Document:

<PAGE>

                                                                    EXHIBIT 10.7

                                 STEAM CONTRACT

                                    between

                        PROJECT ORANGE ASSOCIATES, L.P.

                                   as Company

                                      and

                              SYRACUSE UNIVERSITY

                                  as Customer

DATED:  February 27, 1990
<PAGE>

                               TABLE OF CONTENTS
                               -----------------
  RECITALS                                                                     1
  ARTICLE I  GENERAL PROVISIONS.............................................   3
     Section 1.01.  The Facility............................................   3
     Section 1.02.  Construction, Installation and Operation of Facility....   4
     Section 1.03.  Net Lease of Land.......................................   5
     Section 1.04.  Interconnection Points; Maintenance Obligations.........   6
     Section 1.05.  Operation and Maintenance of Existing Plant.............   8
     Section 1.06.  Term of Agreement.......................................  11
  ARTICLE II  SUPPLY OF STEAM...............................................  14
     Section 2.01.  Purchase and Sale of Steam..............................  14
     Section 2.02.  Price of Steam..........................................  17
     Section 2.03.  Payment for Steam; Meters...............................  31
     Section 2.04.  Report of Sales to Ancillary Customers..................  32
  ARTICLE III  DISCONTINUANCE, CURTAILMENT
    OR INTERRUPTION OF STEAM SUPPLY.........................................  33
     Section 3.01.  General.................................................  33
     Section 3.02.  Emergency Interruptions.................................  34
     Section 3.03.  Default by the Company; Remedies; Take-over of Facility.  35
  ARTICLE IV  SECURITY......................................................  43
  ARTICLE V  INDEMNITY......................................................  45
     Section 5.01.                                                            45
     Section 5.02.                                                            45
     Section 5.03.                                                            46
     Section 5.04.                                                            46
  ARTICLE VI  MISCELLANEOUS.................................................  47
     Section 6.01.  Customer Training.......................................  47
     Section 6.02.  Pledge or Assignment....................................  47
     Section 6.03.  Notices.................................................  48
     Section 6.04.  Severability............................................  49
     Section 6.05.  Choice of Law...........................................  49
     Section 6.06.  Entire Agreement; Amendments............................  49
     Section 6.07.  Waivers.................................................  50
     Section 6.08.  Termination.............................................  51
     Section 6.09.  Approval................................................  51

                                      -i-
<PAGE>

EXHIBITS

Exhibit A      Description of the Leased Land

Exhibit A-1    Lease Agreement

Exhibit B      Schematic Diagram of Interconnection Points

Exhibit C      Operating Agreement for Existing Plant

Exhibit D      Adjustment of Formula Price

Exhibit E      Cogeneration Facility Degradation Chart

Exhibit F      Form of Consent and Agreement

                                     -ii-
<PAGE>

                                 STEAM CONTRACT
                                 --------------

          This Agreement ("Agreement"), dated as of February 27, 1990, between
Syracuse University, a New York educational corporation having its principal
office at Syracuse, New York (the "Customer"), and Project Orange Associates,
L.P., a Delaware limited partnership (the "Company").

                                    RECITALS

          1.  The Company has undertaken to acquire, construct, install and
operate a facility for the production of steam and electric power (as
hereinafter more specifically described, the "Facility") on property to be
leased by the Customer to the Company under a certain Lease Agreement dated the
date of this Agreement and annexed to this Agreement as Exhibit A-1.

          2.  The Customer desires to purchase, on its own behalf and on behalf
of certain other institutional users located near the premises of the Customer
who from time to time now or hereafter share steam costs with the Customer (the
"Ancillary Customers"), its and the Ancillary Customers' requirements for steam
from the Company.

          3.  A standby steam generating facility is necessary to provide an
alternate source of steam to meet the steam requirements of Customer and its
Ancillary Customers whenever the Facility is inoperable or incapable of meeting
these steam requirements.

          4.  The Company desires to use and operate the Customer's existing
steam generation facility (as hereinafter more specifically described, the
"Existing Plant") to provide the required alternate source of steam.

                                      -1-
<PAGE>

          5.  The Customer acknowledges that the execution and delivery of this
Agreement and the assignment by the Company of its rights under it, as security,
is a necessary prerequisite of the Company's ability to obtain financing for the
Facility and related costs (any and all such financings which may be secured by
a Permitted Mortgage, as that term is defined in Article 23 of the Lease
Agreement, and which are from time to time outstanding, are hereinafter referred
to as the "Financing");

          6.  The Customer and a predecessor of the Company have previously
entered into a certain Steam Contract, dated as of December 28, 1987, pertaining
to the subject matter of this Agreement (the "Prior Agreement"). This Agreement
is intended to supersede the Prior Agreement which has been terminated by
contemporaneous separate agreement between the Customer and such predecessor.

          NOW, THEREFORE, the parties agree as follows.

                                   ARTICLE I

                               GENERAL PROVISIONS
                               ------------------

          Section 1.01.  The Facility.

          The Facility will consist principally of (i) two General Electric type
LM 5000 gas turbines, each having an aggregate capacity at ISO conditions of
approximately 40 megawatts of electric power, two waste heat boilers which shall
include supplemental duct firing with a capacity of producing 450,000 pounds of
steam per hour for net export to the Customer at the pressures and temperatures
necessary to provide the steam requirements of Customer and its Ancillary
Customers, and related gas, steam and electric handling installations and
buildings and structures (sometimes collectively referred to as the
"Cogeneration Plant"), (ii) all steam, water

                                      -2-
<PAGE>

and condensate lines, apparatus and equipment necessary or appropriate for the
supply of steam by the Company from the Cogeneration Plant to the Customer's
steam system and chilled water plant at the interconnection points A-l and A-2
described in Section 1.04, (iii) all fuel lines, gas lines and electric
transmission lines (exclusive of those owned by Niagara Mohawk Power Corporation
or any other public utility), fuel storage facilities and related apparatus
necessary or appropriate for the operation of the Cogeneration Plant and the
Existing Plant and (iv) all improvements, additions, substitutions and
replacements of each of the foregoing. The Company will coordinate the operation
of the Facility with the Customer's Existing Plant which the Company will
operate as provided in Section 1.05.

          Section 1.02.  Construction, Installation and Operation of Facility.

          The Company agrees to construct, install and operate the Facility at
its sole cost and expense and without charge to the Customer, except for the
steam charges provided in this Agreement. Without limitation of the generality
of the foregoing, the Company will, without expense to the Customer, contract
with an entity reasonably approved by the Customer (the "Contractor") for all
requisite engineering, construction, installation, testing and operation
services. The Customer may, at its option, require the Contractor to provide,
without expense to the Customer, performance and payment bonds or other
assurances of completion in an amount equal to the total cost of the
construction, acquisition and installation of the Facility, which is presently
estimated to be $73,100,000.  If the holders of a Permitted Mortgage shall not
require performance and payment bonds for the total cost of the Facility, the
Contractor may provide performance and payment bonds for less than the total
cost of the Facility, but not less than eighty (80%) percent of the total cost
of the Facility, provided guarantees of completion and

                                      -3-
<PAGE>

performance for the balance of the cost of the Facility shall be provided by
entities, and in form, reasonably acceptable to the University. The Company
shall also make available to Customer, as an additional insured, the benefits of
any System Efficacy Insurance or comparable performance insurance to be provided
to the Company by the Contractor. The Company will be responsible for obtaining,
without additional expense to the Customer, all permits, licenses,
authorizations and other approvals required by governmental authorities for the
installation and operation of the Facility and for the operation of the Existing
Plant. The Customer agrees to cooperate with the Company by providing all
relevant information available to it, without incurring unreasonable expenses.

          The Company shall operate and maintain the Facility in good operating
condition in accordance with customary utility maintenance procedures and in
compliance with all applicable present and future laws, ordinances, regulations,
rules, requirements, orders and directives of governmental authorities.

          The Company shall not increase the electric generating capacity of the
Cogeneration Plant above 80 megawatts without the prior written consent of the
Customer.

          Section 1.03.  Net Lease of Land.

          The Customer shall lease to the Company for a term (the "Lease Term")
commencing on the date that the Company begins the activities described in
Section 1.02 and expiring on the expiration date or sooner termination of this
Agreement or the Lease Agreement, in accordance with their terms, the land
described on Exhibit A annexed to this Agreement (the "Leased Land") for an
annual rental equal to $1.00 per year payable on the first day of each year of
the Lease Term and on the additional terms and conditions contained in the Lease
Agreement.

                                      -4-
<PAGE>

The Company shall reimburse the Customer the sum of $12,500, which represents
the costs and expenses incurred by the Customer on behalf of the Company for the
zoning approvals obtained in the Town of Onondaga on behalf of the Company
pursuant to Section 1.03 of the Steam Contract between Gas Alternative Systems,
Inc. and the Customer dated October 4, 1984 no later than the date upon which
the Company receives any part of its Financing for the Facility. The rent
payable for the Leased Land shall be absolutely net to the Customer so that,
except as otherwise expressly provided in the Lease Agreement, the Company shall
bear all responsibility for insurance, maintenance, repairs and taxes and all
costs, expenses and obligations of any type whatsoever arising in respect of the
Facility or the Leased Land, including all liabilities to third parties, and
shall indemnify and shall hold harmless the Customer against any of them. Upon
expiration or sooner termination of the Lease Term in accordance with the terms
of the Lease Agreement, the Facility and any improvements of it or the Leased
Land shall become the property of the Customer, without any further
consideration by the Customer or any further act or deed required of either the
Company or the Customer, provided, however, that the Company shall execute and
deliver to the Customer such documents as the Customer reasonably shall request
to evidence Customer's ownership.

          Section 1.04.  Interconnection Points; Maintenance Obligations.

          Steam will be supplied by the Company to the Customer at the
interconnection points between the Facility and the Customer's steam system and
chilled water plant marked as points A-l and A-2, respectively, on the schematic
diagram annexed to this Agreement as Exhibit B, at which point delivery of steam
will be deemed to have been effected, with title and all risk passing to the
Customer. The Customer will provide to the Company the condensate return from

                                      -5-
<PAGE>

its steam distribution system ("the condensate return") in an amount no less
than .50 of a pound of condensate for each pound of steam supplied by the
Company ("the minimum amount"), but shall have no obligation to supply any make-
up water or cooling water, which shall be the obligation of the Company. The
condensate return shall meet the following standards ("the condensate
standards") at the points of interconnection between the Customer's condensate
return lines and the Company's condensate return lines ("the condensate
interconnections"):

          (i)    no more than 5 ppm of hardness,
          (ii)   no more than 2 ppm of total organic carbon (TOC), and
          (iii)  no more than 20 ppm of total dissolved solids.

          The Company, at its sole cost and expense, shall install one or more
valves or other appropriate devices at the condensate interconnections for
sampling and measuring the condensate return. The results of the sampling and
measurement of the condensate return by the Company shall be made available to
the Customer. If the condensate return fails to meet the condensate standards or
if the Customer fails to provide the Company the minimum amount of condensate
return, the Customer shall pay the Company its incremental costs for the polish
treatment of the condensate return to meet the condensate standards and the cost
of any make-up water required because of the failure of the Customer to provide
the minimum amount of condensate return ("the condensate charge"). The
condensate charge shall be added to the next invoice for steam rendered to the
Customer together with a statement showing the basis of the calculation of the
condensate charge. The Company shall provide the Customer such additional
information with respect to the calculation of the condensate charge as the
Customer reasonably may request.

                                      -6-
<PAGE>

          Section 1.05.  Operation and Maintenance of Existing Plant.

          The Customer's Existing Plant is a steam generation facility which
consists principally of 4 gas fired and oil fired steam boilers and related
apparatus and equipment and provides the steam requirements of the Customer and
its Ancillary Customers, and is located at Taylor Street in the City of
Syracuse, New York. The Company shall, with its own work force and at its sole
cost and expense, operate and maintain the Existing Plant as a standby and
supplemental steam generation facility for the period and pursuant to the terms
and conditions contained in the Operating Agreement for Existing Plant annexed
to this Agreement as Exhibit C ("Operating Agreement").

          As more specifically provided in the Operating Agreement, the Company
shall pay to the Customer, in consideration of its right to operate the Existing
Plant, annually on each anniversary of the Commencement Date (or the Commercial
Operation Date, if later than the Commencement Date) the following amounts:

                 Anniversary Dates                        Annual Payment
                 -----------------                        --------------

     First through Fifth                                  $        1.00
     Sixth through Fifteenth                               1,250,000.00
     Sixteenth through twentieth                           1,350,000.00
     Twenty-first through thirtieth                        1,450,000.00
     Thirty-first through thirty-ninth                     1,550,000.00

and a final payment of $1,550,000 on the first day of the last month preceding
the expiration of the term, except that if the Commercial Operation Date is
later than the Commencement Date, the payment on the twentieth anniversary of
the Commercial Operation Date shall be increased

                                      -7-
<PAGE>

("the increase") by the sum of $104,167 for each full month from the
Commencement Date to the Commercial Operation Date.

          The Company shall have the option to make the annual payment in twelve
equal monthly installments, commencing on the first day of the month following
each anniversary, together with interest at a rate equal to the prime rate
announced by Chase Manhattan Bank, at its principal office in the City of New
York, New York ("the prime rate"), plus 200 basis points, on the unpaid portion
of the annual payment. Interest shall accrue from the anniversary date and shall
be payable on the due date of each monthly installment, calculated by use of the
prime rate in effect on the first day of the previous month. The annual payments
for the right to operate the Existing Plant shall be payable only once even
though they are set forth in both this Agreement and the Operating Agreement,
and the obligation to make such payments shall be subject to the express
provisions of the Operating Agreement. Except as otherwise provided in the
Operating Agreement, the Company also shall bear all responsibility for
insurance, maintenance, repairs and taxes, if any, and all costs, expenses and
obligations of any type whatsoever arising in respect of the Existing Plant,
including all liabilities to third parties and shall indemnify and shall hold
harmless the Customer against any of them. As more specifically set forth in the
Operating Agreement,

          A.  the Existing Plant, except as otherwise expressly permitted in the
Operating Agreement, shall be used and operated by the Company only as an
alternate or supplemental source of steam to meet the steam requirements of
Customer and its Ancillary Customers;

          B.  the Existing Plant (i) shall be maintained in as good condition as
it exists upon the commencement of the term of the Operating Agreement, ordinary
wear and tear

                                      -8-
<PAGE>

excepted, (ii) shall be operated and maintained in compliance with all
applicable present and future laws, ordinances, rules, regulations,
requirements, orders and directives of governmental authorities, and (iii) shall
be operated and maintained in a state of readiness to make available an
alternate or supplemental source of steam to the Customer and its Ancillary
Customers, at the pressures and temperature and meeting the other requirements
of this Agreement, within no more than six (6) hours after the interruption of
the required supply of steam from the Facility, provided, however, that the
Company shall have satisfied the requirements of this subparagraph (iii) if,
within six hours following an interruption of the supply of steam attributable
to the involuntary outage of both gas turbines of the Facility due to causes
beyond the reasonable control of the Company, it shall have commenced delivery
of at least 250,000 pounds per hour of steam from the Existing Plant and shall
continue to fire additional boilers in the Existing Plant to the extent
necessary to meet Customer's additional demands for steam as promptly as is
practical and consistent with the preservation and protection of such boilers;

          C.  The Company's obligation to provide an alternate or supplemental
source of steam to meet the steam requirements of Customer and its Ancillary
Customers may be satisfied by the installation and operation at the Existing
Plant of the Auxiliary System (as defined in the Operating Agreement) in the
manner and upon the conditions contained in the Operating Agreement.

          Section 1.06.  Term of Agreement.

          The term of this Agreement (the "Term") shall commence upon the date
of this Agreement and shall continue in effect, unless sooner terminated in
accordance with its provisions, for (i) a period of 40 years from the date (the
"Commencement Date") upon which

                                      -9-
<PAGE>

the Company shall have commenced delivery of steam to the Customer (other than
for testing purposes, which shall not extend beyond a reasonable period of time)
either from the Facility or from the Existing Plant (as contemplated by the
second unnumbered paragraph of this Section 1.06) plus (ii) an additional period
equal to any time elapsed from the Commencement Date to the date (the
"Commercial Operation Date") upon which the Company shall have commenced
delivery of steam to the Customer from the Facility (other than for testing
purposes, which shall not extend beyond a reasonable period of time) in
accordance with the requirements of this Agreement. This Agreement may be
terminated by the Customer, at its option, upon 30 days' written notice (x) if
the Company shall not have closed the construction Financing (the "financial
closing") on or before June 30, 1990, or thereafter if the Company fails to
diligently pursue, subject to work stoppages not initiated by the Company, the
completion of construction of the Facility as soon as reasonably possible with a
view towards completion of construction of the Facility and the delivery of
steam to the Customer by October 1, 1991 or (y) if the Company abandons the
construction of the Facility. Any written notice of termination by Customer
shall also be given to the holders of a Permitted Mortgage, who shall have been
identified in a written notice by the Company to the Customer, at the address of
the holder provided in the Company's notice to the Customer. The holders of any
Permitted Mortgage shall have a period of thirty (30) days from the giving of
the notice of termination within which to cure the default of the Company in the
completion of the construction of the Facility. If the default of completion of
construction cannot be cured by the holders of the Permitted Mortgage within
such thirty (30) day period, the holders shall have an additional period of
ninety (90) days within which to cure the default, provided the holders promptly
commence and diligently pursue the curing of the default.

                                      -10-
<PAGE>

          In the event that the financial closing does not occur by March 1,
1990, the Company shall (provided that the Steam Contract and the Lease
Agreement shall not have been sooner terminated, each in accordance with its
terms), commencing on October 1, 1991 and continuing thereafter until the
Facility is fully operational and commences the delivery of steam to the
Customer in accordance with the requirements of this Agreement, provide the
Customer its steam requirements and the requirements of its Ancillary Customers
from the Existing Plant at the price of $4.27 per thousand pounds of steam
(without any adjustment, as that term is defined in Section 2.02 of this
Agreement), subject only to the availability of the transportation of natural
gas to the Company by Tennessee Gas Transmission Company ("Tenneco"). In the
event that the Company shall be obligated to provide steam to the Customer from
the Existing Plant in accordance with the preceding sentence, the term of the
Operating Agreement shall commence on October 1, 1991 and shall expire upon the
expiration of the term of the Steam Contract, unless sooner terminated in
accordance with the terms of the Operating Agreement.

          The obligations of the Company to the Customer for the reimbursement
of costs and expenses for zoning approvals pursuant to Section 1.03 of the prior
Steam Contract between Gas Alternative Systems, Inc. and the Customer dated
October 4, 1984 and for any indemnification pursuant to this Agreement shall
survive the termination of this Agreement.

                                   ARTICLE II

                                SUPPLY OF STEAM
                                ---------------

          Section 2.01.  Purchase and Sale of Steam.

          A.  From the Commencement Date and throughout the remainder of the
Term, the Customer will purchase, on its own behalf and on behalf of all
Ancillary Customers, all of

                                      -11-
<PAGE>

the Customer's and the Ancillary Customers' requirements for steam and the
Company will supply the steam necessary to meet these requirements; provided,
however, that the Company shall have no obligation to provide steam at a rate in
excess of 450,000 pounds per hour or more than a maximum annual average of
230,000 pounds of steam per hour (a total of 2,014,800,000 pounds during any
twelve (12) month period). The Customer shall use its best efforts to schedule
its demands for steam to avoid any demand for an amount of steam in excess of
the maximum annual amount provided for in the preceding sentence. In no event
shall any failure of the Company to provide steam in an amount in excess of any
such maximum in any period constitute a default by the Company under this
Agreement, the Operating Agreement or the Lease Agreement. The Customer shall be
required to accept delivery of and pay for during each successive 12-month
period during the Term commencing with the first month beginning after the
Commencement Date a quantity of steam (the "Minimum Annual Requirement") equal
to the lesser of (i) the minimum amount required to maintain the status of the
Facility as a qualifying cogeneration facility under the Public Utility
Regulatory Policies Act of 1978 and the regulations promulgated under it or (ii)
60,000 pounds of steam per hour (a total of 525,600,000 pounds in any 12 month
period). In the case of any interruption or discontinuance of the supply of
steam to Customer which is not the fault of the Customer, the Minimum Annual
Requirement shall be reduced proportionately in accordance with the season
during which the interruption or discontinuance occurs, based upon historical
usages. The Customer shall indemnify the Company for any liability for state or
local sales, use or similar taxes, if any, that would be imposed upon the
Customer for the Company's sale of steam to the Customer. The Customer may
submeter and separately charge all Ancillary Customers for steam delivered to
Ancillary Customers, but Customer shall be primarily, and not secondarily or as
a surety, obligated to pay

                                      -12-
<PAGE>

the Company for all steam so delivered. The Customer's requirements for steam
shall mean (i) all steam distributed by the Customer through its steam
distribution system for its own use and (ii) all steam delivered to the Customer
for the operation of its chilled water plant. Ancillary Customers' requirements
for steam shall mean all steam distributed by the Customer through its
distribution system for use by other not-for-profit or governmental
organizations sharing steam costs with the Customer, but limited only to the
amounts of steam which they are obligated to acquire from the Customer. The
Ancillary Customers may include such other not-for-profit or governmental
organizations near the premises of Customer to whom the Customer shall from time
to time provide steam on a cost-sharing basis.

