properly charge such costs against the Restoration Sub-Account.

5.   The rebuilding, restoration, or repair costs which have been paid or for
     which payment is requested under this Restoration Requisition are in
     accordance with the Restoration Budget and the Restoration Progress Payment
     Schedule.

6.   The costs of rebuilding, restoration, or repair for which payment is
     requested under this Restoration Requisition from the Restoration Sub-
     Account have not been the basis for any prior requisition by the Issuer

7.   As of the date hereof, the Issuer has not received any written notice of
     any lien, right to lien or attachment upon, or claim affecting the
     rebuilding, repair or restoration that is the subject of the Restoration
     Requisition, or in the event that the Issuer has received notice of any
     such lien, attachment or claim, that such lien, attachment or claim,
     (giving details with respect thereto) either (a) is a Permitted Lien
     pursuant to clause (3) of the definition of "Permitted Liens" and the funds
     estimated to be required to pay such lien, attachment or claim (giving
     details of the basis for such estimate) remain on deposit in the
     Restoration Sub-Account; or (b) has been released or discharged as of the
     date hereof or is expected to be released or discharged out of the proceeds
     of this Restoration Requisition.

8.   [Attached hereto as Appendix I is an Independent Engineer's Certificate in
     respect of this Restoration Requisition.]/1/

_________________________

/1/To be furnished only in the event that the amount requested in any
consecutive 12-month period with respect to any Event of Loss or Event of
Eminent Domain exceeds $1,000,000 in the aggregate.

                                      B-2
<PAGE>

                         PROJECT ORANGE ASSOCIATES, L.P.

                         By:  G.A.S. Orange Associates, L.L.C.,
                              a Delaware limited liability
                              company, its General Partner

                         By:  _________________________________
                              Name:
                              Title:

                                      B-3
<PAGE>

                                                                      Schedule I
                                                                    to Exhibit B
                                                         to Depositary Agreement

     Name                Amount of Payment             Purpose

                                      B-4
<PAGE>

                                                                      Appendix I
                                                                       Exhibit B
                                                         to Depositary Agreement

                      INDEPENDENT ENGINEER'S CERTIFICATE

                                    [Date]

[Name], as Collateral Agent
     under the Depositary Agreement
     referred to below
[Address]

Attention: [______________]

Re:  DEPOSIT AND DISBURSEMENT AGREEMENT (as amended, modified or otherwise
     supplemented from time to time, the "Depositary Agreement") dated as of
     December 6, 1999 among Project Orange Associates, L.P. (as successor by
     merger to Project Orange Funding, L.P., the "Issuer"), a Delaware limited
     partnership, U.S. Bank Trust National Association, a national banking
     association, in its capacity as Collateral Agent and in its capacity as
     Securities Intermediary.

Ladies and Gentlemen:

     This Certificate is delivered to you in connection with Section
3.10(i)(D)(2) of the Depositary Agreement and in connection with the requisition
for payment to which this Certificate is attached as Appendix II (the
"Restoration Requisition") delivered by the Issuer to the Collateral Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned thereto in the Depositary Agreement.

     We hereby certify to the Collateral Agent as of the date hereof that:

     1.   We have reviewed the material and data made available to us by the
Issuer with respect to [describe rebuilding, repair or restoration project] and
have performed such other investigation as is referenced in the Annex attached
hereto (the "Review").  Our Review was performed in accordance with generally
accepted engineering and construction practices and included such investigation,
[insert customary exceptions and qualifications] and review as we in our
professional capacity deemed necessary or appropriate in the circumstances and
within the scope of our

                                      B-5
<PAGE>

appointment [insert customary exceptions and qualifications]. We have also
reviewed the Restoration Requisition dated ________________, including any
Appendices, Schedules and requisitions and/or invoices attached thereto or
delivered therewith.

