O BRIEN ENVIRONMENTAL ENERGY INC, 10-K, 1994-10-13

O BRIEN ENVIRONMENTAL ENERGY INC
10-K, 1994-10-13
ELECTRICAL APPARATUS & EQUIPMENT, WIRING SUPPLIES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1994

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 1-9208

O'BRIEN ENVIRONMENTAL ENERGY, INC.
(Exact name of registrant as specified in its charter)

Delaware 59-2076187
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

225 South Eighth Street
Philadelphia, Pennsylvania 19106
(Address of principal executive offices) (Zip Code)

Registrant's telephone number including area code: (215) 627-5500
____________

Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:

Class A Common Stock, Philadelphia Stock Exchange
$.01 par value

Securities registered pursuant to Section 12(g) of the Act:

NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
---- ----

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

As of September 20, 1994, there were outstanding 13,055,597
shares of Class A Common Stock and 4,070,770 shares of Class B
Common Stock. Based on the price at which such stock was sold on that
date, the approximate aggregate market value of such shares held by
non-affiliates was $8,913,710. Subsequent to September 20, 1994,
trading in the Company's securities on the American Stock Exchange was
halted and delisting proceedings were commenced. See "Business--
Significant Factors--Liquidity; Chapter 11 Bankruptcy Filing."

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ITEM 1. BUSINESS.

A. General Development of Business.

a. General

On September 28, 1994, O'Brien Environmental Energy, Inc., the
parent company, filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code. See "Business --
General Development of Business -- Significant Factors --
Liquidity; Chapter 11 Bankruptcy Filing". The Company was
originally formed in Florida in 1981 and subsequently merged with
a Delaware corporation in 1984. Prior to the merger, the Company
was part of a group of several other companies owned by members of
the family of Frank L. O'Brien III, Chairman of the Board, Chief
Executive Officer and controlling shareholder of the Company, which
had served the power generation market since 1915. On July 1,
1991, the Company changed its name from O'Brien Energy Systems,
Inc. to O'Brien Environmental Energy, Inc.

The Company is mainly in the business of developing cogeneration,
waste heat recovery and biogas projects which produce electricity
and thermal energy for sale under long-term contracts with
industrial and commercial users and public utilities. In its role
as a developer of energy projects the Company has developed the
following projects, which it currently has an ownership interest
in:

(a) The 32 megawatt California Milk Producers Project (in
which the Company has a 3% general partnership interest)
began operations in February 1990;

(b) The 52 megawatt Newark Boxboard Project (which is owned
100% by the Company) began operations in November 1990;

(d) Totalling 9.2 megawatts, the Company currently owns 100%
of and operates four biogas projects in Pennsylvania and
California;

(e) During 1993, the Company expanded into the area of
standby/peak shaving projects which utilize the Company's
power generation equipment as a backup source of
electricity for large customers and has developed and
operates a 22 megawatt project in Pennsylvania (which is
owned 83% by the Company).

Currently the Company has in excess of 140 megawatts of
cogeneration, biogas and standby/peak shaving projects in the stage
of development where certain key contracts and permits are already
in place. The Company also has in excess of 200 megawatts of
projects which it is currently evaluating or bidding on.

In addition to the portfolio of projects which it currently has
an ownership percentage in, the Company has developed in excess of
200 megawatts of other projects which it has since sold or divested
of in various stages of the development process.

The Company expanded its equipment sales, rentals and services
business by acquiring Puma Power Plant Limited ("Puma"), a United
Kingdom company, in 1988 and Mobile Power Rental Company (now
operating under the name O'Brien Energy Services Company) ("O'Brien
Energy Services") in 1990.

In 1989, the Company acquired American Hydrotherm Corporation
("American Hydrotherm") and a related company to engineer,
manufacture, install and service waste heat recovery systems based
upon patented technology for industrial processing applications.

References in this Report to the "Company" mean O'Brien
Environmental Energy, Inc. and, where relevant, its wholly-owned
subsidiaries.

b. Significant Factors

The items discussed in this "Significant Factors" section have had
a negative impact on the Company's cash flow, its ability to meet
current obligations and its ability to finance operations and
ongoing development activities, and should be carefully considered:

(i) Liquidity; Chapter 11 Bankruptcy Filing

On September 28, 1994, O'Brien Environmental Energy, Inc., the
parent company, filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the
U.S. Bankruptcy Court for the District of New Jersey to pursue
financial restructuring efforts under the protection afforded by
the U.S. bankruptcy laws. The decision to seek Chapter 11 relief
was based on the conclusion that action had to be taken to
preserve its relationships and maintain the operational strength
and assets of the Company, and to restructure its debt and utilize
its assets in a manner consistent with the interests of all
creditors and shareholders rather than liquidate to satisfy the
demands of a particular group of creditors. The Company expects
to continue its normal activities, including project development
and the sale and/or refinancing of existing projects.

Subsequent to September 28, 1994, the Company is operating as
debtor-in-possession under the Bankruptcy Code. As such, the Company
is authorized to operate its business, but may not engage in
transactions outside the ordinary course of business without approval,
after notice and hearing, of the Bankruptcy Court. There can be no
assurance that the Company will be able to obtain such approval to
continue its normal operations and restructure its debt and otherwise
engage in project development and the sale or refinancing of existing
projects.

As a result of this action, pending litigation against the
Company (but not its subsidiaries) will be stayed and consolidated
with this bankruptcy proceeding. The Company has also been advised
that its securities are being delisted from the American Stock
Exchange, however, the Common Stock continues to be listed on the
Philadelphia Stock Exchange. The Company intends to have its
Debentures included in either the OTC Bulletin Board or the "pink
sheets." There can be no assurance that a trading market will
develop for any of the Company's securities even if they are listed
on any of the foregoing exchanges or quotation systems. See "Market
for Registrant's Common Equity and Related Stockholder Matters."

(ii) Defaults Under Indentures; Proposed Exchange Offer

On August 22, 1994, the trustees for each of the 1987
Debentures, 1990 Debentures and 1991 Debentures delivered
acceleration notices to the Company, notifying the Company that
the total principal amount of $49,174,000 and past due interest
in the amount of $5,243,000 as of September 20, 1994, is due and
payable by the Company immediately based on the following factors:

The Board of Directors elected not to make the March 15, 1994 or
the September 15, 1994 semi-annual required interest payments on
the Debentures which total $5,037,000. Each semi-annual required
interest payment consists of $442,000, $632,500 and $1,444,000 for
the 1987 Debentures, 1990 Debentures and 1991 Debentures,
respectively.

As a result of the losses experienced by the Company, the
Company's Consolidated Stockholders' Equity (as defined in the
1987 Indenture, 1990 Indenture and 1991 Indenture) was $136,000
and $8,066,000 at June 30, 1994 and March 31, 1994, respectively.
As a result, the covenant in the 1990 Indenture and 1991 Indenture
requiring the Company to purchase 7.5% of the outstanding 1990
Debentures and 1991 Debentures if the Company's Consolidated
Stockholders' Equity is less than $10,000,000 at the end of each
of any two consecutive fiscal quarters has been triggered.
Additionally, there is a covenant in the 1987 Indenture which
requires the Company to purchase 7.5% of the outstanding 1987
Debentures if the Company's Consolidated Stockholders' Equity is
less than $7,500,000 at the end of each of any two consecutive
fiscal quarters. Purchasing Debentures pursuant to these
covenants would cause severe liquidity problems for the Company.
The Company does not presently expect to be in a position to
comply with these covenants.

The Company is currently in default under the 1987 Indenture's
Funded Indebtedness covenant (as defined in the 1987 Indenture).
Such covenant prohibits the Company from incurring or creating any
Funded Indebtedness if after giving effect to such incurrence or
creation, the total outstanding Funded Indebtedness of the Company
on a consolidated basis would exceed 75% of the sum of
Consolidated Stockholders' Equity and Funded Indebtedness.

In May 1994, the Company filed a Registration Statement on Form
S-4 (the "Registration Statement") with the Securities and
Exchange Commission relating to (a) an exchange offer of 40 shares
of Series A Cumulative Senior Preferred Stock, 120 Warrants to
purchase Class A Common Stock and 20 shares of Class A Common
Stock for each $1,000 principal amount of 1987 Debentures, 1990
Debentures and 1991 Debentures outstanding and (b) a solicitation
of consents to certain proposed amendments to the indentures (the
"Indentures") governing each of the 1987 Debentures, 1990
Debentures and 1991 Debentures as well as the waiver of all
defaults under each of the Indentures. In June 1994, an amendment
to the Registration Statement was filed. Subsequent to such
amendment, the Company began discussions with an ad hoc committee
(the "Ad Hoc Committee") of debentureholders representing holders
of the 1987 Debentures, 1990 Debentures and 1991 Debentures. The
Company entered into a standstill agreement with the Ad Hoc
Committee pursuant to which the Company agreed, among other
things, to assist the Ad Hoc Committee in its due diligence
efforts. The failure to reach an agreement with the Ad Hoc
Committee was one of the factors upon which the Company's decision
to file for protection under the Bankruptcy Code was based.

Certain of the Company's loan agreements require the Company to
comply with the terms of all other loan agreements. As a result
of the Company's defaults under the Indentures, defaults were
triggered under certain of the Company's recourse debt loan
agreements. At June 30, 1994, $5,320,000 of the Company's long
term debt was reclassified as a current liability solely because
of these cross-defaults. Additionally, it is an Event of Default
under the 1987 Indenture, 1990 Indenture and 1991 Indenture if the
Company defaults on any indebtedness which results in the
acceleration of the maturity of at least an aggregate of
$1,000,000, $2,000,000 and $2,000,000, respectively, of
indebtedness which is not cured within 60 days, 90 days and 90
days, respectively, after notice to the Company. See "Defaults
under Recourse Debt".

(iii) Losses

The Company has incurred losses in the amounts of $16,501,000
and $13,711,000 for the fiscal years ended June 30, 1994, and June
30, 1993, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The Company
may continue to incur losses from operations for the fiscal year
ending June 30, 1995.

(iv) Capital Requirements

The Company's business is capital intensive. The long-term
growth of the Company, which involves the development and
acquisition of additional projects, will require the Company to
seek substantial funds through various forms of financing. There
can be no assurance that the Company will be able to arrange the
financing needed for these additional projects. If the Company
is unable to secure financing, its business would be materially
adversely affected. See "Business--Energy Segment."