          B. The Company shall deliver steam at the interconnection point with
the Customer's steam system marked A-l on Exhibit B at a pressure of 100 PSIG
and at a temperature of 550 [degree] Fahrenheit. The Company shall deliver steam
to the inter-connection point with the Customer's chilled water plant designated
as A-2 on Exhibit B at a pressure of 275 PSIG and at a temperature of 550
[degree] Fahrenheit. All steam delivered to the Customer shall meet all purity
and related requirements for food service facilities and medical facilities
under all applicable federal, state and local laws, rules and regulations, and
all chemicals used in the treatment of boiler feedwater shall be in compliance
with these requirements. The Company, at its sole cost and expense, shall
install one or more valves or other appropriate devices at the interconnection
point for sampling the steam. The results of the sampling of the steam by the
Company shall be made available to the Customer. The Customer shall have no
obligation to accept or pay for any steam delivered that does not meet these
requirements or to pay for any make up water required because of Customer's
refusal to accept delivery of steam that does not meet these requirements. The
Facility shall have the capability of meeting any increase in

                                      -13-
<PAGE>

demand by Customer for steam by 50 percent within one (1) hour, provided,
however, that the Company shall not be obligated to provide more than 450,000
pounds of steam per hour or within any hour.

          C.  The Customer shall be the sole and exclusive purchaser of steam
generated from the Facility. The Company shall not sell to or furnish to others
any steam, power or energy in any form from the Facility (except the sale of
electricity to Niagara Mohawk Power Corporation ("NIMO") or other public
utility) without the prior written approval of Customer.

          D.  Except for the steam to be sold by the Company to the Customer
pursuant to this Agreement, neither the Company, nor any entity affiliated with
or related to the Company, including, without limitation, any entity
controlling, controlled by or under common control with the Company, nor Adam
Victor shall directly or indirectly engage in, or in any manner participate in
any capacity whatsoever in any venture or project for, the sale or provision of
steam or any other form of energy to any of the Ancillary Customers.

          Section 2.02.  Price of Steam.

          A.  Formula Price. Except as otherwise provided in Section 1.06, the
              -------------
price to be paid for steam delivered pursuant to the provisions of this
Agreement during each calendar month of the Term shall be the price per thousand
pounds then in effect as provided in the following subparagraphs.

          B.  Formula Price I. The base price ("Formula Price I") in effect at
              ---------------
the Commercial Operation Date through the end of the twelfth full calendar month
following the month in which the Commercial Operation Date occurs ("the Base
Year") shall be $4.27 per thousand pounds of steam ("the Base Year Price"). The
Formula Price I for each succeeding

                                      -14-
<PAGE>

calendar month following the Base Year and until the sixteenth (16th)
anniversary of the Commercial Operation Date shall be subject to increase or
decrease ("the adjustment") on account of any increases or decreases in (i) the
monthly price of natural gas to the Customer (which shall constitute 70% of the
adjustment) and (ii) Labor and Other Costs (which shall constitute 30% of the
adjustment) which will be adjusted once every 12 months on July 1 of each year
following the Base Year by the budgeted percentage of increase or decrease for
union labor at Syracuse University (which shall constitute 20% of the 30%
adjustment) and by the budgeted percentage of increase or decrease in
departmental operating budgets at Syracuse University, excluding utilities and
other centrally budgeted special items (which shall constitute 80% of the 30%
adjustment), as included in the University's budget approved by its Board of
Trustees, in accordance with the formula set forth on Exhibit D annexed to this
Agreement. For the purposes of this Section 2.02 and Exhibit D, the price of
natural gas shall be the rate per thermal unit (net of any adjustments or
credits) at which natural gas is obtainable by the Customer from NIMO, pursuant
to its Service Classification No. 3 (large general service rate) or its future
equivalent.

          C.  Formula Price II. Upon the sixteenth (16th) anniversary of the
              ----------------
Commercial Operation Date and through the end of the calendar month in which the
sixteenth anniversary occurs, the base price ("Formula Price II") shall be $2.13
per thousand pounds of steam adjusted by the percentage adjustments made monthly
and annually to the Base Year Price during the period prior to the sixteenth
(16th) anniversary of the Commercial Operation Date. By way of illustration, if
the Base Year Price were to increase from $4.27 to $6.19 (an aggregate increase
of 45%), the Formula Price II would be $3.09 (1.45 x $2.13=$3.09). The Formula
Price II for each succeeding calendar month until the end of the Term shall be
subject to increase or decrease ("the adjustments") in the same manner as the
adjustments of the Formula Price I

                                      -15-
<PAGE>

during the period prior to the sixteenth anniversary of the Commercial Operation
Date, as provided in subparagraph B above.

          D.  Incremental Price. (1) Notwithstanding the provisions of the
              -----------------
preceding subparagraphs of this Section 2.02 and without limitation of any
additional payments required pursuant to the provisions of subsection (4) of
this subparagraph D, the price to be paid per thousand pounds of Excess Steam
(as defined below) delivered to the Customer on any day on or after the
Commercial Operation Date shall be the sum of (i) the Incremental Fuel Cost (as
defined below) for the calendar month in which such day occurs, plus (ii) the
Administrative Charge (as defined below), plus (iii) 2% of the sum of the
Incremental Fuel Cost and the Administrative Charge.

          (2) For the purposes of this subparagraph D, the following terms shall
have the following definitions:

          (i) "Administrative Charge" shall mean the initial sum of $1.25
through the end of the twelfth full calendar month following the month in which
the Commencement Date occurs, subject to increase or decrease (an "adjustment")
for each succeeding month thereafter by one-twelfth of the budgeted percentage
of increase or decrease for union labor at Syracuse University (which shall
constitute 20% of the adjustment) and by one-twelfth of the budgeted percentage
of increase or decrease in departmental operating budgets at Syracuse
University, excluding utilities and other centrally budgeted special items
(which shall constitute 80% of the adjustment), as included in the University's
budget approved by its Board of Trustees, which budgeted increases or decreases
will be determined once every 12 months effective as of July 1 of each year
following the initial 12 month period.

                                      -16-
<PAGE>

          (ii)   "BTU" shall mean a British Thermal Unit: the amount of energy
required to raise the temperature of one pound of water one degree Fahrenheit at
60 degrees Fahrenheit.

          (iii)  "Calculated Excess Steam" shall mean with respect to each day
the number (expressed in pounds) equal to the quotient of the Excess Fuel for
that day (expressed in BTUs) divided by 1550.

          (iv)   "Contract Steam" shall mean with respect to each day the
greater of (x) the quantity of steam that would be available for actual delivery
to the Customer on that day based upon the consumption in the Facility for the
production of steam for the Customer and the generation of electricity of 20,000
dekatherms of natural gas at the average ambient temperature for that day, as
such quantity is determined by reference to the chart annexed to this Agreement
as Exhibit E, or (y) the excess, if any, of the quantity of steam actually
delivered to the Customer on that day over the Calculated Excess Steam for that
day.
          (v)    "dekatherm" shall mean a quantity of fuel containing 1,000,000
BTUs (higher heating value).

          (vi)   "Excess Fuel" shall mean with respect to each day the amount
(expressed in BTUs, at higher heating value) equal to the excess, if any, of the
aggregate amount of fuel consumed in the Facility and the Existing Plant on that
day for the production of steam for the Customer and the generation of
electricity, over 20,000 dekatherms.

          (vii)  "Excess Steam" shall mean with respect to each day the lesser
of (x) Calculated Excess Steam for that day or (y) the excess of the quantity of
steam actually delivered to the Customer on that day over Contract Steam for
that day.

          (viii) "Incremental Fuel Cost" shall mean the amount, determined
separately for each calendar month, equal to the product of (x) the average cost
per BTU, determined in

                                      -17-
<PAGE>

accordance with the procedures and limitations set forth in subsection (3)
below, of the fuel in excess of 20,000 dekatherms per day consumed in the
Facility and the Existing Plant on all days on which Excess Steam is delivered
during that month, multiplied by (y) 1,550,000.

          (3) The Company shall use diligent efforts to obtain Excess Fuel at
prices and on terms which will assure the availability of Excess Fuel when
required at the lowest prices obtainable, having due regard to the certainty of
supplies, the possibility of interruption in production or transportation, and
other relevant factors. Failure to obtain the lowest price shall not in and of
itself constitute a breach of the obligation described in the preceding
sentence. In furtherance of the objective described in the first sentence of
this subsection (3), on or about September 15 of each year, beginning with the
September 15 next following the Commercial Operation Date, the Company shall use
its best efforts to obtain and submit to the Customer (i) the names of at least
two suppliers of natural gas (other than the local distribution company) which
are prepared to make available quantities of natural gas as Excess Fuel during
the 12-month period beginning on the November 1 following such submission,
together with the proposed arrangements for transportation, and the proposed
prices and other terms of sale and transportation, of such gas to the Facility,
(ii) a description of the terms and rates at which natural gas is expected to be
available for purchase at the Facility from the local distribution company
during such period and (iii) the names of at least two suppliers of No. 2 fuel
oil in the Syracuse area which are prepared during such period to provide
delivery of No. 2 fuel oil on an "as needed" basis to the Customer's storage
tanks located adjacent to the Existing Plant together with the prices and other
terms of sale. Within 15 days after receipt of the information described in
clauses (i) and (ii) above the Customer shall by notice to the Company designate
either (x) the gas suppliers and related transportation arrangements described
in clause (i) or (y) the local

                                      -18-
<PAGE>

distribution company, as an acceptable source of back-up and peaking gas
supply for such period; provided, however, that in such notice the Customer may
disapprove any of the named suppliers of natural gas on commercially reasonable
grounds which shall be stated in such notice, and any supplier so disapproved
shall not be an acceptable source of back-up and peaking gas supply for such
period. Within 15 days after receipt of the information described in clause
(iii) above the Customer may by notice to the Company disapprove any of the
named suppliers of No. 2 fuel oil on commercially reasonable grounds which shall
be stated in the notice of disapproval, and any named supplier not so
disapproved shall thereafter be an approved supplier of No. 2 fuel oil for such
period. In the event that all of the named gas suppliers or all of the named No.
2 fuel oil suppliers are disapproved by the Customer, the Customer shall at the
time of its disapproval propose one or more alternative gas suppliers (and
related pricing and transportation arrangements) or fuel oil suppliers or both,
as the case may be, and the Company shall be free to accept such named suppliers
(and related pricing and transportation arrangements) in lieu of those
originally submitted by it, or to repeat the submission procedure until there is
at least one acceptable source of natural gas and at least one approved supplier
of No. 2 fuel oil. The Company shall thereafter (A) enter into contracts or
other arrangements with at least one acceptable source of natural gas so as to
confirm the arrangement for such period described in the Company's submission to
the Customer (any arrangement so confirmed for such period being herein referred
to as the "gas program") and (B) place orders from time to time with one or more
of the approved local suppliers of No. 2 fuel oil so as to confirm arrangements
for delivery of such oil. Within a reasonable time prior to the start of each
month of such period during which Excess Fuel is expected to be required, the
Company shall, based upon price information then available, select as the
preferred fuel for that month the less expensive of

                                      -19-
<PAGE>

natural gas from the gas program or No. 2 fuel oil from one or more of the
approved suppliers and shall proceed to order, nominate or otherwise make
arrangements to procure appropriate quantities of the preferred fuel for that
month; provided, however, that if natural gas is designated as the preferred
fuel but is not available from the gas program when required, No. 2 fuel oil
shall be deemed the preferred fuel until natural gas shall again become
available pursuant to the gas program and it shall be practical for the Company
to accept delivery of such natural gas. In the event that in making arrangements
to purchase gas or No. 2 fuel oil as the preferred fuel for any period the
Company shall elect to acquire such gas or oil at a delivered price which is
higher than the lowest delivered price available through the gas program or from
an approved oil supplier as of the date of comparison by the Company for
purposes of making such election, the Company shall provide to the Customer
prior to the last day of the month after the month for which such election is
effective, a report in appropriate detail specifying its reasons for such
election. The price (including all storage and transportation charges and all
taxes payable by the Company for the purchase or transportation of the gas) at
which natural gas is ordered, nominated or otherwise selected, and available,
for delivery to the Company at the Facility during such month through the gas
program is herein referred to as the "benchmark gas price," and the price
(including any special service or demand charges and taxes payable by the
Company for the purchase or transportation of oil) at which No. 2 fuel oil is
available or deemed available at the Customer's tanks during such month (as more
specifically provided below) is herein referred to as the "benchmark oil price".
The benchmark gas price shall not include any taxes on the Project Pipeline (as
defined in the Lease Agreement). The cost of fuel for purposes of computing
Incremental Fuel Cost for each month shall be the benchmark price of the
preferred fuel during that month (on a weighted average basis if there is more
than one preferred

                                      -20-
<PAGE>

fuel or more than one price for preferred fuel during the month), except that if
and for so long as No. 2 fuel oil (1) is consumed as the preferred fuel, the
benchmark oil price shall be the price of oil purchased by the Company from an
approved fuel oil supplier, as determined on a first in, first out basis,
regardless of the actual cost of No. 2 fuel oil available or purchased during
that month, or (2) is the preferred fuel but natural gas, propane or some other
fuel is consumed as Excess Fuel, the benchmark oil price shall be deemed to be
the actual cost to the Company of No. 2 fuel oil purchased by the Company from
an approved supplier on the day within the same month which is closest in time
to the day of consumption of such other fuel, or if No. 2 fuel oil is not so
purchased by the Company during such month the price at which No. 2 fuel oil is
available as of the first day of the month for delivery to the Company at the
Customer's tanks through the approved fuel oil supplier from which the Company
has then most recently purchased No. 2 fuel oil. All pricing calculations shall
be based on the thermal equivalency of 7.12 gallons of No. 2 fuel oil to one
dekatherm of natural gas.

          (4) In the event that in order to maintain availability of fuel for
the supply of Excess Steam during the period from November 1 of any year to the
following March 31, the Company shall nominate and be required to pay for, or to
pay transportation or service or minimum charges with respect to, quantities of
natural gas in excess of the quantities delivered and consumed as Excess Fuel
during such period, a charge equal to 102% of all or any of the amounts so paid
may at any time after the end of such period and on or prior to June 1 of that
year be separately invoiced by the Company to the Customer and shall be paid for
by the Customer, within 30 days after the delivery of any such invoice, as an
additional charge for the Excess Steam delivered during that period. The Company
shall use reasonable care to nominate no more than the quantities of natural gas
reasonably calculated by the Company to be necessary

                                      -21-
<PAGE>

to provide the supply of Excess Steam to the Customer, based upon the Customer's
projected steam requirements for the period November 1 through April 1 (as
supplied to the Company by the Customer annually on or before August 1 preceding
each submission of proposed fuel supply arrangements by the Company to the
Customer pursuant to subsection (3) of this subparagraph D), after taking into
account any quantities of natural gas prepaid by the Company through the gas
program and held by transporters for future delivery to the Company. The
invoices by the Company to the Customer pursuant to this subsection (4) shall
set forth in reasonable detail the calculation of the amounts invoiced.

          (5) If any change in technology occurs in the operation of the
Facility which results in an increase (per 20,000 dekatherms of fuel) in the net
steam output of the Facility, the Company shall recalculate the chart annexed to
this Agreement as Exhibit E hereto to fairly reflect the effects of such new
technology and shall submit the recalculated chart to the Customer, whereupon
the recalculated chart shall be substituted for Exhibit E as initially annexed
to this Agreement.

          E.  Alternative Technology Adjustment.
              ---------------------------------
          (1) In the event that the Formula Price as in effect on the later of
the twentieth anniversary of the Commencement Date or the sixteenth anniversary
of the Commercial Operation Date (the "first adjustment date") or on the later
of the thirtieth anniversary of the Commencement Date or the twenty-sixth
anniversary of the Commercial Operation Date (the "second adjustment date")
would be greater than the estimated cost at which the Customer could then obtain
its steam requirements, or thermal energy in lieu of such steam requirements,
based upon some alternative fuel or technology, or both (the "alternative
cost"), after taking into account the capital, labor and other costs that would
be incurred by the Customer in connection

                                      -22-
<PAGE>

with the use of such alternative fuel or technology, or both, then by giving
written notice to the Company at least six months prior to such first adjustment
date or second adjustment date the Customer may elect to reduce the Formula
Price as of such first adjustment date or second adjustment date to the amount
of the alternative cost (as such cost is determined within 18 months prior to
the giving of such notice, based upon reasonable assumptions and projections,
including, with respect to the second adjustment date, appropriate assumptions
as to the unamortized alternative cost associated with any such election made by
Customer as of the first adjustment date, by an independent energy consultant
selected by the Customer and acceptable to the Company acting reasonably). The
making of such an election with respect to the first adjustment date shall not
preclude a further such election with respect to the second adjustment date.

          (2) If the Formula Price shall have been reduced to the amount of the
alternative cost upon the first adjustment date, then by giving written notice
to the company at least six months prior to the fifth anniversary of the first
adjustment date and (unless the Formula Price shall have been reduced to the
alternative cost on the second adjustment date) prior to the tenth, fifteenth
and, if the twentieth anniversary of the first adjustment date is more than five
years before the end of the Term, the twentieth anniversary of the first
adjustment date, the Customer may elect to engage an energy consultant to
determine the estimated cost at which the Customer could, on such anniversary
date, obtain its steam requirements, or thermal energy in lieu of such steam
requirements, based upon the same alternative fuel or technology, or both, used,
and taking into account the same factors considered, in determining the
alternative cost for the first adjustment date. The estimated cost so determined
by the energy consultant ("the adjusted Formula Price") shall be substituted for
the Formula Price then in effect, as of such

                                      -23-
<PAGE>

anniversary date. The determination of the adjusted Formula Price shall be made
by the energy consultant, based upon reasonable assumptions and projections,
within three months after the giving of such notice. In making its determination
of the adjusted Formula Price, the energy consultant shall assume that there is
no change in the fixed cost components of the technology (such as initial
capital costs and the amortization and financing of such costs) used in the
determination of the alternative cost on the first adjustment date and shall
redetermine only the variable cost components of the alternative cost (such as
fuel, labor and other variable costs). If the Formula Price shall have been
reduced to the amount of the alternative cost upon the second adjustment date,
then by giving written notice to the Company at least six months prior to the
fifth anniversary of the second adjustment date and, if the tenth anniversary of
the second adjustment date is more than five years before the end of the Term,
the tenth anniversary of the second adjustment date, the Customer may elect to
engage an energy consultant to determine the estimated cost at which the
Customer could, on such anniversary date, obtain its steam requirements, or
thermal energy in lieu of such steam requirements, based upon the same
alternative fuel or technology, or both, used, and taking into account the same
factors considered, in determining the alternative cost for the second
adjustment date. The estimated cost so determined by the energy consultant ("the
readjusted Formula Price") shall be substituted for the Formula Price then in
effect, as of such anniversary date. The determination of the readjusted Formula
Price shall be made by the energy consultant, based upon reasonable assumptions
and projections, within three months after the giving of such notice by the
Customer. In making its determination of the readjusted Formula Price, the
energy consultant shall assume that there is no change in the fixed cost
components of the technology (such as initial capital costs and the amortization
and financing of such costs) used in the determination of the alternative cost
on the

                                      -24-
<PAGE>

second adjustment date and shall redetermine only the variable cost components
of the alternative cost (such as fuel, labor and other variable costs).

