Document:

EXHIBIT 10.21

                                                       Transcript Document No. 2
                                                       -------------------------

                  SUFFOLK COUNTY INDUSTRIAL DEVELOPMENT AGENCY

                           (SUFFOLK COUNTY, NEW YORK)

                                       and

                                 AHM SPV II, LLC

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

                                 LEASE AGREEMENT

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

                          Dated as of November 1, 2003

                  Suffolk County Industrial Development Agency
          (AHM SPV II, LLC/American Home Mortgage Corp. 2003 Facility)

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                                TABLE OF CONTENTS

                                                                        Page No.
                                                                        --------

ARTICLE I DEFINITIONS..........................................................2

ARTICLE II REPRESENTATIONS AND COVENANTS.......................................2

      Section 2.1   Representations and Covenants of Agency....................2
      Section 2.2   Representations and Covenants of Lessee....................3

ARTICLE III FACILITY SITE AND TITLE INSURANCE..................................4

      Section 3.1   Agreement to Convey to Agency..............................4
      Section 3.2   Title Insurance............................................4
      Section 3.3   Subordination of Lease Agreement...........................4

ARTICLE IV ACQUISITION, RENOVATION AND EQUIPPING OF FACILITY; MAKING OF
      THE LOAN.................................................................4

      Section 4.1   Acquisition, Renovation and Equipping of Facility..........4
      Section 4.2   Making of the Loan; Disbursements of Loan Proceeds.........5
      Section 4.3   Certificates of Completion.................................5
      Section 4.4   Completion by Lessee.......................................6
      Section 4.5   Remedies to be Pursued Against Contractors,
                    Subcontractors, Materialmen and their Sureties.............6

ARTICLE V DEMISING CLAUSES AND RENTAL PROVISIONS...............................6

      Section 5.1   Demise of Facility.........................................6
      Section 5.2   Duration of Lease Term; Quiet Enjoyment....................6
      Section 5.3   Rents and Other Amounts Payable............................7
      Section 5.4   Obligations of Lessee Hereunder Unconditional..............7
      Section 5.5   Payment of Additional Moneys in Prepayment of Loan.........8
      Section 5.6   Rights and Obligations of the Lessee upon Prepayment
                    of Loan....................................................8

ARTICLE VI MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE.....................8

      Section 6.1   Maintenance and Modifications of Facility by Lessee........8
      Section 6.2   Installation of Additional Equipment.......................8
      Section 6.3   Taxes, Assessments and Utility Charges.....................9
      Section 6.4   Insurance Required........................................10
      Section 6.5   Additional Provisions Respecting Insurance................11
      Section 6.6   Application of Net Proceeds of Insurance..................12
      Section 6.7   Right of Bank to Pay Taxes, Insurance Premiums and
                    Other Charges.............................................12

ARTICLE VII DAMAGE, DESTRUCTION AND CONDEMNATION..............................13

      Section 7.1   Damage or Destruction of the Facility.....................13
      Section 7.2   Condemnation..............................................14
      Section 7.3   Condemnation of Lessee-Owned Property.....................16

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      Section 7.4   Waiver of Real Property Law Section 227...................16

ARTICLE VIII SPECIAL COVENANTS................................................16

      Section 8.1   No Warranty of Condition or Suitability by Agency.........16
      Section 8.2   Hold Harmless Provisions..................................16
      Section 8.3   Right to Inspect Facility.................................17
      Section 8.4   Lessee to Maintain Its Existence..........................17
      Section 8.5   Qualification in State....................................17
      Section 8.6   Agreement to File Annual Statements and Provide
                    Information...............................................17
      Section 8.7   Books of Record and Account; Financial Statements.........17
      Section 8.8   Compliance With Orders, Ordinances, Etc...................17
      Section 8.9   Discharge of Liens and Encumbrances.......................19
      Section 8.10  Identification of Equipment...............................20
      Section 8.11  Depreciation Deductions and Investment Tax Credit.........20
      Section 8.12  Employment Opportunities, Notice of Jobs..................20

ARTICLE IX RELEASE OF CERTAIN LAND; ASSIGNMENTS AND SUBLEASING; MORTGAGE
      AND PLEDGE OF INTERESTS.................................................20

      Section 9.1   Restriction on Sale of Facility; Release of Certain Land..20
      Section 9.2   Removal of Equipment......................................21
      Section 9.3   Assignment and Subleasing.................................21
      Section 9.4   Mortgage and Pledge of Agency's Interests to Bank.........22
      Section 9.5   Pledge of Lessee's Interest to Bank.......................22
      Section 9.6   Merger of Agency..........................................22

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

      Section 10.1  Events of Default Defined.................................23
      Section 10.2  Remedies on Default.......................................24
      Section 10.3  Remedies Cumulative.......................................26
      Section 10.4  Agreement to Pay Attorneys' Fees and Expenses.............26
      Section 10.5  No Additional Waiver Implied by One Waiver................27

ARTICLE XI EARLY TERMINATION OF LEASE AGREEMENT; OPTION IN FAVOR OF COMPANY...27

      Section 11.1  Early Termination of Lease Agreement......................27
      Section 11.2  Conditions to Early Termination of Lease Agreement........27
      Section 11.3  Obligation to Purchase Facility...........................28
      Section 11.4  Conveyance on Purchase....................................28

ARTICLE XII MISCELLANEOUS.....................................................28

      Section 12.1  Notices...................................................28
      Section 12.2  Binding Effect............................................29
      Section 12.3  Severability..............................................29
      Section 12.4  Amendments, Changes and Modifications.....................29
      Section 12.5  Execution of Counterparts.................................29
      Section 12.6  Applicable Law............................................29
      Section 12.7  List of Additional Equipment; Further Assurances..........29

                                      -ii-
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      Section 12.8  Survival of Obligations...................................29
      Section 12.9  Table of Contents and Section Headings Not Controlling....29

                                      -iii-
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      THIS LEASE  AGREEMENT  dated as of November 1, 2003 is between the SUFFOLK
COUNTY INDUSTRIAL  DEVELOPMENT AGENCY, a public benefit corporation of the State
of New York,  having its office at H. Lee  Dennison  Building,  10th Floor,  100
Veterans Memorial Highway, Hauppauge, New York 11788 (the "Agency"), and AHM SPV
II, LLC, a limited  liability  company duly organized and validly existing under
the  laws  of  the  State  of  Delaware,  having  its  principal  office  at 520
Broadhollow Road, Melville, New York 11747 (the "Lessee").

                                R E C I T A L S

      Title 1 of Article 18-A of the General  Municipal  Law of the State of New
York was duly  enacted into law as Chapter 1030 of the Laws of 1969 of the State
of New York;

      The  aforesaid  Act  authorizes  the  creation of  industrial  development
agencies for the Public Purposes of the State;

      The   aforesaid  Act  further   authorizes   the  creation  of  industrial
development agencies for the benefit of the several counties,  cities,  villages
and towns in the State and  empowers  such  agencies,  among  other  things,  to
acquire,  reconstruct,  renovate,  refurbish,  equip, lease, sell and dispose of
land and any building or other improvement,  and all real and personal property,
including  but not limited to,  machinery  and  equipment  deemed  necessary  in
connection  therewith,  whether now in  existence or under  construction,  which
shall be suitable for manufacturing,  civic, warehousing,  research, commercial,
recreation  or  industrial  facilities,  in order to advance job  opportunities,
health,  general  prosperity and the economic welfare of the people of the State
and to improve their standard of living;

      Pursuant to and in accordance  with the  provisions of the aforesaid  Act,
the  Agency  was  created  and is  empowered  under  the  Act to  undertake  the
providing, financing and leasing of the Facility defined below;

      The Facility shall consist of the  acquisition of an  approximately  7.498
acre  parcel  of  land  located  at 538  Broadhollow  Road,  Melville,  Town  of
Huntington,  Suffolk County, New York (tax account number District 0400, Section
265,  Block  2, Lot 3) and the  renovation  and  equipping  of a  portion  of an
existing  approximately  177,000 square foot building,  including  retrofitting,
demising,  building out and furnishing of a portion of such building, to be used
by American Home Mortgage Corp., a New York  corporation  (the "Company") as its
headquarters  for the  underwriting,  origination and funding  offices,  and the
construction  of certain  additions  to the  parking  garage  (the  "Facility"),
including the following in connection with the appointment of the Lessee and the
Company as the agents of the Agency, as they relate to the renovation,  erection
and  completion  of such  Facility,  whether or not any  materials  or  supplies
described  below  are  incorporated  into or  become  an  integral  part of such
Facility: (i) all purchases,  leases, rentals and other uses of tools, machinery
and equipment in connection  with  acquisition,  renovation and equipping of the
Facility,  (ii)  all  purchases,  rentals,  uses  or  consumption  of  supplies,
materials and services of every kind and  description  used in  connection  with
acquisition,  renovation and equipping of the Facility, and (iii) all equipment,
machinery,  and other tangible personal property  (including  installation costs
with respect thereto), installed or placed in, upon or under such Facility;

      The Agency  proposes to acquire and lease the Facility and JPMorgan  Chase
Bank (the "Bank") proposes to finance the cost thereof by making the Loan to the
Lessee;

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      The Lessee has agreed with the Agency,  on behalf of the Agency and as the
Agency's agent,  to acquire,  renovate and equip the Facility in accordance with
the Plans and Specifications;

      The Agency  proposes to lease the  Facility to the Lessee,  and the Lessee
desires to rent the Facility from the Agency,  upon the terms and conditions set
forth in this Lease Agreement.

      The Lessee  proposes to sublease  the  Facility  to the  Company,  and the
Company  desires  to rent the  Facility  from the  Lessee,  upon the  terms  and
conditions  set forth in the  Sublease  Agreement,  dated as of the Closing Date
(the "Sublease Agreement"), between the Lessee and the Company.

                                   AGREEMENT

      For  and in  consideration  of  the  premises  and  the  mutual  covenants
hereinafter contained, the parties hereto do hereby mutually agree as follows:

                                   ARTICLE I

                                  DEFINITIONS

      All  capitalized  terms used in this  Lease  Agreement  and not  otherwise
defined  herein  shall have the  meanings  assigned  thereto in the  Schedule of
Definitions attached hereto as Schedule A.

                                   ARTICLE II

                          REPRESENTATIONS AND COVENANTS

      Section 2.1  Representations and Covenants of Agency. The Agency makes the
following representations and covenants as the basis for the undertakings on its
part herein contained:

      (a)  The  Agency  is duly  established  and  validly  existing  under  the
provisions of the Act and has full legal right,  power and authority to execute,
deliver  and  perform  each of the  Agency  Documents  and the  other  documents
contemplated  thereby.  Each of the  Agency  Documents  and the other  documents
contemplated  thereby has been duly  authorized,  executed and  delivered by the
Agency.

      (b) The Agency will cause the Land to be acquired,  the Improvements to be
renovated  and the  Equipment  to be acquired and  installed  and will lease the
Facility  to the Lessee  pursuant  to this Lease  Agreement,  all for the Public
Purposes of the State.

      (c) By resolution  adopted on July 24, 2003, the Agency  determined  that,
based  upon  the  review  by the  Agency  of the  materials  submitted  and  the
representations made by the Company relating to the Facility, the Facility would
not have a  "significant  impact" or  "significant  effect"  on the  environment
within the meaning of the SEQR Act.

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      (d) Neither the execution and delivery of any of the Agency  Documents and
the other documents contemplated thereby or the consummation of the transactions
contemplated thereby nor the fulfillment of or compliance with the provisions of
any of the Agency Documents and the other documents  contemplated  thereby, will
conflict  with or result in a breach of or constitute a default under any of the
terms,  conditions  or  provisions of the Act, any other law or ordinance of the
State or any political  subdivision  thereof or of the Agency's  Certificate  of
Establishment  or By-laws,  as amended,  or of any corporate  restriction or any
agreement or  instrument to which the Agency is a party or by which it is bound,
or result in the  creation or  imposition  of any Lien of any nature upon any of
the  Property  of the  Agency  under  the  terms  of the  Act or any  such  law,
ordinance,  Certificate of  Establishment,  By-laws,  restriction,  agreement or
instrument, except for Permitted Encumbrances.

      (e) Each of the  Agency  Documents  and the other  documents  contemplated
thereby  constitutes  a  legal,  valid  and  binding  obligation  of the  Agency
enforceable against the Agency in accordance with its terms.

      (f) The Agency has been induced to enter into this Lease  Agreement by the
undertaking of the Lessee to utilize the Facility in Suffolk County, New York.

      Section 2.2  Representations and Covenants of Lessee. The Lessee makes the
following representations and covenants as the basis for the undertakings on its
part herein contained:

      (a) The Lessee is a limited  liability  company duly organized and validly
existing under the laws of the State of Delaware,  is in good standing under the
laws of the  State of  Delaware  and the  State  of New York and has full  legal
right,  power and  authority to execute,  deliver and perform each of the Lessee
Documents  and the other  documents  contemplated  thereby.  Each of the  Lessee
Documents and the other documents contemplated thereby has been duly authorized,
executed and delivered by the Lessee.

      (b) Neither the execution and delivery of any of the Lessee  Documents and
the other documents contemplated thereby or the consummation of the transactions
contemplated thereby nor the fulfillment of or compliance with the provisions of
any of the Lessee Documents and the other documents  contemplated  thereby, will
conflict  with or result in a breach of or constitute a default under any of the
terms,  conditions  or  provisions  of any law or  ordinance of the State or any
political subdivision thereof or of the Lessee's  organizational  documents,  as
amended,  or any  restriction or any agreement or instrument to which the Lessee
is a party or by which it is bound,  or result in the creation or  imposition of
any Lien of any nature upon any of the Property of the Lessee under the terms of
any such law, ordinance, or organizational  documents, as amended,  restriction,
agreement or instrument, except for Permitted Encumbrances. The Facility and the
design,  acquisition,  renovation,  equipping and operation thereof will conform
with  all  applicable  zoning,   planning,   building  and  environmental  laws,
ordinances,   rules  and   regulations  of   governmental   authorities   having
jurisdiction  over the  Facility.  The Lessee shall  defend,  indemnify and hold
harmless the Agency and the Bank for expenses,  including reasonable  attorneys'
fees,  resulting from any failure by the Lessee to comply with the provisions of
this subsection.

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      (c) Except as otherwise provided in the Mortgage, the Lessee shall perform
or cause to be  performed,  for and on  behalf  of the  Agency,  each and  every
obligation of the Agency under and pursuant to the Mortgage.

      (d) Each of the  Lessee  Documents  and the other  documents  contemplated
thereby  constitutes  a  legal,  valid  and  binding  obligation  of the  Lessee
enforceable against the Lessee in accordance with its terms.

      (e) The Lessee will complete the acquisition,  renovation and equipping of
the  Facility  in  accordance  with the  terms and  provisions  of the Plans and
Specifications.

      (f) The Facility is and will  continue to be a  "project,"  as such quoted
term is defined in the Act. The Lessee will not take any action, or fail to take
any action, which would cause the Facility to not constitute a "project" as such
quoted term is defined in the Act.

                                  ARTICLE III

                       FACILITY SITE AND TITLE INSURANCE

      Section 3.1 Agreement to Convey to Agency.  The Lessee has conveyed or has
caused to be conveyed to the Agency (i) good and  marketable  title to the Land,
including any  buildings,  structures or other  improvements  thereon,  and (ii)
lien-free   title  to  the   Equipment,   in  each  case  except  for  Permitted
Encumbrances,  and will convey or cause to be  conveyed to the Agency  lien-free
title to the Equipment and Improvements acquired after the date hereof.

      Section 3.2 Title Insurance.  The Lessee has obtained or will obtain (i) a
fee title  insurance  policy for the benefit of the Agency insuring title to the
Land and the  Improvements,  and (ii) a mortgage title policy for the benefit of
the Bank insuring the Lien of the Mortgage on the Land and the Improvements;  in
each  case in an  amount  equal  to the  fair  market  value of the Land and the
Improvements; and in each case except for Permitted Encumbrances.

      Section 3.3 Subordination of Lease Agreement. This Lease Agreement and any
and all  modifications,  amendments,  renewals and extensions thereof is subject
and  subordinate to the Mortgage and to any and all  modifications,  amendments,
consolidations, extensions, renewals, replacements and increases thereof.

                                   ARTICLE IV.

     ACQUISITION, RENOVATION AND EQUIPPING OF FACILITY; MAKING OF THE LOAN

      Section 4.1   Acquisition, Renovation and Equipping of Facility.
                    -------------------------------------------------

      (a) The Lessee  agrees  that,  on behalf of the Agency,  it will  acquire,
renovate and equip the Facility in accordance with the Plans and Specifications.

                                       4
<PAGE>

      (b) The Lessee may revise the Plans and  Specifications  from time to time
with the written  approval of the Bank,  which approval may not be  unreasonably
withheld  but  which  may be  subject  to such  conditions  as the Bank may deem
appropriate.

      (c)  Title to all  materials,  equipment,  machinery  and  other  items of
Property  incorporated  or installed  in the  Facility  shall vest in the Agency
immediately  upon the  Lessee's  obtaining  an interest in or to the  materials,
equipment,  machinery  and other items of Property.  The Lessee  shall  execute,
deliver and record or file all  instruments  necessary or appropriate to so vest
title to the  Agency  and shall  take all action  necessary  or  appropriate  to
protect such title against claims of any third Persons.

      (d) The Agency hereby  appoints the Lessee its true and lawful agent,  and
the Lessee  hereby  accepts  such agency (i) to acquire,  renovate and equip the
Facility in accordance with the Plans and Specifications, (ii) to make, execute,
acknowledge  and  deliver  any  contracts,   orders,   receipts,   writings  and
instructions  with any other Persons,  and in general to do all things which may
be requisite or proper,  all for renovating the  Improvements  and acquiring and
installing  the Equipment with the same powers and with the same validity as the
Agency  could do if acting on its own behalf,  (iii) to pay all fees,  costs and
expenses  incurred in the renovation of the Improvements and the acquisition and
installation  of the Equipment from funds made available  therefor in accordance
with this Lease Agreement,  and (iv) to ask, demand,  sue for, levy, recover and
receive all such sums or money,  debts, dues and other demands  whatsoever which
may be due,  owing and  payable to the Agency  under the terms of any  contract,
order,  receipt,  or writing in connection with the renovation and completion of
the Improvements  and the acquisition and installation of the Equipment,  and to
enforce the  provisions of any contract,  agreement,  obligation,  bond or other
performance security.