(v) Energy Price Fluctuations and Fuel Supply

The Company's power purchase agreements with utilities typically
contain price provisions which in part are linked to the utility's
cost of generating electricity. In addition, the Company's fuel
supply prices may be fixed in some cases or may be linked to
fluctuations in energy prices. As a result, in the event of
significant fluctuations in energy prices, the operating margins
of certain projects may be reduced or increased depending upon the
terms of the project agreements. In addition, in the event of a
significant continuing decline or increase in energy prices, there
can be no assurance that the Company's existing customers or
suppliers will not attempt to renegotiate existing power purchase
or supply agreements on terms less favorable to the Company. To
date, renegotiation of the Company's agreements has had no
material adverse impact on its operations. In addition, the
Company seeks to enter into long-term gas supply arrangements for
certain of its cogeneration projects under development. To date,
the Company has not obtained long-term supply arrangements that
directly track project revenue. The operation of the Company's
projects may be more vulnerable to interruption in times of fuel
shortage. While it is impossible to predict how such developments
will affect the Company's overall business, the Company's profit
margins on certain of its projects may be reduced if the increased
cost of fuel used to operate those projects exceeds the adjustment
to the amounts received by the Company from the utilities pursuant
to the related power purchase agreements. Fuel risk may be
reduced by entering into a long-term gas supply arrangement or
hedge which the Company has explored from time to time. However,
there can be no assurance that any of the foregoing will improve
or maintain gross profit margins in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Costs and Expenses."

(vi) Defaults Under Recourse Debt

As a result of defaults, consisting of defaults in the payment
of interest under each of the Indentures as well as defaults under
certain of the Company's loan agreements, including the filing for
bankruptcy, the Company reclassified $21,914,000 out of a long-
term to a current classification resulting in a total of
$39,042,000 of its recourse debt as a current liability. Of this
amount, approximately $5,320,000 was triggered solely by defaults
under the Indentures, $3,066,000 by cross defaults and the non
payment of principal subsequent to year end and the remainder,
$13,528,000 was solely reclassified because of the bankruptcy
filing. The Company was having discussions with its various
lenders regarding the defaults and was developing a program to
restructure this debt. The program was intended to provide, among
other things, an extended amortization of the debt and the sale
of equipment which is not currently being utilized in an operating
project or which has not been designated for a project under
development. Also, as a result of this program, the Company
recorded a non-cash charge of $6,250,000 in the fourth quarter of
1994 to adjust the carrying value of these collateralized assets
to an estimated sales value. Prior to the filing of the Chapter
11 Bankruptcy, the program had been met with approval by several
of the Company's lenders and no lender had accelerated the payment
of the loans. As a result of the Chapter 11 Bankruptcy filing,
there can be no assurance that the program will continue to be
accepted by the Company's lenders.

(vii) Defaults Under Non-Recourse Debt

At June 30, 1994, both the Newark and Parlin projects were in
default of the covenant which requires the maintenance of positive
working capital. On September 26, 1994, the project lenders
agreed to waive this covenant through July 1, 1995, for the Parlin
Project only, provided that during the period that this waiver is
in effect no distribution of any nature whatsoever will be made
to the Company. This waiver will cease to be effective in the
event that the Parlin Project is in compliance with the
requirement to maintain positive working capital at any time prior
to June 30, 1995. The lenders were not willing to provide a
similar waiver for the Newark project. As a result of the Newark
project not getting the waiver, $25,010,000 of non-recourse debt
has been reclassified from long-term to short-term debt.

(viii) Fire

In December 1992, a fire occurred at the Company's Newark
cogeneration plant. The damage to the plant caused by the fire
has been repaired. The plant returned to partial operation in
August 1993 and resumed full operation in October 1993. The
Company received the sum of $36,000,000 which covered a
substantial majority of the Company's cost of repair and loss of
net profits due to business interruption. In addition, the
Company has the right to receive up to an additional $1,400,000
upon the recovery by the insurance carrier of its claims against
third parties. See "Business--Energy Segment--Projects in
Operation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

(ix) Audit Report - Uncertainty

During the years ended June 30, 1994 and June 30, 1993, the
Company experienced significant operating problems and setbacks
which have contributed significantly to the Company's losses and
liquidity problems in fiscal 1994 and fiscal 1993. Additionally,
O'Brien Environmental Energy, Inc., the parent company, filed a
voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code on September 28, 1994. All of these have had
a negative impact on the Company's cash flow and its ability to
finance operations and ongoing development activities. Therefore, the
Company's independent accountants have included an explanatory paragraph
relative to a going concern uncertainty in their audit report. See Note
1 to the Company's Consolidated Financial Statements.

(x) III Enterprises, Inc. Bankruptcy

In October 1993, III Enterprises, Inc., ("III Enterprises")
which owns the controlling voting interest in the Company, filed
for bankruptcy protection under Chapter 11 of the Federal
Bankruptcy Code. III Enterprises is wholly owned by Frank L.
O'Brien III, Chairman of the Board and Chief Executive Officer of
the Company. In connection with any reorganization of III
Enterprises, the stock ownership of III Enterprises which owns the
controlling shares of Class B Common Stock of the Company may be
sold to a third party. III Enterprises has advised the Company
that improper actions by one of III Enterprises' lenders forced
III Enterprises to seek protection under the Federal Bankruptcy
Code. In April 1994, III Enterprises and its creditors entered
into a stipulation which set forth certain key dates for
implementing a plan of reorganization. The debtor sought and
obtained an extension of certain time periods in the stipulation
to September 30, 1994. The debtor has since filed motions to
extend the time periods in the stipulation. On October 6, 1994,
the bankruptcy court ordered that the matter be converted to a
proceeding under Chapter 7 of the Federal Bankruptcy Code. On
October 7, 1994, the debtor appealed this order.

In addition, such proceeding could cause a change in control
of the Company, which could, among other things, significantly affect
the direction of the management of the Company and limit the
utilization of the Company's net operating loss carryforwards available
at June 30, 1994 in accordance with IRS regulations. See Note 23 to the
Consolidated Financial Statements.

(xi) Stock Price

For the fiscal quarter ended June 30, 1994, the high and low
sale prices for the Company's Class A Common Stock as reported on
the American Stock Exchange were $13/8 and $7/16, respectively, as
compared to $415/16 and $311/16, respectively, for the fiscal
quarter ended June 30, 1993. The Company was notified on October
4, 1994 that its securities would be delisted by the American
Stock Exchange. See "Market for Registrant's Common Equity and
Related Stockholder Matters."

c. Recent Developments

The following are certain of the Company's recent developments:

(i) Hackensack Meadowlands Project

In September 1993, the Company was awarded (pursuant to a
competitive bidding process) gas recovery rights by the Hackensack
Meadowlands Development Commission for two landfill sites located
in New Jersey. The Company is considering alternatives including
developing and producing the landfill gas from this project to
supply fuel for the Newark Boxboard project. Development of this
project is not expected to be completed until 1996, at the
earliest. See "Business--Energy Segment--Projects in
Development."

(ii) Philadelphia Water Department Project

On August 5, 1994, the Company repurchased an 83% interest in
the Philadelphia Water Department project from an unrelated
private investor for $5,000,000. This repurchase was funded by
a loan from a third party. The Company is negotiating to resell
this project to a third party in fiscal 1995. The Company sold
its interest in this project for a price of $5,000,000 in November
1993 and retained the right to repurchase an 83% interest in the
project for $5,000,000. In connection with the November 1993
sale, the Company issued a total of 5,500,000 warrants to purchase
the Company's Class A Common Stock including 2,500,000 warrants
having an exercise price of $4.00 per share and are exercisable
through November 10, 1995; 2,000,000 warrants having an exercise
price of $5.00 per share and are exercisable through November 10,
1996; and the balance of such warrants (1,000,000) have an
exercise price of $6.00 per share and are exercisable through
November 10, 1997. Following the issuance of the warrants, the
private investor filed a Schedule 13D with the SEC disclosing the
acquisition of the warrants. See "Business--Energy Segment--
Projects in Operation--Standby/Peak Shaving." See Note 31 to the
Company's Consolidated Financial Statements for a discussion of
these transactions.

(iii) Stewart & Stevenson Credit Facility

In November 1993, the Company entered into a letter of intent
and then in March 1994, the Company entered into a $7,000,000
subordinated loan agreement with Stewart & Stevenson, a major
equipment supplier and operation and maintenance company. The
first disbursement of $1,000,000 was funded on January 13, 1994.
The second disbursement of $3,500,000 was funded on March 16,
1994. The availability of a third disbursement of $2,500,000 has
expired. This third disbursement was intended to be utilized for
prepayment of debt at the Newark Boxboard project level and to
satisfy the $1,000,000 million note between the Company and
Stewart & Stevenson. The Company currently intends to repay the
proceeds of the Stewart & Stevenson credit facility upon the
refinancing of the Newark Boxboard term loan. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources--Working Capital Requirements."

(iv) Tinicum Project

In December 1993, the Company executed an energy service
agreement with the City of Philadelphia for a 14 megawatt standby
electric facility project at the Philadelphia International
Airport. On September 27, 1994, the Company sold its rights to
this project for net cash proceeds of $1,652,000. See "Business--
Energy Segment--Sale of Projects in Development."

(v) SmithKline Project

In February 1994, the Company executed an energy service
agreement with SmithKline Beecham Corporation for a 21 megawatt
standby electric facility project in Montgomery County,
Pennsylvania. On June 30, 1994 the Company entered into an
Amended Energy Service Agreement Transaction with SmithKline
Beecham Corporation and PECO Energy Company whereby the Company
sold its rights in the 21 megawatt facility to PECO. The amended
agreement also includes provisions for the Company to construct
an 8 megawatt standby power facility for SmithKline Beecham. The
Company will be paid $2,500,000 in installments through June 1995,
for the 8 megawatt facility which must be completed no later than
December 31, 1995. See "Business--Energy Segment--Projects in
Development."

B. Financial Information About Industry Segments.

During the fiscal year ended June 30, 1994, the Company operated
principally in two industry segments: (i) energy - the development,
ownership and operation of biogas projects and the development and
ownership of cogeneration and waste heat recovery projects through
wholly-owned subsidiaries and limited partnerships; and (ii)
equipment sales, rentals and service - the selling and renting of
power generating, cogenerating and standby/peak shaving equipment
and services. Fees recognized in connection with the development
and construction of cogeneration projects formed as limited
partnerships are related to energy projects.

See Note 25 to the Consolidated Financial Statements of the
Company for financial information with respect to industry
segments.