          (3) The Formula Price as so reduced or adjusted pursuant to
subsections (1) or (2) of this subparagraph shall thereafter be subject to
increase or decrease in the same manner as the adjustments of Formula Price I
during the period prior to the sixteenth anniversary of the Commercial Operation
Date, as provided in subparagraph B above.

          Section 2.03.  Payment for Steam; Meters.

          The Company shall install meters, of a type and quality reasonably
acceptable to Customer, to measure the pounds of steam delivered to the Customer
at the interconnection points A-1 and A-2 described in Section 1.04 and shall
render monthly invoices to the Customer based upon the higher of (i) the
readings of meters for the calendar month, which readings shall be conclusive
absent manifest error, or (ii) the amount of steam that the Company would have
been required to purchase during the calendar month, which, when added to the
amount of steam paid for by the Customer during the preceding 11 calendar
months, equals the Minimum Annual Requirement. All invoices shall be due and
payable upon receipt thereof, and, if not paid within 25 days of receipt, shall
be subject to an administrative charge equal to 1-1/2% of the outstanding
balance for each month overdue. If any invoice shall remain unpaid for more than
55 days from the date due, it shall be subject to an additional administrative
charge equal to 1% of the outstanding balance due for each month overdue beyond
the 25th day following the due date. No administrative charge shall be payable
if payment of the invoice shall have been disputed in good faith by the
Customer, unless, and then only upon the amount in dispute as to which the
Customer is found to have been incorrect in withholding payment. The Company
may, at its own

                                      -25-
<PAGE>

expense, have the meter tested at any time and the Company will, upon the
request of the Customer, have the meter tested whenever requested, provided that
the expense of any testing requested by the Customer shall be borne by the
Customer unless the test verifies at least a 2% deviation from accurate
readings. All meter testings shall be conducted by an independent meter tester
designated by the Company and reasonably acceptable to the Customer. A copy of
each report rendered by said meter tester shall be delivered to the Customer.

          Section 2.04.  Report of Sales to Ancillary Customers.

          On or before March 1 of each year the Customer shall prepare and
deliver to the Company a report of the quantity of steam resold by the Customer
to its Ancillary Customers during the preceding calendar year. Such report shall
be in such form and shall contain such information as the Company reasonably may
require to determine the Company's gross operating income for purposes of
Section 186-a of the New York Tax Law.

                                  ARTICLE III

          DISCONTINUANCE, CURTAILMENT OR INTERRUPTION OF STEAM SUPPLY
          -----------------------------------------------------------

          Section 3.01.  General.

          The Company shall provide a safe and continuous supply of steam to the
Customer in the amounts and meeting the specifications required by Customer and
its Ancillary Customers as provided in Section 2.01. The Company shall have no
responsibility for any failure to supply steam to Customer that is caused, or
materially contributed to, by acts of God or a public enemy, strikes, lock-outs,
riots, injunctions or other interference through legal proceedings, state,
federal or local laws or regulations or requisitions of any governmental
authority ("force majeure"), or by the fault of the Customer. If Customer shall
be responsible for the interruption

                                      -26-
<PAGE>

of the supply of steam, Customer shall bear all costs incident to the
restoration of the supply, and shall not be relieved of its obligations under
Section 2.01. In all cases, the Company shall use its best efforts to restore
service or to provide a temporary emergency supply of steam within the shortest
period of time technically and reasonably possible from the occurrence of
interruption. In determining the reasonableness of any period of interruption,
the urgent needs of the Ancillary Customers which are hospital and medical
facilities shall be of paramount importance.

          Section 3.02.  Emergency Interruptions.

          The Company may discontinue its supply of steam (i) upon notice to
Customer, if in the reasonable judgment of the Company a condition exists which
causes the Customer's equipment or installation (except, however, any equipment
or installation of the Customer which is the obligation of Company to maintain
and repair under the Operating Agreement) to become dangerous or defective or if
the Company has received notice from appropriate authorities that the Customer's
installation or equipment is dangerous or defective so as to injuriously affect
the Company's equipment or the Company's service to others or (ii) immediately
if, in the opinion of the Company, a hazardous condition exists or immediate
action is necessary to protect persons from bodily injury. Such interruption
shall continue until the condition has been corrected by the Customer. The
Company's duly authorized representatives shall have the right of access at any
reasonable time to Customer's steam distribution system and interconnection
points for the purpose of performing safety inspections of the Customer's
equipment and installation. The Customer also shall have the right to
discontinue the purchase of steam from the Company upon notice to the Company,
or immediately in the case of an emergency, if a condition exists with respect
to the Company's Facility or the quality of the steam which may injuriously
affect the

                                      -27-
<PAGE>

property of Customer or its Ancillary Customers or the persons they serve. The
discontinuance of purchase of steam by the Customer shall continue until the
condition has been corrected by the Company.

          Section 3.03.  Default by the Company; Remedies; Take-over of
     Facility.

          In the event that

          A.  The Company (or, alternatively, for the purposes of this Section
3.03 only, any entity having assumed responsibility for operation of the
Facility) shall file a petition or answer or consent seeking relief under Title
11 of the United States Code, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or similar law, or shall
consent to the institution of proceedings thereunder or to the filing of any
such petition or to the appointment of or taking of possession of the Company,
or any part of its property, by a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official, or the Company shall make an
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due;

          B.  A decree or order shall be entered by a court having jurisdiction
in the premises for relief in respect of the Company under Title 11 of the
United States Code, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company, or of any part of its property, or ordering the winding up or
liquidation of the affairs of the Company, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or

                                      -28-
<PAGE>

          C.  The Company (except for interruptions of service which are the
fault of the Customer or which are permitted under Section 3.02) shall fail to
supply steam to the Customer at the pressures and temperature and meeting the
other requirements of this Agreement for more than 6 consecutive hours,
provided, however, that the Company shall not be deemed to have failed to supply
steam for six consecutive hours if, within six hours following an interruption
of the supply of steam attributable to the involuntary outage of both gas
turbines of the Facility due to causes beyond the reasonable control of the
Company, it shall have commenced delivery of at least 250,000 pounds per hour of
steam from the Existing Plant and shall continue to fire additional boilers in
the Existing Plant to the extent necessary to meet Customer's additional demands
for steam as promptly as is practical and consistent with the preservation and
protection of such boilers.

          THEN, the Customer

          (1) may, if the interruption in service is caused by an inability to
produce and deliver steam from both the Facility and the Existing Plant (A)
require the Company immediately to make other arrangements for the delivery of
steam to the Customer to meet its requirements and those of its Ancillary
Customers, in which case the Customer shall be required to pay for the steam so
delivered at the rate determined by the Company to be necessary to reimburse the
Company for the cost of providing such steam or (B) if the Company shall have
failed to make other arrangements for the delivery of steam to the Customer
within such period of time as the Customer shall determine necessary under the
circumstances, make its own arrangements for purchase of steam from others or
the production of steam from its Existing Plant during the period of the
interruption, and in either of such events, the Customer shall be entitled to
receive reimbursement from the Company for any amounts paid by the Customer for
the purchase of

                                      -29-
<PAGE>

steam, or for the cost to the Customer for its production of steam, which are in
excess ("the excess steam payments") of the amounts that it would have otherwise
been required to pay under the provisions of Sections 2.01 through 2.03,
together with interest on the excess steam payments at the rate of interest
announced by Chase Manhattan Bank at its principal office in the City of New
York, New York, as its prime rate at the time the excess steam payments are made
("interest"), out of the first available cash flow (before payment of debt
service on any Financing) of the Company generated after resumption of normal
service; or

          (2) may, if the Company does not reimburse the Customer for all excess
steam payments, with interest, theretofore made by the Customer within 12 months
after the interruption of service, and thereafter supply steam at the prices
provided for in this Agreement or reimburse the Customer on a current basis,
with interest, for any continuing excess steam payments made by the Customer,
terminate this Agreement on thirty (30) days prior written notice to the Company
and to the court, if any, having jurisdiction over any insolvency or similar
proceeding with respect to the Company; or

          (3) may (except for a default under paragraph C above caused by force
majeure which does not continue for more than thirty (30) days) immediately
assume operating control of the Facility and, upon such assumption, may continue
operating control until (i) the normal restoration of the supply of steam by the
Company in the case of default under paragraph C above, or (ii) in the case of
default under paragraph A or B above, the earliest of a final legal arrangement
made by a court of competent jurisdiction, or a final private legal arrangement
made among all parties to the Financing and the Company's customers, or (iii) in
any case, the Customer's election to discontinue operating control as
hereinafter provided. The Customer's election to assume operating control of the
Facility shall be communicated to the Company and

                                      -30-
<PAGE>

to the court, if any, having jurisdiction over any insolvency or similar
proceeding with respect to the Company by delivery of written notice or delivery
of telephonic notice confirmed in writing within 24 hours. Thereafter, the
Customer shall be entitled to the immediate possession and control of the
Facility, to the assignment of (i) all supply, gas, fuel and other contracts
relating to the operation of the Facility, other than contracts for the long
term supply of gas and related transportation arrangements ("the long term gas
supply and transportation agreements") and (ii) all contracts for the purchase
and sale of electricity, steam or other power or energy in any form from the
Facility and to the right to enforce in the name of the Customer or the Company
the long term gas supply and transportation agreements pursuant to such
documents or instruments as are reasonably satisfactory to the Customer. Each of
such contracts shall be assignable to or enforceable by the Customer, as the
case may be, at its option upon the occurrence of such default, and a true copy
of each of the contracts shall be delivered to the Customer upon its execution.
None of such contracts shall prohibit its assignment to or enforcement by
Customer, as the case may be, without its assumption of the contract; provided,
however, that the Customer shall be liable for the obligations it incurs during
the period of its assumption of operating control of the Facility. The Company,
all fiduciaries, persons and entities acting on behalf of the Company, and all
parties having a security interest in the Facility or in any related contracts,
shall cooperate with the Customer in order to permit the assumption of operating
control by the Customer as expeditiously as possible.

          During any period that the Customer has assumed operating control of
the Facility, the Customer shall reasonably endeavor to produce and deliver
steam in the amounts contemplated by this Agreement and the maximum amount of
electrical energy consistent with it and shall be liable for the payment of all
fuel, maintenance, ordinary repairs, insurance and other

                                      -31-
<PAGE>

operating costs of the Facility incurred during the period of Customer's
operating control (the "operating costs"), exclusive of debt service payments on
any Financing ("the debt service"). Operating costs shall not include
obligations under, and the Customer shall have no obligation to assume, any
employment agreements, labor agreements, service agreements, rental agreements
or similar agreements, but to the extent that the Customer elects to assume such
obligations, they shall be included in operating costs. The only obligation of
the Customer with respect to the debt service shall be to pay the amounts
provided for in Sections 2.01 through 2.03, if any, net after the deduction of
all operating costs, to any trustees (the "trustees") for the investors in the
Financing, or, absent the existence of any such trustees, directly to the
investors in the Financing, as their interests may appear, for application to
the debt service.

          The Customer shall also pay over to the trustees, or the investors, as
the case may be, all revenues received from the production and delivery of
electrical energy from the Facility to any purchaser of it, net after deduction
of the amount, if any, by which the operating costs exceed the amounts provided
for in Sections 2.01 through 2.03 (the "operating deficiency"). The Customer
shall have no other liability whatsoever with respect to the Facility or its
operation during the period of its operating control of the Facility. If the
Customer has an operating deficiency at the time of its cessation of operating
control for any reason, it shall be entitled to recoup the amount of the
operating deficiency, with interest, by an offset against any subsequent amounts
payable by it pursuant to Sections 2.01 through 2.03 or to recover the operating
deficiency as an element of its damages.

          Upon Customer's assumption of operating control of the Facility, the
Company or any fiduciary or other person or entity acting on behalf of the
Company shall deliver custody to the Customer of all books, records and
documents relating to the operation of the Facility. The

                                      -32-
<PAGE>

Customer may at any time discontinue operating control of the Facility on 30
days written notice stating the effective date of its discontinuance given to
the Company and to the court, if any, having jurisdiction over any insolvency or
similar proceeding with respect to the Company. Upon written request made by the
holders of any Permitted Mortgage in the exercise of the right, if any, of the
holders to assume operating control of the Facility provided for under such
Permitted Mortgage and contemplated under a Consent and Agreement, the Customer
shall discontinue the Customer's operating control of the Facility as promptly
as is reasonably practical and in any event not later than 10 days after
receiving such request, unless Customer shall have cured the default or event of
default, if permitted by the Lease, giving rise to the exercise of such right
under such Permitted Mortgage. Upon the discontinuance of operating control of
the Facility by the Customer for any reason, the Customer shall relinquish its
interest in any contracts and rights assigned to it pursuant to this Section
3.03 (subject to the Customer's continuing security interest in the contracts
and its right to their reassignment upon Customer's resumption of operating
control of the Facility thereafter) and shall have no further liability with
respect to the Facility or operating costs, other than its obligations under
Sections 2.01 through 2.04, subject, however, to Customer's right to recoupment
of the operating deficiency and reimbursement of the excess steam payments by
means of a set off or otherwise.

          The Company shall remain liable to the Customer for any operating
deficiency and any excess steam payments for which it shall not have been
reimbursed, which liability shall survive the expiration or sooner termination
of this Agreement.

          The remedies provided in this Section 3.03 shall be in addition to
every other right or remedy which the Customer may have at law or in equity or
by statute or otherwise, for the defaults enumerated in this Agreement or for
any other breach of this Agreement, including,

                                      -33-
<PAGE>

without limitation, the right to recover damages, excluding consequential
damages, for breach of this Agreement; provided, however, that the Customer
shall have no right to terminate this Agreement, the Operating Agreement or the
Lease Agreement (collectively the "Agreements"), except as expressly provided in
the Agreements. Each right and remedy shall be cumulative and the exercise by
the Customer of any one or more of its rights or remedies shall not preclude the
simultaneous or later exercise by the Customer of any or all other rights or
remedies it may have, and all of such rights and remedies shall survive the
expiration or termination of this Agreement.

                                   ARTICLE IV

                                    SECURITY
                                    --------

          As security for the performance of the obligations of the Company, the
Contractor or their subsidiaries or affiliated entities or ventures
(collectively the "Obligors") under and throughout the Term of the Agreements,
the Company shall grant or cause to be granted to Customer (i) a mortgage lien
in the principal amount of Twenty Million Dollars ($20,000,000.00) and a
security interest of the highest priority available on the Facility, (ii) a
security interest of the highest priority available in all supply, gas, fuel and
other contracts of any of the Obligors, and in all property interests or rights
which the Obligors shall have or acquire in any natural gas or other fuel,
related to their performance and (iii) a security interest of the highest
priority available in all contracts of any of the Obligors for the sale of
electricity, steam or other power or energy in any form from the Facility.

          The "highest priority available" shall mean (i) a first mortgage lien
or a first security interest or (ii) a mortgage lien or security interest
subordinate only to the rights, as secured parties, of the holders of Permitted
Mortgages.

                                      -34-
<PAGE>

          The Company agrees to execute and deliver, or cause to be executed or
delivered, to Customer all security agreements, mortgages and other documents as
the Customer shall reasonably request in order to effectuate the foregoing. The
Customer agrees to execute and deliver a Consent and Agreement, in the form
annexed to this Agreement as Exhibit F (a "Consent and Agreement"), with respect
to every Permitted Mortgage, and such other instruments of acknowledgement,
recognition or subordination with respect to the mortgage and security interests
to be granted to Customer pursuant to this Article, as the holders of any
Permitted Mortgage may reasonably request to give effect to the subordination
contemplated by this Article IV and the Consent and Agreement, provided always,
that any instrument or document required of the Customer shall not be
inconsistent with the Agreements, as they may be modified by a Consent and
Agreement. The Company shall bear all costs incurred by either the Company or
the Customer in the preparation or provision of any of the instruments and
documents described in the immediately preceding sentence, and in the filing or
recording of any of the documents described in this paragraph, including, any
mortgage recording taxes.

                                   ARTICLE V

                                   INDEMNITY
                                   ---------

          Section 5.01.

          The Company shall indemnify and hold the Customer harmless from and
against any and all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including, without limitation, attorneys fees and fees of
other professionals and experts (collectively "claims"), which may be imposed
upon, incurred by or asserted against the

                                      -35-
<PAGE>

Customer because of any of the following, unless the claims arise as a
consequence of the action or failure to act by the Customer:

          (i) Any work or thing done in, on or about the Facility;

          (ii) Any use, non-use, possession, occupation, condition, operation,
maintenance or management of the Facility or any part of it;

          (iii)  Any act or omission of the Company or any of its agents,
contractors, servants, employees, licensees or invitees; or

          (iv) Any accident, injury or death to any person or damage to property
occurring in, on or about the Facility.

          Section 5.02.

          The Customer shall indemnify and hold the Company (including for this
purpose any corporation, partnership or other entity controlling, controlled by
or under common control with, the Company) harmless from and against any and all
claims which may be imposed upon, incurred by or asserted against the Company
because of any of the following, unless said claims arise as a consequence of
the action or failure to act by the Company:

          (i)    any work or thing done in, on or about the premises of the
Customer (excluding the Facility, except to the extent that they arise as a
consequence of the action or failure to act by the Customer);

          (ii)   any use, non-use, possession, occupation, condition, operation,
maintenance or management of the premises of the Customer (excluding the
Facility, except to the extent that they arise as a consequence of the action or
failure to act by the Customer);

                                      -36-
<PAGE>

          (iii)  any act or omission of the Customer or any of its agents,
contractors, servants, employees, licensees, or invitees;

          (iv)   any accident, injury or death to any person or damage to
property occurring in on or about the premises of the Customer (other than the
Facility, except to the extent that they arise as a consequence of the action or
failure to act by the Customer).

          Section 5.03.

          The indemnification of the Company by the Customer and the Customer by
the Company pursuant to this Article shall in all events be limited by the
applicable provisions of Article 19 and Section 11.03 of the Lease Agreement.

          Section 5.04.

          The provisions of this Article shall survive the expiration or earlier
termination of this Agreement.

                                   ARTICLE VI

                                 MISCELLANEOUS
                                 -------------

          Section 6.01.  Customer Training.

          Throughout the Term of this Agreement, the Company, at its sole cost
and expense, (i) shall provide the Customer from time to time complete and up to
date operating manuals, instructions and other documents and information
relating to the operation and maintenance of the Facility and (ii) shall provide
training to employees of the Customer, designated by it from time to time, in
the operation and maintenance of the Facility by the Company's personnel
regularly employed at the Facility.

                                      -37-
<PAGE>

          Section 6.02.  Pledge or Assignment.

          The Company may at any time or from time to time assign its rights
under this Agreement, including its right to receive payments under it, (i) to
any corporation, partnership or other entity controlling, controlled by, or
under common control with the Company, or (ii) as security for the investors and
other participants in any Financing and any Permitted Mortgage from time to time
outstanding, and thereafter this Agreement shall not be terminated, modified or
changed by the mutual consent of the parties except as may be permitted, and
subject to any conditions imposed, by the terms and provisions of each such
assignment as security. Except as otherwise expressly permitted by this Section,
this Agreement shall not be assigned or pledged by the Company without the prior
written consent of the Customer. Upon the request of the Company, the Customer
shall execute and deliver such appropriate instruments of estoppel with respect
to the continuing authorization and validity of the Agreements and the existence
of defaults under them, and shall provide opinions of its counsel as to the due
authorization and execution of the Agreements by, and their binding effect upon,
the Customer, as may reasonably be requested by the investors or other
participants in a Financing as a condition to any extension of credit or advance
or funds in conjunction with it, provided, however, that the Company shall bear
the costs of the Customer's provision of such instruments and opinions.

          Section 6.03.  Notices.

          All notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be effective when delivered personally or five
days after deposited in the U.S. mails, certified or registered mail, postage
prepaid, return receipt requested, addressed, if to the Company, to

          Project Orange Associates, L.P.