      (e) The Agency  shall  enter  into,  and accept the  assignment  of,  such
contracts as the Lessee may request in order to effectuate  the purposes of this
Section 4.l.

      (f) The Lessee, as agent for the Agency,  shall comply with all provisions
of the Labor Law of the State  applicable  to the  acquisition,  renovation  and
equipping of the Facility and shall  include in all  construction  contracts all
provisions  which may be  required to be  inserted  therein by such  provisions.
Except as provided in the preceding sentence,  the provisions of this subsection
do not create any obligations or duties not created by applicable law outside of
the terms of this Lease Agreement.

      Section 4.2 Making of the Loan;  Disbursements of Loan Proceeds.  The Bank
has proposed to make the Loan to the Lessee. Loan Proceeds shall be disbursed to
the Lessee on the Closing Date.

      Section 4.3 Certificates of Completion.  To establish the Completion Date,
the Lessee shall deliver to the Agency and the Bank (i) a certificate  signed by
an  Authorized  Representative  of the  Lessee  (a)  stating  that  acquisition,
renovation and equipping of the Facility has been  completed in accordance  with
the Plans and Specifications  therefor;  and (b) stating that the payment of all
labor,  services,  materials and supplies used in such acquisition has been made
or provided for; and (ii) such  certificates as may be satisfactory to the Bank,
including without limitation,  a final certificate of occupancy,  if applicable.
The

                                       5
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Lessee  agrees to complete  the  acquisition,  renovation  and  equipping of the
Facility on or before March 31, 2005.

      Section 4.4   Completion by Lessee.
                    --------------------

      (a) In the event that the Net Proceeds of the Loan are not  sufficient  to
pay in full all costs of  acquiring,  renovating  and  equipping the Facility in
accordance with the Plans and Specifications,  the Lessee agrees to pay, for the
benefit of the Agency and the Bank, all such sums as may be in excess of the Net
Proceeds  of the  Loan.  Title to all  portions  of the  Facility  installed  or
constructed  at the  Lessee's  cost  or  expense  shall  immediately  upon  such
installation  or  construction  vest in the Agency.  The Lessee  shall  execute,
deliver  and  record  or file  such  instruments  as the  Agency or the Bank may
request in order to perfect or protect the Agency's  title to or the lien of the
Mortgage on such portions of the Facility.

      (b) The Lessee shall not be entitled to any  reimbursement for such excess
cost or  expense  from the  Agency or the Bank nor shall it be  entitled  to any
diminution  or abatement of any other  amounts  payable by the Lessee under this
Lease Agreement.

      Section 4.5 Remedies to be Pursued  Against  Contractors,  Subcontractors,
Materialmen  and their  Sureties.  In the event of a default by any  contractor,
subcontractor,  materialman  or other Person  under any  contract  made by it in
connection  with the  Facility  or in the event of a breach of warranty or other
liability with respect to any materials,  workmanship,  or performance guaranty,
the Lessee at its expense,  either separately or in conjunction with others, may
pursue any and all  remedies  available  to it and the Agency,  as  appropriate,
against the contractor, subcontractor, materialman or other Person so in default
and against any surety for the performance of such contract.  The Lessee, in its
own name or in the name of the  Agency,  may  prosecute  or defend any action or
proceeding   or  take  any  other   action   involving   any  such   contractor,
subcontractor,  materialman  or surety or other  Person  which the Lessee  deems
reasonably  necessary,  and in such event the Agency,  at the Lessee's  expense,
hereby  agrees  to  cooperate  fully  with the  Lessee  and to take  all  action
necessary  to effect the  substitution  of the Lessee for the Agency in any such
action or proceeding.

                                   ARTICLE V

                     DEMISING CLAUSES AND RENTAL PROVISIONS

      Section 5.1 Demise of Facility.  The Agency  hereby  leases the  Facility,
consisting of the Land as particularly  described in Exhibit A attached  hereto,
the  Improvements  and the  Equipment  as  particularly  described  in Exhibit B
attached  hereto,  to the Lessee and the Company  hereby takes the Facility from
the Agency upon the terms and conditions of this Lease Agreement.

      Section 5.2   Duration of Lease Term; Quiet Enjoyment.
                    ---------------------------------------

      (a) The Agency shall deliver to the Lessee sole and  exclusive  possession
of the Facility (subject to Sections 3.3, 8.3 and 10.2 hereof) and the leasehold
estate  created  hereby shall  commence on the Closing Date and the Lessee shall
accept possession of the Facility on the Closing Date.

                                       6
<PAGE>

      (b) Except as  provided  in Section  10.2  hereof,  the  leasehold  estate
created  hereby  shall  terminate  at 11:59 p.m.  on January 31, 2015 or on such
earlier date as may be permitted  by Section  11.1  hereof;  provided,  however,
that,  except as provided in Section 10.2  hereof,  in no event shall this Lease
Agreement be terminated until the Loan shall have been paid in full or provision
for such full payment shall have been made.

      (c) Except as provided in Sections  3.3, 8.3 and 10.2  hereof,  the Agency
shall  neither take nor suffer or permit any action to prevent the Lessee during
the Lease Term from having quiet and peaceable  possession  and enjoyment of the
Facility  and will,  at the  request  of the Lessee  and at the  Lessee's  cost,
cooperate  with the Lessee in order that the Lessee may have quiet and peaceable
possession and enjoyment of the Facility as hereinabove provided.

      Section 5.3   Rents and Other Amounts Payable.
                    -------------------------------

      (a) The  Lessee  shall pay basic rent for the  Facility  as  follows:  One
Dollar  ($1.00) per year  commencing  on the Closing Date and on each November 1
thereafter during the term of this Lease Agreement.

      (b) In addition to the payments of rent pursuant to Section 5.3(a) hereof,
throughout  the Lease  Term,  the Lessee  shall pay to the Agency as  additional
rent, within ten (10) days of receipt of demand  therefore,  the expenses of the
Agency and the members thereof incurred (i) by reason of the Agency's  ownership
or leasing of the  Facility or (ii) in  connection  with the carrying out of the
Agency's duties and obligations under the Agency Documents, the payment of which
is not otherwise  provided for under this Lease  Agreement.  The foregoing shall
not be deemed to include any annual or continuing  administrative  or management
fee beyond any initial  administrative  fee or fee for services  rendered by the
Agency.

      (c) The Lessee,  under the provisions of this Section 5.3,  agrees to make
the  above-mentioned  payments in  immediately  available  funds and without any
further notice in lawful money of the United States of America. In the event the
Lessee  shall fail to timely  make any  payment  required  in Section  5.3(a) or
5.3(b),  the Lessee shall pay the same together with interest on such payment at
a rate equal to two percent (2%) plus the Prime Rate,  but in no event at a rate
higher  than the maximum  lawful  prevailing  rate,  from the date on which such
payment was due until the date on which such payment is made.

      Section 5.4 Obligations of Lessee Hereunder Unconditional. The obligations
of the Lessee to make the  payments  required  in  Section  5.3  hereof,  and to
perform and observe any and all of the other  covenants  and  agreements  on its
part contained herein shall be a general  obligation of the Lessee, and shall be
absolute and unconditional  irrespective of any defense or any rights of setoff,
recoupment or counterclaim it may otherwise have against the Agency.  The Lessee
agrees  it will not (i)  suspend,  discontinue  or abate  any  payment  required
hereunder, (ii) fail to observe any of its other covenants or agreements in this
Lease Agreement or (iii) terminate this Lease Agreement for any cause whatsoever
unless and until the Loan has been paid in full.

      Subject to the  foregoing  provisions,  nothing  contained in this Section
shall be  construed  to release  the Agency from the  performance  of any of the
agreements on its part contained in this Lease  Agreement or to affect the right
of the Lessee to seek reimbursement,  and in the event the Agency should fail to
perform any such agreement, the Lessee may

                                       7
<PAGE>

institute  such  separate  action  against  the  Agency as the  Lessee  may deem
necessary to compel performance or recover damages for non-performance,  and the
Agency covenants that it will not, subject to the provisions of Sections 3.3 and
8.3 and Article X hereof, take, suffer or permit any action which will adversely
affect,  or  create  any  defect  in its  title to the  Facility  or which  will
otherwise adversely affect the rights or estate of the Lessee hereunder,  except
upon written consent of the Lessee.

      Section  5.5  Payment  of  Additional  Moneys in  Prepayment  of Loan.  In
addition to any other moneys  required or permitted to be paid  pursuant to this
Lease Agreement, the Lessee may, subject to the terms of the Note, pay moneys to
the Bank to be used for the  prepayment of the Loan at such time or times and on
such terms and conditions as is provided in the Note.

      Section 5.6 Rights and  Obligations of the Lessee upon Prepayment of Loan.
In the event the Loan shall have been paid in full prior to the termination date
specified in Section 5.2(b) hereof (i) all references in this Lease Agreement to
the Bank the Note and the  Mortgage  shall be  ineffective  and (ii) the  Lessee
shall be entitled,  at its option, to the exclusive use, occupancy and enjoyment
of the Facility from the date of such payment until the scheduled  expiration of
the Lease  Term,  on all of the terms and  conditions  hereof,  except  that the
Lessee shall not be required to carry any insurance for the benefit of the Bank,
or the Lessee may, at its option,  require the Agency to convey the  Facility to
the Lessee  pursuant to the terms of Section  11.3  hereof.  In the event of any
such payment or the making of any such provision,  the Agency,  at the sole cost
of the  Lessee,  shall  obtain  and  record or file  appropriate  discharges  or
releases  of the  Mortgage  and any  other  security  interest  relating  to the
Facility or this Lease Agreement.

                                  ARTICLE VI.

                MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE

      Section 6.1   Maintenance and Modifications of Facility by Lessee.
                    ---------------------------------------------------

      (a) The Lessee shall not abandon the Facility or cause or permit any waste
to the Improvements. During the Lease Term, the Lessee shall not remove any part
of the Facility outside of the jurisdiction of the Agency and shall (i) keep the
Facility in as reasonably  safe condition as its operations  shall permit;  (ii)
make all necessary repairs and replacements to the Facility (whether ordinary or
extraordinary,  structural or nonstructural,  foreseen or unforeseen); and (iii)
operate the Facility in a sound and economic manner.

      (b) With the written  consent of the Agency and the Bank,  which shall not
be unreasonably  withheld,  the Lessee from time to time may make any structural
additions,  modifications  or  improvements to the Facility or any part thereof,
provided such actions do not adversely  affect the  structural  integrity of the
Facility.  All such additions,  modifications or improvements made by the Lessee
shall become a part of the  Facility and the Property of the Agency.  The Lessee
agrees  to  deliver  to the  Agency  all  documents  which may be  necessary  or
appropriate  to convey to the Agency  title to such  Property  and to perfect or
protect the lien of the Mortgage.

      Section  6.2  Installation  of  Additional   Equipment.   Subject  to  the
provisions of Section 8.10 hereof, the Lessee or any permitted  sublessee of the
Lessee from time to time

                                       8
<PAGE>

may install  additional  machinery,  equipment or other personal property in the
Facility (which may be attached or affixed to the Facility), and such machinery,
equipment or other personal property shall not become, or be deemed to become, a
part of the  Facility.  The Lessee  from time to time may create or permit to be
created  any  Lien on such  machinery,  equipment  or other  personal  property.
Further,  the Lessee  from time to time may remove or permit the removal of such
machinery,  equipment and other  personal  property from the Facility,  provided
that any such removal of such  machinery,  equipment or other personal  property
shall not occur (i) if any Event of Default  has  occurred;  or (ii) if any such
removal  shall  adversely  affect the  structural  integrity  of the Facility or
impair the overall  operating  efficiency  of the  Facility for the purposes for
which it is intended,  and provided further, that if any damage is occasioned to
the Facility by such removal,  the Lessee agrees to promptly  repair such damage
at its own expense.

      Section 6.3   Taxes, Assessments and Utility Charges.
                    --------------------------------------

      (a) The Lessee  agrees to pay, as the same become due and before any fine,
penalty,  interest  (except interest which is payable in connection with legally
permissible  installment  payments) or other cost may be added thereto or become
due or be imposed  by  operation  of law for the  non-payment  thereof,  (i) all
taxes, payments in lieu of taxes and governmental charges of any kind whatsoever
which may at any time be lawfully  assessed or levied against or with respect to
the Facility and any machinery, equipment or other Property installed or brought
by the Lessee therein or thereon, including,  without limiting the generality of
the  foregoing,  any sales or use taxes  imposed with respect to the Facility or
any part or component thereof, or the rental or sale of the Facility or any part
thereof and any taxes  levied upon or with  respect to the income or revenues of
the Agency from the  Facility;  (ii) all utility  and other  charges,  including
service  charges,  incurred  or imposed  for or with  respect to the  operation,
maintenance,  use, occupancy,  upkeep and improvement of the Facility; (iii) all
assessments and charges of any kind whatsoever lawfully made by any governmental
body for public  improvements;  and (iv) all payments under the PILOT Agreement;
provided that, with respect to special assessments or other governmental charges
that may  lawfully be paid in  installments  over a period of years,  the Lessee
shall be obligated under this Lease  Agreement to pay only such  installments as
are required to be paid during the Lease Term.

      (b) The Lessee may in good faith contest any such taxes,  assessments  and
other charges.  In the event of any such proceedings,  the Lessee may permit the
taxes,  assessments  or other  charges so contested to remain  unpaid during the
period of such proceedings and any appeal therefrom, provided, however, that (i)
neither the Facility nor any part  thereof or interest  therein  would be in any
immediate danger of being sold,  forfeited or lost by reason of such proceedings
and (ii) the Lessee  shall have set aside on its books  adequate  reserves  with
respect  thereto  and shall have  furnished  such  security,  if any,  as may be
required in such proceedings or requested by the Agency or the Bank.

      (c)  The  Agency  agrees  that if it or the  Lessee  contests  any  taxes,
assessments  or other  charges  provided for in paragraph  (b) hereof,  all sums
returned, as a result thereof, will be promptly transmitted by the Agency to the
Lessee and that the Lessee shall be entitled to retain all such amounts.

                                       9
<PAGE>

      (d) Within thirty (30) days of receipt of written  request  therefor,  the
Lessee  shall  deliver  to the  Agency  and the Bank  official  receipts  of the
appropriate  taxing  authorities or other proof  reasonably  satisfactory to the
Agency and the Bank evidencing payment of any tax.

      Section 6.4 Insurance  Required.  At all times  throughout the Lease Term,
including,  when indicated herein,  during the Construction  Period,  the Lessee
shall,  at its  sole  cost and  expense,  maintain  or  cause  to be  maintained
insurance  against  such risks and for such amounts as are  customarily  insured
against by  businesses  of like size and type and shall pay,  as the same become
due  and  payable,  all  premiums  with  respect  thereto,  including,  but  not
necessarily limited to:

      (a)  Insurance  against  loss or  damage  by  fire,  lightning  and  other
casualties  customarily  insured  against,  with  a  uniform  standard  extended
coverage  endorsement,  such insurance to be in an amount not less than the full
replacement  value of the  completed  Improvements,  exclusive  of footings  and
foundations,  as determined by a recognized appraiser or insurer selected by the
Lessee,  but in no event less than the principal amount of the Loan.  During the
Construction  Period,  such policy shall be written in the so-called  "Builder's
Risk Completed Value  Non-Reporting Form" and shall contain a provision granting
the insured permission to complete and/or occupy.

      (b) Workers'  compensation  insurance,  disability  benefits insurance and
each other form of  insurance  which the Lessee or any  permitted  sublessee  is
required by law to provide,  covering  loss  resulting  from  injury,  sickness,
disability  or death of employees of the Lessee or any  permitted  sublessee who
are located at or assigned to the  Facility.  This  coverage  shall be in effect
from and after the  Completion  Date or on such earlier date as any employees of
the Lessee,  any permitted  sublessee,  any  contractor or  subcontractor  first
occupy the Facility.

      (c) Insurance  protecting the Agency and the Lessee against loss or losses
from liability imposed by law or assumed in any written contract  (including the
contractual liability assumed by the Lessee under Section 8.2 hereof) or arising
from  personal  injury,  including  bodily  injury  or  death,  or damage to the
property of others,  caused by an accident or other occurrence,  with a limit of
liability  of not less than  $1,000,000  (combined  single  limit  for  personal
injury,  including bodily injury or death, and property  damage);  comprehensive
automobile  liability  insurance covering all owned,  non-owned and hired autos,
with a limit of liability of not less than $1,000,000  (combined single limit or
equivalent for personal  injury,  including bodily injury or death, and property
damage);  and  blanket  excess  liability  coverage,  in an amount not less than
$5,000,000  combined  single limit or equivalent,  protecting the Agency and the
Lessee  against any loss or liability or damage for personal  injury,  including
bodily  injury or death,  or property  damage.  This  coverage  shall also be in
effect during the Construction Period.

      (d) During the  Construction  Period (and for at least one year thereafter
in the case of Products and Completed Operations as set forth below), the Lessee
shall cause the general contractor to carry liability  insurance of the type and
providing the minimum limits set forth below:

          (i) Workers'  compensation  and  employer's  liability  with limits in
          accordance with applicable law.

                                       10
<PAGE>

          (ii) Comprehensive general liability providing coverage for:

               Premises and Operations
               Products and Completed Operations
               Owners Protective
               Contractors Protective
               Contractual Liability
               Personal Injury Liability
               Broad Form Property Damage
                (including completed operations)
               Explosion Hazard
               Collapse Hazard
               Underground Property Damage Hazard

      Such insurance shall have a limit of liability of not less than $1,000,000
(combined  single limit for personal  injury,  including bodily injury or death,
and property damage).