C. Narrative Description of Business.

General

The Company develops, owns and operates cogeneration, waste heat
recovery and biogas projects which produce electricity and thermal
energy for sale under long-term contracts with industrial and
commercial users and public utilities. Cogeneration involves the
sequential production of two or more forms of usable energy (i.e.
electricity and thermal energy) using a single fuel source, thereby
substantially increasing fuel efficiency. A waste heat recovery
project utilizes heat resulting from industrial processes as the
energy source for the simultaneous production of steam and
electricity in a manner similar to cogeneration. Biogas projects
such as the Company's landfill and sewage digester gas projects
collect otherwise wasted and unproductive methane gas and convert
it into usable energy. These projects offer an industrial user
potential cost savings and, where electricity is sold to the user,
increased reliability and added security against power failures.

As a project developer, the Company serves as a single source
responsible for the evaluation, design, installation and operation
of a project. The Company also assumes the responsibility for
evaluating project alternatives; obtaining financing, insurance,
all necessary licenses, permits and certifications; conducting
contract negotiations with local utilities and arranging turnkey
construction. In connection with obtaining financing, the Company
may negotiate for credit support facilities with equipment
suppliers, large turnkey construction firms and financial
institutions. Potential project structures include sole ownership,
general partnerships, limited partnerships, sale leaseback
arrangements and other forms of joint ventures or debt
arrangements. To date, other than the limited partnership
substantially owned by a subsidiary of Chrysler Capital
Corporation, the Company's projects in operation have been
structured as wholly-owned subsidiaries.

The Company sells the electricity produced by its projects
pursuant to long-term contracts either on a "wholesale" basis to
local public utilities or on a "retail" basis directly to specific
industrial and commercial users. Presently, substantially all of
the electricity produced by the Company's projects in operation is
sold on a wholesale basis. The mix of future energy sales may
differ based upon future economic conditions and other
circumstances.

A large portion of the Company's business relates to design and
assembly of power generation systems for sale and rental,
electrical control and distribution subsystems, and high
temperature heat transfer equipment and subsystems.

During 1993, the Company expanded into the area of standby/peak
shaving projects which utilize the Company's power generation
equipment as a back-up source of electricity for large customers.
These projects are intended to fill a need between large electrical
users and the requirements of local utilities. The availability of
an alternative energy source allows these customers to benefit from
significantly discounted interruptible energy tariffs. The
standby/peak shaving generators typically will be required to
provide a limited amount of electricity during peak periods.

At present, the Company has eight projects in operation totalling
approximately 237 megawatts of electric generating capacity
including seven wholly-owned projects developed by the Company
totalling approximately 205 megawatts and one approximately 32
megawatt project which was developed by the Company and is
presently owned substantially by a subsidiary of Chrysler Capital
Corporation.

Independent Power Market

The independent power market (the market for power generated by
companies other than traditional utilities) has evolved and is
expected by the Company to continue to expand as a result of the
growing need for new and replacement power capacity by electric
utilities and industrial customers. Historically, regulated
utilities in the United States have been the only producers of
electric power intended primarily for sale to third parties. The
increase in oil prices during the late 1970s and the increasing
cost of constructing and financing large coal-fired or nuclear
generating facilities along with the enactment in 1978 of the
Public Utilities Regulatory Policies Act ("PURPA"), created a
favorable regulatory environment and favorable market conditions
for the development of energy projects by companies other than
electric utilities. The basic policy judgment behind the
encouragement of the development of biogas and cogeneration
facilities is that the United States' dependence on oil and natural
gas resources should be reduced and that the very high incremental
costs of large centralized power production facilities should be
avoided. However, economic considerations remain the central issue
affecting a decision to install a cogeneration project.

PURPA provided significant incentives to developers of qualifying
facilities. It designated certain small power production (those
utilizing renewable fuels and having a capacity of less than 80
megawatts) and cogeneration facilities as qualifying facilities
exempt from many of the regulatory requirements applicable to
electric utilities and eligible for various benefits under federal
law. In accordance with PURPA, the Company's projects are exempt,
and its proposed projects are intended to be exempt, from rate,
financial and similar regulation as a utility as long as they meet
the requirements of a qualifying facility. These projects also
benefit from regulations that require public utilities to purchase
power generated by qualifying projects either at the utilities'
"avoided cost" (determined in accordance with a formula which
varies from state to state but which is generally calculated based
upon what the cost to the utility would be to generate the power
itself or to purchase it from another source). Power purchase
contracts generally must be approved by state public utility
commissions. Since the Company benefits from PURPA, the Company's
business could be adversely affected by a significant change in
PURPA and could otherwise be materially impacted by decisions of
federal, state and local legislative, judicial and regulatory
bodies. See "Business--Regulation."

The Company believes that independent power producers will become
increasingly more important to electric utilities as alternative
long-term sources of electric power. According to the North
American Electric Reliability Council's 1991-2000 Electricity
Supply and Demand Report, electric utilities have forecasted that
they will need an additional 87,700 megawatts of new generating
capacity between 1991 and the year 2000 to meet peak demand. The
U.S. Department of Energy's Spring 1991 "National Energy Strategy"
projects this need at up to 200,000 megawatts between 1991 and the
year 2010. According to this report, $100 billion to $200 billion
in new capital investment will be needed to meet the nation's
growing electricity needs during the period from 1991 to 2001.
Since the independent development and ownership of cogeneration
projects requires little, if any, capital investment by those
public utilities utilizing this power, and requires these public
utilities to pay only for capacity and energy actually produced and
delivered, utilities may avoid the cost and risk of building new
plants as demand grows by purchasing needed power from independent
power producers.

Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other
organizations similar to the Company, have entered the market of
the ownership and operation of cogeneration and biogas projects.
Many of these companies have substantially greater resources than
the Company. In addition, obtaining power contracts with utilities
has become more competitive with the increased use of competitive
bidding procedures. This increased competition may make it more
difficult for the Company to secure future projects, may increase
project development costs and may reduce the Company's operating
margins on any future projects.

Products and Markets

Cogeneration. Cogeneration involves the sequential production of
two or more forms of usable energy (i.e. electricity and thermal
energy) using a single fuel source, thereby substantially
increasing fuel efficiency. The key elements of a cogeneration
project are permit applications, contracts for sales of electricity
and thermal energy, contracts or arrangements for fuel supply, and
project financing and construction. The Company attempts to design
and develop its projects so that they qualify for the benefits of
PURPA, which exempts qualifying projects from rate, financial and
similar utility regulation and requires public utilities to
purchase power generated by these projects. Electricity may be
sold to utilities and end users of electrical power, including
large industrial facilities. Thermal energy from cogeneration
plants may be sold to commercial enterprises and other
institutions. Large industrial users of thermal energy include
plants in the chemical processing, food processing, pharmaceuticals
and paper industries.

Standby/Peak Shaving. Standby/Peak Shaving projects utilize the
Company's power generation equipment as a back-up source of
electricity for large electrical demand customers. The
availability of an alternative energy source allows these customers
to benefit from significantly discounted interruptible energy
tariffs. The standby/peak shaving generators typically will be
required to provide a limited amount of electricity during peak
periods.

Waste Heat Recovery. A waste heat recovery project utilizes heat
resulting from industrial processes as the energy source for the
simultaneous production of steam and electricity in a manner
similar to cogeneration. The Company believes that waste heat
recovery projects, which do not rely on a traditional fuel source,
will allow the Company to reduce or eliminate the cost of fuel to
the project. While the recovery of continuously released waste
heat is not a new process, the Company's patented heat storage
technology developed by its subsidiary, American Hydrotherm enables
it to capture waste heat released intermittently and convert it
into continuous usable energy. These projects are well suited to
steel, glass, paper, cement and other industries which generate
high quantities of intermittent waste heat from their industrial
processes.

Biogas. Biogas projects use a renewable non-fossil fuel as their
fuel source. The Company's biogas projects retrieve otherwise
unproductive and environmentally harmful methane gas generated by
landfills or sewage digester processes and convert it into usable
energy. Landfill gas production will generally continue as long as
suitable anaerobic (oxygen-deficient) conditions exist or until the
organic components of the refuse placed at the site are entirely
decomposed. This process may continue for approximately 20 years
after the closing of a landfill site. Sewage digester gas is
produced continuously during the sewage treatment process. The key
elements of biogas projects are permit applications, contracts for
gas rights, sales of gas and electricity, and thermal energy if
appropriate, and project financing and construction.

Equipment Sales, Rentals and Services. The Company sells and
rents power generation and cogeneration equipment. The Company
provides related services, including the design, assembly, repair
and maintenance of permanent or standby power generation equipment.
In addition, the Company sells equipment manufactured by others to
turnkey contractors in connection with the construction of the
Company's projects. The Company also sells equipment purchased by
it for projects unrelated to those being developed by the Company.
From time to time, it purchases equipment for reconditioning and
sale. In its rental business the Company serves the construction,
industrial, military, transportation, mining, utility and
entertainment markets.

The Company also designs and manufactures custom electrical
control and distribution subsystems. These include medium voltage
cubicle switchboards, main distribution systems, control
instrumentation panels and packaged substations. This equipment
receives and distributes power through a building, ship or other
self-contained structure.

The Company, through its American Hydrotherm subsidiary, is also
in the business of custom designing, engineering, constructing,
installing and servicing high temperature liquid heat transfer
systems for industrial processing applications. Each system is
designed by American Hydrotherm to meet precise temperature and
other specifications for processing equipment. These systems are
used in various industries such as steel, plastics, wood, rubber,
paper, chemical, petrochemical and electronics.

Energy Segment

Projects in Operation. Set forth below are descriptions of the
Company's eight projects currently in operation. Each of these
projects is currently producing revenues through the sale of energy
under long-term contracts. In connection with the obtaining of
financing for its three cogeneration projects in operation, the
Company has obtained business interruption insurance and
performance guarantees by the operators of its cogeneration
projects. These arrangements are negotiated and secured prior to
commencement of operations of a project. Taken as a whole, these
arrangements reduce the risks associated with any past and future
equipment problems or unscheduled plant shutdowns. For example in
the event of an unscheduled breakdown, the Company is entitled,
pursuant to its business interruption policy, to the net profit
which it is prevented from earning from the particular project,
including all charges and expenses which continue during the period
of interruption, less the applicable deductible amounts. There can
be no assurance that such insurance or guarantees will sufficiently
mitigate the risk of unforeseen contingencies.