                                      -38-
<PAGE>

          630 First Avenue, Suite 30C
          New York, New York 10016 and

          650 North Belt
          Houston, Texas 77060

          with a copy to:

          Kronish, Lieb, Weiner & Hellman
          1345 Avenue of the Americas
          New York, New York 10105
          Attention:  Russell S. Berman, Esq., and

          To the holders of a Permitted Mortgage identified, and at the address
          stated, in a written notice by the Company to the Customer

          or, if to the Customer, to

          Syracuse University
          Skytop Office Building
          Syracuse, New York 13244-5300
          Attention:  Senior Vice President for Business and Finance or
                      Successor

          with a copy to:

          Bond, Schoeneck & King
          One Lincoln Center
          Syracuse, New York 13202
          Attention:  Anthony R. Pittarelli, Esq.

          or such other addresses as either party shall designate by delivery of
          notice as aforesaid.

          Section 6.04.  Severability.

          If any clause, provision or section of this Agreement shall be found
to be invalid by any court of competent jurisdiction, the invalidity thereof
shall not change the validity or effectiveness of the remaining provisions
hereof.

                                      -39-
<PAGE>

          Section 6.05.  Choice of Law.

          This Agreement shall be construed in accordance with, and any dispute
arising in connection herewith shall be governed by, the laws of the State of
New York applicable to contracts made and to be performed in such state.

          Section 6.06.  Entire Agreement; Amendments.

          This Agreement constitutes the entire agreement between the parties
with respect to the matters contained herein and all prior agreements or
arrangements with respect to such matters (including the Prior Agreement) are
superseded. Customer is not relying on any representation or agreement other
than those set forth or provided for in the Agreements. No amendment,
modification or change of any of the provisions of this Agreement shall be of
any force or effect unless duly executed by the party against which enforcement
of it is sought. No mutual termination or mutual cancellation of this Agreement
and no termination of this Agreement by the Company shall be of any force or
effect unless approved in writing by the holders of each Permitted Mortgage.

          Section 6.07.  Waivers.

          No failure by the Customer or the Company to insist upon the strict
performance of any agreement, term, covenant or condition of this Agreement or
to exercise any right or remedy upon a breach of any of them, and no acceptance
of full or partial performance during the continuation of any breach, shall
constitute a waiver of the breach or of the agreement, term, covenant or
condition. No agreement, term, covenant or condition to be performed or complied
with by the Company or the Customer, and no breach of any of them, shall be
waived, altered or modified except by a written instrument executed by the
Customer or the Company, as the case

                                      -40-
<PAGE>

may be. No waiver of any breach shall affect or alter this Agreement, and each
and every agreement, term, covenant and condition of this Agreement shall
continue in full force and effect with respect to any other existing or
subsequent breach. No waiver by the Company shall be of any force or effect
unless approved in writing by the holders of each Permitted Mortgage.

          Section 6.08.  Termination.

          If the guaranty by the Approved Operator required by Section 7.01 of
the Operating Agreement shall not be delivered to Customer by March 15, 1990,
Customer may, upon fifteen days written notice to the Company, terminate this
Agreement.

          Section 6.09.  Approval.

          The obligations of the parties under this Agreement are contingent
upon the approval of this Agreement by the Board of Trustees of Customer. If
such approval is not granted by March 5, 1990, either party may terminate this
Agreement upon fifteen days written notice to the other.

          IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their duly authorized representatives.

                              PROJECT ORANGE ASSOCIATES, L.P.

                              By:  G.A.S. Orange Partners, L.P., its general
                                   partner

                              By:  G.A.S. Orange Development, Inc., its general
                                   partner

                              By: /s/ Adam H. Victor
                                 ___________________________________
                                 Title: President

                                      -41-
<PAGE>

                              SYRACUSE UNIVERSITY

                              By: /s/ Louis G. Marcoccia
                                 ___________________________________

                                      -42-
<PAGE>

          STATE OF NEW YORK   )
                              ) ss.
          COUNTY OF NEW YORK  )

          On this 3rd day of May, 1990, before me personally came ADAM
VICTOR to me known, who being by me duly sworn, did depose and say that he
resides in New York, New York, that he is the President of G.A.S. ORANGE
DEVELOPMENT, INC., the General Partner of G.A.S. Orange Partners, L.P., which is
the General Partner of Project Orange Associates L.P., the partnership described
in this instrument, and that he had authority to sign this instrument and he
acknowledged to me that he executed the instrument as the act and deed of the
partnership.

                              /s/ Joan F. Carey
                              __________________________________________
                              Notary Public

          STATE OF NEW YORK   )
                              ) ss.
          COUNTY OF NEW YORK  )

          On this 27th day of February, 1990, before me personally came LOUIS G.
MARCOCCIA to me known, who being by me duly sworn, did depose and say that he
resides in Cazenovia, New York, that he is the Senior Vice President of SYRACUSE
UNIVERSITY, the corporation described in and which executed the above
instrument; that he knows the seal of the corporation; that the seal affixed to
the instrument is the corporate seal; and that he signed his name to the
instrument.

                               /s/
                               __________________________________________
                               Notary Public

                                      -43-
<PAGE>

                                   EXHIBIT A
                                   ---------

          [Metes and bounds description of the leased premises. The leased
          premises are shown on the map attached to this Exhibit A. A metes and
          bounds description of the leased premises shall be inserted in this
          Exhibit A as soon as it is available.]

          Together with a non-exclusive easement to Tenant, its successors and
assigns, upon, over and across the premises of Landlord lying between the leased
premises and Landlord's existing steam plant ("the steam plant") for ingress and
egress to and from the leased premises and McBride Street.

          Excepting and reserving from the leased premises the existing
transformers and the building in which they are housed (collectively "the
transformer building"), easements to Landlord, its successors and assigns upon,
over, across and under the leased premises (i) for the entry and passage of
pedestrians, vehicles and machines to and from Landlord's transformer building,
chilled water plant ("the chilled water plant") located adjacent to the leased
premises, and the steam plant, including, without limitation, an easement over
an area five feet in width along the west wall of the transformer building, an
area twenty feet in width along the north wall of the transformer building, and,
if Tenant shall not have constructed a common wall along the east and south
walls of the transformer building, an easement three feet in width along the
east and south walls of the transformer building, an easement over an area
fifteen feet in width along the west wall and the north wall of the chilled
water plant and an easement over an area at least ten feet in width, and,
depending on the final design of the Cogeneration Plant, as much as fifteen feet
in width, along the east wall of the Riley Plant, as indicated on the dotted
area on the map attached, and (ii) for the installation, repair, replacement and
maintenance of lines for the transmission of electrical power, communications,
water, steam, condensate, fuel and other

                                      A-1
<PAGE>

utilities, consisting of overhead or underground poles, lines, conduits, pipes,
mains, ducts, manholes, and other appurtenant and supporting facilities,
apparatus and structures as Landlord may now or from time to time deem necessary
for the operation of the transformer building, the chilled water plant and the
steam plant.

          The precise location of the easements granted and reserved shall be
determined and confirmed by Landlord and Tenant upon the completion of the Plans
for the Cogeneration Plant. Landlord shall have the right to relocate such
easements from time to time provided such relocation does not unreasonably
interfere with Tenant's operation of the Cogeneration Plant.

                                      A-2<PAGE>

                                                                    EXHIBIT 10.8

                              OPERATING AGREEMENT

                                    BETWEEN

                              SYRACUSE UNIVERSITY
                                    (OWNER)

                                      and

                        PROJECT ORANGE ASSOCIATES, L.P.
                                  (OPERATOR)

Dated: February 27, 1990
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                          Page
<S>                                                                                                         <C>
ARTICLE I         DEFINITIONS................................................................................2

         Section 1.01        Definition of Terms.............................................................2

ARTICLE 2         EXISTING PLANT.............................................................................3

         Section 2.01        Existing Plant..................................................................3
         Section 2.02        Right to Operate................................................................3
         Section 2.03        ................................................................................7

ARTICLE 3         TERM       ................................................................................7

         Section 3.01        ................................................................................7
         Section 3.02        ................................................................................8

ARTICLE 4         USE OF EXISTING PLANT......................................................................10

         Section 4.01        ................................................................................10

ARTICLE 5         USER CHARGE................................................................................10

         Section 5.01        ................................................................................10
         Section 5.02        ................................................................................12
         Section 5.03        ................................................................................12

ARTICLE 6         OPERATION OF EXISTING PLANT................................................................16

         Section 6.01        Operation by Operator...........................................................16
         Section 6.02        Operating Agreements............................................................19
         Section 6.03        Owner Training..................................................................19

ARTICLE 7         REPAIRS, MAINTENANCE AND ALTERATIONS.......................................................20

         Section 7.01        Repairs and Maintenance.........................................................20
         Section 7.02        Testing and Reports.............................................................29
         Section 7.03        Alterations, Improvements and Additions.........................................30

ARTICLE 8         UTILITY EXPENSES...........................................................................31

         Section 8.01        Utilities.......................................................................31

</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                                                         <C>
ARTICLE 9         NET AGREEMENT..............................................................................31

         Section 9.01        Net Agreement...................................................................31
         Section 9.02        User Charge Not to Abate........................................................31
         Section 9.03        Compliance with Environmental and Safety Laws
                                 Laws........................................................................32
         Section 9.04        Licensing Requirements..........................................................35

ARTICLE 10        REQUIREMENTS OF PUBLIC AUTHORITY...........................................................36

         Section 10.01       Compliance by Operator..........................................................36
         Section 10.02       Challenge to Validity...........................................................38

ARTICLE 11        COVENANT AGAINST LIENS.....................................................................38

         Section 11.01       Operator's Obligations to Discharge.............................................38
         Section 11.02       Right to Discharge..............................................................39
         Section 11.03       No Implied Consent of Owner.....................................................40

ARTICLE 12        ACCESS TO EXISTING PLANT BY OWNER..........................................................40

         Section 12.01       ................................................................................40
         Section 12.02       ................................................................................41

ARTICLE 13        SURRENDER..................................................................................41

         Section 13.01       Surrender of Operation..........................................................41
         Section 13.02       ................................................................................42
         Section 13.03       ................................................................................43

ARTICLE 14        INDEMNITY..................................................................................43

         Section 14.01       Operator's Indemnification of Owner.............................................43
         Section 14.02       Owner's Indemnification of Operator.............................................44
         Section 14.03       Limitation of Owner's Indemnity.................................................45
         Section 14.04       ................................................................................45

ARTICLE 15        INSURANCE..................................................................................46

         Section 15.01       Casualty Insurance..............................................................46
         Section 15.02       Other Insurance.................................................................46
         Section 15.03       Evidence of Insurance and Possession of Policy..................................48
         Section 15.04       Limitations Upon Concurrent Insurance...........................................49
         Section 15.05       Disbursement of Proceeds........................................................49
</TABLE>

                                      -ii-
<PAGE>

<TABLE>
<S>                                                                                                         <C>

         Section 15.06       Notice of Cancellation..........................................................49
         Section 15.07       Apportionment of Premiums Upon Expiration of Terms..............................50

ARTICLE 16        EMINENT DOMAIN.............................................................................50

         Section 16.01       Termination of Agreement........................................................50
         Section 16.02       Distribution of Condemnation Proceeds...........................................51
         Section 16.03       Partial Taking..................................................................52

ARTICLE 17        RIGHTS OF EACH PARTY TO PERFORM COVENANTS
                  OF THE OTHER...............................................................................52

         Section 17.01       ................................................................................52
         Section 17.02       ................................................................................52
         Section 17.03       ................................................................................53

ARTICLE 18        DAMAGE OR DESTRIBUTION.....................................................................53

         Section 18.01       ................................................................................53

ARTICLE 19        LATE CHARGES...............................................................................57

         Section 19.01       Past Due User Charges...........................................................57

ARTICLE 20        DEFAULT....................................................................................57

         Section 20.01       Events of Default...............................................................57
         Section 20.02       Remedies on Default.............................................................60
         Section 20.03       ................................................................................65
         Section 20.04       ................................................................................65
         Section 20.05       ................................................................................65
         Section 20.06       ................................................................................65
         Section 20.07       ................................................................................66

ARTICLE 21        WAIVERS....................................................................................66

         Section 21.01       Waivers.........................................................................66

ARTICLE 22        REPRESENTATIONS............................................................................67

         Section 22.01       ................................................................................67

ARTICLE 23        FORCE MAJEURE..............................................................................67

         Section 23.01       ................................................................................67

</TABLE>

                                     -iii-
<PAGE>

<TABLE>
<S>                                                                                                         <C>

ARTICLE 24        NOTICE     ................................................................................68

         Section 24.01       ................................................................................68

ARTICLE 25        GOVERNING LAW..............................................................................70

         Section 25.01       ................................................................................70

ARTICLE 26        PARTIAL INVALIDITY.........................................................................70

         Section 26.01       ................................................................................70

ARTICLE 27        INTERPRETATION.............................................................................71

         Section 27.01       ................................................................................71

ARTICLE 28        BINDING EFFECT.............................................................................71

         Section 28.01       ................................................................................71

ARTICLE 29        NO ORAL MODIFICATION - ENTIRE AGREEMENT....................................................71

         Section 29.01       ................................................................................71

ARTICLE 30        HEADINGS AND TABLE OF CONTENTS.............................................................72

         Section 30.01       ................................................................................72
         Section 30.02       ................................................................................72

ARTICLE 31        WAIVER OF JURY TRIAL AND COUNTERCLAIMS.....................................................73

         Section 31.01       ................................................................................73

ARTICLE 32        MEMORANDUM OF AGREEMENT....................................................................73

         Section 32.01       ................................................................................73

ARTICLE 33        TERMINATION................................................................................73

         Section 33.01       ................................................................................73
         Section 33.02       ................................................................................73

Exhibits
--------
</TABLE>

                                      -iv-
<PAGE>

Exhibit A         Map of Existing Plant

Exhibit B         Supplemental Agreement

Exhibit C         Existing Plant Operating Requirements

Exhibit D         Schedule of Repair and Maintenance

Exhibit E         Minimum Standards for Replacement Package Boilers

Exhibit F         Guaranty of Approved Operator

                                      -v-
<PAGE>

                              OPERATING AGREEMENT

          THIS AGREEMENT (the "Agreement") made on February 27, 1990, between
SYRACUSE UNIVERSITY, a New York educational corporation having its principal
office at Syracuse, New York 13244 (the "Owner") and PROJECT ORANGE ASSOCIATES,
L.P., a Delaware limited partnership (the "Operator").

                                   RECITALS
                                   --------

          1.  Owner has entered into an agreement with Operator dated on the
date of this Agreement (the "Steam Contract") for the purchase of steam to be
produced by Operator from a cogeneration facility (the "Cogeneration Plant") to
be constructed and operated by Operator upon certain land owned by Owner and
leased to Operator pursuant to a Lease Agreement dated on the date of this
Agreement (the "Lease").

          2.  Pursuant to the Steam Contract, Operator has also undertaken to
install and operate certain steam, water, condensate, fuel, gas and electric
lines and related apparatus and equipment necessary or appropriate for the
operation of the Cogeneration Plant and delivery of steam to Owner which,
together with the Cogeneration Plant, constitute the "Facility."

          3.  Pursuant to the Steam Contract, Owner will purchase, on its own
behalf and on behalf of certain other institutional users located near the
premises of the Owner who from time to time share steam costs with the Owner
(the "Ancillary Customers"), its and the Ancillary Customers' requirements for
steam from the Operator.

          4.  A standby steam generating facility is necessary to provide an
alternate or supplemental source of steam to meet the steam requirements of
Owner and its Ancillary Customers.

          5.  The Operator desires to use and operate the Owner's existing steam
generation facility (as hereinafter more specifically described, the "Existing
Plant") or an

                                      -1-
<PAGE>

Auxiliary System (as hereinafter more specifically described) which operator may
install in the Existing Plant, to provide the required alternate or supplemental
source of steam.

          6.  The Owner and a predecessor of the Operator have previously
entered into a certain Operating Agreement, dated as of December 28, 1987,
pertaining to the subject matter of this Agreement ("the Prior Agreement"). This
Agreement is intended to supersede the Prior Agreement which has been terminated
by contemporaneous separate agreement between the Owner and such predecessor.

          NOW, THEREFORE, the parties agree as follows.

                                   ARTICLE 1

                                  DEFINITIONS

          Section 1.01.  Definition of Terms.  For purposes of this Agreement,
all defined terms, as indicated by the capitalization of the first letter of
such term, shall have the meanings specified in the Steam Contract, unless the
context or use clearly indicates another meaning.

                                   ARTICLE 2

                                EXISTING PLANT

          Section 2.01.  Existing Plant.  The Owner's Existing Plant is a steam
generation facility which consists principally of 4 gas fired and oil fired
steam boilers and related apparatus, equipment and structures, which include the
Alco Plant, the Riley Plant and the gas house, and the underground oil storage
tanks, and provides the steam requirements of the Customer and its Ancillary
Customers, and the land on which it is located at 500 E. Taylor Street in the
City of Syracuse, New York, as shown on the map attached as Exhibit A.

          Section 2.02.  Right to Operate.  Owner grants to Operator, upon and
subject to the terms, covenants, conditions and provisions of this Agreement,
the right to operate and use

                                      -2-
<PAGE>

the Existing Plant. No leasehold possessory rights to the Existing Plant are
granted to the Operator by this Agreement; however, Owner shall at all times
throughout the term provide to Operator and its permitted assigns full access to
the Existing Plant sufficient so that Operator may satisfy its obligations
hereunder. Owner reserves the right to the exclusive use of (i) the office on
the second floor of the Riley Plant for Owner's distribution system supervisory
and clerical employees, (ii) the office of the Owner's distribution system
supervisor on the second floor of the Alco Plant, and (iii) the locker, restroom
and shower facilities adjacent to the office described in (i) and those located
in the Alco Plant for Owner's distribution system hourly workers.

          Owner reserves the right to the exclusive use of the electrical shop
on the first floor of the Alco Plant, to the exclusive use of a suitable space
on the first floor of the Alco Plant for Owner's welding operations, and to the
use of the elevator and hoist in the Alco Plant, provided such use shall not
unreasonably interfere with Operator's use of the Existing Plant.

          Owner also reserves the right to the use of the Alco Plant for the
storage of equipment, parts, inventory and supplies used by Owner in its steam
distribution system, including, without limitation, the right to the storage of
fittings, blowers, pumps, valves and similar equipment and boiler and pipe
insulation on the first, second, and third floors of the Alco Plant, provided
such use shall not unreasonably interfere with Operator's use of the Existing
Plant.

          Owner also reserves the right to use, in common with Operator, and
access at all times to, the electrical circuit breakers and switchgear and
related electrical apparatus and lines located in the Alco Plant and in the
Riley Plant ("the electrical service"), to the extent necessary for Owner's
operation of its chilled water plant. Operator shall not interrupt the
electrical service to the chilled water plant without the approval of Owner and
Owner shall not interrupt the electrical service to the Alco Plant or the Riley
Plant without the approval of Operator. Neither party shall modify the
electrical service without the approval of the other, which approval shall not
be unreasonably withheld.

                                      -3-
<PAGE>

          Owner reserves the right of access upon, over, across and under the
land constituting the Existing Plant (i) for the entry and passage of
pedestrians, vehicles and machines to and from the Existing Plant and Owner's
chilled water plant and transformer building located adjacent to the premises
leased by Owner to Operator pursuant to the Lease Agreement, (ii) for the
installation, repair, replacement and maintenance of lines for the transmission
of electrical power, communications, water, steam, condensate, fuel and other
utilities, consisting of overhead or underground poles, lines, conduits, pipes,
mains, ducts, manholes, and other appurtenant and supporting facilities,
apparatus and structures as Owner may now or from time to time deem necessary
for the operation of the chilled water plant and (iii) for the parking of five
vehicles in the area designated for parking on Exhibit A, provided that the use
described in clauses (i) and (ii) shall not unreasonably interfere with
Operator's use of the Existing Plant.