          (iii) Comprehensive auto liability, including all owned, non-owned and
          hired autos,  with a limit of  liability  of not less than  $1,000,000
          (combined single limit for personal injury, including bodily injury or
          death, and property damage).

          (iv) Excess  "umbrella"  liability  providing  liability  insurance in
          excess of the  coverages in (i),  (ii) and (iii) above with a limit of
          not less than $5,000,000.

      (e) A policy or policies of flood insurance in an amount not less than the
principal amount of the Loan or the maximum amount of flood insurance  available
with respect to the Facility under the Flood Disaster Protection Act of 1973, as
amended, whichever is less. This requirement will be waived upon presentation of
evidence  satisfactory to the Bank that no portion of the Land is located within
an area  identified by the U.S.  Department of Housing and Urban  Development as
having special flood hazards.

      Section 6.5   Additional Provisions Respecting Insurance.
                    ------------------------------------------

(a) All  insurance  required  by  Section  6.4  hereof  shall  be  procured  and
maintained in financially sound and generally recognized  responsible  insurance
companies  authorized to write insurance in the State and selected by the entity
required to procure  the same.  The company  issuing  the  policies  required by
Section  6.4(a) and (e) shall be rated "A" or better by A.M.  Best Co.,  Inc. in
Best's Key Rating Guide.  Such insurance may be written with deductible  amounts
comparable to those on similar  policies  carried by other companies  engaged in
businesses  similar in size,  character and other respects to those in which the
procuring entity is engaged.  All policies  evidencing the insurance required by
Sections   6.4(a)  and  (e)   hereof   shall   contain  a   standard   New  York
non-contributory  mortgagee  clause  showing  the  interest of the Bank as first
mortgagee,  shall  provide  for  payment  to the  Bank  of the Net  Proceeds  of
insurance  resulting  from any  claim  for  loss or  damage  thereunder  and all
policies of insurance  required by Section 6.4 hereof shall provide for at least
thirty (30) days'  prior  written  notice of the  restriction,  cancellation  or
modification  thereof  to the Agency and the Bank.  The  policy  evidencing  the
insurance  required by Section  6.4(c) hereof shall name the Agency and the Bank
as additional named insureds. All

                                       11
<PAGE>

policies  evidencing the insurance  required by Sections  6.4(d)(ii),  (iii) and
(iv) shall name the Agency and the  Lessee as  additional  named  insureds.  The
Lessee  acknowledges  that a mortgage and  security  interest in the policies of
insurance  required by Section 6.4(a) and the Net Proceeds  thereof have been or
may be granted by the Agency to the Bank pursuant to the Mortgage and the Lessee
consents  thereto.  Upon request of the Bank, the Lessee will assign and deliver
(which  assignment shall be deemed to be automatic and to have occurred upon the
occurrence of an Event of Default under the Mortgage) to the Bank,  the policies
of insurance  required under Section 6.4(a), so and in such manner and form that
the Bank shall at all times,  upon such request and until the payment in full of
the  Loan,  have  and  hold  said  policies  and the Net  Proceeds  thereof,  as
collateral and further  security under the Mortgage for the payment of the Loan.
The  policies  under  Section  6.4(a)  shall  contain   appropriate  waivers  of
subrogation.

      (b) The policies (not  certificates  or binders) of insurance  required by
Sections 6.4(a) and (e) hereof shall be deposited with the Bank on or before the
Closing  Date.  A copy of the policy (not  certificate  or binder) of  insurance
required by Section  6.4(c) hereof shall be delivered to the Agency on or before
the  Closing  Date.  A copy of the  policies  (not  certificates  or binders) of
insurance  required  by  Sections  6.4(d)(ii),  (iii) and (iv)  hereof  shall be
delivered to the Agency on or before the Closing Date.  The Lessee shall deliver
to the Agency and the Bank before the first  Business Day of each  calendar year
thereafter a certificate dated not earlier than the immediately  preceding month
reciting  that there is in full force and effect,  with a term covering at least
the next  succeeding  calendar  year,  insurance of the types and in the amounts
required by Section 6.4 hereof and complying with the additional requirements of
Section 6.5(a) hereof.  Prior to the expiration of each such policy or policies,
the Lessee shall  furnish to the Agency and any other  appropriate  Person a new
policy or policies of  insurance or evidence  that such policy or policies  have
been renewed or replaced or are no longer required by this Lease Agreement.  The
Lessee  shall  provide such further  information  with respect to the  insurance
coverage  required by this Lease  Agreement  as the Agency and the Bank may from
time to time reasonably require.

      Section 6.6 Application of Net Proceeds of Insurance.  The Net Proceeds of
the insurance  carried pursuant to the provisions of Section 6.4 hereof shall be
applied as follows:  (i) the Net Proceeds of the insurance  required by Sections
6.4(a) and (e) hereof  shall be applied as provided  in Section 7.l hereof,  and
(ii) the Net Proceeds of the insurance  required by Sections 6.4(b), (c) and (d)
hereof shall be applied toward  extinguishment  or satisfaction of the liability
with respect to which such insurance proceeds may be paid.

      Section  6.7  Right of Bank to Pay  Taxes,  Insurance  Premiums  and Other
Charges.  If the  Lessee  fails  (i) to pay any tax,  together  with  any  fine,
penalty,  interest  or cost which may have been  added  thereto or become due or
been   imposed   by   operation   of   law   for    nonpayment    thereof,    or
payments-in-lieu-of-taxes  pursuant to the PILOT Agreement,  assessment or other
governmental  charge required to be paid by Section 6.3 hereof, (ii) to maintain
any insurance required to be maintained by Section 6.4 hereof,  (iii) to pay any
amount  required  to be  paid  by any law or  ordinance  relating  to the use or
occupancy  of the Facility or by any  requirement,  order or notice of violation
thereof issued by any governmental person, (iv) to pay any mechanic's Lien which
is recorded or filed against the Facility or any part thereof (unless  contested
in accordance with the provisions of Section 8.9(b)  hereof),  or (v) to pay any
other  amount or perform any act  hereunder  required to be paid or performed by
the Lessee hereunder, the Agency or the Bank may pay or cause

                                       12
<PAGE>

to  be  paid  such  tax  or  payments-in-lieu-of-taxes  pursuant  to  the  PILOT
Agreement,  assessment  or other  governmental  charge or the  premium  for such
insurance or any such other payment or may perform any such act. No such payment
shall be made or act performed by the Agency or the Bank until at least ten (10)
days shall have  elapsed  since  notice shall have been given by the Bank to the
Agency,  with a copy of such notice  being given to the Lessee (or by the Agency
to the  Lessee  and  the  Bank),  and in the  case  of any  tax,  assessment  or
governmental  charge  or the  amounts  specified  in  paragraphs  (iii) and (iv)
hereof,  no such payment  shall be made in any event if the Lessee is contesting
the same in good faith to the extent and as  permitted  by this Lease  Agreement
unless an Event of Default  hereunder shall have occurred and be continuing.  No
such  payment by the Agency or the Bank shall affect or impair any rights of the
Agency  hereunder or of the Bank under the Mortgage  arising in  consequence  of
such failure by the Lessee. The Lessee shall, on demand, reimburse the Agency or
the  Bank for any  amount  so paid or for  expenses  or  costs  incurred  in the
performance  of any such act by the Agency or the Bank  pursuant to this Section
(which shall include all reasonable legal fees and disbursements), together with
interest thereon from the date of payment of such amount, expense or cost by the
Agency  or the Bank at one  percent  (1%) in excess of the rate set forth in the
Note,  and such amount,  together with such  interest,  shall become  additional
indebtedness secured by the Mortgage.

                                  ARTICLE VII

                      DAMAGE, DESTRUCTION AND CONDEMNATION

      Section 7.1   Damage or Destruction of the Facility.
                    -------------------------------------

      (a) If the Facility or any part or component  thereof  shall be damaged or
destroyed (in whole or in part) at any time during the Lease Term:

          (i) the Agency shall have no obligation to replace,  repair,  rebuild,
          restore or relocate the Facility; and

          (ii) there shall be no abatement  or reduction in the amounts  payable
          by the  Lessee  under  this  Lease  Agreement  or the PILOT  Agreement
          (whether or not the Facility is replaced,  repaired, rebuilt, restored
          or relocated); and

          (iii) the Lessee shall  promptly  give written  notice  thereof to the
          Agency and the Bank; and

          (iv)  upon the  occurrence  of such  damage  or  destruction,  the Net
          Proceeds  derived  from  the  insurance  shall be paid to the Bank and
          except as  otherwise  provided  in  Section  11.1 and  subsection  (d)
          hereof, applied by the Bank pursuant to the terms of the Mortgage; and

          (v) if the Facility is not replaced,  repaired,  rebuilt,  restored or
          relocated, as provided herein and in Section 7.1(b) hereof, this Lease
          Agreement  shall be  terminated  at the  option of the  Agency and the
          provisions of Sections 11.2, 11.3 and 11.4 hereof shall apply.

                                       13
<PAGE>

      (b) Any replacements,  repairs, rebuilding, restorations or relocations of
the Facility by the Lessee after the  occurrence  of such damage or  destruction
shall be subject to the following conditions:

          (i) the Facility  shall be in  substantially  the same  condition  and
          value  as an  operating  entity  as  existed  prior to the  damage  or
          destruction;

          (ii) the  Facility  shall  continue to  constitute a "project" as such
          term is defined in the Act;

          (iii) the Facility will be subject to no Liens,  other than  Permitted
          Encumbrances; and

          (iv) any other conditions the Bank may reasonably impose.

      (c) All such repair, replacement, rebuilding, restoration or relocation of
the Facility  shall be effected  with due  diligence  in a good and  workmanlike
manner in compliance with all applicable legal  requirements,  shall be promptly
and fully paid for by the Lessee in accordance  with the terms of the applicable
contracts,  and shall automatically become a part of the Facility as if the same
were specifically provided herein.

      (d) If the  Lessee  shall  exercise  its  option to  terminate  this Lease
Agreement  pursuant to Section 11.1 hereof such Net Proceeds shall be applied to
the payment of the amounts  required to be paid by Section  11.2  hereof.  If an
Event of Default hereunder shall have occurred and the Bank shall have exercised
its remedies under Section 10.2 hereof such Net Proceeds shall be applied to the
payment of the  amounts  required to be paid by Section  10.2 and  Section  10.4
hereof.

      (e) If the entire  amount of the Loan and interest  thereon has been fully
paid, all such remaining Net Proceeds shall be paid to the Lessee.

      (f) If the Facility has been substantially damaged or destroyed and is not
replaced,  repaired,  rebuilt,  restored  or  relocated,  the  Facility  will be
reconveyed to the Lessee subject to the Mortgage.

      Section 7.2   Condemnation.
                    ------------

      (a) If title to or use of the Facility shall be taken by Condemnation  (in
whole or in part) at any time during the Lease Term:

          (i) the Agency shall have no obligation to replace,  repair,  rebuild,
          restore or  relocate  the  Facility  or acquire,  by  construction  or
          otherwise, facilities of substantially the same nature as the Facility
          ("Substitute Facilities"); and

          (ii) there shall be no abatement  or reduction in the amounts  payable
          by the  Lessee  under  this  Lease  Agreement  or the PILOT  Agreement
          (whether or not the Facility is replaced,  repaired, rebuilt, restored
          or relocated or Substitute Facilities acquired); and

                                       14
<PAGE>

          (iii) the Lessee shall  promptly  give written  notice  thereof to the
          Agency and the Bank; and

          (iv)  upon  the  occurrence  of such  Condemnation,  the Net  Proceeds
          derived  therefrom  shall be paid to the Bank and except as  otherwise
          provided in Section  11.1 and  subsection  (d) hereof,  applied by the
          Bank pursuant to the terms of the Mortgage; and

          (v) if the Facility is not replaced,  repaired,  rebuilt,  restored or
          relocated,  or Substitute  Facilities acquired, as provided herein and
          in Section 7.2(b) hereof,  this Lease Agreement shall be terminated at
          the option of the Agency and the provisions of Section 11.2,  11.3 and
          11.4 hereof shall apply.

      (b) Any replacements,  repairs, rebuilding, restorations or relocations of
the Facility or  acquisitions  of Substitute  Facilities by the Lessee after the
occurrence of such Condemnation shall be subject to the following conditions:

          (i)  the   Facility  or  the   Substitute   Facilities   shall  be  in
          substantially  the same condition and value as an operating  entity as
          existed prior to the Condemnation;

          (ii) the  Facility  or the  Substitute  Facilities  shall  continue to
          constitute a "project" as such term is defined in the Act;

          (iii) the Facility or the Substitute  Facilities will be subject to no
          Liens, other than Permitted Encumbrances; and

          (iv) any other conditions the Bank may reasonably impose.

      (c) All such repair, replacement, rebuilding, restoration or relocation of
the Facility or acquisition of Substitute  Facilities shall be effected with due
diligence in a good and  workmanlike  manner in compliance  with all  applicable
legal  requirements,  shall be  promptly  and  fully  paid for by the  Lessee in
accordance with the terms of the applicable  contracts,  and shall automatically
become a part of the Facility as if the same were specifically described herein.

      (d) If the  Lessee  shall  exercise  its  option to  terminate  this Lease
Agreement  pursuant to Section 11.1 hereof such Net Proceeds shall be applied to
the payment of the amounts  required to be paid by Section 11.2  hereof.  If any
Event of Default hereunder shall have occurred and the Bank shall have exercised
its remedies under Section 10.2 hereof such Net Proceeds shall be applied to the
payment of the  amounts  required to be paid by Section  10.2 and  Section  10.4
hereof.

      (e) If the entire  amount of the Loan and interest  thereon has been fully
paid, all such remaining Net Proceeds shall be paid to the Lessee.

      (f) If the Facility has been substantially  condemned and is not replaced,
repaired,  rebuilt,  replaced or relocated  or if a  Substitute  Facility is not
acquired,  constructed  and  equipped,  the Facility  will be  reconveyed to the
Lessee subject to the Mortgage.

                                       15
<PAGE>

      Section 7.3  Condemnation  of Lessee-Owned  Property.  The Lessee shall be
entitled to the proceeds of any  Condemnation  award or portion thereof made for
damage to or taking of any Property which, at the time of such damage or taking,
is not part of the Facility.

      Section 7.4 Waiver of Real  Property Law Section  227.  The Lessee  hereby
waives the  provisions  of Section 227 of the Real  Property Law of the State or
any law of like import now or hereafter in effect.

                                  ARTICLE VIII

                               SPECIAL COVENANTS

      Section 8.1 No Warranty of Condition or Suitability by Agency.  THE AGENCY
MAKES NO  WARRANTY,  EITHER  EXPRESS OR IMPLIED,  AS TO THE  CONDITION,  DESIGN,
OPERATION,  MERCHANTABILITY  OR FITNESS OF, OR TITLE TO, THE FACILITY OR THAT IT
IS OR WILL BE SUITABLE FOR THE COMPANY'S PURPOSES OR NEEDS.

      Section 8.2   Hold Harmless Provisions.
                    ------------------------

      (a) The Lessee agrees that the Agency, its directors,  members,  officers,
agents  (except the Lessee) and employees  shall not be liable for and agrees to
defend,  indemnify,  release  and  hold  the  Agency,  its  directors,  members,
officers, agents (except the Lessee) and employees harmless from and against any
and all (i)  liability  for loss or damage to  Property or injury to or death of
any and all Persons that may be occasioned by, directly or indirectly, any cause
whatsoever  pertaining  to the Facility or arising by reason of or in connection
with the occupation or the use thereof or the presence of any Person or Property
on, in or about  the  Facility  or the Land or (ii)  liability  arising  from or
expense incurred by the Agency's financing,  acquiring,  renovating,  equipping,
owning and leasing of the Facility, including without limiting the generality of
the  foregoing,  all claims  arising from the breach by the Lessee of any of its
covenants  contained  herein,  the  exercise  by the  Lessee  of  the  authority
conferred  upon it pursuant to Section  4.1(c) of this Lease  Agreement  and all
causes of action and attorneys' fees (whether by reason of third party claims or
by reason of the enforcement of any provision of this Lease Agreement (including
without limitation this Section) or any of the other documents  delivered on the
Closing Date by the Agency),  and any other  expenses  incurred in defending any
claims,  suits or actions  which may arise as a result of any of the  foregoing,
provided that any such losses,  damages,  liabilities  or expenses of the Agency
are not incurred or do not result from the gross  negligence or  intentional  or
willful  wrongdoing  of the  Agency  or any of its  directors,  members,  agents
(except  the  Lessee)  or  employees.  The  foregoing  indemnities  shall  apply
notwithstanding  the fault or  negligence  in part of the Agency,  or any of its
members, directors, officers, agents or employees and irrespective of the breach
of a statutory  obligation  or the  application  of any rule of  comparative  or
apportioned liability.  The foregoing indemnities are limited only to the extent
of any  prohibitions  imposed  by law,  and  upon  the  application  of any such
prohibition by the final  judgment or decision of a competent  court of law, the
remaining provisions of these indemnities shall remain in full force and effect.

                                       16
<PAGE>

      (b)  Notwithstanding  any other  provisions of this Lease  Agreement,  the
obligations  of the Lessee  pursuant to this  Section  8.2 shall  remain in full
force and  effect  after  the  termination  of this  Lease  Agreement  until the
expiration of the period stated in the applicable  statute of limitations during
which a claim,  cause of action or  prosecution  relating to the matters  herein
described may be brought and payment in full or the  satisfaction of such claim,
cause of action or prosecution  relating to the matters herein described and the
payment of all  expenses  and charges  incurred by the Agency,  or its  members,
directors,  officers,  agents and employees,  relating to the enforcement of the
provisions herein specified.

      (c)  In  the  event  of any  claim  against  the  Agency  or its  members,
directors,  officers,  agents or employees by any employee or  contractor of the
Lessee or anyone  directly or  indirectly  employed by any of them or anyone for
whose acts any of them may be liable,  the  obligations of the Lessee  hereunder
shall  not be  limited  in any way by any  limitation  on the  amount or type of
damages, compensation, disability benefits or other employee benefit acts.