<TABLE>

Name and Location Rated Approximate Date of Power Company's
Of Project Capacity (1) Capital Cost Operation Purchaser Lender Interest
- - ----------------- ------------ ------------ --------- --------- ------ ---------
(in megawatts) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cogeneration

E.I. du Pont 122.0 $103,350 June 1991 Jersey Central National 100%
Parlin (NJ) Power & Light Westminster Bank
Company P.L.C. (2)

Newark Boxboard 52.0 51,000 November 1990 Jersey Central National 100%
(NJ) (3) Power & Light Westminster Bank
Company P.L.C. (2)

California Milk 32.0 40,000 February 1990 Southern Sakura Bank (2) 3%(4)
Producers (CA) California Edison

Biogas

Mazarro (PA) 2.4 2,000 February 1990 Duquesne Light (5) 100%
Company

Duarte (CA) 1.1 2,000 October 1987 Southern (5) 100%
California Edison

SmithKline 2.5 5,000 March 1986 SmithKline (5) 100%
Beecham (PA) Beecham

Corona (CA) 3.2 5,000 March 1986 Southern (5) 100%
California Edison

Standby/Peak
Shaving

Philadelphia Water
Department (PA)(6) 22.0 11,000 May 1993 Philadelphia (5) 83%
Municipal
Authority

------- --------
237.2 $219,350
======= ========
<FN>
- - --------------------------
(1) See discussion of each particular project which follows for current contract production, which may be less than the stated
rated capacity.
(2) These loans are nonrecourse to the Company.
(3) On December 25, 1992, a fire occurred at the plant. The plant returned to partial operation in August 1993 and resumed
full operation in October 1993.
(4) Owned in partnership as more fully described in the project descriptions in "Business--Energy Segment--Projects in Operation."
(5) These projects are financed by various lenders through equipment credit facilities.
(6) On November 12, 1993, the Company sold its Philadelphia Water Department project. This sale did not include the physical
facilities and related generation equipment, which the Company continued to rent to the project. The Company repurchased
this project from the purchaser, subject to certain rights of the purchaser, on August 5, 1994.

</TABLE>

Cogeneration

E.I. du Pont--Parlin. This 122 megawatt project, which commenced
operation in June 1991, is 100%-owned by a subsidiary of the
Company. This project is designed to operate continuously and to
provide up to 120,000 lbs./hr. of steam to a photochemical
manufacturing plant in Parlin, New Jersey owned by E.I. du Pont de
Nemours and Company ("E.I. du Pont"), under a 30-year agreement,
and 92 megawatts of electricity to Jersey Central Power & Light
("JCP&L"), under a 20-year agreement. In addition to providing up
to 9 megawatts of electricity to E.I. du Pont under a 20-year
agreement, the Company sells additional electricity to JCP&L on an
"as requested" basis under the contract's dispatch agreement. See
Note 16 to the Company's Consolidated Financial Statements for a
discussion of this project's nonrecourse financing.

For the fiscal year ended June 30, 1994, this project accounted
for approximately $38 million in gross revenues, representing
approximately 36% of the Company's consolidated gross revenues.

During the fiscal year ended June 30, 1994, this project
experienced two unscheduled outages. In September 1993 a blade on
the first stage of one of the two gas turbines (Gas Turbine #2) in
the project, broke off at the base sending pieces of metal through
the remaining rows of blades. The cause of this failure was due to
a manufacturers' defect in the strength of the blade. All of the
damaged blading has been repaired or replaced. The turbine went
back into service in mid December 1993 and has been performing at
satisfactory levels since the repair. In May 1994, the gear
connecting Gas Turbine #1 to its generator failed, due to a
metallurgical weakness. A new gear was installed and the turbine
was brought back on-line in mid August 1994. The failed gear is
being repaired, and will be used as a spare for both the Newark and
Parlin plants.

Natural gas is provided by Public Service Electric & Gas Company
("PSE&G") under a 15-year service contract. The project is
operated and maintained under agreement with a third party who is
responsible for the care, custody and control of the facility. The
Company and a subsidiary of Stewart & Stevenson, Inc. ("Stewart &
Stevenson") executed an Operation and Maintenance Contract, which
became effective in April 1994 and has a term lasting through June
30, 2002.

In May 1994, the Company and the turnkey contractor settled
certain litigation regarding delays in project completion. See
"Legal Proceedings."

Newark Boxboard. This 52 megawatt project, which commenced
operation in November 1990, is 100%-owned by a subsidiary of the
Company. This project is designed to operate continuously and to
provide up to 75,000 lbs./hr. of steam to a recycled paper boxboard
manufacturing plant owned by Newark Boxboard Company, a subsidiary
of the Newark Group, Inc., and 52 megawatts of electricity to
JCP&L, each under 25-year agreements. See Note 16 to the Company's
Consolidated Financial Statements for a discussion of this
project's nonrecourse financing.

For the fiscal year ended June 30, 1994, this project accounted
for approximately $23 million in gross revenues, representing
approximately 22% of the Company's consolidated gross revenues.

On December 25, 1992, a fire occurred at this project's facility
in Newark, New Jersey. The fire resulted in the death of three
workers employed by the operator of the project and in damage to
the plant. The facility returned to partial operation in August
1993 and resumed full operation in October 1993. The fire has been
classified by the local fire commissioner as accidental. As a
result of lost revenues, the Company's 1994 and 1993 Income from
Operations has been adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." The Company carries both property damage and business
interruption insurance. The Company received the sum of
$36,000,000 which covered a substantial majority of the Company's
costs of repair and loss of net profits due to business
interruption. In addition, the Company has the right to receive up
to an additional $1,400,000 upon recovery by the insurance carrier
of its claims against third parties. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--
Capital Resources--Working Capital Requirements."

Natural gas is provided by PSE&G under a 15-year service contract.
Although it is uncertain at this time, the Company may use the
landfill gas obtained in connection with its Hackensack Meadowlands
project, which is currently in development, to supply fuel for this
project in the future. See "Business--Energy Segment--Projects in
Development."

The project is operated and maintained under agreement with a
third party who is responsible for the care, custody and control of
the project. In January 1994, the Company and a subsidiary of
Stewart & Stevenson executed an Operation and Maintenance Contract,
replacing the current operator of the project, which became
effective in April 1994. The term of the new Operation and
Maintenance Contract goes through June 30, 2002.

In November 1993, the Company entered into a letter of intent and
then in March 1994, the Company entered into a $7,000,000
subordinated loan agreement with Stewart & Stevenson. The first
disbursement of $1,000,000 was funded on January 13, 1994. The
second disbursement of $3,500,000 was funded on March 16, 1994.
The availability of a third disbursement of $2,500,000 has expired.
This third disbursement was intended to be utilized for prepayment
of debt at the Newark Boxboard project level and to satisfy the
$1,000,000 note between the Company and Stewart & Stevenson. All
outstanding principal and interest on the credit facility is to be
satisfied by a percentage of all distributions made by O'Brien
Newark. The Company currently intends to repay the proceeds of the
Stewart & Stevenson credit facility upon the refinancing of
the Newark Boxboard term loan.

In April 1994, the Company and NatWest Advisory Services, a
subsidiary of NatWest Markets ("NatWest") executed an engagement
letter pursuant to which NatWest was engaged as financial advisor
to the Company and O'Brien Newark in connection with identifying
and assisting the Company and O'Brien Newark in negotiating and
entering into agreements to refinance this project and sell equity
therein.

In May 1993, the Company and the turnkey construction contractor
settled certain litigation regarding delays in project completion.
See "Legal Proceedings."

California Milk Producers. This 32 megawatt project, which
commenced operation in February 1990, was developed and structured
by the Company as a limited partnership in which a subsidiary of
the Company is the general partner. This project is designed to
operate principally during peak demand periods and to provide up to
60,000 lbs./hr. of steam to California Milk Producers, Artesia,
California and 32 megawatts of electricity to Southern California
Edison ("SCE"), each under 30-year agreements. The Company has an
initial partnership interest of 3% (subject to adjustment to 50%
based upon future investment returns of the limited partner). A
wholly-owned subsidiary of Chrysler is the limited partner of the
partnership and has an initial interest in partnership
distributions of 97%. It is not anticipated that there will be any
increase in the percentage interest in partnership distributions of
the general partner for the foreseeable future.

For the fiscal year ended June 30, 1994, the Company received a
management fee as a general partner of approximately $130,000. No
partnership distributions were received. Until the occurrence of
a major increase in the percentage interest in partnership
distributions of the general partner, the Company does not expect
its share of profits or losses of the partnership to be
significant.

Natural gas is provided by the Company and is purchased from
independent brokers. Through a fuel management agreement with
Chrysler, the Company is entitled to receive a percentage of any
price savings between certain mandated gas price rates and the
prices obtained by the Company. Under the agreement, the Company's
earnings during the fiscal year ended June 30, 1994 were nominal.
The project is operated and maintained under agreement with Stewart
& Stevenson which agreement provides for certain performance
guarantees.

Biogas

Mazzaro. This landfill methane gas project produces approximately
1.8 megawatts of electricity which the Company sells to Duquesne
Light Company under a 20-year contract expiring in 2009.

Duarte. This landfill methane gas project generates 0.8 megawatts
of electricity for sale to SCE under an agreement which expires in
1997. An extra generator is fueled with natural gas to produce up
to .54 megawatts during the summer months to take advantage of the
special peak demand rates.

SmithKline Beecham. The Company uses landfill methane gas to fuel
a cogeneration plant which provides up to 1.5 megawatts of
electricity and 3,600 lbs./hr. of steam for sale to SmithKline
Beecham Corporation under an agreement which expires in 2004.

Corona. The Company uses landfill methane gas to fuel two
generators which currently provide approximately 1.2 megawatts of
electricity to the SCE under a 20-year contract. An additional
generator fueled with natural gas produces approximately 2.0
megawatts during summer months to take advantage of special peak
demand rates.

Standby/Peak Shaving

Philadelphia Water Department. This 22 megawatt project commenced
operations in May 1993. Pursuant to a 20-year energy service
agreement, the Philadelphia Municipal Authority (the "Authority")
has the right to be supplied with 20 megawatts of electricity from
the project at any time on one hour's notice. In addition, the
project is required to use excess digester gas collected at the
Authority's northeast and southwest Philadelphia plants to generate
up to an approximate 2 megawatts of electricity which is sold to
the Authority pursuant to a 10-year power generation agreement.
The Company rents facilities and all related generation and
associated equipment to the project. The annual rent is
approximately $2,350,000. The Company also operates and maintains
the project for an annual fee of approximately $250,000, subject to
adjustment. In November 1993, the Company sold its interest in
this project for a price of $5,000,000 and retained the right to
repurchase an 83% interest in it for $5,000,000. On August 5,
1994, the Company repurchased an 83% interest in this project from
an unrelated private investor for $5,000,000, subject to certain
rights of such investor.