     2.   Based on our Review and the understanding and assumption that we have
been provided true, correct and complete information, and [insert customary
exceptions and qualifications] we are of the opinion that, as of the date
hereof:

     (a)  After giving effect to the payments requested under the Restoration
          Requisition, the undisbursed moneys in the Restoration Sub-Account
          together with any other amounts that the Issuer is willing to commit
          or cause to be committed to such rebuilding, repair or restoration is
          reasonably estimated to equal or exceed the amount necessary to pay
          for (i) all work, labor or services performed and all materials,
          supplies or equipment furnished for which payment has not yet been
          made and (ii) all other reasonably anticipated costs of rebuilding,
          repair or restoration ("Restoration Costs") which have yet to be paid
          in order to achieve operation of [all] [a portion] of the Project.
          [Alternative if applicable: After giving effect to the payments
          requested under the Restoration Requisition, the undisbursed moneys in
          the Restoration Sub-Account may be less than the amount necessary to
          pay for (i) all work, labor or services performed and all materials,
          supplies or equipment furnished for which payment has not yet been
          made and (ii) all other reasonably anticipated Restoration Costs which
          have yet to be paid in order to achieve operation of [all] [a portion]
          of the Project; however, in our opinion, such insufficiency could not
          reasonably be expected to result in a Material Adverse Effect.]

     (b)  The major rebuilding, repair and restoration activities and the
          progress of the rebuilding, repair and restoration of the Project
          through the date of this Certificate are proceeding in a satisfactory
          manner in accordance with the Restoration Budget and the Restoration
          Progress Payment Schedule.

     (c)  The Restoration Costs set forth on Schedule I to the Restoration
          Requisition not incurred on or prior to the Funding Date are
          reasonably anticipated to be incurred during the thirty (30) day
          period following the Funding Date.

                                      B-6
<PAGE>

     (d)  The payments made with respect to the Restoration Requisition are in
          accordance with the Restoration Budget and the Restoration Progress
          Payment Schedule.

     The person signing this Certificate is a duly qualified representative of
the Independent Engineer and as such is authorized to execute this Certificate
on behalf of the Independent Engineer.

                                        Very truly yours,

                                        [Name of Independent Engineer]

                                        By: ____________________________
                                            Name:
                                            Title:

                                      B-7
<PAGE>

                                                                    Exhibit C to
                                                            Depositary Agreement

                            TITLE EVENT REQUISITION
                                   No. ____
                                    [Date]

[Name], as Collateral Agent
  under the Depositary Agreement
  referred to below
[Address]

Attention: [______________]

Re:  DEPOSIT AND DISBURSEMENT AGREEMENT (as amended, modified or otherwise
     supplemented from time to time, the "Depositary Agreement") dated as of
     December 6, 1999 among Project Orange Associates, L.P. (as successor by
     merger to Project Orange Funding, L.P., the "Issuer"), a Delaware limited
     partnership, U.S. Bank Trust National Association, a national banking
     association, in its capacity as Collateral Agent and in its capacity as
     Securities Intermediary.

Ladies and Gentlemen:

     This requisition (the "Title Event Requisition") is delivered to you
pursuant to Section 3.10(ii)(C) of the Depositary Agreement.  Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned
thereto in the Depositary Agreement.  The information relating to the Title
Event Requisition is as follows:

     1.   The aggregate amount requested to be withdrawn from the Title Event
          Sub-Account in accordance with this Title Event Requisition is
          $__________________.

     2.   The Funding Date on which the withdrawals and transfers pursuant to
          this Title Event Requisition are to be made is _____, ___.

     3.   Set forth on Schedule I attached hereto is the name of each Person to
          whom any payment is to be made, the aggregate amount incurred on or
          prior to the Funding Date or reasonably expected to be incurred within
          the thirty (30) day period following the Funding Date to such Person.

                                      C-1
<PAGE>

     4.   The proceeds of this Title Event Requisition withdrawn from the Title
          Event Sub-Account will be used solely for the purpose of attempting to
          effect a remedy of the Title Event and for payment of expenses
          incurred in connection therewith and the Collateral Agent may properly
          charge such costs against the Title Event Sub-Account.

     5.   The costs of such remediation efforts in respect of the Title Event
          and expenses incurred in connection therewith for which payment is
          requested under this Title Event Requisition from the Title Event Sub-
          Account have not been the basis for any prior requisition by the
          Issuer.

                                        PROJECT ORANGE ASSOCIATES, L.P.

                                        By: G.A.S. Orange Associates, L.L.C.,
                                            a Delaware limited liability
                                            company, its General Partner

                                        By  _________________________________
                                            Name:
                                            Title:

                                      C-2
<PAGE>

                                                                      Schedule I
                                                                    to Exhibit C
                                                         to Depositary Agreement

     Name                     Amount of Payment                  Purpose

                                      C-3

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