      Section  8.3 Right to  Inspect  Facility.  The Agency and the Bank and the
duly authorized  agents of either of them shall have the right at all reasonable
times to inspect the Facility.

      Section  8.4 Lessee to  Maintain  Its  Existence.  The Lessee  agrees that
during the Lease Term it will  maintain  its  existence  and will not  dissolve,
liquidate or otherwise dispose of substantially all of its assets.

      Section 8.5  Qualification in State. The Lessee  throughout the Lease Term
shall continue to be duly authorized to do business in the State.

      Section 8.6 Agreement to File Annual  Statements and Provide  Information.
The Lessee shall file with the New York State Department of Taxation and Finance
an annual statement of the value of all sales and use tax exemptions  claimed in
connection  with the Facility in compliance  with Sections 874(8) and (9) of the
New York State  General  Municipal  Law.  The Lessee shall submit a copy of such
annual  statement  to the Agency at the time of filing  with the  Department  of
Taxation and Finance. The Lessee further agrees whenever requested by the Agency
to provide and certify or cause to be provided and  certified  such  information
concerning  the Lessee,  its finances,  its  operations,  its employment and its
affairs  necessary  to enable  the Agency to make any  report  required  by law,
governmental regulation or any of the Agency Documents or Lessee Documents. Such
information  shall be provided within thirty (30) days following written request
from the Agency.

      Section 8.7 Books of Record and Account;  Financial Statements. The Lessee
at all times agrees to maintain proper accounts, records and books in which full
and  correct  entries  shall be made,  in  accordance  with  generally  accepted
accounting  principles,  of all transactions and events relating to the business
and affairs of the  Lessee.  The Lessee  shall  furnish to the Agency and to the
Bank within  thirty (30) days of their  filing,  copies of all reports,  if any,
filed with the  Securities and Exchange  Commission,  pursuant to the Securities
Exchange Act of 1934, as amended, relative to the Lessee.

      Section 8.8   Compliance With Orders, Ordinances, Etc.
                    ---------------------------------------

                                       17
<PAGE>

      (a) The Lessee,  throughout  the Lease Term,  agrees that it will promptly
comply, and cause any sublessee or occupant of the Facility to comply,  with all
statutes,   codes,  laws,  acts,   ordinances,   orders,   judgments,   decrees,
injunctions, rules, regulations, permits, licenses,  authorizations,  directions
and requirements,  ordinary or extraordinary, which now or at any time hereafter
may be  applicable  to the Facility or any part  thereof or to the  acquisition,
renovation and equipping  thereof,  or to any use, manner of use or condition of
the Facility or any part thereof, of all federal,  state, county,  municipal and
other  governments,   departments,  commissions,  boards,  courts,  authorities,
officials and officers having  jurisdiction of the Facility or any part thereof,
or to the acquisition,  renovation and equipping thereof,  or to any use, manner
of use or  condition  of the  Facility or any part  thereof or of  companies  or
associations insuring the premises.

      (b) The  Lessee  shall  keep or  cause  the  Facility  to be kept  free of
Hazardous Substances. Without limiting the foregoing, the Lessee shall not cause
or permit the Facility to be used to generate,  manufacture,  refine, transport,
treat,  store,  handle,   dispose,   transfer,   produce  or  process  Hazardous
Substances,  except in compliance with all applicable  federal,  state and local
laws or  regulations,  nor shall the Lessee cause or permit,  as a result of any
intentional  or  unintentional  act or omission on the part of the Lessee or any
contractor,   subcontractor,   tenant  or  subtenant,  a  release  of  Hazardous
Substances onto the Facility or onto any other property. The Lessee shall comply
with and ensure  compliance  by all  contractors,  subcontractors,  tenants  and
subtenants with all applicable federal, state and local laws, ordinances,  rules
and regulations, whenever and by whomever triggered, and shall obtain and comply
with, and ensure that all  contractors,  subcontractors,  tenants and subtenants
obtain and comply with, any and all approvals, registrations or permits required
thereunder.  The Lessee  shall (a)  conduct  and  complete  all  investigations,
studies,  sampling,  and testing,  and all remedial,  removal, and other actions
necessary  to clean  up and  remove  all  Hazardous  Substances,  on,  from,  or
affecting the Facility (i) in accordance with all applicable federal, state, and
local  laws,  ordinances,   rules,  regulations,   and  policies,  (ii)  to  the
satisfaction  of the Bank and the Agency and (iii) in accordance with the orders
and directives of all federal,  state, and local governmental  authorities;  and
(b)  defend,  indemnify,  and  hold  harmless  the Bank  and the  Agency,  their
employees, agents, officers, members and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs, or expenses
of whatever kind or nature, known or unknown,  contingent or otherwise,  arising
out of,  or in any  way  related  to (i) the  presence,  disposal,  release,  or
threatened  release of any Hazardous  Substances which are on, from or affecting
the soil, water, vegetation,  buildings, personal property, persons, animals, or
otherwise, (ii) any bodily injury, personal injury (including wrongful death) or
property  damage (real or personal)  arising out of or related to such Hazardous
Substances,  (iii) any lawsuit  brought or threatened,  settlement  reached,  or
government  order  relating  to  such  Hazardous  Substances,  and/or  (iv)  any
violation of laws, orders, regulations,  requirements,  or demands of government
authorities,  or any policies or requirements of the Bank and the Agency,  which
are based upon or in any way related to such  Hazardous  Substances,  including,
without limitation,  attorney and consultant fees,  investigation and laboratory
fees,  court  costs,  and  litigation  expenses.  In the event the  Mortgage  is
foreclosed,  or the  Lessee  tenders a deed in lieu of  foreclosure,  the Lessee
shall deliver the Facility free of any and all Hazardous  Substances so that the
condition of the Facility shall conform with all applicable  federal,  state and
local  laws,  ordinances,  rules or  regulations  affecting  the  Facility.  The
provisions of this Section shall be in addition to any and all other obligations
and liabilities the Lessee may

                                       18
<PAGE>

have  to the  Agency  and  the  Bank  at  common  law,  and  shall  survive  the
transactions contemplated herein.

      (c)  Notwithstanding the provisions of subsections (a) and (b) hereof, the
Lessee  may in good faith  contest  the  validity  or the  applicability  of any
requirement  of the  nature  referred  to in  such  subsections  (a)  and (b) by
appropriate legal proceedings conducted in good faith and with due diligence. In
such event,  the Lessee may fail to comply with the  requirement or requirements
so contested during the period of such contest and any appeal therefrom,  unless
the Agency or the Bank shall  notify the Lessee  that by failure to comply  with
such requirement or requirements, the lien of the Mortgage as to any part of the
Facility may be materially endangered or the Facility or any part thereof may be
subject to loss, penalty or forfeiture, in which event the Lessee shall promptly
take such  action  with  respect  thereto or provide  such  security as shall be
satisfactory to the Bank and to the Agency. If at any time the then existing use
or  occupancy  of the  Facility  shall,  pursuant  to any  zoning or other  law,
ordinance  or  regulation,  be  permitted  only so long as such use or occupancy
shall  continue,  the Lessee  shall use its best  efforts to not cause or permit
such use or occupancy to be  discontinued  without the prior written  consent of
the Agency and the Bank.

      (d)  Notwithstanding  the provisions of this Section 8.8, if, because of a
breach or violation of the provisions of subsections  (a) or (b) hereof (without
giving effect to subsection (c) hereof),  either the Agency, the Bank, or any of
their respective members,  directors,  officers,  agents, or employees, shall be
threatened with a fine,  liability,  expense or imprisonment,  then, upon notice
from the  Agency  or the  Bank,  the  Lessee  shall  immediately  provide  legal
protection  and/or pay  amounts  necessary  in the  opinion of the Agency or the
Bank, as the case may be, and their  respective  members,  directors,  officers,
agents and employees deem sufficient, to the extent permitted by applicable law,
to remove the threat of such fine, liability, expense or imprisonment.

      (e)  Notwithstanding  any  provisions  of this  Section,  the Bank and the
Agency each retain the right to defend themselves in any action or actions which
are based upon or in any way related to such Hazardous  Substances.  In any such
defense of  themselves,  the Bank and the Agency  shall  each  select  their own
counsel, and any and all costs of such defense,  including,  without limitation,
attorney and consultant  fees,  investigation  and laboratory fees, court costs,
and litigation expenses, shall be paid by the Lessee.

      Section 8.9   Discharge of Liens and Encumbrances.
                    -----------------------------------

      (a) The Lessee,  throughout the Lease Term,  shall not permit or create or
suffer to be permitted or created any Lien,  except for Permitted  Encumbrances,
upon the  Facility  or any part  thereof  by reason of any  labor,  services  or
materials  rendered or  supplied  or claimed to be  rendered  or  supplied  with
respect to the Facility or any part thereof.

      (b)  Notwithstanding  the provisions of subsection (a) hereof,  the Lessee
may in good faith  contest any such Lien.  In such event,  the Lessee may permit
the items so contested to remain  undischarged and unsatisfied during the period
of such  contest and any appeal  therefrom,  unless the Agency or the Bank shall
notify the Lessee that by nonpayment of any such item or items,  the lien of the
Mortgage may be materially endangered or the Facility or any part thereof may be
subject to loss or forfeiture,  in which event the Lessee shall promptly  secure
payment of all such unpaid items by filing a bond, in form and

                                       19
<PAGE>

substance  satisfactory to the Bank and the Agency, thereby causing such Lien to
be removed or by taking such other  actions as may be  satisfactory  to the Bank
and the Agency to protect their respective interests.  Mechanics' Liens shall be
discharged  or  bonded  within  thirty  (30) days of the  filing  or  perfection
thereof.

      Section 8.10  Identification  of Equipment.  All Equipment which is or may
become the  Property  of the Agency  pursuant  to the  provisions  of this Lease
Agreement  shall  be  properly  identified  by the  Lessee  by such  appropriate
records,  including  computerized  records, as may be approved by the Agency and
the Bank.  All  Equipment  and other  Property  of  whatever  nature  affixed or
attached to the Land or used or to be used by the Lessee in connection  with the
Land or the  Improvements  shall  be  deemed  presumptively  to be  owned by the
Agency,  rather than the Lessee,  unless the same were  utilized for purposes of
renovation of the Facility or were installed by the Lessee and title thereto was
retained by the Lessee as provided  in Section 6.2 of this Lease  Agreement  and
such Equipment and other Property were properly  identified by such  appropriate
records as were approved by the Agency and the Bank.

      Section  8.11  Depreciation  Deductions  and  Investment  Tax Credit.  The
parties  agree  that,  as between  them,  the Lessee  shall be  entitled  to all
depreciation  deductions with respect to any depreciable  property  comprising a
part of the  Facility and to any  investment  credit with respect to any part of
the Facility.

      Section  8.12  Employment  Opportunities,   Notice  of  Jobs.  The  Lessee
covenants and agrees that, in consideration  of the  participation of the Agency
in the transactions  contemplated  herein, it will, except as otherwise provided
by collective  bargaining  contracts or agreements to which it is a party, cause
any new employment  opportunities  created in connection with the Facility to be
listed with the New York State Department of Labor,  Community Services Division
and with the administrative entity of the service delivery area created pursuant
to the Job Training Partnership Act (PL 97-300) in which the Facility is located
(collectively,  the "Referral  Agencies").  The Lessee also agrees that it will,
except as otherwise provided by collective bargaining contracts or agreements to
which it is a party,  first  consider  for  such  new  employment  opportunities
persons eligible to participate in federal job training  partnership (PL 97-300)
programs who shall be referred by the Referral Agencies.

                                   ARTICLE IX

              RELEASE OF CERTAIN LAND; ASSIGNMENTS AND SUBLEASING;
                        MORTGAGE AND PLEDGE OF INTERESTS

      Section 9.1   Restriction on Sale of Facility; Release of Certain Land.
                    --------------------------------------------------------

      (a) Except as  otherwise  specifically  provided in this Article IX and in
Article X hereof,  the Agency  shall not sell,  convey,  transfer,  encumber  or
otherwise dispose of the Facility or any part thereof or any of its rights under
this Lease  Agreement,  without the prior written  consent of the Lessee and the
Bank.

      (b) With the prior written  consent of the Bank (which  consent may not be
unreasonably  withheld but may be subject to such  reasonable  conditions as the
Bank may deem  appropriate),  the Agency  and the  Lessee  from time to time may
release from the

                                       20
<PAGE>

provisions of this Lease  Agreement and the leasehold  estate created hereby any
part of, or interest  in, the Land which is not  necessary,  desirable or useful
for the  Facility.  In such event,  the Agency,  at the  Lessee's  sole cost and
expense, shall execute and deliver, and request the Bank to execute and deliver,
any and all instruments  necessary or appropriate to so release such part of, or
interest in, the Land and convey such title  thereto or interest  therein,  free
from the lien of the Mortgage,  to the Lessee or such other Person as the Lessee
may  designate.  As a condition to such  conveyance,  the Bank shall be provided
with a copy of the instrument  transferring such title or interest in such Land,
an  instrument  survey  (if the Bank so  requests)  of the Land to be  conveyed,
together with a certificate of an Authorized  Officer of the Lessee stating that
there is then no Event of Default  under this Lease  Agreement and such part of,
or interest in, the Land is not necessary, desirable or useful for the Facility.

      (c) No conveyance of any part of, or interest in, the Land effected  under
the  provisions of this Section 9.l shall entitle the Lessee to any abatement or
diminution  of the  rents  payable  by it  under  this  Lease  Agreement  or any
abatement or diminution of the amounts payable by it under the PILOT Agreement.

      Section 9.2   Removal of Equipment.
                    --------------------

      (a) The Agency  shall not be under any  obligation  to  remove,  repair or
replace  any  inadequate,   obsolete,  worn  out,  unsuitable,   undesirable  or
unnecessary item of Equipment.  In any instance where the Lessee determines that
any item of Equipment has become  inadequate,  obsolete,  worn out,  unsuitable,
undesirable or  unnecessary,  the Lessee,  with the prior written consent of the
Bank (which consent may not be unreasonably  withheld but may be subject to such
reasonable  conditions as the Bank may deem appropriate),  may remove such items
from the Facility and may sell,  trade-in,  exchange or otherwise dispose of the
same, as a whole or in part,  free from the lien of the Mortgage,  provided that
such removal will not  materially  impair the  operation of the Facility for the
purpose for which it is intended or change the nature of the Facility so that it
does not constitute a "project" under the Act.

      (b) The Agency  shall  execute and  deliver to the Lessee all  instruments
necessary or  appropriate  to enable the Lessee to sell or otherwise  dispose of
any such item of Equipment.  The Lessee shall pay any costs  (including  counsel
fees) incurred in transferring  title to any item of Equipment  removed pursuant
to this Section 9.2.

      (c) The removal of any item of Equipment  pursuant to this  Section  shall
not entitle the Lessee to any abatement or diminution of the rents payable by it
under this Lease Agreement or any abatement or diminution of the amounts payable
by it under the PILOT Agreement.

      Section 9.3   Assignment and Subleasing.
                    -------------------------

      (a) This Lease Agreement may not be assigned, in whole or in part, and the
Facility  may not be  subleased,  in whole or in part  (except  pursuant  to the
Sublease),  without the prior written consent of the Bank and the Agency in each
instance. Any assignment or sublease shall be on the following conditions, as of
the time of such assignment or sublease:

          (i) no  assignment  or sublease  shall relieve the Lessee from primary
          liability for any of its obligations hereunder;

                                       21
<PAGE>

          (ii) the assignee or sublessee  (except in the case of a true sublease
          in the ordinary  course of business)  shall assume the  obligations of
          the  Lessee  hereunder  to the  extent  of the  interest  assigned  or
          subleased;

          (iii)  the  Lessee  shall,  within  ten (10) days  after the  delivery
          thereof,  furnish  or cause to be  furnished  to the Agency and to the
          Bank a true and complete  copy of such  assignment or sublease and the
          instrument of assumption;

          (iv)  neither  the  validity  nor  the  enforceability  of  the  Lease
          Agreement or any of the Loan  Documents  shall be  adversely  affected
          thereby;

          (v) the  Facility  shall  continue to  constitute  a "project" as such
          quoted term is defined in the Act; and

          (vi) the  sublessee  will  execute  and  deliver an Agency  Compliance
          Agreement, in form and substance satisfactory to the Agency.

      (b) If the  Bank or the  Agency  shall  so  request,  as of the  purported
effective date of any assignment or sublease  pursuant to subsection (a) of this
Section 9.3, the Lessee at its cost shall furnish the Bank and the Agency,  with
an opinion,  in form and substance  satisfactory to the Bank and the Agency, (i)
of Transaction  Counsel as to item (v) above, and (ii) of Independent Counsel as
to items (i), (ii) and (iv) above.

      Section 9.4 Mortgage and Pledge of Agency's  Interests to Bank. The Agency
shall (i) mortgage its interest in the Facility,  and (ii) pledge and assign its
rights to and interest in this Lease Agreement and in all amounts payable by the
Lessee  pursuant  to Section 5.3 hereof and all other  provisions  of this Lease
Agreement (other than Unassigned Rights) to the Bank as security for the payment
of the principal of and interest on the Loan. The Lessee hereby acknowledges and
consents to such mortgage, pledge and assignment by the Agency.  Notwithstanding
the  foregoing,  all  indemnities  herein  contained  shall  subsequent  to such
mortgage, pledge and assignment continue to run to the Agency for its benefit as
well as for the benefit of the Bank.

      Section 9.5 Pledge of Lessee's  Interest to Bank.  The Lessee shall pledge
and assign its rights to and  interest  in this Lease  Agreement  to the Bank as
security  for the payment of the  principal  of and  interest  on the Loan.  The
Agency  hereby  acknowledges  and consents to such pledge and  assignment by the
Lessee.