Projects in Development

Development of cogeneration, biogas, standby/peak shaving and
waste heat recovery projects often require many months or years to
complete and involve a high degree of risk that any given single
project will not be completed. To reduce this risk, the Company
has since its inception sought to simultaneously develop multiple
projects in anticipation that some projects added to its
development portfolio will not be completed.

Among the principal items involved in developing projects are the
selecting of a site, the obtaining of commitments from others to
purchase electrical power and steam, negotiating fuel supply
arrangements, obtaining environmental and other governmental
permits and approvals, arranging project financing and turnkey
construction. These items are often obtained independently of one
another and success in obtaining one item does not necessarily
result in success in obtaining any others. There is no assurance
that the Company will be able to obtain satisfactory project
agreements, construction contracts, necessary licenses and permits
or satisfactory financing commitments and, therefore, that any of
the projects discussed below will ultimately be completed. If a
project is not completed the Company may neither generate revenue
from the project nor be able to recover its investment in the
project.

The Company has secured some project agreements for certain
projects discussed below. Unless otherwise indicated, no
definitive agreements have been executed in connection with these
projects.

Schuylkill/Grays Ferry (cogeneration). The Company has executed
a partnership agreement with an affiliate of the Philadelphia
Electric Company (the "Affiliate") to jointly develop and own this
proposed 118 megawatt project. The partnership intends to develop
this project in two phases, Phase 1 of which will consist of
approximately 40 megawatts. On August 12, 1994, the partnership
received a commitment letter for a $62,000,000 loan from Canadian
Imperial Bank of Commerce to finance Phase I of this project.
The Company expects that the expiration date of the commitment letter
will be extended beyond October 30, 1994, although there can be no
assurance that such extension will be granted or that if granted,
will provide sufficient time to close. The commitment letter also
provides for the Company's reduction of its ownership interest in the
project from 50% to 25%. The partnership has executed a 25-year
agreement with the Trigen-Philadelphia Thermal Energy Corporation for
the sale of steam and a 20-year agreement for the sale of electric output
with PECO Energy Company, formerly the Philadelphia Electric Company.

Edgeboro (biogas). In February 1989 the Company executed a gas
rights agreement with the owners of the landfill. The landfill is
capable of fueling a 15 megawatt generating facility. In April
1992, the Company entered into a 15-year power purchase agreement
with PSE&G for the purchase of 9.5 megawatts of electricity. The
Company is currently reviewing this project with other potential
investors for the purpose of a sale of the project or as equity
investors.

Hackensack Meadowlands (Biogas). In September 1993 the Company
was awarded (pursuant to a competitive bidding process) gas
recovery rights by the Hackensack Meadowlands Development
Commission (the "Development Commission") for two landfill sites
located in North Arlington and Lyndhurst, New Jersey, respectively.
The Company and the Development Commission have executed a Gas
Rights Agreement. The Company intends to utilize the gas recovered
from these sites to supplement natural gas at its Newark Boxboard project.

Other potential projects. The Company has identified and is
considering potential opportunities to develop additional projects
as well as to acquire projects in operation or under development
and owned by third parties. If these projects are not completed
the Company may neither generate revenue from the projects nor be
able to recover its investment in the projects.

Sale of Projects in Operation

In June 1992, the Company sold its Hamms and Amity biogas
projects, exclusive of certain equipment, for an aggregate of
$2,048,000, of which $1,725,000 was being paid pursuant to a
promissory note. See Notes 6 and 20 of the Consolidated Financial
Statements. In addition, the Company is entitled to receive $.01
for each kilowatt hour of electricity sold in excess of the
respective projects' target production as long as the projects
remain in commercial operation. Pursuant to the contracts of sale,
the Company has a right of first refusal for the operation and
maintenance of each project on the buyers' behalf if the buyers'
present contracts concerning the operation and maintenance of the
project are terminated. The Company also entered into equipment
rental agreements that provide for removal of power generation
equipment if gas from the landfill decreases. The annual rent is
$75,000 and $110,000, respectively, for initial terms extending
through December 31, 2002 but may be reduced if power generation
equipment is removed from the site.

Sale of Projects in Development

In September 1994, the Company sold its rights to the Tinicum
(Philadelphia Airport) project for net cash proceeds of $1,652,000.
The Company executed an energy service agreement with the City of
Philadelphia in December 1993 for a 14 megawatt standby electrical
facility project at the Philadelphia International Airport.

In June 1994, the Company sold its rights to develop a standby
project with SmithKline Beecham in Montgomery County, Pennsylvania.
See Note 20 to the Consolidated Financial Statements.

In August 1993, the Company sold its rights to develop coal-bed
methane reserves at a 15,000 acre site in Indiana County,
Pennsylvania together with other assets relating to the site for
$6,500,000. See Notes 6 and 7 to the Consolidated Financial
Statements and Legal Proceedings regarding BBC/DRI Blacklick Joint
Venture.

In December 1992, the Company sold its Rowley biogas project for
$821,000, of which $331,000 was being paid pursuant to a promissory
note. The promissory note was paid in full in October 1993,
subject to a discount for early payment offered by the Company.
See Notes 6 and 20 to the Consolidated Financial Statements.

In December 1992, the Company and a utility entered into an
agreement pursuant to which the electric contract previously
entered into by the parties was terminated in consideration of the
payment by the utility of $4,000,000 payable over five years
(commencing on June 29, 1993) and secured by a standby letter of
credit. See Notes 6 and 20 to the Consolidated Financial
Statements.

In September 1992, the Company sold a 50% interest in its SPSA
biogas project pursuant to a stock purchase agreement. The
remaining 50% interest was sold on June 30, 1993. The aggregate
purchase price was $625,000, of which $555,000 is being paid
pursuant to a promissory note. During 1994, the promissory note
was paid in full, subject to a discount for early payment offered
by the Company. See Notes 6 and 20 to the Consolidated Financial
Statements.

Equipment Sales, Rentals and Services Segment

In addition to the energy business, the Company sells and rents
power generation and cogeneration equipment. A significant portion
of the Company's equipment rental business is attributable to the
operations of its subsidiary, O'Brien Energy Services. The Company
provides related services, including the design, assembly, repair
and maintenance of permanent or standby power generation equipment.
In addition, the Company sells equipment manufactured by others to
turnkey contractors in connection with the construction of the
Company's projects. The Company also sells equipment purchased by
it for projects unrelated to those being developed by the Company.
From time to time, it purchases equipment for reconditioning and
sale. In its rental business the Company serves the construction,
industrial, military, transportation, mining, utility and
entertainment markets. On a national level the Company competes
principally with one other company. In addition there are numerous
local competitors in each of the geographic areas in which the
Company operates. The Company competes on the basis of experience,
service, price and depth of its rental fleet.

Puma, a wholly-owned United Kingdom subsidiary, designs and
assembles diesel and gas fueled power generation systems ranging in
size from 5 kilowatts to 5 megawatts. These products are
engineered and sold for use in prime power base load applications
as well as for standby or main failure emergency situations. Major
markets for these products include commercial buildings,
governmental institutions such as schools, hospitals and public
facilities, industrial manufacturing or production plants,
shipyards, the entertainment industry and offshore drilling
operations. The Company exports many of its products primarily
through established distributors and dealers in local areas for
delivery to markets such as the Far East, including Hong Kong and
mainland China, together with the Middle East and South America.

Regulation

In connection with the development and operation of its projects,
the Company is substantially affected by federal, state and local
energy and environmental laws and regulations.

The enactment in 1978 of PURPA and the adoption of regulations
thereunder by Federal Energy Regulatory Commission ("FERC")
provided incentives for the development of small power production
facilities (those utilizing renewable fuels and having a capacity
of less than 80 megawatts) and cogeneration facilities
(collectively referred to as "Qualifying Facilities"). Electric
utilities are required to purchase power from such facilities at
rates based on the incremental cost of electrical energy (so-called
"avoided cost"). Under regulations adopted by FERC and upheld by
the United States Supreme Court, such rates are based upon "the
incremental cost to an electric utility of electrical energy or
capacity or both which, but for the purchase from the qualifying
facility or qualifying facilities, such utility would generate
itself or purchase from another source." Avoided cost is generally
a function of the cost of fuel required to generate electricity and
of the cost of capital required to construct a power plant to
supply such capacity.

All of the Company's existing electric generating facilities are
designed to be qualifying small power production facilities or
qualifying cogeneration facilities, as these terms are defined in
PURPA. Pursuant to authority granted to FERC under PURPA, FERC has
promulgated regulations which at present exempt most of these
facilities from the Federal Power Act, the Public Utility Holding
Company Act of 1935 and, except under certain circumstances, state
laws respecting the rates charged by electric utilities.

In order to qualify for the benefits provided by PURPA, the
Company's facilities must meet certain size, efficiency, fuel and
ownership requirements. For its major cogeneration projects, it is
the Company's practice to obtain an order from FERC confirming the
qualification of its facilities. For its biogas projects, the
Company's practice is to utilize the self-certification procedure
authorized by PURPA and FERC regulation. However, the standards
for qualification and the regulations described above are subject
to amendment. If the regulations were to be amended, the Company
cannot predict the effect of any such amendment on the extent of
regulation to which the Company may thereby become subject. The
Company is not currently aware of any proposed amendments to PURPA
or regulations promulgated by FERC thereunder to materially alter
the standards for qualification.

In the event that one of the Company's cogeneration facilities
failed to meet the requirements of being a "Qualified Facility,"
that entity would be materially adversely impacted.

The Company is also subject to the Powerplant and Industrial Fuel
Use Act of 1978 ("FUA"), which limits the ability of power
producers to burn natural gas in new generation facilities unless
such facilities also have the capability to use coal or any other
alternate fuel as a primary energy source. All of the Company's
existing cogeneration projects are designed to qualify for
permanent exemption from FUA.

In addition to the regulations described above, the Company's
projects must comply with applicable federal, state and local
environmental regulations, including those related to water and air
quality. These laws and regulations in many cases require a
lengthy and complex process of obtaining licenses, permits and
approvals from federal, state and local agencies. The
environmental regulations under which the Company's projects
operate are subject to amendment. The Company cannot predict what
effect compliance with such amendments may have on the Company's
business or operations. Compliance could require modification of
a project and thereby increase its costs, extend its completion
date or otherwise adversely affect a project.

All projects in operation and under development are believed to
be operating in substantial compliance with or designed to meet
currently applicable environmental requirements. To date,
compliance with these environmental regulations has not had a
material effect on the Company's earnings nor has it required the
Company to expend significant capital expenditures.