          Owner shall install, at its cost and expense, (i) a new submeter, to
replace the existing submeter, in its chilled water plant to determine the
amount of electricity used by Owner in the operation of the chilled water plant
and (ii) a submeter in the Alco Plant to determine the amount of electricity
used by Owner in the operation of the equipment in its electrical shop and
welding shop (collectively "the submeters").  Owner daily shall read the
submeters and record the readings.  Operator shall have access to the submeters
at reasonable hours upon advance notice to Owner for the purposes of reading and
testing the submeters.

          Operator shall provide Owner with a copy of each electricity bill
received by Operator from Niagara Mohawk Power Corporation for electricity used
in the Existing Plant and the chilled water plant (the "electricity bill")
within ten (10) days of its receipt by Operator.  Within fifteen (15) days after
Owner's receipt of the electricity bill from Operator, Owner shall reimburse
Operator for the cost (the "Owner's cost") of the electricity used by Owner in
the operation of its chilled water plant and in the operation of the equipment
used in its electrical shop and welding shop (collectively "Owner's electricity
usage") for the period covered by the electricity bill.  The Owner's cost shall
be an amount equal to a fraction of the total electricity bill, the numerator of
which shall be the kilowatt hours attributable to Owner's electricity usage

                                      -4-
<PAGE>

for the period covered by the electricity bill, as determined by the submeters,
and the denominator of which shall be the total kilowatt hours included in the
electricity bill. At the time of Owner's reimbursement of Owner's cost to
Operator, Owner shall also provide Operator with the cumulative daily kilowatt
hours readings from the submeters for the period covered by the electricity bill
together with a statement setting forth in reasonable detail the calculation of
Owner's cost.

          Upon the termination of this Agreement by Owner or upon Owner's
assumption of operating control of the Existing Plant pursuant to the terms of
this Agreement, Operator shall, so long as the Lease Agreement shall remain in
effect, have the right to park five vehicles in the area designated for parking
on Exhibit A.

          Section 2.03.  Any transfer, sale or encumbrance of the Existing Plant
by Owner shall be subject to the rights of Operator under this Agreement.

                                   ARTICLE 3

                                     TERM

          Section 3.01.  The term of this Agreement (the "term") shall commence
on the date (the "Term Commencement Date") upon which the Operator shall have
commenced delivery of steam to the Owner (other than for testing purposes which
shall not extend beyond a reasonable period of time) as required pursuant to the
Steam Contract and shall continue for a period of 40 years, unless terminated
earlier pursuant to this Agreement; provided, however that in the event that the
Operator shall be obligated to provide steam to the Owner from the Existing
Plant commencing on October 1, 1991, pursuant to the second unnumbered paragraph
of Section 1.06 of the Steam Contract, the term of this Agreement shall commence
on October 1, 1991 and shall expire upon the expiration of the term of the Steam
Contract, unless terminated earlier pursuant to this Agreement.  The parties
shall enter into a supplemental agreement, substantially

                                      -5-
<PAGE>

in the form attached as Exhibit B, setting forth the commencement and expiration
dates of the term.

          Section 3.02.  During the period prior to the Term Commencement Date
(the "pre-term period"), Owner shall have full responsibility for the Existing
Plant, shall operate and maintain the Existing Plant in the manner that it has
prior to the execution of this Agreement and shall maintain the quantities and
kinds of materials, spare parts, supplies, tools and equipment for use primarily
or exclusively in connection with the Existing Plant that it has customarily
maintained from time to time prior to the execution of this Agreement. During
the pre-term period, Operator and its authorized representatives shall have
access, upon reasonable notice, to the Existing Plant during normal business
hours for the performance of such studies and work that may be necessary for the
construction of any interconnections between the Cogeneration Plant and the
Existing Plant.  The interconnections shall be designed and constructed in a
manner that will permit the separate and independent operation of either the
Cogeneration Plant or the Existing Plant. Owner shall also during the pre-term
period provide Operator with such operating and maintenance literature with
respect to the Existing Plant as Owner has in its possession, shall provide
training to Operator's designated personnel in the operation and maintenance of
the Existing Plant and shall permit Operator's employees to operate the Existing
Plant for the purposes of training Operator's personnel under the supervision of
Owner's personnel, provided, however, that any additional costs incurred in
providing such training shall be borne by Operator. Owner and Operator shall
cooperate with one another in the completion of any necessary interconnections
between the Cogeneration Plant and the Existing Plant and in the orderly and
efficient transfer of operation of the Existing Plant to Operator. Upon
expiration of the pre-term period, Operator shall have the option to purchase
from Owner all, or any part of the materials, spare parts, supplies, tools and
equipment (other than fuel oil) maintained by Owner for use in connection with
the Existing Plant ("the inventory"), at Owner's cost, which shall be paid by
Operator upon expiration of the pre-term period.  Owner shall provide Operator a
list of the inventory and related cost information at least sixty (60) days
prior to the expiration of the pre-

                                      -6-
<PAGE>

term period. Operator shall purchase from Owner all fuel oil ("the fuel oil")
maintained by Owner for the operation of the Existing Plant at Owner's cost,
which shall be paid by Operator upon the expiration of the pre-term period. Upon
the expiration or termination of this Agreement, Owner shall have the option to
purchase the inventory and, if fuel oil is then being used to fuel the Existing
Plant, the obligation to purchase the fuel oil from Operator upon the same terms
and conditions applicable to their purchase by Operator from Owner.

                                   ARTICLE 4

                             USE OF EXISTING PLANT

          Section 4.01.  The Existing Plant and the Auxiliary System shall be
used and operated by the Operator only as a steam generation facility to provide
an alternate or supplemental source of steam to meet the steam requirements of
Owner and its Ancillary Customers.  Under no circumstances shall any steam
produced from the Existing Plant or the Auxiliary System be used by Operator for
the generation of electricity.  Nothing in this Section shall diminish, alter or
modify Operator's obligations to supply the steam requirements of Owner and its
Ancillary Customers pursuant to the Steam Contract.

                                   ARTICLE 5

                                  USER CHARGE

          Section 5.01.

                 (a) In consideration of its right to operate and use the
Existing Plant, and irrespective of its installation and use of the Auxiliary
System, but subject to the provisions of Section 5.03, the Operator shall pay to
the owner annually on each anniversary of the Term Commencement Date (or the
Commercial Operation Date, in the event the Operator shall be obligated to
provide steam to the Owner from the Existing Plant prior to the Commercial

                                      -7-
<PAGE>

Operation Date pursuant to the second unnumbered paragraph of Section 1.06 of
the Steam Contract) and throughout the term of this Agreement the following
amounts ("the user charge"):

     Anniversary Dates                             Annual Payment
     -----------------                             --------------

     First through Fifth                            $        1.00
     Sixth through fifteenth                         1,250,000.00
     Sixteenth through twentieth                     1,350,000.00
     Twenty-first through thirtieth                  1,450,000.00
     Thirty-first through thirty ninth               1,550,000.00

and a final payment of $1,550,000 on the first day of the last month preceding
the expiration of the term, except that if the Commercial Operation Date is
later than the Term Commencement Date, the payment on the twentieth anniversary
of the Commercial Operation Date shall be increased ("the increase") by the sum
of $104,167 for each full month from the Term Commencement Date to the
Commercial Operation Date.

              (b) The Operator shall have the option to make the annual payment
in twelve equal monthly installments, commencing on the first day of the month
following each anniversary, together with interest at a rate equal to the prime
rate announced by Chase Manhattan Bank, at its principal office in the City of
New York, New York ("the prime rate"), plus 200 basis points, on the unpaid
portion of the annual payment. Interest shall accrue from the anniversary date
and shall be payable on the due date of each monthly installment, calculated by
the use of the prime rate in effect on the first day of the previous month.

         Section 5.02.  The term "user charge" shall include, in addition to
the amounts payable under Section 5.01, any other sums, costs, expenses or
amounts from time to time payable by Operator to Owner under this Agreement,
whether by way of indemnity or otherwise, each of which whether or not expressed
to be a user charge, shall be deemed to be a user charge, and Owner shall have
all remedies for the collection of them, when in arrears, as are available to
Owner for the collection of any other user charge in arrears.

                                      -8-
<PAGE>

   Section 5.03.

          (a) The payment of the user charges to the Owner pursuant to Section
5.01(a) (exclusive of any amounts included or treated as a user charge solely by
reason of the provisions of Section 5.02) shall be subordinate (the
"Subordinated User Charge") (i) to the debt service on the initial debt in the
aggregate principal amount not exceeding $210,000,000 ("the initial debt"), and
on any additional debt up to $25,000,000 ("the additional debt"), incurred for
the purposes permitted for a Permitted Mortgage, as defined in Article 23 of the
Lease Agreement (except any debt incurred for the purchase or redemption of any
economic interest in the owner of the Facility) and any refinancing of such
initial debt and additional debt, (ii) to all amounts required to be and
actually paid by the Operator to the New York State Energy Research Development
Authority in repayment of loans made to Gas Alternative Systems, Inc. in
connection with the development of the Facility, provided that the principal
amount to be paid shall not exceed $1,500,000, (iii) to all amounts required to
be and actually paid for or in connection with the operation and maintenance of
the Facility and the Existing Plant, including amounts to be paid to suppliers
and transporters of consumables, except the payment of any bonuses to any
operators, any management fees to G.A.S. Orange Development, Inc. ("G.A.S."),
Adam H. Victor or to any entity controlled by, under common control with or
which controls either G.A.S. or Adam H. Victor, or any other similar payments or
fees, (iv) all charges required to be and actually paid in connection with the
debt to which the user charges shall be subordinate, including payments to any
reserve fund required by such debt financing (less all amounts released to the
Operator from any such reserve fund), except any voluntary prepayments of
principal and payments in the nature of additional interest determined as a
percentage of net income or revenues of the Operator or in any other manner
contingent upon the operations of the Operator, (v) all amounts required to be
paid and actually paid or set aside for payment of real property taxes (or
payments to municipal authorities in lieu thereof) with respect of all or part
of the Facility or with respect to gross receipts, franchise or other similar
taxes, and (vi) all amounts required to be and actually paid for Operator's
reasonable expenses of administration and

                                      -9-
<PAGE>

overhead (other than to or for the benefit of G.A.S., Adam H. Victor or any
entity controlled by, under common control with or which controls either G.A.S.
or Adam H. Victor).

        (b) Any Subordinated User Charge not paid when due by virtue of the
subordination provisions of paragraph (a) shall be deferred and shall be deemed
a Deferred User Charge.  Failure to pay any Subordinated User Charge by reason
of such subordination and deferral shall not be a default hereunder, but no
payment shall be made by Operator by way of a return of its equity capital
(whether in the form of a redemption of equity or otherwise) or a distribution
with respect to such equity capital if and for so long as any Subordinated User
Charges are accrued and owing or any Deferred User Charges are outstanding.

        (c) Any accrued Subordinated User Charge and any Deferred User Charges
are to be paid from the first cash available for payment ("first available
cash"), after the prior payment of all other Subordinated User Charges and shall
be paid in full no later than the twentieth anniversary of the Term Commencement
Date.  The first available cash shall mean the excess (as determined with
respect to each calendar quarter) of (i) the sun of all amounts received by the
Operator from or relating to the operation of the Cogeneration Facility and
related facilities (as defined in the Lease Agreement) and the Existing Plant,
or any portion thereof, over (ii) the sum of all amounts described in paragraph
(a) of this Section 5.03 to which the user charge is subordinate.  Interest on
the Deferred User Charges shall accrue daily at the prime rate plus 200 basis
points.

        (d) The subordination of the payment of the user charge shall cease
(i) when the Cogeneration Facility is no longer encumbered by a Permitted
Mortgage, (ii) upon any further debt financing of the Facility or the related
facilities which is not a refinancing of the initial debt or the additional
debt, (iii) upon any payment by Operator by way of a return of its equity
capital (whether in the form of a redemption of equity or otherwise) or a
distribution made with respect to such equity capital (other than distributions
from cash flow derived from operating revenues or distributions out of proceeds
of other contributions to equity capital so long as the making of distributions
out of other contributions to equity capital does not result in

                                      -10-
<PAGE>

any reduction in aggregate equity capital or, if any such distribution out of
other contributions to equity capital is made more than 30 days after the
earlier of the date upon which the initial debt is converted from a construction
loan to a term loan (the "conversion date") or 360 days after the Commercial
Operation Date, the aggregate of such distributions out of other contributions
to equity capital does not exceed the amount invested as equity capital by the
distributee) or (iv) the earlier of the twentieth anniversary of the conversion
date or the twenty-first anniversary of the Commercial Operation Date. For
purposes of this Section 5.03, a refinancing shall mean a refinancing as defined
in Section 23.01 of the Lease Agreement which does not result in any increase in
the principal amount outstanding of the initial debt or the additional debt.

        (e) So long as any Subordinated User Charges are accrued and owing or
any Deferred User Charges are outstanding, then, on or before March 1st of each
calendar year, Operator shall furnish or cause to be furnished to Owner a
statement prepared by a nationally recognized independent certified public
accounting firm (the "auditors") designated by Operator, setting forth, in
reasonable detail, all amounts received by the Operator from or relating to the
operation of the Facility and the Existing Plant and all amounts described in
paragraph (a) of Section 5.03 to which the user charge is subordinate for the
preceding calendar year. Owner shall be entitled to obtain from the auditors, at
Operator's expense, such additional information with respect to the statement as
Owner may reasonably request.

                                   ARTICLE 6

                          OPERATION OF EXISTING PLANT

   Section 6.01.     Operation by Operator.

          (a) Except as expressly provided otherwise in this Section, the
Operator, at all times during the term of this Agreement, shall, with its own
work force and at its sole cost and expense, operate and maintain the Existing
Plant in a state of readiness to make available, and shall make available, an
alternate or supplemental source of steam to the Owner

                                      -11-
<PAGE>

and its Ancillary Customers, at the pressures and temperature and meeting the
other requirements of the Steam Contract, within the shortest period of time
technically and reasonably possible, but in all events within no more than six
hours, after the interruption of the required supply of steam from the Facility,
provided, however, that Operator shall have satisfied the requirements of this
paragraph (a) if, within six hours following an interruption of the supply of
steam attributable to the involuntary outage of both gas turbines of the
Facility due to causes beyond the reasonable control of Operator, it shall have
commenced delivery of at least 250,000 pounds of steam per hour from the
Existing Plant and shall continue to fire additional boilers in the Existing
Plant to the extent necessary to meet the Owner's additional demands for steam
as promptly as is practical and consistent with the preservation and protection
of the boilers.

          (b) Operator's obligations pursuant to this Section may be satisfied
by its installation and operation at the Existing Plant of new boilers and
related machinery, equipment and apparatus having a steam generation capability
at least equal to the capability of the Existing Plant and sufficient to provide
an alternate or supplemental source of steam to meet the steam requirements of
Owner and its Ancillary Customers ("the Auxiliary System").  The Auxiliary
System shall be approved by Owner, which shall not unreasonably withhold its
approval.  Operator shall obtain, and maintain throughout the term of this
Agreement, good title to the Auxiliary System free and clear of any liens,
encumbrances, security interests or charges. As security for the performance of
Operator's obligations under this Agreement, Operator shall grant to Owner a
prior first security interest, or a security interest subordinate only to a
purchase money security interest, in the Auxiliary System ("the security
interest") and execute and deliver to Owner such documents as Owner may
reasonably request to evidence and perfect the security interest.

          (c) Whenever and so long as Operator shall rely upon the Auxiliary
System to satisfy its obligations to provide an alternate or supplemental source
of steam to Owner and its Ancillary Customers in the manner required by
paragraph (a) of this Section (any such period "the Auxiliary Reliance Period"),
it shall, with its own work force and at its sole cost

                                      -12-
<PAGE>

and expense operate and maintain the Auxiliary System and the Existing Plant in
the state of readiness required by paragraph (a).

          (d) All steam supplied to the Owner by the Operator from the Existing
Plant or from the Auxiliary System shall be delivered in the manner and in
accordance with the requirements of Section 1.04 and Section 2.01 of the Steam
Contract and shall be purchased and sold at the price and in the manner stated
in Sections 2.01, 2.02 and 2.03 of the Steam Contract.

          (e) For purposes of this Agreement, the term Existing Plant shall
include any replacements and additions and shall also include the Auxiliary
System unless the context or use clearly indicates its exclusion.

          (f) Operator shall operate the Existing Plant, at a minimum, in
accordance with the requirements set forth in Exhibit C to this Agreement.

     Section 6.02. Operating Agreements. Operator shall not enter into, amend,
modify, terminate or assign any operating agreement or other agreement for the
operation or use of the whole or any part of the Existing Plant nor assign this
Agreement without the prior written approval of Owner, provided, however, that
Operator may assign this Agreement (i) to the holder of a Permitted Mortgage or
(ii) to any corporation, partnership or other entity controlling, controlled by,
or under common control with the Operator. Any agreement entered into or
assignment made by Operator in violation of this paragraph shall be null and
void.

     Section 6.03. Owner Training. Throughout the Term of this Agreement,
Operator, at its sole cost and expense, (i) shall provide Owner from time to
time complete and up to date operating manuals, instructions and other documents
and information relating to the operation and maintenance of the Auxiliary
System and the Existing Plant and (ii) shall provide training to employees of
Owner, designated by it from time to time, in the operation and maintenance of
the Auxiliary System and the Existing Plant by the Operator's personnel
regularly employed at the Existing Plant and the Facility.

                                      -13-
<PAGE>

                                   ARTICLE 7

                     REPAIRS, MAINTENANCE AND ALTERATIONS

     Section 7.01.      Repairs and Maintenance.

          (a) Operator, at its sole cost and expense, shall manage, maintain and
promptly repair the Existing Plant including, without limitation, all machinery,
equipment, fixtures, apparatus, lines, pipes, sidewalks, passageways, roadways,
curbs, parking areas and landscaping, and all personal property used in the
operation of the Existing Plant, and shall keep them in as good condition,
ordinary wear and tear excepted, as they exist upon the Term Commencement Date
or upon their subsequent installation, as the case may be, provided, however,
that Owner shall be responsible for the maintenance and repair of the portions
of the Existing Plant (i) reserved for the exclusive use of Owner, but only to
the extent that such maintenance and repair is necessary principally because of
Owner's use, or (ii) which are damaged or require unusual or extraordinary
maintenance or repair as a result solely of Owner's use of the Existing Plant.
Without limiting the foregoing, Operator shall maintain the capability of the
Existing Plant to start up from a dead start, without utility power.  "Repair"
shall include replacement, restoration and renewal when necessary. Operator's
obligations under this Article apply to all repairs, interior and exterior,
structural and non-structural, ordinary and extraordinary, and foreseen and
unforeseen. All repairs made by Operator shall be of good quality and class.
Operator shall do all necessary shoring of foundations and walls of any
structures of the Existing Plant and every other act or thing for the safety and
preservation of them and any other part of the Existing Plant which may be
necessary by reason of any excavation or other building operation upon any
adjoining property or street, alleyway or passageway. Operator shall manage and
maintain the Existing Plant as would a prudent owner and shall not commit, or
permit to be committed, any waste or any nuisance on them, or permit any part of
the Existing Plant to be used for any dangerous, noxious or offensive purpose,
and

                                      -14-
<PAGE>

shall not permit any damaged improvement to remain at the Existing Plant for an
unreasonable period of time. Without limiting the generality of the foregoing
and the provisions of Section 7.02, Operator shall repair and maintain the
Existing Plant in accordance with the minimum requirements set forth in Exhibit
D attached to this Agreement.