      Section 9.6   Merger of Agency.
                    ----------------

      (a)  Nothing   contained  in  this  Lease   Agreement  shall  prevent  the
consolidation  of the Agency with,  or merger of the Agency into, or transfer of
title  to the  entire  Facility  to any  other  public  benefit  corporation  or
political  subdivision  which  has the  legal  authority  to own and  lease  the
Facility, provided that upon any such consolidation, merger or transfer, the due
and punctual  performance and observance of all the agreements and conditions of
this Lease  Agreement to be kept and  performed by the Agency shall be expressly
assumed in writing by the public benefit  corporation  or political  subdivision
resulting  from such  consolidation  or  surviving  such  merger or to which the
Facility shall be transferred.

                                       22
<PAGE>

      (b)  Within  thirty  (30)  days  after  the   consummation   of  any  such
consolidation, merger or transfer of title, the Agency shall give notice thereof
in reasonable  detail to the Lessee and the Bank and shall furnish to the Lessee
and the Bank, at the sole cost and expense of the Lessee, a favorable opinion of
Independent  Counsel as to  compliance  with the  provisions  of Section  9.6(a)
hereof.  The Agency  promptly  shall furnish such  additional  information  with
respect  to any such  transaction  as the  Lessee  or the  Bank  may  reasonably
request.

                                   ARTICLE X

                         EVENTS OF DEFAULT AND REMEDIES

      Section 10.1  Events of Default Defined.
                    -------------------------

      (a) The following shall be "Events of Default" under this Lease Agreement:

          (i) the  failure  by the Lessee to pay or cause to be paid on the date
          due, the amount  specified to be paid  pursuant to Section  5.3(a) and
          (b) hereof;

          (ii) the failure by the Lessee to observe  and  perform  any  covenant
          contained in Sections 6.4, 6.5, 8.4 and 9.3 hereof;

          (iii)  the  failure  by the  Lessee  to pay or cause to be paid on the
          dates due,  the  amounts  specified  to be paid  pursuant to the PILOT
          Agreement;

          (iv) the  invalidity,  illegality  or  unenforceability  of the  PILOT
          Agreement;  or the  failure by the Lessee to observe  and  perform any
          covenant contained in the PILOT Agreement;

          (v) any  representation  or warranty of the Lessee herein or in any of
          the Lessee  Documents  shall prove to have been false or misleading in
          any material respect;

          (vi) the failure by the Lessee to observe  and  perform any  covenant,
          condition  or  agreement  hereunder  on its  part  to be  observed  or
          performed  (except  obligations  referred to in  10.1(a)(i),  (ii) and
          (iii))  for a  period  of  thirty  (30)  days  after  written  notice,
          specifying such failure and requesting  that it be remedied,  given to
          the Lessee by the Agency or the Bank;

          (vii) the dissolution or liquidation of the Lessee;  or the failure by
          the Lessee to release,  stay,  discharge,  lift or bond within  thirty
          (30) days any execution,  garnishment,  judgment or attachment of such
          consequence as may impair its ability to carry on its  operations;  or
          the  failure by the Lessee  generally  to pay its debts as they become
          due; or an assignment by the Lessee for the benefit of creditors;  the
          commencement  by the Lessee (as the debtor) of a case in Bankruptcy or
          any proceeding  under any other insolvency law; or the commencement of
          a case in Bankruptcy or any proceeding  under any other insolvency law
          against the Lessee (as the debtor) and a court having  jurisdiction in
          the premises enters a decree or order for relief against the Lessee as
          the debtor in such case or  proceeding,  or such case or proceeding is

                                       23
<PAGE>

          consented to by the Lessee or remains undismissed for forty (40) days,
          or the Lessee consents to or admits the material  allegations  against
          it in any such case or  proceeding;  or a trustee,  receiver  or agent
          (however   named)  is  appointed  or  authorized  to  take  charge  of
          substantially  all of the  property  of the Lessee for the  purpose of
          enforcing a lien against  such  Property or for the purpose of general
          administration of such Property for the benefit of creditors;

          (viii) an Event of Default under the Mortgage  shall have occurred and
          be continuing;

          (ix) an Event of Default under the Loan Documents  shall have occurred
          and be continuing;

          (x) the invalidity,  illegality or unenforceability of any of the Loan
          Documents; or

          (xi) a breach of any covenant or  representation  contained in Section
          8.8 hereof with respect to environmental matters.

      (b)  Notwithstanding  the provisions of Section  10.1(a),  if by reason of
force  majeure any party hereto shall be unable in whole or in part to carry out
its  obligations  under Sections 4.1 and 6.1 of this Lease Agreement and if such
party shall give notice and full particulars of such force majeure in writing to
the other party and to the Bank,  within a reasonable  time after the occurrence
of the event or cause relied upon, such  obligations  under this Lease Agreement
of the party giving such notice (and only such obligations),  so far as they are
affected by such force  majeure,  shall be suspended  during  continuance of the
inability,  which shall include a reasonable  time for the removal of the effect
thereof.  The  term  "force  majeure"  as used  herein  shall  include,  without
limitation,  acts of God,  strikes,  lockouts or other industrial  disturbances,
acts of public enemies, acts, priorities or orders of any kind of the government
of the United  States of  America  or of the State or any of their  departments,
agencies,  governmental  subdivisions,  or  officials,  any  civil  or  military
authority,  insurrections, riots, epidemics, landslides, lightning, earthquakes,
fire, hurricanes,  storms, floods,  washouts,  droughts,  arrests,  restraint of
government and people, civil disturbances,  explosions,  breakage or accident to
machinery,  transmission  pipes or canals,  shortages  of labor or  materials or
delays of carriers,  partial or entire failure of utilities,  shortage of energy
or any other  cause or event not  reasonably  within  the  control  of the party
claiming  such  inability  and not due to its  fault.  The party  claiming  such
inability shall remove the cause for the same with all reasonable promptness. It
is  agreed  that the  settlement  of  strikes,  lockouts  and  other  industrial
disturbances  shall be  entirely  within  the  discretion  of the  party  having
difficulty,  and the party having difficulty shall not be required to settle any
strike, lockout and other industrial  disturbances by acceding to the demands of
the opposing party or parties.

      Section 10.2  Remedies on Default.
                    -------------------

      (a) Whenever any Event of Default shall have  occurred,  the Agency or the
Bank may take, to the extent  permitted by law, any one or more of the following
remedial steps:

          (i) declare,  by written notice to the Lessee,  to be immediately  due
          and  payable,  whereupon  the same shall  become  immediately  due and
          payable:

                                       24
<PAGE>

          (A) all unpaid installments of rent payable pursuant to Section 5.3(a)
          and (b) hereof,  (B) all unpaid and past due payments in lieu of taxes
          pursuant to the PILOT  Agreement and (C) all other  payments due under
          this Lease Agreement;  provided,  however, that if an Event of Default
          specified in Section  10.1(a)(vii)  hereof shall have  occurred,  such
          installments of rent and other payments due under this Lease Agreement
          shall become  immediately due and payable without notice to the Lessee
          or the taking of any other action by the Agency or the Bank;

          (ii) re-enter and take  possession of the Facility,  on ten (10) days'
          written notice to the Lessee, without terminating this Lease Agreement
          and without being liable for any prosecution or damages therefor,  and
          sublease  the  Facility  for the  account of the  Lessee,  holding the
          Lessee  liable for the amount,  if any, by which the  aggregate of the
          rents and other amounts  payable by the Lessee  hereunder  exceeds the
          aggregate of the rents and other  amounts  received from the sublessee
          under such sublease;

          (iii)  terminate,  on ten (10)  days'  written  notice  to the  Lessee
          (provided,  however, that no notice of termination to the Lessee shall
          be required  upon the  occurrence  of an Event of Default  pursuant to
          Section  10.1(a)(ix) or (x) hereof),  the Lease Term and all rights of
          the Lessee under this Lease  Agreement  and,  without being liable for
          any  prosecution  or  damages   therefor,   exclude  the  Lessee  from
          possession  of the Facility  and lease the Facility to another  Person
          for the  account of the  Lessee,  holding  the  Lessee  liable for the
          amount,  if any, by which the aggregate of the rents and other amounts
          payable by the Lessee hereunder exceeds the aggregate of the rents and
          other amounts received from such other Person under the new lease;

          (iv) enter upon the Facility and complete the acquisition,  renovation
          and  equipping  of the  Facility  in  accordance  with the  Plans  and
          Specifications  (with such  changes as the Bank may deem  appropriate)
          and  in  connection  therewith  (a)  engage  architects,  contractors,
          materialmen, laborers and suppliers and others, (b) employ watchmen to
          protect and preserve the Facility, (c) assume any contract relating to
          the Facility and take over and use all labor, materials,  supplies and
          equipment,  whether or not previously  incorporated into the Facility,
          (d) pay, settle or compromise all bills or claims, (e) discontinue any
          work or change any course of action already undertaken with respect to
          the  Facility,  and (f)  take  or  refrain  from  taking  such  action
          hereunder as the Bank may from time to time determine;

          (v)  terminate  this Lease  Agreement,  reconvey  the  Facility to the
          Lessee and  terminate the PILOT  Agreement.  The Agency shall have the
          right to execute an appropriate  deed with respect to the Facility and
          to place the same on record in the Suffolk County Clerk's  Office,  at
          the expense of the Lessee and in such event the Lessee waives delivery
          and acceptance of such deed and the Lessee hereby  appoints the Agency
          its true and  lawful  agent and  attorney-in-fact  (which  appointment
          shall be deemed to be an agency  coupled with an interest),  with full
          power  of   substitution   to  file  on  its  behalf  all  affidavits,

                                       25
<PAGE>

          questionnaires  and other  documentation  necessary to accomplish  the
          recording of such deed; or

          (vi) take any  other  action  at law or in  equity  which  may  appear
          necessary or desirable to collect the payments  then due or thereafter
          to become  due  hereunder  and under  the PILOT  Agreement,  to secure
          possession of the Facility, and to enforce the obligations, agreements
          or covenants of the Lessee  under this Lease  Agreement  and under the
          PILOT Agreement.

      (b) In the event the  Facility is  subleased  or leased to another  Person
pursuant to Section  10.2(a)(ii)  or (iii)  hereof,  the Agency or the Bank,  as
appropriate,  may (but  shall be under no  obligation  to) make such  repairs or
alterations  in or to the Facility as it may deem necessary or desirable for the
implementation  of such  sublease or lease,  and the Lessee  shall be liable and
agrees  to pay the  costs  of  such  repairs  or  alterations  and the  expenses
incidental to the effecting of such sublease or lease, together with interest on
such costs and expense  paid by either the Agency or the Bank at the rate of one
percent  (1%) in excess of the rate set forth in the Note,  but in no event at a
rate higher than the maximum lawful prevailing rate, from the date on which such
costs and expenses were  incurred  until the date on which such payment is made,
notwithstanding  that the Lease  Term and all  rights of the  Lessee  under this
Lease  Agreement  may have been  terminated  pursuant  to  Section  10.2(a)(iii)
hereof.

      (c) Any sums  payable to the Agency as a  consequence  of any action taken
pursuant to this Section 10.2 (other than those sums  attributable to Unassigned
Rights) shall be paid to the Bank and applied to the payment of the Loan.

      (d) No action taken pursuant to this Section 10.2 (including  repossession
of the  Facility)  shall  relieve  the Lessee  from its  obligation  to make all
payments required by Section 5.3 hereof.

      (e) After an Event of Default shall have  occurred,  the Lessee shall have
the right  upon  notice to the Agency  and the Bank to enter the  Facility  with
agents or  representatives of the Agency and the Bank to remove any equipment or
other personalty owned by the Lessee if such equipment or personalty is not part
of the Facility.

      Section 10.3  Remedies  Cumulative.  No remedy  herein  conferred  upon or
reserved  to the Agency or the Bank is  intended  to be  exclusive  of any other
available  remedy,  but each and every such remedy  shall be  cumulative  and in
addition  to every  other  remedy  given  under this Lease  Agreement  or now or
hereafter  existing at law or in equity.  No delay or  omission to exercise  any
right or power accruing upon any default shall impair any such right or power or
shall be construed to be a waiver  thereof,  but any such right and power may be
exercised from time to time and as often as may be deemed expedient. In order to
entitle the Agency or the Bank, as appropriate,  to exercise any remedy reserved
to it in this  Article X, it shall not be  necessary  to give any notice,  other
than such notice as may be herein expressly required in this Lease Agreement.

      Section 10.4  Agreement to Pay Attorneys' Fees and Expenses.
                    ---------------------------------------------

      (a) In the event the Lessee should  default under any of the provisions of
this Lease  Agreement  and the Agency  should  employ  attorneys  or incur other
expenses for the collection of amounts  payable  hereunder or the enforcement of
performance or observance of

                                       26
<PAGE>

any  obligations or agreements on the part of the Lessee herein  contained,  the
Lessee shall, on demand therefor,  pay to the Agency the reasonable fees of such
attorneys and such other expenses so incurred.

      (b) In the event the Lessee should  default under any of the provisions of
this  Lease  Agreement  and the Bank  should  employ  attorneys  or incur  other
expenses for the collection of amounts  payable  hereunder or the enforcement of
performance  or observance of any  obligations  or agreements on the part of the
Lessee herein contained,  the Lessee shall, on demand therefor,  pay to the Bank
the reasonable fees of such attorneys and such other expenses so incurred.

      Section 10.5 No Additional  Waiver Implied by One Waiver. In the event any
agreement contained herein should be breached by any party and thereafter waived
by any other  party,  such waiver shall be limited to the  particular  breach so
waived and shall not be deemed to waive any other breach hereunder.

                                   ARTICLE XI

                     EARLY TERMINATION OF LEASE AGREEMENT;
                           OPTION IN FAVOR OF COMPANY

      Section 11.1 Early  Termination of Lease Agreement.  The Lessee shall have
the option to terminate this Lease  Agreement at any time that the Loan has been
paid in full or is subject to prepayment  in whole  pursuant to the terms of the
Note and upon the filing with the Agency and the Bank of a certificate signed by
an Authorized  Representative of the Lessee stating the Lessee's intention to do
so pursuant to this  Section and the date upon which such  payments  required by
Section 11.2 hereof shall be made (which date shall not be less than 45 nor more
than 90 days from the date such  certificate is filed) and upon  compliance with
the requirements set forth in Section 11.2 hereof.

      Section 11.2 Conditions to Early  Termination of Lease  Agreement.  In the
event the Lessee  exercises  its option to  terminate  this Lease  Agreement  in
accordance with the provisions of Section 11.1 hereof, the Lessee shall make the
following payments:

      (a) To the Bank:  an amount  certified by the Bank that will be sufficient
to pay the principal of and interest on the Loan.

      (b) To the  Agency or the Taxing  Authorities  (as such term is defined in
the PILOT  Agreement),  as  appropriate  pursuant  to the PILOT  Agreement:  all
amounts  due  and  payable  under  the  PILOT  Agreement  as of the  date of the
conveyance described in Section 11.3 hereof.

      (c) To the Agency: an amount certified by the Agency sufficient to pay all
unpaid fees and expenses of the Agency incurred under the Agency Documents.

      (d) To the appropriate Person: an amount sufficient to pay all other fees,
expenses or charges,  if any, due and payable or to become due and payable under
the Loan Documents.

                                       27
<PAGE>

      Section  11.3  Obligation  to  Purchase  Facility.   Upon  termination  or
expiration of the Lease Term,  in  accordance  with Sections 5.2 or 11.1 hereof,
the Lessee shall purchase the Facility from the Agency for the purchase price of
One Dollar  ($1.00)  plus all unpaid  payments in lieu of taxes  pursuant to the
PILOT Agreement  through the date upon which this Lease Agreement  terminates or
expires.  The Lessee shall purchase the Facility by giving written notice to the
Agency and to the Bank (which may be contained in the certificate referred to in
Section 11.1 hereof) (i)  declaring  the Lessee's  election to purchase and (ii)
fixing the date of closing such purchase,  which shall be the date on which this
Lease Agreement is to be terminated.

      Section 11.4 Conveyance on Purchase. At the closing of any purchase of the
Facility pursuant to Section 11.3 hereof,  the Agency shall, upon receipt of the
purchase  price,  deliver  and  request  the Bank to  deliver  to the Lessee all
necessary  documents  (i) to convey to the Lessee  title to the  Property  being
purchased, as such Property exists, subject only to the following: (A) any Liens
to which title to such Property was subject when conveyed to the Agency, (B) any
Liens created at the request of the Lessee,  to the creation of which the Lessee
consented or in the creation of which the Lessee  acquiesced,  (C) any Permitted
Encumbrances  (other than the lien of the Mortgage) and (D) any Liens  resulting
from the  failure of the Lessee to perform or observe any of the  agreements  on
its part contained in this Lease Agreement or arising out of an Event of Default
hereunder,  (ii) to release and convey to the Lessee all of the Agency's  rights
and  interest in and to any rights of action or any Net Proceeds of insurance or
Condemnation  awards  with  respect  to the  Facility  (but  not  including  any
Unassigned Rights) and (iii) to discharge and release the Mortgage and any other
security  interest held by the Bank.  Upon the conveyance of the Facility by the
Agency to the Lessee  pursuant  to this  Article XI, the PILOT  Agreement  shall
terminate.

                                  ARTICLE XII

                                 MISCELLANEOUS

      Section 12.1 Notices.  All notices,  certificates and other communications
hereunder shall be in writing and shall be either  delivered  personally or sent
by certified  mail,  postage  prepaid,  return receipt  requested,  addressed as
follows  or to such  other  address  as any party may  specify in writing to the
other:

      To the Agency:

           Suffolk County Industrial Development Agency
           H. Lee Dennison Building, 10th Floor
           100 Veterans Memorial Highway
           Hauppauge, New York 11788
           Attention:Administrative Director

      To the Lessee:

           AHM SPV II, LLC
           538 Broadhollow Road
           Melville, New York  11747
           Attention:Alan B. Horn, Esq.

                                       28
<PAGE>

      To the Bank:

           ARCap Servicing, Inc.
           5605 North MacArthur Blvd., Suite 950
           Irving, Texas  75038
           Attention:  Clyde Greenhouse, Director of Administration
           Facsimile No.:  (972) 580-3888

      With a copy to:

           Kelley Drye & Warren LLP
           200 Kimball Drive
           Parsippamy, New Jersey  07054
           Attention:  Paul A. Keenan, Esq.
           Facsimile No.:  (973) 503-5950

      Section  12.2  Binding  Effect.  This Lease  Agreement  shall inure to the
benefit of and shall be binding upon the parties and their respective successors
and assigns.