Employees

As of September 20, 1994, the Company had approximately 176 full-
time employees, including executive officers of the Company. Of
these, approximately 69 are involved with the Company's overseas
equipment sales, rental and service operations. The Company has
reduced its staff of employees for the purpose of reducing overhead
expenses. None of the Company's employees are members of a union
or are subject to a collective bargaining agreement. The Company
considers its employee relations to be satisfactory.

The Company expects that as each of its projects is constructed
and becomes operational, it will either have to hire additional
employees to staff these projects or enter into operation and
maintenance agreements with unrelated third parties. The Company
believes that these project personnel will be readily available.

Competition

Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other organizations
similar to the Company, have entered the cogeneration and biogas market.
Many of these organizations have substantially greater resources than the
Company. In addition, obtaining power contracts with utilities has become
more competitive with the increased use of competitive bidding
procedures. This increased competition may make it more difficult
for the Company to secure future projects, may increase project
development costs and may reduce the Company's operating margins.
Even though many of its potential competitors have substantially
greater resources than the Company, the Company believes that its
experience, particularly if combined with a strategic alliance with
a third party with regard to larger projects, will enable it to
compete effectively.

Significant Customers

The Company derived 53%, 65% and 67% of its revenues in fiscal
1994, 1993 and 1992, respectively, from JCP&L as a result of the
operation of the Newark, Parlin and Hamms projects. (The Hamms
project was sold on June 30, 1992.)

Patents

The Company owns patents and trademarks relating to its waste heat
storage technology which are expected to contribute to the business
activities of the Company.

Backlog

The order backlog of Puma as of March 31, 1994 was approximately
$2,611,000, compared with approximately $6,000,000 as of March 31,
1993. The order backlog for American Hydrotherm at June 30, 1994
and 1993 was $1,024,000 and $1,300,000, respectively. The order
backlog for O'Brien Energy Services, in regard to its equipment
sales operations, at June 30, 1994 was $2,051,000. There was no
significant backlog for O'Brien Energy Services at June 30, 1993
during its startup period in its equipment sales operations.
Management expects that the backlog amounts will be delivered
during each of Puma's and American Hydrotherm's and O'Brien Energy
Services' current fiscal years, as applicable. There is no
significant seasonal influence to the order backlog. See
"Business--Energy Segment--Projects in Development."

D. Financial Information About Foreign and Domestic Operations
and Export Sales.

1994 1993 1992
---- ---- ----
(In thousands)
Revenues:
United States $ 93,090 $ 83,797 $ 84,560
United Kingdom 13,499 13,895 15,555
-------- -------- ---------
$106,589 $ 97,692 $ 100,115
======== ======== =========

Net Income (Loss):
United States $(14,570) $(13,350) $ 1,535
United Kingdom (1,931) (361) (123)
-------- -------- ---------
$(16,501) $(13,711) $ 1,412
======== ======== =========

Identifiable Assets:
United States $230,343 $252,863 $ 249,544
United Kingdom 7,473 9,666 9,510
-------- -------- ---------
$237,816 $262,529 $ 259,054
======== ======== =========

The revenues and operations of the Company's foreign operations
in the United Kingdom disclosed above are attributable solely to
the equipment sales and services segment of the Company's business.
The revenues from such operations accounted for in excess of 50% of
that particular segment's revenue in 1994.

The Company's foreign operations are subject to the additional
risks inherent in doing business in foreign countries, including
changes in currency exchange rates, currency restrictions,
political changes and expropriation. Although it is impossible to
predict the likelihood of such occurrences or their effect on the
Company, management believes these risks to be acceptable and, in
view of the fact that the Company's foreign activities historically
have been largely concentrated in Europe and not in any single
country and the fact that the Company attempts to secure payment
for export sales with commercial letters of credit or other secured
means, does not consider them a factor materially adverse to its
operations as a whole.

[The remainder of this page is intentionally blank.]

ITEM 2. PROPERTIES.

The Company's offices located at 225 and 231 South Eighth Street,
Philadelphia, which cover approximately 16,000 square feet, are
leased from Pennsport Partnership, a Pennsylvania partnership in
which Frank L. O'Brien III has a 50% ownership interest. The lease
term expires in November 1999 with an option to renew for a five-
year term at the option of the Company. The rental expense for the
premises was approximately $289,000 in 1994. The Company also
leases office and warehouse space from Christiana River Holdings,
Ltd., an entity owned by Frank L. O'Brien III. Rental expense for
1994 was $150,000, plus real estate taxes.

In September 1993, Puma purchased its executive offices and its
principal manufacturing facility located in Ash, Canterbury, Kent,
United Kingdom from III Enterprises, Limited, an entity owned by
Frank L. O'Brien III for approximately $800,000. Rental expense
for the five months prior to the purchase in fiscal 1994 was
approximately $66,000. See Note 24 to the Consolidated Financial
Statements.

The executive and engineering offices of American Hydrotherm are
located in New York City. American Hydrotherm leases this 8,000
square foot facility under the terms of a ten-year lease executed
in 1990. Burr Controls, Inc. leases approximately 10,000 square
feet for its assembly and manufacturing operations on Long Island,
New York.

The headquarters of O'Brien Energy Services are located on
approximately 4 acres in Wilmington, Delaware. The premises are
owned, subject to a mortgage, in fee simple and include an
approximately 55,000 square foot building. In addition, O'Brien
Energy Services owns, subject to a mortgage, office and warehouse
space in Houston, Texas, on approximately two acres of land.
O'Brien Energy Services leases space for similar purposes in each
of Bakersfield and Benecia, California. The office and warehouse
space in Texas and in the California locations range from
approximately 5,000 to 10,000 square feet.

The Company leases, typically for a nominal fee, property on the
site of its proposed cogeneration facilities from the commercial
user of thermal energy. The term of the lease equals or exceeds
that of each respective thermal supply agreement. The Company
believes that the leased premises are suitable and adequate for the
Company's projects.

[The remainder of this page is intentionally blank.]

ITEM 3. LEGAL PROCEEDINGS.

CHAPTER 11 REORGANIZATION PROCEEDINGS

As a result of this action, pending litigation against the Company
(but not its subsidiaries) will be stayed and consolidated with
this bankruptcy proceeding. The Company has also been advised that its
securities are being delisted from the American Stock Exchange, however,
the Common Stock continues to be listed on the Philadelphia Stock
Exchange. The Company intends to have its Debentures included in either
the OTC Bulletin Board or the "pink sheets." There can be no assurance
that a trading market will develop for any of the Company's securities
even if they are listed on any of the foregoing exchanges or quotation
systems. See "Market for Registrant's Common Equity and Related
Stockholder Matters."

Although the Company cannot give definitive assurance regarding
the ultimate resolution of the various remaining claims described
below, the Company does not presently believe the resolution will
have a material adverse impact on the Company's consolidated
financial statements. However, attorney costs of defending against
these litigations have impacted the Company's financial statements
in 1994 and 1993.

HAWKER SIDDELEY PROCEEDINGS

In May 1994, actions entitled (i) Hawker Siddeley Power
Engineering Inc. v. O'Brien (Parlin) Cogeneration, Inc. (the
"Parlin Action"), and (ii) Hawker Siddeley Power Engineering Inc.
v. O'Brien California Cogen Limited, a California Limited
Partnership, O'Brien Cogeneration, Inc. II and O'Brien Energy
Systems Inc. (the "Salinas Action") were settled pursuant to an
agreement entered into by the parties (the "Hawker Settlement
Agreement"). Pursuant to the Hawker Settlement Agreement, other
than the Company issuing a promissory note for $1,500,000 to Hawker
Siddeley (the "Note"), no money was exchanged; O'Brien (Parlin)
Cogeneration, Inc. was not required to pay the approximately
$5,100,000 contract price withheld and all parties dismissed their
claims related to the Parlin action. Pursuant to the Hawker
Settlement Agreement, the Salinas Action, prior to being dismissed,
required that the first payment under the Note be paid by October
6, 1994. Therefore, as the payment was not made, the Salinas
Action remains open. See Note 29 to the Consolidated Financial
Statements.

In May 1993, actions entitled (i) O'Brien (Newark) Cogeneration,
Inc. v. Hawker Siddeley Power Engineering Inc. and Hawker Siddeley
Group, P.L.C. and (ii) Hawker Siddeley Power Engineering Inc. v.
O'Brien (Newark) Cogeneration, Inc. and O'Brien Newark Supply
Corporation were settled pursuant to an agreement entered into by
the parties (the "Newark Settlement Agreement"). Pursuant to the
Newark Settlement Agreement, no money was exchanged, O'Brien
(Newark) Cogeneration, Inc. was not required to pay the $3,800,000
contract price withheld and all parties dismissed their claims.

As of September 1993, actions entitled (i) Hawker Siddeley Power
Engineering Inc. v. O'Brien Cogeneration (Hartford), Inc., (ii)
O'Brien Cogeneration (Hartford), Inc. and O'Brien (Hartford)
Cogeneration Limited Partnership v. Hawker Siddeley Power
Engineering Inc. and Hawker Siddeley Group, P.L.C. and (iii) Hawker
Siddeley Power Engineering, Inc. v. Energy Networks, Inc., O'Brien
(Hartford) Cogeneration Limited Partnership and Connecticut
National Bank were settled pursuant to an agreement entered into by
the parties (the "Hartford Settlement Agreement"). Pursuant to the
Hartford Settlement Agreement, the Company relinquished its
interest in the project and its general partner responsibilities,
paid Hawker Siddeley $250,000 and issued a promissory note for
$250,000 to the succeeding general partner, which resulted in a
total charge of $1,121,000 for fiscal 1993. See Note 21 to the
Consolidated Financial Statements.

OTHER PROCEEDINGS

In September 1993, an action entitled Gulfgen Limited and
TransAndean International, S.A. v. O'Brien Environmental Energy,
Inc. was commenced in the United States District Court, District of
Delaware. The complaint alleged the Company repudiated its
obligation to close a proposed transaction which, among other
things, involved a proposed transfer by Gulfgen Limited ("Gulfgen")
and TransAndean International, S.A. ("TransAndean") of an interest
in a pipeline project to the Company (and an agreement to contract
for project development services from the Company in connection
therewith) in exchange for certain stock of the Company and an
option to purchase additional stock of the Company. No closing
documents were negotiated or executed. Gulfgen and TransAndean,
however, claim that an officer of the Company with authority to
bind the Company sent the agreement with a transmittal letter dated
July 30, 1993 containing a statement that constituted an agreement
by the Company. The complaint also alleges that the Company is now
obligated to pay a break-up fee of $200,000 and that the Company
has repudiated its alleged contractual obligation to pay such
$200,000 break-up fee. The Company has settled the action by
paying Gulfgen $25,000.