          (b) The steam boilers and related apparatus and equipment, and their
replacements, if any, shall be rebuilt whenever and to whatever extent
necessary.  Rebuilding shall mean and include, without limitation, the
replacement of the fire and water tubes, replacement of refractory, replacement
of drums and frames, replacement of all burners, valves and related apparatus
and equipment and replacement of flues and duct work.  If Owner and Operator
shall disagree as to the need for rebuilding, either party may notify the other
of the impasse and, within ten (10) days of giving the notice, a professional
consultant experienced in steam boiler maintenance and replacement (the
"consultant") shall be selected by Owner and Operator.  The consultant shall
determine the need for rebuilding within thirty (30) days of his selection.  If
Owner and Operator are unable to agree upon a mutually acceptable consultant,
within ten (10) days after the giving of the notice of impasse, each party
shall, within five (5) days after the expiration of the ten (10) day period,
select a consultant and the two consultants, within ten (10) days of their
selection, shall select a third consultant who, within thirty (30) days of his
selection, shall determine the need for rebuilding.  The decision of the
consultant shall be binding upon the parties.  Should the consultant determine
that any rebuilding is necessary, Operator shall promptly and diligently proceed
with the implementation of the consultant's determination. The fees and expenses
of each consultant in each determination made pursuant to this subparagraph or
pursuant to subparagraph (c) or subparagraph (d) of this Section shall be borne
as follows.
               (i) the fees and expenses of the consultant, if any, mutually
     acceptable to Owner and Operator shall be borne equally by Owner and
     Operator;
               (ii) if Owner and Operator are unable to agree upon a mutually
     acceptable consultant, each party shall pay the fees and expenses of the
     consultant it

                                      -15-
<PAGE>

     selects and the fees and expenses of the third consultant
     shall be borne equally by Owner and Operator.

          (c) Operator shall have the option to replace a boiler with a package
boiler if replacement of the boiler shall be more economic than rebuilding the
boiler. In determining whether replacement of a boiler is more economic than
rebuilding a boiler, factors to be considered shall include long term
maintenance and capital costs and fuel efficiency.  The replacement package
boiler shall have a dual gas and No. 2 oil firing capability with a steam
production capability at least equal to that of the boiler replaced (including
minimum temperature and pressure requirements) and shall meet United States ASME
specifications, the requirements of New York State Boiler Code Rule 14, the
requirements of the New York State Energy Conservation Code and the minimum
standards set forth in Exhibit E.  A replacement boiler shall not replace more
than one boiler so that at all times there shall be at least four boilers having
a steam production capability at least equal to the steam production capability
of each of existing boilers 3, 4, 6 and 7 (which in the aggregate equals 500,000
pounds of steam per hour). Operator shall bear the cost and expense of the
complete installation of the replacement boiler and of the removal of the boiler
replaced. The installation of the replacement boiler and the removal of the
boiler replaced shall be done in accordance with all provisions of this
Agreement. The replacement boilers shall be installed free and clear of any
liens, encumbrances, security interests or charges and, whether or not affixed
or moveable, shall upon installation become the property of Owner and part of
the Existing Plant.  If Owner and Operator shall disagree on whether replacement
of a boiler with a package boiler is more economic than the rebuilding of a
boiler, either party may notify the other of the impasse and the issue shall be
determined by the consultant in accordance with the procedure set forth in
subparagraph (b) of this Section.  The determination of the consultant shall be
limited solely to the economics of replacement.

                                      -16-
<PAGE>

          (d) Operator shall keep and maintain the Existing Plant and all
adjoining sidewalks, curbs, alleyways and passage ways in a clean and orderly
condition, free of dirt, rubbish, snow, ice and unlawful obstructions.

          (e) Operator shall make available to Owner for its inspection at all
times during normal business hours all records and documents relating to the
operation, repair, maintenance and testing of the Existing Plant, including,
without limitation, all operating logs and records and reports of inspection and
testing maintained by the Operator in accordance with Exhibit D.  Operator also
shall furnish to Owner copies of the annual New York State boiler inspection
report on the Existing Plant within thirty (30) days of issuance of the report
by the insurance carrier.

          (f) Each of Operator's obligations to rebuild the steam boilers and
related apparatus and equipment and their replacements, if any, pursuant to this
Section 7.01 ("Operator's rebuilding obligations") which arises during the first
fifteen (15) years of this Agreement, or during the stated term, including any
renewals, of an operating and maintenance agreement between Operator and an
independent contractor approved by Owner (the "Approved Operator"), if greater
than fifteen (15) years, (in either case the "Initial Guaranty Period") shall be
secured by the guaranty of the Approved Operator in the form attached as Exhibit
F.  Upon the expiration of the Initial Guaranty Period, or upon the termination
of the guaranty of the Approved Operator, in accordance with the terms set forth
in Exhibit F, prior to the expiration of the Initial Guaranty Period, Operator's
rebuilding obligations shall be immediately secured by either (i) the guaranty
by an entity ("the guarantor"), and in form, acceptable to Owner acting
reasonably, having at all times a minimum of net worth, based upon audited
financial statements by a firm of independent public accountants of recognized
standing reasonably acceptable to Owner ("audited financial statements") equal
to one hundred fifty percent (150%) of the cost of the replacement of all of the
steam boilers and related apparatus and equipment ("the boiler replacement
costs") or (ii) an irrevocable and unconditional letter of credit or other
comparable financial assurance acceptable to Owner acting reasonably in an
amount equal to one hundred

                                      -17-
<PAGE>

percent (100%) of the boiler replacement costs, unless Operator shall, upon the
expiration of the Initial Guaranty Period, or upon the termination of the
guaranty of the Approved Operator, as the case may be, and at all times
thereafter, have a minimum net worth, based upon its audited financial
statements, equal to one hundred fifty percent (150%) of the boiler replacement
costs. If at any time during the Initial Guaranty Period the net worth of the
Approved Operator, based upon its audited financial statements, shall be less
than one hundred fifty percent (150%) of the boiler replacement costs,
Operator's rebuilding obligations shall also be secured by either (i) the
guaranty of an entity ("the additional guarantor") and in form, acceptable to
Owner acting reasonably, having at all times a minimum net worth, based upon its
audited financial statements, equal to one hundred fifty percent (150%) of the
boiler replacement costs or (ii) an irrevocable and unconditional letter of
credit or other comparable financial assurance acceptable to Owner acting
reasonably in an amount equal to one hundred percent (100%) of the boiler
replacement costs, unless Operator shall at all times during the remainder of
the Initial Guaranty Period have a minimum net worth, based upon its audited
financial statements, equal to one hundred fifty percent (150%) of the boiler
replacement costs.

          Operator shall provide Owner annually with audited financial
statements (i) of Operator throughout the term of this Agreement and (ii) of the
Approved Operator and of any additional guarantor, during the Initial Guaranty
Period, within one hundred twenty (120) days following the end of the fiscal
year of each.  At least 90 days, but no more than 180 days, prior to the
expiration of the Initial Guaranty Period, and at least thirty (30) days prior
to the termination of the guaranty of the Approved Operator, Operator shall
provide Owner with the audited financial statements of the guarantor, if any, to
succeed the guaranty of the Approved Operator for its most recent fiscal year
and thereafter, annually, audited financial statements within one hundred twenty
(120) days following the end of its fiscal year.

          Notwithstanding anything to the contrary contained in this
subparagraph (f), the net worth requirement of the Approved Operator, the
guarantor or the Operator under this subparagraph (f) shall be no greater than
Twenty Million Dollars ($20,000,000) determined upon

                                      -18-
<PAGE>

the book value of its assets, net of liabilities, or Sixty Million Dollars
($60,000,000) determined upon the fair market value of its assets, net of
liabilities, based upon appraisals of the assets acceptable to Owner acting
reasonably.

          Owner and Operator agree that the current boiler replacement costs are
Eight Million Dollars ($8,000,000) for the replacement of boilers 3, 4, 6 and 7.
The boiler replacement costs shall be increased upon each anniversary of the
execution of this Agreement by five percent (5%) until the next determination of
the boiler replacement costs.

          Owner and Operator shall use their best efforts to reach agreement on
a redetermination of the boiler replacement costs upon the fifth anniversary of
the Term Commencement Date and every fifth year thereafter. If Owner and
Operator shall disagree on the boiler replacement costs, either party may notify
the other of the impasse and the boiler replacement costs shall be determined by
a consultant in accordance with the procedure set forth in subparagraph (b) of
this Section. The boiler replacement costs as redetermined each fifth year shall
be increased upon each anniversary of the Term Commencement Date by five percent
(5%) (the "adjusted boiler replacement costs") until the next redetermination of
the boiler replacement costs. The adjusted boiler replacement costs shall also
be decreased ("the replacement cost decrease") by the undepreciated cost, as
certified by a firm of national independent certified public accountants
acceptable to Owner, of any replacement boilers installed by Operator (which for
the purpose of this Section 7.01 shall be based upon a depreciation of such
boilers over a period of 120 months on a straight line basis); provided,
however, that the adjusted boiler replacement costs (including the replacement
boilers) shall not be reduced, on a cumulative basis, by more than thirty-three
and one-third percent (33-1/3%).  The replacement cost decrease shall become
effective when the replacement boilers shall have been installed in accordance
with each of the provisions of this Agreement and shall have become operational.
Upon each anniversary of the Term Commencement Date subsequent to the
installation of any replacement boiler by Operator, and upon each
redetermination of the adjusted boiler replacement costs every fifth year, the
adjusted boiler replacement costs shall be further adjusted to reflect the then

                                      -19-
<PAGE>

undepreciated cost of any replacement boilers installed by Operator, determined
in the manner, and subject to the limitation of the reduction of the adjusted
boiler replacement costs by no more than thirty-three and one-third percent (33-
1/3%) on a cumulative basis, as provided in this subparagraph (f).  All fees and
expenses of each consultant in each determination of the boiler replacement
costs pursuant to this subparagraph (f) shall be borne by Operator.

          (g) Owner acknowledges and agrees that each of Becon Construction
Company, Inc. and Stewart and Stevenson Operations, Inc. is an Approved
Operator.

     Section 7.02. Testing and Reports. Commencing on the first day of the month
following the end of the first seven full calendar months of the term of this
Agreement, and semi-annually thereafter, Operator shall provide Owner a report
of all major maintenance performed on the Existing Plant within the previous six
months and all major maintenance projected during the next six months. The
reports shall be in such form and detail as Owner reasonably may request.
Operator, at its sole cost and expense, shall at least twice during each
calendar year, at such time as Owner shall designate upon thirty (30) days prior
written notice to Operator, test the readiness and capability of the Existing
Plant, or the Auxiliary System during the Auxiliary Reliance Period, as
applicable, to furnish the steam requirements of the Owner and its Ancillary
Customers within six hours after the interruption of the supply of steam from
the Facility, by the operation of the Existing Plant, or the Auxiliary System,
as applicable, and the supply of Owner's and its Ancillary Customers' steam
requirements solely from the Existing Plant, or the Auxiliary system, as
applicable, for a period of at least eight (8) hours. Operator, at its sole cost
and expense, shall also perform, from time to time, such additional tests as
Owner reasonably may request to determine the status of the maintenance and
readiness of the Existing Plant, including the Auxiliary System.

     Section 7.03. Alterations, Improvements and Additions. Except as otherwise
expressly provided in this Agreement, Operator shall not make any alterations,
improvements or additions to the Existing Plant, including the Auxiliary System
(collectively "alterations") without the prior written consent of Owner, which
consent shall not unreasonably be withheld.

                                      -20-
<PAGE>

Operator's request to Owner for permission to make alterations shall be
accompanied by detailed plans and specifications, estimated costs and the
identity of the contractors which shall perform the work. Any alterations
permitted by Owner shall be of good quality and class and shall be made in
accordance with the requirements of Owner and all of the provisions of this
Agreement. No part of the Existing Plant or of the Auxiliary System shall be
removed without the prior written consent of the Owner. All alterations,
improvements and additions made to the Existing Plant, except the Auxiliary
System, and whether or not affixed or moveable, shall upon installation become
the property of the Owner. The Auxiliary system shall become the property of the
Owner upon the expiration or earlier termination of this Agreement in accordance
with its terms.

                                   ARTICLE 8

                                UTILITY EXPENSES

          Section 8.01. Utilities. Operator shall pay and discharge punctually
all sewer rents and charges for water, gas, electricity, light and power, and
any and all other services and utilities furnished to the Existing Plant.

                                   ARTICLE 9

                                 NET AGREEMENT

     Section 9.01. Net Agreement. Except as otherwise expressly provided in
Section 9.03, the annual user charge payable by Operator pursuant to Section
5.01 under this Agreement shall be absolutely net to Owner, with the intent and
effect that all costs, expenses and obligations of every kind and nature
whatsoever relating to the Existing Plant, which may arise or become due

                                      -21-
<PAGE>

during the term of this Agreement ("the expenses") shall be paid by the Operator
and Operator shall indemnify and save Owner harmless from and against the
expenses.

     Section 9.02. User Charge Not to Abate. Operator's obligation to pay the
user charge under this Agreement shall not be affected by, nor shall it abate or
be diminished or reduced on account of any want of repair, destruction or damage
to the Existing Plant, regardless of the cause or extent of them, or for any
inconvenience, discomfort, interruption of business or
therwise arising from the making of alterations, changes, additions,
improvements or repairs to the Existing Plant, or because of any present or
future governmental laws, ordinances, requirements, orders, directives, rules or
regulations, or for any other cause or reason.

     Section 9.03.  Compliance with Environmental and Safety Laws.

          (a) Prior to the execution of this Agreement, Operator shall caused to
be conducted at its expense, by an engineering firm acceptable to an
institutional lender providing financing for the Facility, an audit of the
Existing Plant, the scope and description of which shall have been approved by
Owner (the "audit"), for purposes of determining (i) the existence at the
Existing Plant of any circumstance or condition which does not comply with all
federal, state and local laws, codes and rules and regulations promulgated
pursuant to statutory authority (collectively, "Environmental Laws") governing
the production, generation, release, discharge, emission, disposal,
transportation, containment, storage or remediation involving any substance
which is hazardous or acutely hazardous to the public health or safety or which
could be the basis for or support a claim under any Environmental Laws (any such
substance, a "Hazardous Substance") and (ii) the Existing Plant's compliance
with the requirements of the Occupational, Safety and Health Act of 1970
("OSHA") and other applicable safety laws (collectively, "Safety Laws").

          (b) If any liability shall be imposed upon the Operator, at any time
before or after the Term Commencement Date or the expiration or earlier
termination of this Agreement, under or by reason of any Environmental Laws, (i)
due to the existence of

                                      -22-
<PAGE>

Hazardous Substances at or about the Existing Plant (except any liability
imposed upon the Operator because of any conditions caused by Operator, its
employees, agents, contractors and assigns (collectively "the Operators") during
the pre-term period or because of any aggravation by Operators after the Term
Commencement Date of any conditions disclosed by the audit), the existence of
which is determined prior to or as a result of the audit described in paragraph
(a) or (ii) occurs solely as a result of the acts or activities of Owner
subsequent to such audit or (iii) occurs solely as a result of the negligence of
Owner during the pre-term period, the Owner shall, at its sole cost and expense,
comply with all requirements of Environmental Laws relating to such Hazardous
Substances (other than asbestos which shall be governed exclusively by paragraph
(c)), including requirements relating to the removal or containment thereof, and
shall save, defend, indemnify and hold the Operators harmless from and against
any such liability, including without limitation, damages, fines, penalties,
reasonable legal fees and all other reasonable costs to the Operators in
connection therewith.

          (c) Owner acknowledges the presence at the Existing Plant of asbestos
and represents and warrants that the condition of the asbestos in the Existing
Plant presently complies with the Environmental Laws. Owner further agrees that
all action necessary to remove or contain such asbestos in order to comply with
the requirements of Environmental Laws (i) at the Term Commencement Date (except
any removal or containment of asbestos necessary because of the acts or
activities of the Operators during the pre-term period) or (ii) thereafter, to
the extent that such removal or containment becomes necessary as a result solely
of Owner's acts or activities within the Existing Plant subsequent to the Term
Commencement Date, shall be effected by Owner at Owner's sole cost and expense.
Owner shall save, defend, indemnify and hold harmless the Operators from and
against any and all cost, liability, damage or expense (including reasonable
legal fees and expenses) which any of them may incur or to which any of them may
be subject by reason of the breach of the representation, warranty and agreement
made by Owner pursuant to this paragraph (c). It is expressly understood and
agreed that, except for the representation, warranty and agreement made by Owner
with respect to asbestos in the

                                      -23-
<PAGE>

Existing Plant pursuant to this paragraph (c), Owner shall have no liability
whatsoever to the Operators from, and the Operators shall assume, any liability
which may be imposed for the continued existence of asbestos in the Existing
Plant after the Term Commencement Date.

          (d) Owner shall, at its sole cost and expense, comply with all
requirements of the Safety Laws (i) to the extent that the audit described in
paragraph (a) determines that the Existing Plant is not in compliance with such
requirements, or (ii) to the extent that conditions in the Existing Plant change
after such audit as a result solely of Owner's acts or activities within the
Existing Plant. Owner shall also be responsible for compliance with changes in
the Safety Laws which become effective either (x) prior to the Term Commencement
Date or (y) thereafter to the extent such changes apply solely to Owner's acts
or activities within the Existing Plant.

          (e) The indemnification provided by Owner to Operators, and the
remedies of Operators for any breach by Owner of any of the representations and
warranties made by Owner, under this Section 9.03 shall be the sole and
exclusive remedy of Operators against Owner with respect to the presence of
Hazardous Substances and asbestos at the Existing Plant and shall be in lieu of
any indemnification that might otherwise have been available to Operators
pursuant to Article 14 of this Agreement.

     Section 9.04. Licensing Requirements. Owner shall upon request by Operator,
and at Operator's sole cost and expense, provide Operator from time to time, but
not more frequently than annually, until the Term Commencement Date with
evidence reasonably satisfactory to Operator that the Existing Plant is in
compliance with all applicable licensing requirements. From and after the Term
Commencement Date, Owner shall cooperate with Operator as necessary to obtain
and maintain all required licenses and permits for the operation of the Existing
Plant in the name of Owner, Operator, or both, if necessary, at Operator's sole
cost and expense.

                                      -24-
<PAGE>

                                  ARTICLE 10

                       REQUIREMENTS OF PUBLIC AUTHORITY

     Section 10.01.      Compliance by Operator.

          (a) Except as otherwise provided in Section 9.03, from and after the
Term Commencement Date, Operator, at its sole cost and expense, shall promptly
comply with all present and future laws, ordinances, requirements, orders,
directives, rules and regulations of all federal, state, county, town and city
governments and of all other governmental authorities, departments, boards and
officers, and all orders, rules and regulations of the National and New York
Boards of Fire Underwriters or any other body or bodies which may exercise
similar functions, foreseen and unforeseen, ordinary and extraordinary,
applicable to the Existing Plant or any part of it or to its use, whether in
force at the Term Commencement Date or passed, enacted or directed in the
future, and whether or not compliance shall require structural changes
(collectively in this Article "the requirements"). Operator shall also comply
with all requirements to the extent of their application to Operator's use of
the Existing Plant during the pre-term period. Operator shall pay all costs,
expenses, liabilities, losses, damages, fines, penalties, claims and demands,
including reasonable counsel fees (collectively "the costs"), that may in any
manner arise from or be imposed because of the failure of Operator to comply
with this Article and shall indemnify, hold harmless and defend Owner of and
from the costs.

          (b) Owner has not received any notice, and is not aware, of any
noncompliance of the Existing Plant with the requirements as of the date of this
Agreement, except as set forth in this paragraph (b). Owner has been informed
that an industrial wastewater discharge permit (the "discharge permit") will be
required from the Onondaga County Department of Drainage and Sanitation for the
discharges by the Existing Plant into the Onondaga County Sewer System. Owner is
finalizing plans for the modifications necessary for completion of its
application for the discharge permit. Owner has also undertaken various
corrective measures to assure the Existing Plant's compliance with OSHA ("the
compliance

                                      -25-
<PAGE>

measures"). Owner shall diligently prosecute the application for the discharge
permit and the compliance measures and shall obtain the discharge permit and
complete the compliance measures prior to the Term Commencement Date. Owner
shall promptly notify Operator of any such notice received by Owner hereafter,
shall provide Operator with copies of all communications made or received by
Owner relating thereto, and shall, until the Term Commencement Date, comply with
all requirements in force prior to the Term Commencement Date to the same extent
as required of Operator thereafter. Owner shall indemnify Operator for any
liability imposed upon Operator for Owner's noncompliance with such requirements
before the Term Commencement Date (except to the extent that such liability
arises from Operator's use of the Existing Plant during the pre-term period).

          (c) Operator shall comply with the requirements of all policies of
public liability, fire and all other policies of insurance in force with respect
to the Existing Plant.