      Section  12.3  Severability.  In the event  any  provision  of this  Lease
Agreement  shall be held  invalid  or  unenforceable  by any court of  competent
jurisdiction,  such holding  shall not  invalidate or render  unenforceable  any
other provision hereof.

      Section 12.4 Amendments,  Changes and Modifications.  This Lease Agreement
may not be amended, changed, modified, altered or terminated except in a writing
executed by the parties hereto and without the concurring written consent of the
Bank.

      Section  12.5  Execution  of  Counterparts.  This Lease  Agreement  may be
executed in several counterparts,  each of which shall be an original and all of
which shall constitute but one and the same instrument.

      Section  12.6  Applicable  Law.  This Lease  Agreement  shall be  governed
exclusively by the  applicable  laws of the State without regard or reference to
its conflict of laws principles.

      Section 12.7  List of Additional Equipment; Further Assurances.
                    ------------------------------------------------

      (a)  Upon  the  Completion  Date  with  respect  to the  Facility  and the
installation  of all of the  Equipment  therein,  the Lessee  shall  prepare and
deliver to the Agency and the Bank a schedule  listing all of the  Equipment not
previously described in this Lease Agreement.  If requested by the Agency or the
Bank,  the Lessee shall  thereafter  furnish to the Agency and the Bank,  within
sixty (60) days after the end of each calendar  year, a schedule  listing all of
the Equipment not theretofore  previously  described  herein or in the aforesaid
schedule.

      (b) The Agency and the Lessee  shall  execute and deliver all  instruments
and shall furnish all information necessary or appropriate to perfect or protect
any security  interest  created or  contemplated by this Lease Agreement and the
Mortgage.

      Section 12.8 Survival of  Obligations.  This Lease Agreement shall survive
the making of the Loan and the  performance of the  obligations of the Lessee to
make  payments  required by Section 5.3 and all  indemnities  shall  survive the
foregoing and any  termination  or  expiration  of this Lease  Agreement and the
payment of the Loan.

      Section 12.9 Table of Contents and Section Headings Not  Controlling.  The
Table of  Contents  and the  headings  of the  several  Sections  in this  Lease
Agreement  have been prepared for  convenience  of reference  only and shall not
control  or  affect  the  meaning  of or be  taken as an  interpretation  of any
provision of this Lease Agreement.

                                       29
<PAGE>

      IN WITNESS  WHEREOF,  the Agency and the  Lessee  have  caused  this Lease
Agreement  to be executed  in their  respective  names by their duly  authorized
officers, all as of November 1, 2003.

                               SUFFOLK COUNTY INDUSTRIAL DEVELOPMENT
                               AGENCY

                               By:      /s/ Bruce E. Ferguson
                                    -----------------------------
                               Name:      Bruce E. Ferguson
                               Title:  Administrative Director

                                 AHM SPV II, LLC

                               By:   AMERICAN HOME MORTGAGE HOLDINGS, INC.
                                     Member

                               By:      /s/ Alan B. Horn
                                    -----------------------------
                               Name: Alan B. Horn
                               Title: Executive Vice President
                                       and General Counsel

                                       30Exhibit 10.7

                         WATER PURCHASE CONTRACT RBS-2A

      THIS WATER PURCHASE CONTRACT is made this 25th day of September, 2003 by
and between the New Jersey Water Supply Authority (the "Authority"), an
instrumentality of the State of New Jersey created pursuant to the provisions of
the New Jersey Water Supply Authority Act, P.L. 1981, C. 293, as amended,
N.J.S.A. 1B ss.58:1B-1 et seq. and Middlesex Water Company ("Middlesex"), a
corporation existing under the laws of the State of New Jersey (also referred to
herein as "the Purchaser").

                                   BACKGROUND

      Pursuant to the Authority Act, the Authority was established for the
express purpose of operating water supply facilities, including those water
supply facilities theretofore operated by the State. In accordance with the
Authority Act, the Authority operates, inter alia, the System.

      In connection with the operation of the System, the Authority, both in its
own right and as the successor to the water supply facilities of the State, is a
party with various System Water Purchasers, including the Purchaser, to Existing
Contracts pursuant to which the Authority makes water available for purchase by
such System Water Purchasers.

                                       1
<PAGE>

      The Authority contemplates from time to time, undertaking various
improvements to the System and in connection therewith, expects to adopt a
Resolution which will authorize, inter alia, the issuance of Bonds for the
purpose of making funds available to finance various projects for the System.
Pursuant to a Bond Resolution, certain of the revenues received by the Authority
from System Water Purchasers will be pledged by the Authority to pay the
principal of and interest on Bonds.

      The parties hereto are entering into this Contract, which is one of
several Water Purchase Contracts to be entered into by the Authority with System
Water Purchasers, in order (i) to supercede the Existing Contracts between the
Authority and the Purchaser and (ii) to provide for the sale to and purchase of
water by the Purchaser consistent with the Purchaser's projected needs.

      NOW THEREFORE, in consideration of the mutual covenants and premises
herein contained, the parties hereto, intending to be legally bound hereby,
agree as follows:

      SECTION 1. Definitions.

      Unless the context clearly establishes otherwise, the following terms,
when used in this Contract or in the Background hereto, shall have the following
meanings:

                                       2
<PAGE>

      "Annual Budget" means the annual budget of the Authority relating to the
System (which shall include all costs, obligations and expenses properly
allocable to the System in accordance with generally accepted accounting
principles and cost allocation principles), as amended or supplemented, adopted
or in effect for a particular Fiscal Year.

      "Annual Payment" means the aggregate amount projected by the Authority to
be payable to the Authority by the Purchaser for Uninterruptible Service during
each Annual Payment Period, which Annual Payment shall be determined by (a)
multiplying the applicable rates and charges for Uninterruptible Service set
forth in the Rate Schedule in effect during the relevant Annual Payment Period
by the number of MG of water contracted for by the Purchaser for Uninterruptible
Service on an annual basis as set forth in this Contract, subject to adjustment
to reflect any special allocations, charges, credits or adjustments provided for
pursuant to the provisions of this Contract or any Rate Schedule, which may
include but not be limited to: (i) adjustments based upon the water being
derived from the System within the Delaware River Basin; (ii) debt service
allocated specifically to those customers of the Authority who benefit from the
debt to which such debt service relates; and (iii) for withdrawals within the
Raritan Basin, an evaluation of

                                       3
<PAGE>

the equivalent sustained supply and the application of an appropriate production
factor, all as contemplated by and/or set forth in the Rate Schedule and (b)
adding thereto any charges for access to the System and any other charges
imposed on the Purchaser by this Contract.

      "Annual Payment Period" means the calendar year, commencing January 1,
2004 during which Uninterruptible Service is to be provided to the Purchaser
hereunder.

      "Annual Requirements" means the aggregate amount required during each
Annual Payment Period to pay, or make provision for, all (i) Operation and
Maintenance Expenses; (ii) Debt Service; and (iii) other requirements of the
System required to be paid as is set forth in the Resolution, or in any Rate
Schedule, or in any documents relating to Other Indebtedness, including but not
limited to amounts required to meet the rate covenant set forth in Section 713
of the Resolution; provided, however, that the amount to be included for Debt
Service in each Annual Payment Period shall be that amount accruing in the Bond
Year or Bond Years, or corresponding portion thereof, commencing during the
Fiscal Year within which such Annual Payment Period or portion thereof falls.

      "Authority" means the New Jersey Water Supply Authority established
pursuant to the Authority Act.

                                       4
<PAGE>

      "Authority Act" means the "New Jersey Water Supply Authority Act", P.L.
1981, c.293, as amended (N.J.S.A. 58:1B-1 et -- seq.).

      "Authorized Officer" means the Chairman, Vice Chairman, Treasurer,
Secretary or Executive Director of the Authority or any person or persons
designated by the Authority to act on behalf of the Authority.

      "Bonds" means all bonds, notes or other evidences of indebtedness issued
by the Authority and outstanding under the Resolution and each Supplemental
Resolution to finance or refinance any cost, expense or liability paid or
incurred or to be paid or incurred by the Authority in connection with the
financing, planning, designing, constructing, acquiring, operating or
maintaining of any part of the System.

      "Bond Year" means, with respect to any Bonds, the twelve-month period (and
such shorter initial period, if any) established with respect to the issuance of
such Bonds in a Supplemental Resolution, and with respect to Other Indebtedness,
the twelve-month period (and such shorter initial period, if any) established
with respect to the issuance of such Other Indebtedness in the documents
relating to the issuance of such Other Indebtedness.

      "Credit Facility" means a policy of municipal bond insurance, a letter of
credit, a surety bond, a loan agreement, a standby bond

                                       5
<PAGE>

purchase agreement or other type of credit agreement, facility, insurance or
guaranty arrangement pursuant to which funds can be obtained to pay the
principal or redemption price of Bonds or Other Indebtedness and interest
thereon.

      "Debt Service" for any period means, as of any date of calculation, with
respect to (A) Outstanding Bonds, an amount equal to the sum of (i) the interest
accruing during such period on such Bonds, and (ii) that portion of the
principal of such Bonds accruing during such period, all as is set forth in the
Resolution and (B) Other Indebtedness, an amount equal to (i) the interest
accruing during such period on such Other Indebtedness and (ii) that portion of
the principal accruing on such Other Indebtedness during such period, all as is
set forth in the documents relating to the issuance of such Other Indebtedness.

      "Department" means the New Jersey Department of Environmental Protection.

      "Division" means the Water Supply Administration in the Department.

      "Event of Default" means a default by the Purchaser of the provisions of
this Contract as a result of the occurrence of any of the events set forth in
Section 10 hereof.

      "Existing Contracts" means the existing water use contracts

                                       6
<PAGE>

for the System between the Authority and System Water Purchasers covering the
provisions of water from the System.

      "Fiscal Year" means the twelve-month period commencing on July 1 of each
year and continuing through the following June 30.

      "Force Majeure" means acts of God, strikes, lockouts or other industrial
disturbances; orders of the Government of the United States or the State or any
agency or instrumentality thereof or of any civil or military authority; acts of
terrorism, insurrections, riots, epidemics, landslides, lightning, earthquakes,
fires, hurricanes, storms, floods, washouts, droughts and explosions; breakage
or accidents to machinery, pipelines, dams or canals, other than as a result of
the negligence of the party claiming inability to comply with its obligations;
partial or entire failure of water supply, other than as a result of the
negligence of the party claiming inability to comply with its obligations;
arrests, civil disturbances; acts of any public enemy; and any other events not
reasonably within the control of and not as a result of the negligence of the
party claiming inability to comply with its obligations.

      "GPM" means gallons of water per minute.

      "General Fund" means the fund denominated as such and created pursuant to
the Resolution.

                                       7
<PAGE>

      "Liquidity Facility" means an irrevocable letter of credit or other
irrevocable Credit Facility issued by a financial institution or insurance
company, which letter of credit or Credit Facility is payable on demand in the
event the terms under which such letter of credit or Credit Facility was issued
require payment thereunder.

      "Major Rehabilitation Fund" means the fund denominated as such and created
pursuant to the Resolution.

      "MG" means million gallons of water.

      "MGD" means million gallons of water per day.

      "Minimum Dependable or Safe Yield" means that amount of water, from time
to time determined by the Authority in accordance with applicable laws or
regulations and presently estimated to be 225 MGD, which the System is capable
of supplying continuously throughout a repetition of the most severe drought of
record.

      "Monthly Water Payments" means either (i) the amount obtained by dividing
the amount of the Annual Payment for any Fiscal Year by twelve or (ii) such
other or different required monthly payments for which the Authority gives
notice to the Purchaser pursuant to Sections 4B, or 4E hereof.

      "Operation and Maintenance Expenses" for any period means the amount (as
set forth in the Annual Budget of the Authority, as from time to time amended)
of all current costs, obligations and

                                       8
<PAGE>

expenses of, or arising in connection with, the (i) operation, maintenance and
administration of the System, and minor additions or improvements thereof or
thereto, or (ii) performance of any Water Purchase Contract, including, but not
limited to, the items set forth herein below and items set forth in the
Resolution as Operation and Maintenance Expenses, in each case, to the extent
properly allocable to the System and, as applicable, determined on the cash
basis of accounting and/or in accordance with generally accepted accounting and
cost allocation principles:

            (i) all repairs and ordinary replacements and reconstruction of the
      System; all wages, salaries and other personnel costs, including costs of
      pension, retirement, health and other employee benefit programs; all fuel,
      utilities, supplies and equipment; and all supervisory, engineering,
      accounting, auditing, legal and financial advisory services;

            (ii) all taxes and payments in lieu of taxes;

            (iii) all costs of insurance for the System, including any forms of
      self insurance (or self insurance reserves) maintained by the Authority,
      and payment of all claims not covered by the Authority's insurance;

            (iv) all fees and expenses incurred in connection

                                       9
<PAGE>

      with any Credit Facility, Liquidity Facility, Reserve Account Credit
      Facility, the issuance of any Bonds or the issuance of any Other
      Indebtedness, and all fees and expenses of counsel, fiduciaries and others
      in connection with any such Credit Facility, Liquidity Facility, Reserve
      Account Credit Facility, Bonds or Other Indebtedness; provided, however,
      that none of the foregoing shall be considered as Operation and
      Maintenance Expenses to the extent required to be capitalized under the
      Supplemental Resolution authorizing such Bonds or the documents
      authorizing such Other Indebtedness or paid out of the proceeds of such
      Bonds or Other Indebtedness;

            (v) all amounts required, pursuant to applicable law, to be
      deposited into the Rebate Fund;

            (vi) all amounts required to be deposited, in accordance with the
      Resolution, into any reserve fund established for Operation and
      Maintenance Expenses; and

            (vii) allowance for depreciation with respect to equipment and
      property having a depreciable life of greater than three (3) years but
      less than ten (10) years; and

            (viii) any other costs, expenses or obligations required to be paid
      by the Authority under the provisions of any Water Purchase Contract,
      contract relating to the System,

                                       10
<PAGE>

      any agreement or instrument relating to the Bonds or Other Indebtedness or
      by law;

      "Other Indebtedness" means all bonds, other than the Bonds or other
obligations issued pursuant to the Resolution, notes or other evidences of
indebtedness issued by the Authority, and Outstanding, including financing
agreements and arrangements with the State, to finance or refinance any cost,
expense or liability paid or incurred or to be paid or incurred by the Authority
in connection with the financing, planning, designing, constructing, acquiring,
operating or maintaining of any part of the System; provided, however, that
Other Indebtedness shall not include obligations for supplies and services which
are to be paid by the Authority out of current revenues, or obligations under
leases which are not required to be capitalized under generally accepted
accounting principles.

      "Outstanding" means (A) with reference to Bonds, as of any date, Bonds
theretofore or thereupon being authenticated and delivered under the Resolution
or any Supplemental Resolution except to the extent that any particular Bonds
are not deemed to be outstanding pursuant to the provisions of the Resolution
and (B) with respect to Other Indebtedness, such Other Indebtedness theretofore
or thereupon being authenticated and delivered pursuant

                                       11
<PAGE>

to any documents relating to the issuance thereof except to the extent that any
particular Other Indebtedness is not deemed to be outstanding as specifically
provided therein.

      "Overdraft Service" means (i) the supply of water from the System, to the
extent and from time to time available, in excess of aggregate Uninterruptible
Service, for certain, interim, interruptible, non-guaranteed uses which a System
Water Purchaser is authorized to withdraw pursuant to a Contract or (ii) such
other definition as is set forth in the Rate Schedule.

      "Peaking Factor" means (i) the percentage equivalent of that volume of
Overdraft Service available from the System for a given period in excess of
Uninterruptible Service, which a customer may divert without charge or (ii) such
other definition as is set forth in the Rate Schedule.

      "Point of Delivery" or "Point of Diversion" means the location where the
System, including surface and ground water supplies, interconnects with the
Purchaser's Interconnection System.

      "Production Factor" means the inverse ratio between any upstream
allocation for a consumptive or depletive water diversion and its equivalent in
sustained supply at the confluence at the Millstone and Raritan Rivers as
follows: Production factor = Safe yield at the confluence / yield at the point
of diversion (see

                                       12
<PAGE>

N.J.A.C. 7:11-2.8).

      "Projected Annual Requirements" means the aggregate amount projected by
the Authority in its Annual Budget, as from time to time amended, to be required
during each Annual Payment Period to pay all Annual Requirements.

      "Prudent Water Supply Practices" means, as of any particular time, any
practices, methods and acts engaged in or approved by a significant portion of
the water supply industry operating in areas having comparable characteristics
to those of the System, or any of the practices, methods and acts which, in the
exercise of reasonable judgment in the light of the facts known at the time the
decision was made, could have been expected to accomplish the desired result at
a reasonable cost consistent with good practices, reliability, safety and
expedition. Prudent Water Supply Practices are not intended to be limited to the
optimum practice, method or act, to the exclusion of all others, but rather are
intended to be a spectrum of possible practices, methods or acts expected to
accomplish the desired results.

      "Purchaser" means the party to this Contract, which is purchasing water
from the Authority.

      "Purchaser's Interconnection System" means the buildings, structures,
piping, valves, meters and other control apparatus and

                                       13
<PAGE>

equipment, installed or to be installed by or on behalf of, and owned and/or
used by, the Purchaser (i) to connect Purchaser's system with the System at the
Point of Delivery and to withdraw, measure, control and monitor the flow and
quality of the water that the Purchaser withdraws from the System, and (ii) to
transport such water to the Purchaser's system.

      "Rates" means the charges from time to time determined and established by
the Authority in accordance with the Rate Schedule.