In December 1993, an action entitled Pueblo Chemical, Inc. v.
O'Brien Environmental Energy, Inc. was commenced in the Court of
Chancery of the State of Delaware - New Castle County. The
Complaint alleges that Pueblo (allegedly, the owner of record of
100 shares of the Class A Common Stock of the Company) has the
right to inspect the Company's stock ledger, list of stockholders
and certain books and records. This action was settled by the
Company providing the information requested.

In January 1994, an action entitled Pueblo Chemical, Inc. v.
O'Brien Environmental Energy, Inc., Frank L. O'Brien, III, Joel D.
Cooperman, William Forman and Charles L. Andes was commenced in the
Court of Chancery of the State of Delaware - New Castle County.
The Complaint alleges, among other things, fraud and breach of
fiduciary duties in connection with a certain agreement allegedly
entered into by Pueblo and an affiliate of Frank L. O'Brien III.
The Company believes that these allegations are without merit and
intends to vigorously contest them. In a decision rendered in U.S.
Bankruptcy Court on February 4, 1994, in a companion case involving
the aforementioned affiliate of Frank L. O'Brien III, the Judge has
determined that these claims are without merit and no contract
existed between the parties. Pueblo appealed the decision to the
United States District Court, which Court denied the appeal and
reaffirmed the decision of the Bankruptcy Court which, in effect,
terminated the plaintiff's cause of action in the case, although
the case remains on the docket as dormant.

By letter dated September 20, 1993, the Securities and Exchange
Commission (the "SEC") commenced an informal inquiry into trading
in the securities of the Company. The SEC requested information
from the Company for the period of March 1, 1993 to September 20,
1993. The SEC has indicated that this inquiry should not be
construed as an indication by the SEC or its staff that any
violations have occurred, or as an adverse reflection upon any
person, entity or security. The Company sent an initial written
response to the SEC on October 21, 1993, and a subsequent response
on November 12, 1993. Since such time, the SEC has not contacted
the Company for any additional information with respect to the
inquiry.

In June 1993, the Company received a Citation and Notification of
Penalty (the "Citations") under the Occupational Safety and Health
Act of 1970 from the United States Department of Labor ("DOL") for
each of its Newark and Parlin Cogeneration plants. The penalties
listed for the Newark and Parlin plants are $44,650 and $10,000,
respectively. In September 1994, the Company entered into a
settlement agreement with the DOL in which the Company, citing
responsibility of the turnkey contractor of the plants to Hawker
Siddeley Power Engineering Inc. and the Operations and Maintenance
Contractor of the plants to John Brown Engineering, accepted a
single citation at the Newark and Parlin plants and accepted
penalties in the amount of $7,000 and $5,000, respectively.

In September 1993, October 1993 and November 1993, respectively,
actions entitled (i) BRIDGET E. McLOUGHLIN, Individually and as
Administrator of the estate of MICHAEL A. McLOUGHLIN, deceased, et
al., v. O'BRIEN COGENERATION INC., HAWKER SIDDELEY CONSTRUCTION
CO., et al.; (ii) GEORGIE ANN ELEY, Individually and as
Administratrix on behalf of the Estate of JOSEPH ELEY, JR.,
deceased, et al. v. O'BRIEN COGENERATION INC., HAWKER SIDDELEY,
JOHN BROWN INC. (for discovery purposes only), et al.; and (iii)
KELLY ANN MOTICHKA, Individually and as Administrator on behalf of
the Estate of Andrew Motichka, deceased, et al. v. O'BRIEN
COGENERATION INC., HAWKER SIDDELEY, JOHN BROWN INC., (for discovery
purposes only), et al. were commenced in the Superior Court of New
Jersey Law Division - Essex County. These actions were filed by
the survivors of three employees of John Brown Power Limited, the
operator of the Company's Newark Cogeneration facility, who were
killed as the result of a fire which occurred at the facility in
December 1992. The actions seek the recovery of damages in an
unspecified amount. Insurance counsel estimates that each of the
pending claims could have a value in excess of $1,000,000. The
amount allocable to the Company, if any, is not determinable at
this time. The Company's insurer has recently disputed the maximum
amounts of coverage under the Company's policies. If a
satisfactory resolution of this dispute cannot be reached, the
Company may be required to file an action in court to obtain an
adjudication of its rights under its insurance policies. The
Company believes that these claims will not have a material adverse
financial effect on the Company because (i) the Company has
sufficient liability insurance coverage and (ii) the operator of
the facility has agreed to indemnify the Company for any liability
arising out of the operator's operation and maintenance of the
facility.

In January 1993, an action entitled Resolution Trust Corporation
as receiver for Atlantic Financial Savings, F.A. v. Clarence J.
O'Brien, II, Frank L. O'Brien III, O'Brien Energy Systems, Inc.,
O'Brien Mobile Power Rental Company, III Enterprises, Inc., III
Enterprises, Inc. I, Puma Manufacturing, Ltd., Puma Power Plant,
Ltd., O'Brien Power Equipment, Inc. and Powerhouse Contractors,
Inc. was commenced in the District Court for the Eastern District
of Pennsylvania. The Complaint alleges that certain transactions
between the Company and a separate group of individuals and
companies jeopardized and harmed the ability of the second group of
companies to repay loans to their creditor, Atlantic Financial
Savings, F.A., an entity which had fallen into Resolution Trust
Corporation ("RTC") receivership. The plaintiffs sought damages in
excess of $75,000. In May 1993, the case was dismissed without
prejudice and the parties entered into an agreement whereby the
Company would pay a total of $930,000 to the RTC in installments
including a final payment in the amount of $590,000 on January 15,
1995, unless otherwise extended, in exchange for the RTC's position
in certain collateralized assets.

In May 1994, BBC/DRI Blacklick Joint Venture (the "Joint Venture")
filed a complaint for arbitration against O'Brien Methane
Production Inc. with the American Arbitration Association in
Philadelphia, Pennsylvania. The complaint alleges, among other
things, breach of contract, fraud and conversion in connection with
an agreement between the parties concerning the sale by the Company
of rights to develop coalbed methane properties in Indiana County,
Pennsylvania. The Joint Venture seeks damages in the amount of
approximately $550,000 and the cancellation of all remaining
payments due under a promissory note in favor of the Company in the
current outstanding amount of $4,500,000. In its answer, the
Company has denied the allegations and counterclaimed against the
Joint Venture for breach of contract in such amount as is necessary
to repay the balance of the promissory note with interest. The
Company has, further, requested that a receiver be appointed to
ensure the performance of the Joint Venture with regard to its
contractual obligations to the Company.

David B. Zlotnick, individually and on behalf of himself and all
persons similarly situated v. O'Brien Environmental Energy, Inc.,
Court of Common Pleas, Philadelphia County, April Term 1994, No.
3224. This Complaint alleges that the defendants did not pay
interest that was due March 15, 1994 or September 15, 1994 to the
three series of bondholders of the 7 3/4% of Convertible Senior
Subordinated Debentures due March 15, 2002, the 11% Convertible
Senior Subordinated Debentures due on March 15, 2010 and the 11%
Convertible Senior Subordinated Debentures due on March 15, 2011.

Allan G. Stevens, on behalf of himself and all persons similarly
situated v. O'Brien Environmental Energy, Inc., Frank L. O'Brien,
III, Joel D. Cooperman, William Forman, Bruce L. Levy, Sanders D.
Newman and Morgan Guaranty Trust Co. This Complaint was served on
August 10, 1994. The Complaint alleges that the defendants other
than Frank L. O'Brien, III, sold stock while in possession of
material adverse, non-public information and all defendants
participated in disseminating misleading information to
artificially inflate the value of the Company's stock. The Company
believes these allegations to be totally without merit.

James M. Blackman and Virginia Frantz v. O'Brien Environmental
Energy, Inc., Frank L. O'Brien, III, Joel D. Cooperman, William
Forman, Bruce L. Levy, and Sanders Newman. On September 15, 1994
a class action suit was filed against the Company and others by a
class allegedly consisting of all persons who purchased the
Company's debentures from September 28, 1992 through April 12,
1994. The Complaint alleges that the defendants made misleading
statements and omitted to state material facts in certain public
disclosures made by the Company. The Company believes these
allegations to be totally without merit.

See Notes 7, 21 and 29 to the Company's Consolidated Financial
Statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

[The remainder of this page is intentionally blank.]

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

The Company's Class A Common Stock is principally traded on the
AMEX under the symbol "OBS" and is also listed on the Philadelphia
Stock Exchange. As of September 28, 1994, the AMEX halted trading
in the Company's securities due to, among other things, the
Company's filing of a voluntary petition for protection under the
U.S. Bankruptcy Code. On October 4, 1994, the AMEX advised the
Company that it had initiated proceedings to delist the Company's
securities therefrom.

The following table sets forth, for each of the quarterly periods
indicated, the high and low sale prices for the Class A Common
Stock as reported on the AMEX.

<TABLE>

High Low
---- ---
<S> <C> <C>
Fiscal year Ended June 30, 1992
Quarter ended September 30, 1991 6 1/4 4 1/2
Quarter ended December 31, 1991 5 7/8 3 3/4
Quarter ended March 31, 1992 5 5/8 3 3/4
Quarter ended June 30, 1992 5 1/4 3 7/8

Fiscal Year Ended June 30, 1993
Quarter ended September 30, 1992 4 15/16 3 7/8
Quarter ended December 31, 1992 5 1/4 4 1/8
Quarter ended March 31, 1993 5 1/4 3 1/2
Quarter ended June 30, 1993 4 15/16 3 11/16

Fiscal Year Ended June 30, 1994
Quarter ended September 30, 1993 4 5/16 2
Quarter ended December 31, 1993 3 5/16 2
Quarter ended March 31, 1994 2 13/16 15/16
Quarter ended June 30, 1994 1 3/8 7/16

Fiscal Year Ending June 30, 1995
Quarter ending September 30, 1994 (through
September 20, 1994) 7/8 3/8

</TABLE>

On September 20, 1994, the closing sale price of the Company's
Class A Common Stock on the AMEX was $11/16 per share and there
were 13,055,597 shares of Class A Common Stock outstanding.