     Section 10.02. Challenge to Validity. Operator shall have the right, after
prior written notice to the Owner, to contest by appropriate legal proceedings
("the proceedings") diligently conducted in good faith, in the name of the
Operator, Owner, or both, if necessary, without cost or expense to Owner, the
validity or application of the requirements. If compliance with the requirements
may be delayed during the proceedings without the incurrence of any lien, charge
or liability of any kind against the Existing Plant that cannot be bonded and
without subjecting Operator or Owner to any liability, civil or criminal, for
failure to comply with them, Operator may delay compliance with them until the
final determination of the proceedings. Owner shall execute all documents
reasonably necessary for the proceedings.

                                  ARTICLE 11

                            COVENANT AGAINST LIENS

                                      -26-
<PAGE>

         Section 11.01. Operator's Obligations to Discharge. Operator shall not
create or permit to be created and shall promptly discharge, any mechanic's,
laborer's, or materialman's lien, or any other charge which might be or become a
lien, encumbrance or charge upon the Existing Plant ("the lien"), except for any
lien that is being contested in good faith by appropriate proceedings and is
appropriately bonded or results from any act or omission for which Owner is
responsible pursuant to Section 7.01, Section 9.03, Section 10.01(b) or Owner's
acts or activities subsequent to the Term Commencement Date.

         Section 11.02. Right to Discharge.  If any lien included in Section
11.01 shall be filed against the Existing Plant, Operator, at its own cost and
expense, within 30 days after the filing of the lien, shall discharge it of
record or post a bond reasonably satisfactory to Owner to assure its discharge.
If Operator fails to discharge or bond the lien within 30 days after its filing,
Owner, in addition to any other right or remedy it may have, and without waiving
its right to declare a default, may discharge the lien of record or post a bond
to assure its discharge. Any amounts paid by Owner in the discharge or bonding
of the lien, including, but not limited to, penalties, interest, costs,
allowances and reasonable attorney's fees, together with interest at the rate of
l8% per annum, shall be paid by Operator to Owner on demand. Any amount paid by
Operator in the discharge or bonding of a lien which results from any act or
omission for which Owner is responsible pursuant to Section 9.03, including, but
not limited to penalties, interest, costs, allowances and reasonable attorney's
fees, together with interest at the rate of 18% per annum, shall be paid by
Owner to Operator on demand.

         Section 11.03. No Implied Consent of Owner. Except to the extent of
the acknowledgement of an Approved Operator pursuant to Section 7.01 (g),
nothing in this Agreement shall be construed as the consent or request of Owner,
express or implied, by inference or otherwise, to any contractor, subcontractor,
laborer or materialman for the performance of any labor or the furnishing of any
materials for any improvement, alteration or repair of the Existing Plant.

                                      -27-
<PAGE>

                                  ARTICLE 12

                       ACCESS TO EXISTING PLANT BY OWNER

         Section 12.01. In addition to the rights of use reserved by Owner
pursuant to Section 2.02, Owner and its authorized representatives shall
continue to have access, upon reasonable notice, to the Existing Plant at all
times during normal business hours for all purposes, including, without
limitation, inspection and testing of the Existing Plant and making any
necessary repairs or maintenance or performing any other work required to be
performed by Owner pursuant to Section 7.01 or that may be necessary because of
Operator's failure to make repairs or perform other work after written notice
from Owner, or at any time without notice in case of emergency. Owner shall also
have access to the Existing Plant at all times for the purpose of obtaining and
testing samples of the condensate return. Operator shall also provide to Owner
suitable space within the Existing Plant to enable Owner to test the condensate
return. Owner's right of access shall not imply any duty on its part to perform
any repairs or other work and Owner's performance of any repairs or work shall
not constitute a waiver of any default of Operator.

         Section 12.02. During the progress of any work at the Existing Plant
by Owner pursuant to Section 12.01, Owner may store all necessary materials,
tools, supplies and equipment at the Existing Plant. Except as provided in
Section 9.03 or Section 14.02, Owner shall not be liable for any damage incurred
by Operator because of the performance of those repairs or work, or the storing
of materials, tools, supplies and equipment at the Existing Plant in connection
with such work.

                                  ARTICLE 13

                                  SURRENDER

                                      -28-
<PAGE>

          Section 13.01. Surrender of Operation. Upon the expiration or earlier
termination of the term of this Agreement, Operator shall surrender to Owner the
operation and use of the Existing Plant, including the Auxiliary System, without
delay, in as good condition and repair as it exists upon the Term Commencement
Date or upon the subsequent date of installation, as the case may be, except for
damage occasioned by Owner's acts or activities and for reasonable wear and tear
after the last necessary repair, replacement, restoration or renewal made by
Operator, and free and clear of all liens, encumbrances and charges other than
those resulting from any acts or activities for which Owner is responsible as
described in Section 11.01, without any payment or allowance by Owner on account
of any improvements to the Existing Plant, and all rights of Operator under this
Agreement and in the Existing Plant, including the Auxiliary System, shall
terminate. Notwithstanding the expiration or termination of this Agreement, each
of the parties shall remain liable to the other for any loss or damage suffered
by the other because of any default of such party. Upon surrender, Operator
shall assign to Owner all operating agreements and other agreements relating to
the operation or use of the Existing Plant, as Owner may request.

          Section 13.02. Except as otherwise provided in the last sentence of
Section 3.02, any personal property of Operator remaining at the Existing Plant
after the 60 day period following expiration or earlier termination of this
Agreement, may, at the option of owner, be deemed to have been abandoned by
Operator and may be retained by Owner as its property, or disposed of, without
accountability, by Owner in such manner as it deems appropriate. In addition,
Owner, at its option, within thirty days after the expiration or earlier
termination of this Agreement, and upon ten days written notice to Operator, may
require Operator, at Operator's sole cost and expense, to remove from the
Existing Plant any fuel oil (other than fuel oil which Owner is obligated to
purchase pursuant to Section 3.02) from the underground oil storage tanks and
from any other storage area at the Existing Plant, any inventory not purchased
by Owner and any other personal property of Owner within thirty days of the
giving of notice by Owner.

                                      -29-
<PAGE>

          Section 13.03. The provisions of this Article shall survive the
expiration or earlier termination of this Agreement.

                                   ARTICLE 14

                                   INDEMNITY

          Section 14.01.  Operator's Indemnification of Owner. The Operator
shall indemnify and hold the Owner harmless from and against any and all
liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including, without limitation, reasonable fees of architects,
engineers, attorneys and other professionals and experts (collectively
"claims"), which may be imposed upon, incurred by or asserted against Owner
because of any of the following, unless the claims arise as a consequence of the
action or failure to act by the Owner pursuant to Section 9.03 or otherwise or
the Owner's use of the Existing
Plant:
               (i) Any work or thing done in, on or about the Existing Plant;

               (ii) Any use, non-use, occupation, condition, operation,
maintenance or management of the Existing Plant or any part of it;

               (iii)  Any act or omission of Operator or any of its agents,
contractors, servants, employees, licensees, or invitees; or

               (iv) Any accident, injury or death to any person or damage to any
property occurring in, on or about the Existing Plant.

          If any action or proceeding is brought against Owner because of any
one or more of the claims, Operator, at its sole cost and expense, upon written
notice from Owner, shall defend that action or proceeding by counsel approved by
Owner in writing.

          Section 14.02.   Owner's Indemnification of Operator. The Owner shall
indemnify and hold the Operator (including for this purpose any corporation,
partnership or other entity controlling, controlled by or under common control
with, the Operator) harmless from and

                                      -30-
<PAGE>

against any and all claims which may be imposed upon, incurred by or asserted
against the Operator because of any of the following, unless the claims are
covered by Section 9.03 or by the Lease or arise as a consequence of the action
or failure to act by the Operator:

             (i) any work or thing done in, on or about the premises of the
Owner (excluding the Existing Plant except to the extent covered by clause (v)
below);

             (ii) any use, non--use, possession, occupation, condition,
operation, maintenance or management of the premises of the Owner (excluding the
Existing Plant except to the extent covered by clause (v) below);

             (iii)   any act or omission of the Owner or any of its agents,
contractors, servants, employees, licensees, or invitees;

             (iv) any accident, injury or death to any person or damage to
property occurring in, on or about the premises of the Owner (other than the
Existing Plant except to the extent covered by clause (v) below); or

             (v) any use of the Existing Plant by Owner.

          If any action or proceeding is brought against Operator because of any
one or more of the claims, Owner, at its sole cost and expense, upon written
notice from Operator, shall defend that action or proceeding by counsel approved
by Operator in writing.

          Section 14.03. Limitation of Owner's Indemnity. The indemnification of
Operator by Owner and of Owner by Operator pursuant to this Article shall in all
events be limited by the applicable provisions of Section 9.03.

          Section 14.04. The provisions of this Article shall survive the
expiration or earlier termination of this Agreement.

                                  ARTICLE 15

                                  INSURANCE

                                      -31-
<PAGE>

     Section 15.01. Casualty Insurance. Operator, at its sole cost and expense,
shall keep the Existing Plant insured against loss or damage by fire or other
casualty, with such extended coverage as shall from time to time be customary
for premises similarly situated in the Syracuse, New York, area, with a
replacement cost endorsement, in amounts sufficient to prevent Owner or Operator
from becoming a co-insurer within the terms of the policy and in no event less
than one hundred percent (l00%) of the replacement value of the Existing Plant,
exclusive of the cost of foundations, excavations, and footings below the lowest
basement floor, without any deduction for depreciation. At the request of Owner,
and at the sole cost and expense of Operator, the replacement value shall be
determined from time to time, but not more frequently than once every two years,
by an appraiser acceptable to Owner.

     Section 15.02. Other Insurance. Operator, at its sole cost and expense,
shall maintain:

         (a) general public liability insurance against all claims for bodily
injury, death or property damage, occurring upon, in or about the Existing
Plant, and on or about any adjoining sidewalks and passageways, in the amount of
at least $5,000,000 for injury or death to any one person and $25,000,000 for
injury or death to more than one person in any one accident or occurrence and
$10,000,000 for damage to property or in such greater limits as may be required
by Owner;

          (b) boiler and pressure vessel insurance, including pressure pipes,
upon all steam boiler and other pressure vessels and pipes in the Existing Plant
in an amount not less than the greater of $10,000,000 or the replacement value
of the boilers, pressure vessels and pipes;

          (c) Worker's compensation insurance, disability benefits insurance and
all other insurance Operator is required by law to provide covering loss
resulting from injury, sickness, disability or death of all persons employed by
Operator or by Operator's contractors, subcontractors, or agents;

                                      -32-
<PAGE>

          (d) Contractual Coverage Insurance providing protection for Operator
and Operator's contractors, subcontractors and agents against damage claims that
may arise from operations under this Agreement, with limits in the amounts
required in paragraph (a) of this Section;

          (e) business interruption insurance in an amount that can be obtained
by the payment of an annual premium of $10,000 during the Base Year and by the
payment of an additional $1,000 in each succeeding year.  The maximum annual
premium shall not exceed $50,000; and

          (f) such other insurance and in such amounts as may from time to time
be reasonably required by Owner.

     Section 15.03.  Evidence of Insurance and Possession of Policy.

          (a) All insurance required by this Article shall be obtained by valid
and enforceable policies, issued by insurers of recognized responsibility and
licensed to do business in the State of New York. Prior to the Term Commencement
Date, Operator shall deliver to Owner certified copies of the policies of
insurance to be furnished by Operator. Thereafter, Operator shall furnish to
Owner, not less than thirty (30) days prior to the expiration dates of such
policies, certified copies of the renewal policies. Operator shall also deliver
to Owner evidence satisfactory to Owner of the payment in full of the premiums
on such policies (i) prior to the Term Commencement Date, for the period covered
by the initial policies and (ii) prior to the expiration dates of such policies
and any renewal policies, for the period covered by the renewal policies.

          (b) Blanket Insurance. Operator may obtain the insurance required by
              -----------------
this Article under a blanket insurance policy or policies ("the blanket
policies") covering the Existing Plant and other properties, provided:

              (i) the blanket policies shall specify, or Operator shall furnish
Owner with a written statement from the insurers under the blanket policies
specifying, the

                                      -33-
<PAGE>

amounts of the total insurance specifically allocated to the Existing Plant
which shall not be less than the amounts required by this Article;

          (ii) the amounts specified shall be sufficient to prevent any one of
the assureds from becoming a co-insurer within the terms of the applicable
policy; and

          (iii) the blanket policies shall in all respects comply with the
endorsements and coverage required by this Article.

     Section 15.04. Limitations Upon Concurrent Insurance. Except the insurance
required by Section 15.02(a), neither Owner nor Operator shall obtain separate
insurance concurrent in form, or contributing in the event of loss, with the
insurance required by this Article, unless Owner and Operator are named
insureds, with loss payable as required by this Agreement, provided, however,
that Owner may obtain business interruption/extra expense insurance without
including Operator as a named insured. Each party shall immediately notify the
other of any such separate insurance and Operator shall deliver the policies to
Owner as required by Section 15.03.

     Section 15.05. Disbursement of Proceeds.

          (a) All policies of insurance required by this Article ("the
policies") shall name Owner and Operator as insureds as their interests may
appear. The loss, if any, under the policies shall be adjusted and the proceeds
disbursed as follows:

               (i) If the damage or destruction does not exceed $250,000, the
     loss shall be adjusted by Operator and the proceeds shall be paid to
     Operator for the repair of the damage; and

               (ii) If the damage or destruction exceeds $250,000, the loss
     shall be adjusted by Owner and the proceeds shall be disbursed in
     accordance with Article 18.

                                      -34-
<PAGE>

               (b) The policies shall provide that any loss shall be adjusted
and the proceeds paid as provided in this Agreement.

          Section 15.06. Notice of Cancellation. The policies and certificates
evidencing the policies shall provide for thirty (30) days prior written notice
to Owner of any cancellation, reduction in amount or change in coverage.

          Section 15.07. Apportionment of Premiums Upon Expiration of Term. Upon
the expiration of the term of this Agreement, all transferable policies shall,
at Owner's option, be transferred by Operator to Owner and the premiums on them
shall be apportioned between Owner and Operator if Operator is not in default
under this Agreement.

                                  ARTICLE 16

                                EMINENT DOMAIN

     Section 16.01. Termination of Agreement. If all or substantially all of the
Existing Plant shall be taken for any public or quasi-public use under any
statute, by right of eminent domain or by private purchase in lieu of a taking
(the "Condemnation Proceedings"), this Agreement shall automatically terminate
on the date title passes or possession is taken, whichever occurs first. If less
than all or substantially all of the Existing Plant is taken, this Agreement
shall continue in full force and effect as to the portions not taken. For
purposes of this Article substantially all of the Existing Plant shall be deemed
taken if the portions not taken shall be insufficient for its continued use for
the purpose stated in Section 4.01. The provisions of this Article shall survive
the termination of this Agreement.

     Section 16.02. Distribution of Condemnation Proceeds. The net award for any
taking of the Existing Plant, after deducting all expenses and costs, including
attorneys fees ("the net award") shall be apportioned between Owner and Operator
as follows:

                                      -35-
<PAGE>

          (a) First, the amount which represents the then present value, at the
time of the taking, of the Owner's right to receive the then applicable annual
user charge provided in Section 5.01 for the remainder of the forty (40) year
term of this Agreement, calculated at a rate of interest of 8 percent per annum,
shall be paid to Owner;

          (b) Second, from the balance of the net award, the amount of the
accrued Subordinated User Charges and Deferred User Charges, with interest,
shall be paid to the Owner;

          (c) Third, from the remaining balance of the net award, the amount
which represents the Operator's undepreciated cost of the Auxiliary System,
determined in accordance with generally accepted accounting principles, shall be
paid to Operator;

          (d) Fourth, the amount equal to that fraction of the then remaining
balance of the net award, the numerator of which is the remaining years of the
term of this Agreement and the denominator of which is forty (40), shall be paid
to the Operator and the remaining balance of the net award shall be payable to
Owner.

     Section 16.03. Partial Taking. If less than substantially all of the
Existing Plant is taken (the "partial taking"), the condemnation proceeds shall
be payable to Owner and disbursed to Operator, who shall, to the extent of the
condemnation proceeds, promptly restore the Existing Plant to a complete
architectural unit and, to the extent reasonably practicable, as nearly like its
condition prior to the taking. The balance of the condemnation proceeds, if any,
remaining after the completion of the restoration shall belong to and be
retained by Owner.

                                  ARTICLE 17

                        RIGHT OF EACH PARTY TO PERFORM
                            COVENANTS OF THE OTHER

                                      -36-
<PAGE>

          Section 17.01. If either party shall fail to perform any of its
obligations under this Agreement, the other party (the "curing party") may, at
its option, after ten (10) days' notice

to the defaulting party, or without notice in case of an emergency, perform any
of such obligations.

          Section 17.02. Any moneys paid and all costs and expenses incurred by
the curing party, including reasonable attorneys' fees, in the performance of
the defaulting party's obligations under this Agreement, together with interest
at the rate of eighteen per cent (18%) per annum, shall be paid by the
defaulting party to the curing party on demand.

          Section 17.03. The curing party's exercise of its rights under this
Article shall not constitute a waiver of any other rights or remedies it may
have because of the default of the other party.

                                  ARTICLE 18

                             DAMAGE OR DESTRUCTION

     Section 18.01.

            (a) If the Existing Plant or any part of it shall be damaged or
destroyed by fire or otherwise, Operator shall promptly notify Owner, and, at
its sole cost and expense, and whether or not the insurance proceeds are
sufficient, restore, repair, replace, or rebuild the Existing Plant
(individually and collectively "restore" or "the restoration"), provided,
however, that if the insurance proceeds are insufficient for the restoration,
Operator's obligation to restore with funds other than insurance proceeds shall
be subject to Owner's obligation of indemnity to Operator, if any, and to the
extent required, under the Agreements or any of them, whether or not hereafter
expressly so stated. The restoration shall be at least equal in quality and
class to the original, and shall be performed pursuant to plans and
specifications approved by Owner acting

                                      -37-
<PAGE>

reasonably and in accordance with all other provisions of this Agreement. The
restoration shall be commenced within ninety (90) days from the date of the
damage or destruction, provided, however, that Owner shall grant such extensions
of time for the adjustment of insurance and the preparation of the plans and
specifications as reasonably may be required. The architect or engineer in
charge of the restoration shall be selected by Owner, with the approval of
Operator, which approval shall not be unreasonably withheld. Operator shall
diligently complete the restoration.

          (b) The insurance proceeds payable because of damage to or destruction
of the Existing Plant ("the insurance proceeds") shall be paid to Owner, except
as otherwise provided in Section 15.05(a)(i). The insurance proceeds, net of the
costs of adjustment and collection ("the net insurance proceeds"), shall be
disbursed in accordance with the following subparagraphs.

          (c) The net insurance proceeds shall be disbursed to Operator for the
restoration, in installments equal to ninety per cent (90%) of the work
completed and materials furnished in the restoration, upon the written request
of Operator accompanied by the following:

               (i) evidence, by an official search of a licensed title insurance
     company doing business in Syracuse, New York, approved by Owner, that no
     lien has been filed against the Existing Plant; and

               (ii) a certificate signed and verified by Operator and the
     architect or engineer in charge of the restoration, stating that:

                    A.  the amount requested is justly due to contractors,
     subcontractors, materialmen, engineers, architects or other persons who
     have rendered services or furnished materials for the restoration, a
     description of the services and materials and the amounts due each person,
     and that no part of the amount requested has been included in any other
     request by Operator;

                                      -38-
<PAGE>

               B.  except for the amount requested, after due inquiry, no other
     amounts are due on the date of the certificate for labor, wages, materials,
     supplies or services in connection with the restoration;

               C.  the cost of labor and materials required to complete the
     restoration will not exceed the net insurance proceeds remaining after
     payment of the amount requested; and

               D.  the restoration is in substantial compliance with the plans
     and specifications approved by Owner and has been performed in accordance
     with all the provisions of this Agreement.

          (d) Upon completion of the restoration, there shall be paid to
Operator, from, and only to the extent of, the net insurance proceeds, an amount
equal to 100% of the costs of work completed and materials furnished in the
restoration less the amounts previously disbursed to Operator, provided Operator
shall have complied with all the requirements and provisions of this Article and
shall have obtained an unconditional permanent certificate of occupancy, if
required, from the appropriate governmental authority.