      "Rate Schedule" means the "Schedule of Rates, Charges and Debt Service
Assessments for the Sale of Water from the Delaware and Raritan Canal - Spruce
Run/Round Valley Reservoirs System" promulgated from time to time by the
Authority and set forth in the New Jersey Administrative Code, all in accordance
with applicable laws and regulations, as the same may from time to time be
amended, and in accordance with the provisions of the System Rules and
Regulations, which Rate Schedule establishes the rates, charges and debt service
assessments by the Authority for water derived from the System in accordance
with the following:

      (a) Uninterruptible Service. The Rates per MG set forth in such Rate
Schedule for Uninterruptible Service shall be established for each Annual
Payment Period on the basis of:

      (i) the Projected Annual Requirements for such Fiscal Year;

                                       14
<PAGE>

      (ii) multiplied by the production factor for the diversion;

      (iii) divided by the lesser of: (a) the annualized amount of MGD of water
from the System during such Fiscal Year which the Authority determines is
available for Uninterruptible Service and for Standby Service or (b) the
annualized amount of MGD of water from the System which is required to be
provided by the Authority by the terms of all Water Supply Contracts for
Uninterruptible Service and for Standby Service in effect during such Fiscal
Year, in each case, times 365 (366 during a leap year); provided, however, that
the Authority may exclude for any period, for purposes of computation hereunder,
the Uninterruptible Service and Standby Service under any Water Purchase
Contract where an Event of Default has occurred and is continuing.

      (b) Overdraft Service. The Rate(s) per MG for average daily diversions in
excess of the Peaking Factor during a calendar month and year shall be the
amounts set forth in the Rate Schedule.

      (c) Short-term Service. The Rates for Short-term Service established for
each Annual Payment Period shall be the amounts set forth in the Rate Schedule.

      (d) Standby Service. The Rates set forth in such Rate Schedule for Standby
Service shall be established for each Annual Payment Period on the basis of (i)
a standby charge for each month

                                       15
<PAGE>

during which Standby Service is available, equal to the capacity, in MGD, of the
Purchaser's withdrawal facilities to be served by such Standby Service plus (ii)
a charge (against which the standby charge for such month shall be credited),
for water actually consumed in any month, at the rate per MG established by the
Rate Schedule for Uninterruptible Service.

      (e) Special User Service. The Rates for Special User Service established
for each Annual Payment Period shall be the amounts set forth in the Rate
Schedule.

            "Rebate Fund" means the fund denominated as such and created
pursuant to the Resolution.

            "Reserve Account Credit Facility" means a surety bond, insurance
policy, letter of credit, line of credit or other Credit Facility satisfying the
requirements set forth in Section 518 of the Resolution.

            "Resolution" means the resolution adopted by the Authority
authorizing the issuance of Bonds, and all Supplemental Resolutions.

            "Revenue Fund" means the fund denominated as such and created
pursuant to the Resolution.

            "Short-term Service" means (i) the supply of water from the System,
to the extent from time to time available, in excess of

                                       16
<PAGE>

aggregate Uninterruptible Service, for certain interim, interruptible,
non-guaranteed or short-term uses, such as growing agricultural or horticultural
products, meeting extraordinary requirements in consumer demand for potable or
industrial water as a result of transfers arising from a declaration of drought
by the Department, meeting non-seasonal extraordinary requirements in consumer
demand for potable or industrial water, or emergent maintenance or temporary
failure of a critical component of a System Water Purchaser's infrastructure
which a System Water Purchaser is authorized to withdraw pursuant to a Contract
or (ii) such other definition as is set forth in the Rate Schedule.

            "Special User Service" means the supply of water from the Raritan
River Basin, which a System Water Purchaser is authorized to continuously
withdraw, without interruption, to be returned by the Purchaser to the stream
channel of the System at a point reasonably considered by the Authority to be at
or in the near vicinity of the point of withdrawal, substantially undiminished
in quantity and not substantially degraded in quality, all as is determined by
the Authority.

            "Standby Service" means the supply of water from the System for
certain occasional uses, such as fire protection or other emergencies, natural
or otherwise, which a System Water

                                       17
<PAGE>

Purchaser is authorized to withdraw pursuant to a Contract.

            "State" means the State of New Jersey.

            "Supplemental Resolution" means any resolution enacted by the
Authority supplemental to the Resolution in connection with the issuance of any
particular Bonds, which Supplemental Resolution shall, inter alia, establish the
specific terms applicable to such particular Bonds.

            "System" means the water supply system operated by the Authority
known as the Delaware and Raritan Canal - Spruce Run/Round Valley Reservoirs
System, and any expansion thereof, the major components of which presently
consist of the Delaware and Raritan Canal water supply transmission facility,
the Spruce Run and Round Valley Reservoirs and an interconnecting pumping
station located where the Raritan and Millstone Rivers meet adjacent to the
Delaware and Raritan Canal, together with all component plants, structures and
other real or personal property, and additions and improvements thereto,
necessary or useful and convenient for the accumulation, supply or transmission
of water including but not limited to: reservoir facilities, settling and
sediment storage basins, dams, dikes, intake and reservoir pipelines, force
mains, pump stations and intake structures.

            "System Rules and Regulations" means the Rules for the

                                       18
<PAGE>

Use of Water from the Delaware and Raritan Canal and Spruce Run/Round Valley
Reservoirs System, adopted on April 24, 1987 and effective on May 18, 1987 and
presently set forth in Section 7:11-3.1 et. seq. of the New Jersey
Administrative Code, and any amendments from time to time hereafter made
thereto.

            "System Water Purchaser" means any party to a Water Purchase
Contract with the Authority.

            "Uninterruptible Service" means the supply of water from the System
which a System Water Purchaser is authorized continuously to withdraw, without
interruption, for potable or industrial water supply purposes, pursuant to a
Contract.

            "Water Act" means the "Water Supply Management Act", P.L. 1981, c.
262, as amended (N.J.S.A. 58:1A-1 et. seq.) and the rules promulgated
thereunder.

            "Water Purchase Contracts" or "Contracts" means the contracts, and
all supplements thereto, providing for Uninterruptible, Short-term, Standby
Service or Special User Service with respect to water from the System to one or
more System Water Purchasers.

            "Water Supply Plan Approval" means any approval by the Department of
the purchase of water from the System, whether in the form of a water supply
allocation permit, an interim approval of a

                                       19
<PAGE>

water supply plan submitted as may be required by the Department for a water
supply allocation permit, or otherwise.

            Except where the context otherwise requires, words importing the
singular number shall include the plural number and vice versa, and words
importing persons shall include firms, associations, corporations, districts,
agencies and bodies. Any capitalized term used herein and not otherwise defined
shall have the meaning set forth in the Resolution.

            SECTION 2. Water Service To Be Provided

            A. The Authority shall supply and make available for delivery to the
Purchaser, on and after the date hereof, and the Purchaser shall be entitled to
utilize the following water service, subject to the other terms and conditions
of this Contract and the System Rules and Regulations:

                  (i)(a) Uninterruptible Service in the amount of 27 MGD, which
      is the average amount of Uninterruptible Service permitted to be withdrawn
      by the Purchaser subject to the provisions of Section 2(B) hereof;

                     (b) Overdraft Service of that number of MGD necessary to
      meet Purchaser's diversionary needs in excess of Uninterruptible Service.

                                       20
<PAGE>

                  (ii) Short Term Service of that number of MGD which shall be
      established by one or more separate agreements, which shall be
      supplemental hereto and incorporated herein, between the Authority and the
      Purchaser, entered into for such term as the Purchaser and the Authority
      shall agree, with the number of MGD so established to be the maximum
      amount of Short-term Service permitted to be withdrawn by the Purchaser in
      any twenty-four (24) hour period during the period covered by such
      separate and supplemental agreements except as otherwise limited by
      Section 2B hereof;

            B. Purchaser shall not withdraw water, in the aggregate for all
Uninterruptible Service provided hereunder, at rates greater than an average of
27 million gallons in any twenty-four (24) hour period; 822 million gallons per
month, which per minute, daily and monthly amounts shall be appropriately
adjusted to reflect fluctuations in water use; and an average of nine thousand,
eight hundred, and fifty-five (9,855) million gallons in any year from January
1, 2004 through November 30, 2023. The Purchaser shall immediately notify the
Authority of any such withdrawals in excess of said amount.

            C. If the Authority determines that rationing the water derived from
the System is necessary by reason of drought

                                       21
<PAGE>

conditions or an emergency, it shall allocate all available water first to
providing Uninterruptible Service under all Water Purchase Contracts, without
any preference or priority, except that the Authority, in its sole discretion,
may exclude Water Purchase Contracts where an Event of Default has occurred and
is continuing, at the Authority's election, unless the Authority, in accordance
with applicable law or regulation, is otherwise directed or required to allocate
water in a specific manner, (i) pro rata, in accordance with the volume of water
available, to each System Water Purchaser of Uninterruptible Service provided in
all Water Purchase Contracts then in effect; or (ii) pro rata in accordance with
the volume of water actually provided each System Water Purchaser of
Uninterruptible Service pursuant to Water Purchase Contracts during the last
preceding Annual Payment Period in which rationing of water was not necessary;
or (iii) upon such other basis as shall be, in the judgment of the Authority,
appropriate to distribute fairly among all System Water Purchasers of
Uninterruptible Service pursuant to Water Purchase Contracts, the burden of such
rationing. In the event that rationing is to be imposed by reason of an
emergency for more than a seven-day period, the Authority shall consult with and
give appropriate effect to the recommendations, if any, of the Department.

                                       22
<PAGE>

            D. If rationing is instituted, or if, other than as a result of an
Event of Default, the Authority does not provide to the Purchaser the amount of
water constituting Uninterruptible Service hereunder, or advises the Purchaser
that it will be unable to do so other than as a result of an Event of Default,
the Purchaser shall nevertheless at all times be required to pay for all water
from the System constituting Uninterruptible Service available for delivery to
the Purchaser.

            E. If in the event of an emergency, the Purchaser is legally
restricted from purchasing all of the water constituting Uninterruptible Service
hereunder, the Purchaser shall only be required to pay for such water
constituting Uninterruptible Service as it is legally permitted to purchase (and
the Authority is able to supply) during the period of such emergency.

                                       23
<PAGE>

            SECTION 3. System Water Quality.

            A. The water to be supplied by the Authority hereunder shall be raw,
untreated water which the Authority shall supply to all System Water Purchasers
without distinction as to source or quality variations of the water supplied and
subject to the hazards inherent in natural streams. THE AUTHORITY MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE QUALITY OF ANY
WATER SUPPLIED OR THE CONDITION OF THE SYSTEM, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. However, the Authority,
based upon water quality data supplied to it by any System Water Purchaser or
other water quality data which may be obtained by the Authority, will take all
reasonable measures to determine the source of water degradation and will
exercise all appropriate administrative and legal rights under applicable law to
compel the Department to assure that the stream water quality is in compliance
with applicable stream standards.

            B. (1) In the event of contaminant discharges, spills or runoff to
the Authority's water supplies which constitute an emergency and require
immediate action to maintain the supply of water from the System, the Authority
will take immediate corrective

                                       24
<PAGE>

action either: (i) through requesting the appropriate agency to take such action
or, (ii) directly, by its own personnel and/or outside contractors, to contain
and, if necessary to remove such contaminants from the water supply, in the
Authority's sole discretion. In addition, to the extent it is legally able to do
so and it determines that such action is in the best interests of the Authority,
the Authority will seek to recover all costs and damages resulting from any such
incidents from the parties responsible.

            (2) If the Authority and the Purchaser, at the request of the
Purchaser, agree that the quality of the water derived from the System is not of
sufficient quality to be treated by the Purchaser for the purposes for which
such water is to be used or there is any trend towards degradation of such water
as a result of contamination in the quality of water derived from the System,
the Authority and such Purchaser shall jointly (i) request the Department to
take appropriate action to implement corrective measures or (ii) take other
administrative or operational measures.

            SECTION 4. Payment for Water Services

            A. General. Purchaser agrees to make all payments for water services
available hereunder in the amounts, at the times and places and in the manner
provided herein subject to the Rate

                                       25
<PAGE>

Schedule and as modified from time to time, by the System Rules and Regulations.

            B. Purchaser agrees to pay Seller a rate equal to one-hundred
percent of the total rate set forth in such Rate Schedule for Uninterruptible
Service (see Section 2(A)(i)(a)) as illustrated in the following formula:
Uninterruptible Service * # of days in the month * rate;

            C. Purchaser agrees to pay Seller a Monthly Overdraft Rate equal to
one-hundred and twenty percent of the total rate set forth in said Rate Schedule
for Uninterruptible Service (see Section 2(A)(i)(a)) for average daily
diversions for any calendar month in excess of a Peaking Factor of ten-percent
of Uninterruptible Service as illustrated in the following formula: actual
monthly diversion in excess of 10% of Uninterruptible Service * 1.20 * rate *
days in the month;

            D. Purchaser agrees to pay Seller an Annual Overdraft Rate equal to
one-hundred and fifteen percent of the total rate set forth in said Rate
Schedule for Uninterruptible Service (see Section 2(A)(i)(a)) for average daily
diversion for any calendar year in excess of Purchaser's Uninterruptible Service
as illustrated in the following formula: average daily diversion in excess of
Uninterruptible Service * 1.15 * rate * days in the year.

                                       26
<PAGE>

The annual overdraft period shall coincide with the calendar year;

            E. Uninterruptible Service. Purchaser agrees to make Monthly Water
Payments for Uninterruptible Water Services no later than thirty (30) days from
the date of each billing by the Authority to the Purchaser. Except as
hereinafter provided, payments for Uninterruptible Service shall be based on the
number of days in each month, whether or not the Purchaser actually withdraws
the full amount of water available to it as Uninterruptible Service; provided,
however, that the Purchaser shall not be required to make payment for water that
the Authority does not make available to the Purchaser except where such
non-provision of water is as a result of an Event of Default. The Authority
shall notify the purchaser not later than thirty days prior to the beginning of
each Annual Payment Period of the amount of the Purchaser's Annual Payment for
Uninterruptible Service and the amounts of the Monthly Water Payments.

            F. Short-term Service. Purchaser agrees to pay not later than thirty
(30) days from the date of each billing by the Authority to the Purchaser, the
charges for water actually consumed as Short-term Service in the immediate
preceding month.

            G. Overdraft Payments. The Purchaser agrees to pay annually, the
charges for those diversions referenced in Sections

                                       27
<PAGE>

4(C) and 4(D) above. The monthly overdraft payment will be remitted in November
of the year in which the overdraft occurs. The annual overdraft payment will be
remitted in February of the year following the year in which the overdraft
occurred.

            H. Retroactive Debt Service Payment. The Purchaser agrees to pay to
the Authority the following additional amounts:

            i. An amount equal to two million, two hundred and forty-five
thousand, six hundred and seventeen dollars and twenty-four cents
($2,245,617.24), which sum represents the retroactive payment of a full
proportionate share of the total annual payments of Debt Service for the 1958,
1969, and 1981 bonds made to the Authority by other purchasers of water from the
System during the periods from July 1, 1983 through June 30, 1988 (1958 bonds),
from July 1, 1988 through June 30, 2002 (1969 bonds) and from October 1, 1985
through December 31, 2003 (1981 bonds), for that certain 7 MGD of water
initially contracted for purchase by the Purchaser commencing on January 1,
2004. Purchaser shall receive a credit of three hundred two thousand, nine
hundred fifteen dollars and eighty-four cents ($302,915.84), representing the
total retroactive debt paid by Purchaser associated with 7 mgd of unsold water
as a prior system customer since 1983. Purchaser's adjusted retroactive debt
payment for the 1958, 1969, and 1981 bonds shall be one

                                       28
<PAGE>

million, nine hundred and forty-two thousand, seven hundred and one dollars, and
forty cents ($1,942,701.40). Said payment is to be made on the first day of each
month in 238 equal monthly installments of eight thousand, one hundred and
twenty-eight dollars, and forty-six cents ($8,128.46) commencing March 1, 2004
and continuing through December 1, 2023 and one final payment of eight thousand,
one hundred and twenty-seven dollars, and ninety-two cents ($8,127.92) payable
on January 1, 2024; and

            ii. An amount equal to one million, two hundred and eighty-seven
thousand, nine hundred and thirty-eight dollars and thirty-eight cents
($1,287,900.38), which sum represents the retroactive payment of a full
proportionate share of the total annual Debt Service payments for the 1988 Water
System Revenue Bonds made to the Authority by other purchasers of water from the
System during the period from July 1, 1989 through June 30, 1998 for that
certain 7 MGD of water initially contracted for purchase by the Purchaser
commencing on January 1, 2004. Purchaser shall receive a credit of one hundred
seventy-one thousand, nine hundred and forty-three dollars, and fifty-eight
cents ($171,943.58), representing the total retroactive debt paid by Purchaser
associated with 7 MGD of unsold water as a prior system customer since 1983.
Purchaser's adjusted retroactive debt payment for the

                                       29
<PAGE>

1988 bond issue shall be one million, one hundred fifteen thousand, nine hundred
and fifty-six dollars and eighty cents. ($1,115,956.80). Said payments are to be
made on the first day of each month in 238 equal monthly installments of four
thousand, six hundred and sixty-nine dollars and twenty-eight cents ($4,669.28)
commencing March 1, 2004 and continuing through December 1, 2023, and one final
payment of four thousand, six hundred and sixty-eight dollars and sixteen cents
($4,668.16) payable on January 1, 2024; and

            iii. An amount equal to five hundred and forty-four thousand,
eighty-four dollars and twenty-five cents ($544,084.25), which sum represents
the retroactive payment of a full proportionate share of the total annual
payments of Debt Service for the 1998 Water Surplus Revenue Refunding Bonds made
to the Authority by other purchasers of water from the System during the period
from July 1, 1999 through December 31, 2003 for that certain 7 MGD of water
initially contracted for purchase by the Purchaser commencing on January 1,
2004. Purchaser shall receive a credit of seventy-two thousand, six hundred and
thirty-nine dollars $72,639.00), representing the total retroactive debt paid by
Purchaser associated with 7 MGD of unsold water as a prior system customer since
1983. Purchaser's adjusted retroactive debt payment

                                       30
<PAGE>

for the 1998 bond issue shall be four hundred and seventy-one thousand, four
hundred and forty-five dollars and twenty-five cents ($471,445.25). Said
payments are to be made on the first day of each month in 238 equal monthly
installments of one thousand, nine hundred and seventy-two dollars and
fifty-seven cents ($1,972.57) commencing March 1, 2004 and continuing through
December 1, 2023, and one final payment of one thousand, nine hundred and
seventy-two dollars and fifty-seven cents ($1,972.57) payable on January 1,
2024.