          (e) Upon receipt of evidence satisfactory to Owner that the
restoration has been completed in accordance with the provisions of this
Agreement and its cost paid in full and that there are no liens upon the
Existing Plant, the net insurance proceeds remaining, if any, shall be paid to
Operator, provided Operator is not in default under this Agreement.

          (f) If this Agreement shall be terminated for any reason, Owner shall
be entitled to all insurance proceeds, and Operator shall have no interest in,
nor any right, title, or claim to them.

          (g) No destruction or damage to the Existing Plant or any part of it
shall relieve Operator from its obligation to pay the user charge or from any of
its other obligations under this Agreement, subject, however, to Owner's
obligation of indemnity to Operator, if any, and to the extent required, under
the Agreements or any of them.

                                      -39-
<PAGE>

                                  ARTICLE 19

                                 LATE CHARGES

     Section 19.01. Past Due User Charges. Except as otherwise contemplated by
Section 5.03, if Operator shall fail to pay the user charge when due and
payable, Operator shall pay to Owner, as an additional user charge, an amount
calculated at a rate per year equal to 18% on the delinquent user charge, until
paid in full. Nothing in this section shall limit Owner's rights and remedies
under any other provision of this Agreement.

                                  ARTICLE 20

                                    DEFAULT

     Section 20.01. Events of Default. Any one or more of the following events
shall constitute an event of default (an "event of default")

          (a) Operator's failure to pay any user charges when due and payable
(otherwise than as permitted under Section 5.03) and the continuation of the
failure for sixty (60) days after written notice from Owner;

          (b) Operator's failure to observe and perform any of the terms,
covenants, conditions, limitations or agreements under this Agreement on
Operator's part to be observed or performed (except the obligation described in
paragraph (a) of this Section) and the continuation of the failure for a period
of sixty (60) days after notice from Owner specifying the nature of the failure.
If the event of default is curable but Operator is unable, exercising due
diligence, to cure the default within sixty (60) days after such notice, so long
as Operator shall commence and diligently prosecute the curing of the default,
the Operator shall have a period of one hundred twenty (120) days from the date
notice of default shall have been given by Owner within which to cure the
default. Operator shall have such additional time for compliance with

                                      -40-
<PAGE>

the requirements described in Article 10 as may be granted by the applicable
governmental authorities having jurisdiction, provided that Operator shall
proceed diligently and that compliance may be delayed without the incurrence of
any lien, charge or liability of any kind against the Existing Plant and without
subjecting Owner to any liability, civil or criminal. If Operator is unable,
exercising due diligence, to cure a default in the rebuilding of the steam
boilers and related apparatus and equipment within such 120 day period, Operator
shall have a period of one (1) year from the date notice of default shall have
been given by Owner (exclusive of delays caused by force majeure and other
reasons beyond the reasonable control of Operator) within which to cure the
default so long as Operator shall diligently prosecute the curing of the
default; provided, however, that delays caused by force majeure or by reasons
beyond the reasonable control of Operator shall not extend the period of cure
beyond two (2) years from the date notice of default shall have been given by
Owner to Operator.

          (c) Operator shall file a voluntary petition in bankruptcy or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
code or any other present or future federal, state or other bankruptcy or
insolvency statute or law (collectively in this Article "insolvency laws"), or
shall seek, consent to or acquiesce in the appointment of any bankruptcy or
insolvency trustee, receiver or liquidator of Operator or of all or any
substantial part of its properties or the Facility;

          (d) The commencement of any action, case or proceeding ("proceeding")
against Operator seeking (i) any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any insolvency
laws, or (ii) the appointment, without the consent or acquiescence of Operator,
of any trustee, receiver or liquidator of Operator or of all or substantially
all of its properties or the Facility, and the proceeding shall continue
undismissed or unstayed for a period of ninety (90) days;

          (e) Operator shall abandon the Existing Plant;

                                      -41-
<PAGE>

               (f) The termination of the Steam Contract for any reason other
than the default of Owner; and

               (g) The termination of the Lease Agreement for any reason other
than the default of Owner.

Each notice to Operator pursuant to this Section 20.01 shall also be given to
the holders of a Permitted Mortgage, as defined in Article 23 of the Lease
Agreement, who shall have been identified in a written notice by the Operator to
the Owner, at the address of the holder stated in the Operator's notice to
Owner.

     Section 20.02.  Remedies on Default.

          (a) Upon any one or more events of default, Owner may, at its option,
at any time thereafter, give written notice to Operator specifying the event or
events of default and stating that this Agreement shall terminate on the date
specified in the notice, which shall be at least ten days after the giving of
the notice. The notice of termination shall also be given to the holders of a
Permitted Mortgage described in Section 20.01. Upon the date specified in the
notice, this Agreement and all rights of Operator under this Agreement shall
terminate. The termination of this Agreement by Owner shall not relieve Operator
of its liability under this Agreement, which shall survive.

          (b) Upon termination of this Agreement pursuant to this Section,
Operator shall surrender the use and operation of the Existing Plant to Owner.
Owner, upon, or at any time after, the termination of this Agreement, without
additional notice and without prejudice to any other rights and remedies it
shall have at law or in equity, may occupy, use and operate the Existing Plant,
and remove from it Operator, its agents, employees, servants, licensees, and
other persons, firms or corporations and all or any of its or their property, by
force or otherwise, without being liable for damages for such action.

          (c) Upon Owner's termination of this Agreement:

                                      -42-
<PAGE>

               (i) Operator, until the end of what would have been the term of
     this Agreement in the absence of termination, shall be liable to Owner, for
     damages for Operator's default, which shall include, without limitation,
     all reoccupation costs, operating expenses, legal expenses and reasonable
     attorneys' fees;

               (ii) Owner shall be entitled to recover damages from Operator, by
     separate action, actions or proceedings, annually or at such other time or
     times when the annual user charges provided for in Section 5.01(a) would
     have been payable under this Agreement if it were still in effect.

          (d) Nothing in this Article shall limit or prejudice the right of
Owner to prove and obtain damages in an amount equal to the maximum allowed by
any statute or rule of law in effect at the time those damages are to be proved,
whether or not that amount is greater than the amount provided by this Article.

          (e) Upon any one or more events of default, or whenever and for so
long as Owner, in its reasonable judgment, deems it necessary (whether or not an
event of "force majeure" exists) (i) to preserve its property and the property
of its Ancillary Customers, (ii) to avoid injury to persons or (iii) to permit
the continued comfortable use and occupation of its buildings and structures and
those of its Ancillary Customers which are supplied steam by the Operator (any
of the circumstances described in the preceding clauses (i), (ii) and (iii), an
"emergency"), Owner may also, at its option, at any time during the continuance
of such default or emergency, immediately assume operating control of the
Existing Plant and may continue operating control until the termination of such
default or emergency, Owner's election to discontinue operating control or
Owner's termination of the Agreement, whichever occurs first. Owner's election
to assume operating control of the Existing Plant shall be communicated to the
Operator by delivery of written notice or delivery of telephonic notice
confirmed in writing within 24 hours. Thereafter, Owner shall be entitled to the
immediate operation and use of the Existing Plant and Owner may occupy, use and
operate the Existing Plant and remove from it Operator, its agents, employees,
servants, licensees and other persons, firms or corporations and

                                      -43-
<PAGE>

all or any of its or their property by force or otherwise, without being liable
for damages for such action.

          Owner may at any time discontinue operating control of the Existing
Plant on 30 days written notice to the Operator stating the effective date of
its discontinuance. Upon the effective date of Owner's discontinuance of
operating control of the Existing Plant, Operator shall resume the operation of
the Existing Plant in accordance with the terms, conditions, covenants and
provisions of this Agreement. Owner may require, as a condition to Operator's
resumption of operation of the Existing Plant, that Operator shall have cured
all curable defaults and shall have provided Owner with the guaranty or other
security required by subparagraph (f) of Section 7.01.

          Upon Owner's assumption of operating control of the Existing Plant or
upon its termination of this Agreement, Owner may, but shall not be obligated
to, operate the Existing Plant to supply its steam requirements and the steam
requirements of its Ancillary Customers. Owner's assumption of operating control
of the Existing Plant or Owner's termination of this Agreement shall not relieve
Operator of its obligations to Owner pursuant to the Steam Contract, except to
the extent such assumption prevents Operator from the performance of its
obligations under the Steam Contract.

          All reasonable costs, expenses and obligations of every kind and
nature whatsoever relating to the Existing Plant, whether in its operation or in
its maintenance in the state of readiness required under this Agreement,
incurred by the Owner after its assumption of operating control of the Existing
Plant, or after its termination of this Agreement, shall (unless the Owner would
have been responsible for such costs under this Agreement regardless of whether
it assumed operating control) be offset against all sums or amounts, if any,
payable by Owner to Operator under the Steam Contract. If and to the extent that
Owner operates the Existing Plant to supply its steam requirements and the steam
requirements of its Ancillary Customers, its obligations to Operator, if any, to
pay for steam pursuant to the Steam Contract shall be reduced by the Owner's
production cost of steam available for the Owner's distribution

                                      -44-
<PAGE>

system as it leaves the Existing Plant, excluding costs attributable to
distribution which will include but not be limited to the applicable salary,
operating, equipment, overhead and depreciation costs of such distribution
system, as conclusively determined by the Owner's independent certified public
accountants.

          (f) Notwithstanding anything to the contrary contained in this Section
20.02, Owner (i) shall not have the right to assume operating control of the
Existing Plant because of non-material defaults in the operation and maintenance
of the Existing Plant and (ii) shall not have the right to terminate this
Agreement because of an event of default described in paragraph (b) of Section
20.01 (other than defaults which can be cured or satisfied by the payment of
money and any default in the rebuilding of the steam boilers and related
apparatus and equipment pursuant to Section 7.01) unless the default shall be a
material default; provided, however, that the limitation of Owner's remedies of
the assumption of operating control of the Existing Plant or the termination of
this Agreement imposed by this paragraph (f) shall not apply if the default of
Operator would subject Owner or its Ancillary Customers to any liability, costs,

fines or penalties under applicable law, including the requirements described in
Article 10.

     Section 20.03. Upon any breach or threatened breach by Operator of any of
the agreements, terms, covenants or conditions contained in this Agreement,
Owner may enjoin the breach or threatened breach and may invoke any right and
remedy allowed at law, in equity, by statute, or otherwise.

     Section 20.04. Each right and remedy under this Article shall be in
addition to every other right or remedy provided for in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, for the
defaults enumerated in this Agreement or for any other breach of this Agreement,
including, without limitation, the right to recover damages for breach of this
Agreement, provided, however, that Owner shall have no right to terminate this
Agreement, the Steam Contract or the Lease Agreement (collectively the
"Agreements"), except as expressly provided in the Agreements. Each right and
remedy shall be cumulative and the

                                      -45-
<PAGE>

exercise by Owner of any one or more of its rights or remedies shall not
preclude the simultaneous or later exercise by the Owner of any or all other
rights or remedies it may have.

          Section 20.05. This Article shall survive any termination or
expiration of this Agreement.

          Section 20.06. Owner may, at its option, from time to time, commence
actions to recover any user charges or damages and nothing in this Agreement
shall be deemed to require Owner to await the date this Agreement would have
expired had there been no default by Operator or no termination by owner.

          Section 20.07. Owner and Operator agree to execute and deliver a
Consent and Agreement with respect to every Permitted Mortgage.

                                  ARTICLE 21

                                   WAIVERS

          Section 21.01. Waivers. No failure by the Owner or the Operator to
insist upon the strict performance of any agreement, term, covenant or condition
of this Agreement or to exercise any right or remedy upon a breach of any of
them, and no acceptance of full or partial payment during the continuance of any
breach, shall constitute a waiver of the breach or of the agreement, term,
covenant or condition. No agreement, term, covenant or condition to be performed
or complied with by the Operator or the Owner, and no breach of any of them,
shall be waived, altered or modified except by a written instrument executed by
the Owner or the Operator, as the case may be. No waiver of any breach shall
affect or alter this Agreement, and each and every agreement, term, covenant and
condition of this Agreement shall continue in full force and effect with respect
to any other existing or subsequent breach.

                                      -46-
<PAGE>

                                  ARTICLE 22

                                REPRESENTATIONS

          Section 22.01. Except as expressly provided in Sections 9.03, 9.04 and
10.01, no representation, statement, or warranty, express or implied, has been
made by Owner as to the condition of the Existing Plant, or its permitted use by
Operator for the purposes of this Agreement under applicable laws, ordinances
and regulations ("the regulations"). Except as expressly provided in Sections
9.03, 9.04 and 10.01, or except to the extent that the regulations are
applicable solely to the particular use of the Existing Plant by Owner after the
Term Commencement Date, Operator assumes all responsibility for compliance with
the regulations, and Owner shall have no liability or responsibility or any
defect in the Existing Plant or for any limitations upon the use of the Existing
Plant.

                                  ARTICLE 23

                                 FORCE MAJEURE

          Section 23.01. If Owner or Operator shall be delayed, hindered in or
prevented from the performance of any act required under this Agreement by
reason of acts of God or a public enemy, strikes, lockouts, riots, injunctions
or other interference through legal proceedings, state, federal or local laws or
regulations or requisitions of any governmental authority ("force majeure"),
performance of that act shall be excused for the period of the delay and the
period for the performance of the act shall be extended for a period equivalent
to the period of the delay, provided the party delayed shall give the other
party written notice and full particulars of the force majeure within a
reasonable time after the event occurs. The provisions of this Article shall not
excuse Operator from the prompt payment of all user charges under this
Agreement.

                                      -47-
<PAGE>

                                  ARTICLE 24

                                    NOTICE

          Section 24.01. Every notice, request, demand, consent, approval,
objection, document or other communication authorized or required by this
Agreement shall be in writing and shall be deemed to be effective when delivered
personally or five days after deposited in the U.S. mails, registered or
certified mail, postage prepaid, return receipt requested, addressed to the
other party at the following address:

To Operator:

             Project Orange Associates, L.P.
             630 First Avenue, Suite 30C
             New York, New York 10016

             and

             650 North Belt
             Houston, Texas 77060

             with a copy to:

             Kronish, Lieb, Weiner & Hellman
             1345 Avenue of the Americas
             New York, New York 10105
             Attention:  Russell S. Berman, Esq. and

             To the holders of a Permitted Mortgage identified, and at the
             address stated, in a written notice by the Operator to the Owner

             To any guarantor of Operator's obligations under Section 7.01 at
             the address stated in a written notice by the guarantor to Owner

To Owner:

             Syracuse University
             Skytop Office Building

                                      -48-
<PAGE>

                Syracuse, New York 13244-5300
                Attention:  Senior Vice President for Business and Finance or
                Successor

with a copy to:

                Bond, Schoeneck & King
                One Lincoln Center
                Syracuse, New York 13202
                Attention:  Anthony R. Pittarelli, Esq.

or to such other address as either party may designate by notice given from time
to time in accordance with this Section. A notice to change an address shall be
effective upon receipt by the other party.

                                      -49-
<PAGE>

                                  ARTICLE 25

                                 GOVERNING LAW

          Section 25.01. This Agreement and the performance of it shall be
governed, interpreted, construed and regulated by the laws of the State of New
York.

                                  ARTICLE 26

                              PARTIAL INVALIDITY

          Section 26.01. If any term, covenant, condition or provision of this
Agreement, or the application of it to any person or circumstance, shall be
invalid or unenforceable, the remainder of this Agreement, or the application of
that term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected and every other term,
covenant, condition and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.

                                   ARTICLE 27

                                 INTERPRETATION

          Section 27.01. Wherever the singular number is used in this Agreement
the same shall include the plural, and the masculine gender shall include the
feminine and neuter genders, and vice versa, as the context shall require. This
Agreement may be executed in several counterparts, each of which shall be an
original, but all of which shall constitute one and the same instrument.

                                      -50-
<PAGE>

                                   ARTICLE 28

                                 BINDING EFFECT

          Section 28.01. Except as expressly provided otherwise in this
Agreement, the covenants, conditions and agreements contained in this Agreement
shall bind and inure to the benefit of Owner and Operator and their respective
successors and assigns.

                                   ARTICLE 29

                    NO ORAL MODIFICATION - ENTIRE AGREEMENT

          Section 29.01. All prior understandings and agreements between the
parties with respect to the subject matter of this Agreement (including the
Prior Agreement) are merged within this Agreement, which alone fully and
completely sets forth the understanding of the parties with respect to such
subject matter. Operator is not relying on any representation or agreement other
than those set forth in the Agreements. This Agreement may not be changed or
terminated orally or in any manner other than by a written agreement signed by
the party against whom enforcement is sought. No mutual termination or mutual
cancellation of this Agreement or termination of this Agreement by Operator
shall be of any force or effect unless approved in writing by the holders of a
Permitted Mortgage, as defined in Article 23 of the Lease Agreement.

                                   ARTICLE 30

                         HEADINGS AND TABLE OF CONTENTS

                                      -51-
<PAGE>

          Section 30.01. The headings of the Articles and Sections of this
Agreement are for convenience of reference only and do not define, limit or
describe the intent of this Agreement or in any way affect this Agreement or the
interpretation of it.

          Section 30.02. The table of contents preceding this Agreement is for
the purpose of convenience of reference only and is not to be deemed, construed
or interpreted in any way to be part of this Agreement.

                                   ARTICLE 31

                     WAIVER OF JURY TRIAL AND COUNTERCLAIMS

          Section 31.01. The parties waive a trial by jury of any and all issues
in any action or proceeding between them or their successors or assigns
connected with or arising out of this Agreement or any of its provisions.

                                  ARTICLE 32

                            MEMORANDUM OF AGREEMENT

          Section 32.01. The parties will, at the request of either one,
promptly execute duplicate originals of an instrument, in recordable form,
setting forth a description of the Existing Plant, the terms and any other
portions of this Agreement, except the user charges, as either party may
request.

                                      -52-
<PAGE>

                                  ARTICLE 33

                                  TERMINATION

         Section 33.01. If the guaranty by the Approved Operator required by
Section 7.01 of this Agreement shall not be delivered to Owner by March 15,
1990, Owner may, upon fifteen days written notice to Operator, terminate this
Agreement.

         Section 33.02. The obligations of the parties under this Agreement are
contingent upon the approval of this Agreement by the Board of Trustees of
Owner. If such approval is not
granted by March 5, 1990, either party may terminate this Agreement upon fifteen
days written notice to the other.

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers.

                              SYRACUSE UNIVERSITY

                              By: /s/ Louis Marcoccia
                                 ___________________________________

                              PROJECT ORANGE ASSOCIATES, L.P.

                              By:  G.A.S. Orange Partners, L.P.,
                                   its general partner

                              By:  G.A.S. Orange Development, Inc.
                                   its general partner

                              By: /s/ Adam Victor
                                 ___________________________________

                              Title: President
                                     _______________________________

                                      -53-
<PAGE>

STATE OF NEW YORK  )
                   )  ss.:
COUNTY OF ONONDAGA )

         On this ____ day of February, 1990, before me personally came Louis G.
Marcoccia to me known, who being by me duly sworn, did depose and say that he
resides in Cazenovia, New York, that he is a Senior Vice President of SYRACUSE
UNIVERSITY, the corporation described in and which executed the above
instrument; that he knows the seal of the corporation; that the seal affixed to
the instrument is the corporate seal; and that he signed his name to the
instrument.

                              __________________________
                              Notary Public

STATE OF NEW YORK  )
                   )  ss.:
COUNTY OF _________)

         On this ____ day of February, 1990, before me personally came ADAM
VICTOR to me known, who being by me duly sworn, did depose and say that he
resides in New York, New York, that he is the President of G.A.S. ORANGE
DEVELOPMENT, INC., the General Partner of G.A.S. Orange Partners, L.P., which is
the General Partner of Project Orange Associates L.P., the partnership described
in this instrument, and that he had authority to sign this instrument and he
acknowledged to me that he executed the instrument as the act and deed of the
partnership.

                              __________________________
                              Notary Public

                                      -54-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}]]