            I. Production Factor Payments. The Rate Schedule and System Rules
provide that for a depletive diversion at any location above the confluence of
the Millstone and Raritan Rivers, the Total Daily Allotment Charge shall be
multiplied by the Production Factor, which is equal to System Safe Yield at the
point of delivery. The Purchaser agrees to a Production Factor of 1.000 for its
diversion and to pay the dollar equivalent to the Authority in Purchaser's
Monthly Water Payments for Uninterruptible Water Services.

            J. Absolute Obligation. Purchaser's obligations hereunder to pay for
water in the manner set forth in this Contract shall be absolute and
unconditional, and shall not be affected by any failure by the Authority to
perform its obligations hereunder,

                                       31
<PAGE>

other than a failure by the Authority to supply water constituting
Uninterruptible Service (in which event, as herein provided, Purchaser shall be
unconditionally obligated to pay for the water available for taking), except as
a result of an Event of Default, or be subject to any other defense or to any
reduction, whether by offset, counterclaim or otherwise, except for any
reductions or credits provided for herein, in the Rate Schedule or in the System
Rules and Regulations.

            K. Overdue Payments. All payments for service which are not made by
the due date therefore and any other sums required to be paid by the Purchaser
to the Authority pursuant to this Contract shall bear interest at a per annum
rate equal to the prime rate, as from time to time established by Chase
Manhattan Bank as its prime rate (with any changes in such prime rate to be
effective on any date that such rate is changed) plus 2%, such interest to be
calculated from the due date of any required payment until actual payment
thereof.

            L. Rate Adjustments and Procedures. The Authority reserves the right
from time to time to adopt adjustments to the Rate Schedule and to the System
Rules and Regulations in accordance with applicable laws and regulations. If as
a result of any such adjustments the payments for service hereunder are adjusted
by the

                                       32
<PAGE>

Authority, the Authority shall notify the Purchaser of the adjustments and of
any revised schedule of Monthly Water Payments required to reflect such
adjustments and the same shall, without any further act of the Authority or the
Purchaser, constitute an amendment to this Contract.

            SECTION 5. Delivery and Withdrawal of Water.

            A. All water shall be withdrawn from the System at the Purchaser's
sole cost and expense. Title to all water supplied from the System shall be in
the Authority to the Point of Delivery, at which point title shall vest in the
Purchaser upon its withdrawal of such water.

            B. The Authority hereby grants to the Purchaser for the term of this
Contract a right which shall permit access to Purchaser and its designated
representatives upon and over the System as may be necessary, at Purchaser's
sole cost and expense, to install and construct at the Point of Delivery, and to
replace, repair, operate and maintain, Purchaser's Interconnection System.

            C. The Purchaser shall not install or construct nor make any
material alterations in Purchaser's Interconnection System without the prior
written approval of the Authority. Purchaser shall submit engineering plans
therefore to the Authority for its

                                       33
<PAGE>

review and approval.

            D. The Authority or its designated representatives shall have the
right at any time to examine Purchaser's Interconnection System from the Point
of Diversion to and including the flow meter or measuring devices (hereafter
"flow meters"). The Authority shall comply with all reasonable security
protocols developed by Purchaser in conducting its inspections. The Purchaser
shall, at its sole cost and expense, within ten (10) days (or such longer period
as may be required by law) after receipt of written demand from the Authority,
make such modifications or repairs to Purchaser's Interconnection System from
the Point of Diversion to and including the flow meters as, in the opinion of
the Authority, may be required to eliminate leakage of water from, or potential
damage to the System. If Purchaser should fail to make such modifications or
repairs, the Authority may do so and the Purchaser agrees to reimburse the
Authority on demand for the Authority's cost therefore.

            E. The Purchaser shall purchase or construct, install, operate,
maintain and repair, as a part of Purchaser's Interconnection System, at its
sole cost and expense and in a manner which the Authority determines to be in
accordance with Prudent Water Supply Practices, automated flow meters at the

                                       34
<PAGE>

point(s) of diversion that electronically transmit daily diversionary flow
information to the Seller, of the type and at location(s) approved by the
Authority. The Purchaser shall have such flow meters tested for accuracy at its
own sole cost and expense by a testing firm approved by the Authority (i) at
least once during each Fiscal Year; (ii) following meter repairs; and (iii) at
such other times as the Authority may reasonably request. Each test shall be
evidenced by a certified report, which Purchaser will cause such testing firm to
furnish to the Authority.

            F. Monthly meter readings of water shall be taken by the Purchaser
on the last day of each month, or if such last day falls on Sunday or legal
holiday, on the first working day thereafter. The Purchaser shall keep a daily
record of flow rates and cumulative daily water withdrawal totals and shall
submit to the Authority, not later than the tenth (10th) business day of each
month, copies of such records for the preceding month. The Authority or its
designated representatives shall have the right at any time to examine the flow
meters or other measuring device, and any repairs or replacements made to such
flow meter or other measuring device. Purchaser shall submit written
certifications with its monthly meter readings.

            G. The Purchaser agrees to indemnify, defend and hold

                                       35
<PAGE>

harmless the Authority from and against all claims, damages or losses suffered,
sustained or required to be paid by the Authority, arising from any act or
omission of the Purchaser, its officers, agents, representatives or employees,
in connection with Purchaser's Interconnection System, the operation thereof, or
any activities carried out by the Purchaser, its officers, employees, agents or
representatives, on the premises of, or with respect to, the System, or with
respect to any of the services which are the subject of this Contract.

            H. The Authority, subject to the provisions of the New Jersey Tort
Claims Act, shall be responsible and shall at its own expense, defend itself
against any and all suits, claims, losses, demands or damages of whatsoever kind
or nature, arising out of or in connection with any act or omission of the
Authority, its employees, agents or contractors, in performance of the
obligations assumed by the Authority pursuant to this Agreement. The Authority
hereby releases the Purchaser from any and all liabilities, claims, losses,
costs, expenses and demands of any kind or nature whatsoever, arising under the
state or federal law, solely out of or in connection with the Authority's
performance of the obligations assumed by the Authority pursuant to this
Agreement.

            I. In the event that any of the flow meters

                                       36
<PAGE>

required to be maintained by the Purchaser shall fail to properly operate, the
Authority may make necessary estimates of or adjustments in accordance with the
System Rules and Regulations, to the amounts of water withdrawn by the Purchaser
and to be charged by the Authority to the Purchaser for any period during which
such failure exists and continues. The Purchaser agrees that at the request of
the Authority it will repair or replace such meters, at its sole cost and
expense. If the Purchaser fails to repair or replace the meters within 60 days
following notice from the Authority, the Authority, may suspend the withdrawal
of water by the Purchaser until such time as the meter is repaired or replaced;
provided, however, that the Purchaser shall be required to continue to honor its
payment obligations for water pursuant to this Contract during the period of
such suspension, as if such suspension had not occurred.

            SECTION 6. Force Majeure.

            If by reason of Force Majeure either the Authority or Purchaser
shall be rendered unable to satisfy its obligations under this Contract, in
whole or in part, and shall give notice and all of the particulars of such Force
Majeure in writing to the other such party hereto within a reasonable time after
the occurrence of the event or cause relied on, then the obligation of the party

                                       37
<PAGE>

giving such notice, to the extent affected by such Force Majeure, shall be
suspended during the continuance of such inability; provided, however, that the
existence of Force Majeure shall in no event affect the obligation of the
Purchaser to make the Monthly Water Payments and other payments required under
this Contract, but if less than the amount of water required to be supplied
hereunder is supplied or available for supply, nothing in this Section 6 shall
require the Purchaser to make payment for water other than in an amount equal to
the greater of (i) the water actually supplied or (ii) the water available for
supply by the Authority. Either party so affected shall use its best efforts to
remove or overcome such Force Majeure as quickly as is practicable.

            SECTION 7. Term of Contract.

            A. This Contract shall commence on January 1, 2004 and shall
continue until November 30, 2023 unless previously terminated as provided herein
as a result of an Event of Default, or extended as provided in Section 7B
hereof.

            B. If the Purchaser desires to continue the withdrawal of water from
the System, contracted for pursuant to this Contract, beyond the date set forth
in Section 7A hereof, the Purchaser shall submit to the Authority notification
of intent to renew not less

                                       38
<PAGE>

than 90 days prior to such date.

            C. If the Purchaser has not submitted a notification of intent to
renew as provided in Section 7B hereof, the Authority shall notify the Purchaser
of the expiration date of the Contract. If, after such notification by the
Authority, the Purchaser continues withdrawal of water, the charge for such
withdrawal shall be twice the rate per million gallons as is specified in the
Rate Schedule then in effect.

            D. Within ninety (90) days after termination of this Contract, the
Purchaser shall remove from the System Purchaser's Interconnection System and
any other facilities installed by Purchaser on the System, shall restore the
System to its former condition as nearly as may be practicable and in a manner
satisfactory to the Authority and shall release and re-convey the rights granted
pursuant to Section 5B hereof. If Purchaser shall fail to remove and restore as
aforesaid, the Authority may make such removal and restoration at the sole cost
and expense of the Purchaser, which cost and expense shall be paid by the
Purchaser to the Authority on demand. The Authority further reserves the right
to remove and sell Purchaser's Interconnection System and other facilities to
the extent it deems appropriate.

                                       39
<PAGE>

SECTION 8. Insurance

            A. Authority Insurance. The Authority shall use reasonable
commercial efforts to purchase and carry fire, casualty, public liability and
other insurance on the System, or to otherwise establish and fund its own
self-insurance program or participate in any State-administered pooled risk or
self-insurance program, for purposes and in amounts which ordinarily would be
carried or funded by a person or entity owing and maintaining facilities similar
to the System.

            B. Purchaser Insurance. The Purchaser shall use reasonable
commercial efforts to purchase and carry fire, casualty, public liability, and
business interruption insurance covering Purchaser's business operations, unless
Purchaser is not legally able to maintain business interruption insurance, and
shall purchase and carry insurance covering Purchaser's obligations pursuant to
Section 5G hereof. All policies of insurance shall be written by insurance
companies authorized to do business in the State and shall provide that no
change of coverage shall be effected unless at least thirty (30) days' prior
notice is given to the Authority. Certified copies of all replacement policies
shall be delivered to the Authority not less than thirty (30) days prior to the
expiration of any coverage. The "Authority" shall be named

                                       40
<PAGE>

as an "Additional Insured" on all public liability insurance policies maintained
by the Purchaser for Purchaser's Interconnection System and any other facilities
of the Purchaser located on the System, on all business interruption insurance
and all insurance covering Purchaser's obligations pursuant to Section 5G
hereof. The proceeds of business interruption insurance shall be payable
directly to the Authority to the extent of the Purchaser's obligations to
purchase water hereunder.

            SECTION 9. Covenants, Representations, and Warrants

            A. The Authority shall continuously operate and maintain the System
in an efficient manner in accordance with Prudent Water Supply Practices. The
Authority shall have no liability in the event that the water, which is actually
available to the System is insufficient to permit the Authority to comply with
its obligations hereunder.

            B. The Authority shall not enter into any Water Purchase Contract
which would result in (i) Uninterruptible Service called for under all Water
Purchase Contracts to exceed the Maximum Dependable or Safe Yield or (ii) the
water supply called for under all contracts or commitments for water of the
System to exceed the maximum output capacity of the System.

            C. The Authority represents and warrants that it has all

                                       41
<PAGE>

licenses and permits presently obtainable from any federal, state or local
governmental authority required in order to enter into this Contract and to
provide water to Purchaser as herein set forth.

            D. The Authority shall exercise reasonable efforts to execute
Contracts, similar in form and content to this Contract, with all other users of
the System; provided, however, that notwithstanding the foregoing, the Authority
may (i) enter into Contracts for durations other than the term of this Contract
and (ii) enter into Contracts, containing terms which may be inconsistent with
the terms of this Contract, if the Authority determines it to be necessary in
connection with the operation of the System so long as such Contracts do not
increase the Purchaser's obligations hereunder for Debt Service unless the
Purchaser is benefited as a result of the provisions of such Contract. All
Contracts entered into by the Authority shall contain rates and charges for
water as are set forth in the Rate Schedule then in effect.

            E. The Purchaser represents and warrants that it has all licenses
and permits from any federal, state or local governmental authority required in
order to enter into this Contract, to divert water from the System in accordance
therewith and to operate the

                                       42
<PAGE>

Purchaser's Interconnection System.

            F. The Purchaser covenants to (i) maintain in good operating order
and repair the Purchaser's Interconnection System; (ii) charge and collect
taxes, fees and other charges to its residents and customers which, from time to
time together with other funds available to the Purchaser, are reasonably
estimated to be required by the Purchaser to make the payments to the Authority
which are required pursuant to this Contract.

            SECTION 10. Events of Default.

            Any of the following shall constitute an Event of Default:

            If the Purchaser shall (i) fail to make any payment due under this
Contract for a period of more than 15 days after any such payment is due or (ii)
shall fail or be unable to perform, or shall default in the performance of, any
of its obligations under this Contract, and such failure, inability or default
in performance is (A) willful or (B) remains uncured for more than 30 days after
notice thereof is given by the Authority to Purchaser; provided however, that if
such failure, inability or default in performance is incapable of being cured
within such 30 day period, the same shall not constitute an Event of Default so
long as

                                       43
<PAGE>

Purchaser commences to cure such failure, inability or default in performance
within such 30 day period and diligently and continuously proceeds to cure the
same.

            If an Event of Default has occurred, then the Authority may, without
further notice, take any one or more of the following actions:

            (a) Discontinue the supply and delivery of water under this
      Contract, including disconnecting Purchaser's Interconnection System from
      the System during the period of such default, without altering the
      obligation of the Purchaser to make Monthly Water Payments or any other
      payment required by the terms of this Contract;

            (b) Bring any suit, action or proceeding at law or in equity
      necessary or appropriate to enforce any covenant, agreement or obligation
      against the Purchaser.

            (c) Take any other action permitted by law or equity to enforce its
      rights under this Contract and to recover damages for breach thereof, or

            (d) Terminate this contract.

            SECTION 11. Payments and Notice.

            Unless otherwise provided herein, any payment, notice,

                                       44
<PAGE>

communication, request, reply or advice herein provided or permitted to be
given, made or accepted by the Authority or the Purchaser to each other shall be
given or be served either by depositing the same in the United States mail
postpaid and registered or certified and addressed to the party to be notified,
with return receipt requested, or by delivering the same to an officer of such
party, or by prepaid telegram when appropriate, addressed to the party to be
notified. Notice deposited in the mail in the manner hereinabove described shall
be conclusively deemed to be effective, unless otherwise stated herein, from and
after the expiration of three days after it is so deposited. Notice given in any
other manner shall be effective only if and when received by the party to be so
notified. For the purposes of notice, the addresses of the Authority and
Purchaser shall, until changed as hereinafter provided, be as follows:

            If to the Authority:

               New Jersey Water Supply Authority
               1851 State Highway 31
               Post Office Box 5196
               Clinton, New Jersey 08809

               Attention: Executive Director

            If to the Purchaser:

               Middlesex Water Company
               1500 Ronson Road

                                       45
<PAGE>

               P.O. Box 1500
               Iselin, NJ 08830-0452

The Authority and Purchaser shall have the right from time to time and at any
time to change their respective addresses by at least fifteen (15) days' written
notice to the other party hereto given in the manner hereinabove set forth.

            SECTION 12. Severability.

            In the event that any one or more of the provisions of this Contract
shall for any reason be held to be illegal or invalid by a court of competent
jurisdiction, it is the intention of each of the parties hereto that such
illegality or invalidity shall not affect any other provision hereof, but this
Contract shall be construed and enforced as if such illegal or invalid provision
had never been contained herein.

            SECTION 13. Incorporation of Rate Schedule and System Rules and
Regulations.

            The Rate Schedule and the System Rules and Regulations are hereby
incorporated herein by reference as fully as if herein set forth and all of the
terms and provisions of such Rate Schedule and System Rules and Regulations
shall be part of this Contract and shall be binding upon the Purchaser.

                                       46
<PAGE>

            SECTION 14. Calculations of the Authority.

            All meter readings to the extent made by the Authority and all
calculations made by the Authority of amounts due by a Purchaser pursuant to
this Contract, whether based upon meter readings or estimates by the Authority
or meter readings by the Purchaser, shall be valid and binding upon the
Purchaser absent manifest error by the Authority.

            SECTION 15. Termination of Existing Contract.

            Except (i) for amounts which may presently be due pursuant to the
terms thereof and (ii) as is specifically set forth in this Section 15, this
Contract supercedes the Existing Contract being specifically RBS-2 which is
deemed by the parties hereto to be terminated.

            SECTION 16. Binding Effect.

            This Contract, when executed and delivered by the parties hereto,
shall be a valid and binding agreement, which shall be governed by and construed
in accordance with the laws of the State. Neither party hereto may assign its
rights or obligations hereunder without the consent of the other party.

                                       47
<PAGE>

            IN WITNESS WHEREOF, the Authority and the Purchaser have caused this
Contract to be duly executed the date and year above first written.

(Authority Seal)

ATTEST:                       NEW JERSEY WATER SUPPLY AUTHORITY

                              By:
------------------------          ------------------------------
                                  Thomas G. Baxter, P.E.
                                  Henry S. Patterson III
                                  Executive Director

(Purchaser Seal)

ATTEST:                       MIDDLESEX WATER COMPANY

 s/ MF Reynolds               By: s/ Dennis G. Sullivan
-----------------------           ---------------------
Secretary                         President

                     Reviewed and Approved As to Form Only:

                                 Peter C. Harvey
                         Attorney General for New Jersey

                          By:
                              ------------------------
                                 Helene P. Chudzik

                                       48
<PAGE>

                              Deputy Attorney General

                                       49

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