The approximate number of stockholders of record of the Class A
Common Stock of the Company at September 20, 1994 was 1,471 not
including beneficial owners whose shares are held by banks, brokers
and other nominees. Frank L. O'Brien III, through his ownership of
III Enterprises, Inc., is the owner of all of the outstanding
voting shares of Class B Common Stock of the Company. In October
1993, III Enterprises filed for bankruptcy protection under Chapter
11 of the Federal Bankruptcy Code. In April 1994, III Enterprises
and its creditors entered into a Stipulation which set forth
certain key dates for implementing a Plan of Reorganization. The
Debtor sought and obtained an extension of certain time period in
the Stipulation to September 30, 1994. The debtor has since filed
motions to extend the time periods in the Stipulation. On October 6,
1994, the bankruptcy court ordered that the matter be converted to a
proceeding under Chapter 7 of the Federal Bankruptcy Code. On
October 7, 1994, the debtor appealed this order.

In addition, this proceeding could cause a change of control of the
Company, which could, among other things, significantly affect the
direction of the management of the Company and limit the utilization
all the Company's net operating loss carryforwards available at June 30,
1994 in accordance with IRS regulations. See Note 23 to the Consolidated
Financial Statements.

The Company presently intends to retain all earnings for the
operation and expansion of its business and does not anticipate
paying cash dividends on its common stock in the foreseeable
future. Any future determination as to the payment of dividends on
the common stock will depend upon future earnings, results of
operations, capital requirements, the financial condition of the
Company and any other factors the Board of Directors of the Company
may consider.

Some of the Company's commercial bank lines of credit restrict the
payment of dividends.

In addition, the Indenture governing the Company's 7 3/4% Convertible
Senior Subordinated Debentures due March 15, 2002 (the "1987
Indenture") restricts the Company from declaring or paying any
dividend or making any distribution on its capital stock or to its
stockholders other than dividends and distributions payable solely
in shares of its capital stock (such dividends being referred to as
"Stock Payments"), unless (a) at the time of such Stock Payments no
Event of Default under the 1987 Indenture (as defined therein) has
occurred and is continuing, and (b) after giving effect thereto the
aggregate amount expended for all Stock Payments subsequent to
December 31, 1986 does not exceed the sum of: (i) 25% of the
Consolidated Net Income (as defined in the 1987 Indenture) accrued
on a cumulative basis subsequent to December 31, 1986 (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit); (ii) the aggregate net proceeds received by the Company
from the issue or sale subsequent to December 31, 1986 of its
capital stock (including capital stock issued upon the conversion
of Indebtedness (as defined in the 1987 Indenture)); and (iii)
$500,000.

The indentures governing the Company's 11% Convertible Senior
Subordinated Debentures due March 15, 2010 (the "1990 Indenture")
and 11% Convertible Senior Subordinated Debentures due March 15,
2011 (the "1991 Indenture") impose similar restrictions on the
payment of dividends by the Company. The reference dates used for
the 1990 and 1991 Indentures are December 31, 1989 and December 31,
1990, respectively. With respect to the 1990 and 1991 Indentures,
the parenthetical information in (b)(i) above is qualified to
indicate that in the event that the Company's Consolidated
Stockholders' Equity (as defined in the 1990 and 1991 Indentures,
respectively) is $60,000,000 or more, such percentage shall be 50%.
The amount set forth in (b)(iii) above for each of the 1990 and
1991 Indentures is $2,000,000.

The Company's project subsidiaries may declare and pay dividends
to the Company only to the extent of surplus cash flow and subject
to certain other restrictions.

[The remainder of this page is intentionally blank.]

ITEM 6. SELECTED FINANCIAL DATA.

The consolidated selected financial data as of and for each
of the five years in the period ended June 30, 1994 have been
derived from the audited financial statements of the Company.
Due to the uncertainty concerning the Company's ability to continue
as a going concern and the outcome of certain pending litigation,
no provision has been made for any liabilities which may result from
these uncertainties. This data should be read in conjunction with, and
is qualified in its entirety by reference to, the related financial
statements and notes included elsewhere in this Report.

<TABLE>

Year Ended June 30,
------- --------------------------------------------------------
1994 1993 1992 1991 1990(2)
------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Energy $ 62,647 $ 65,136 $ 71,638(1) $19,881(1) $ 4,931
Equipment sales and services 24,304 18,955 21,854 25,321 24,634
Rental 5,372 3,636 3,191 3,663 4,005
Related parties -- 515 378 899 --
Development fees and other 14,266 9,450 3,054 1,616 3,941
-------- -------- -------- ------- --------
Total 106,589 97,692 100,115 51,380 37,511
Cost of revenues 84,174 71,750 66,996 37,383 27,581
Gross profit 22,415 25,942 33,119 13,997 9,930
Provision for loss on equipment
held for sale 6,250 -- -- -- --
Selling, general and
administrative expenses 19,680 21,872 13,133 13,311 9,184
-------- -------- -------- ------- -------
Income (loss) from operations (3,515) 4,070 19,986 686 746
Involuntary conversion gain 6,066 -- -- -- --
Interest and other income 874 993 1,204 1,377 2,409
Interest and debt expense (18,013) (15,696) (17,340) (8,434) (4,855)

Litigation settlement cost -- -- -- (538) --
-------- -------- -------- ------- --------

Income (loss) before income
taxes and cumulative effect
of change in accounting
principle (14,588) (10,633) 3,850 (6,909) (1,700)
Provision for (benefit from)
income taxes 1,913 3,078 2,438 1,676 (280)
-------- -------- -------- ------- --------

Income (loss) before
cumulative effect of
change in accounting
principle (16,501) (13,711) 1,412 (8,585) (1,420)
Cumulative effect of change
in accounting principle -- -- -- -- (2,329)
-------- -------- -------- ------- --------
Net income (loss) $ (16,501) $(13,711) $ 1,412 $(8,585) $ (3,749)
======== ======== ======== ======= ========
Net income (loss) per share:
Income (loss) before
cumulative effect of change
in accounting principle $ (.98) $ (.82) $ .09 $ (.67) $ (.11)
Cumulative effect of change in
accounting principle -- -- -- -- (.19)
-------- -------- -------- ------- --------
Net income (loss) $ (.98) $ (.82) $ .09 $ (.67) $ (.30)
======== ======== ======== ======= ========

Weighted average shares
outstanding 16,871 16,821 14,911 12,756 12,427

As of June 30,
-------- ----------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency)(3) $(125,683) $(11,119) $ 816 $(14,629) $(10,126)
Property, plant and equipment, net 176,514 194,217 195,677 195,452 165,233
Total assets 237,816 262,529 259,054 249,207 216,494
Recourse long-term debt, net(3) 7,073 28,012 20,003 16,950 22,566
Convertible senior subordinated
debentures(3) -- 49,174 49,174 49,254 22,999
Nonrecourse project financing, net(3) 60,310 97,140 107,898 117,817 100,166
Stockholders' equity 136 15,675 29,405 14,235 22,302

<FN>
- - ----------------------
(1) Includes revenues attributable to the du Pont Parlin Project which commenced operations on June 26, 1991 and the Newark
Boxboard project which commenced operations in November 1990.
(2) In 1993, the Company adopted Statement of Accounting Standards #109, "Accounting for Income Taxes" (SFAS #109) and elected
to apply the provisions of SFAS #109 retroactively to July 1, 1989. Accordingly, the Consolidated Financial Satements
for the year ended 1990 includes the cumulative effect of a change in accounting principle.
(3) As of June 30, 1994, recourse long-term debt, net, nonrecourse project financing, net, and Convertible Senior
Subordinated Debentures excludes $21,914, $25,010 and $49,174, respectively, of amounts with long-term repayment terms.
These amounts have been included in current liabilities (thereby included in Working Capital Deficiency) due to defaults
under the respective debt agreements.

</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

On September 28, 1994, O'Brien Environmental Energy, Inc., the
parent company, filed a voluntary petition (No. 94-26723(RG)) for
reorganization under Chapter 11 of the United States Bankruptcy
Code with the U.S. Bankruptcy Court for the District of New Jersey
to pursue financial restructuring efforts under the protection
afforded by the U.S. bankruptcy laws. The decision to seek Chapter
11 relief was based on the conclusion that action had to be taken
to preserve its relationships and maintain the operational strength
and assets of the Company, and to restructure its debt and utilize
its assets in a manner consistent with the interests of all
creditors and shareholders rather than liquidate to satisfy the
demands of a particular group of creditors. The Company expects to
continue its normal activities, including project development and
the sale and/or refinancing of existing projects. There can be no
assurance that the Company, in the future, will have adequate cash
flow to finance operations and ongoing development activities or to
meet current obligations. Subsequent to September 28, 1994, the
Company is operating as debtor-in-possession under the Bankruptcy Code.
As such, the Company is authorized to operate its business, but may not
engage in transactions outside the ordinary course of business without
approval, after notice and hearing, of the Bankruptcy Court. There can
be no assurance that the Company will be able to obtain such approval to
continue its normal operations and restructure its debt and otherwise
engage in project development and the sale or refinancing of existing
projects. In addition, the bankruptcy of an affiliate of the Company's
principle stockholder may cause a change of control of the Company. Any
discussion herein respecting the plans of management concerning the Company's
business is accordingly qualified. See "Significant Factors--Liquidity;
Chapter 11 Bankruptcy Filings" and "-- III Enterprises, Inc. Bankruptcy."

The Company develops cogeneration, waste heat recovery and biogas
projects ("Energy business"). In addition, the Company sells and
rents power generation equipment ("Equipment sales, rental and
services business"). Included in the Equipment sales, rentals and
services business is the Company's demand-side management business,
through which the Company provides standby power equipment to a
customer for a fee.

At present, the Company has eight projects in operation totalling
approximately 237 megawatts of electric generating capacity,
including seven wholly-owned projects developed by the Company
totalling approximately 205 megawatts and one 32 megawatt project
developed by the Company but presently owned substantially by a
subsidiary of Chrysler Capital Corporation.

The Company's energy revenues and gross profits are subject to
seasonal variations as a result of power sales agreements which
contain peak and off-peak energy pricing provisions and fuel costs
which fluctuate based upon seasonal demand and other factors.

The Board of Directors elected not to make the March 15, 1994 or
the September 15, 1994 interest payments due on the 1987, 1990 and
1991 Indentures. The Company is also in default of certain other
debt. See "Recent Developments" and "Liquidity and Capital
Resources".

In December 1992, a fire disabled the Company's Newark Boxboard
cogeneration plant. The damage to the plant has been repaired.
The plant returned to partial operation in August 1993 and full
operation in October 1993. The Company received $36,000,000 from
its insurance carrier which covered a substantial majority of the
Company's cost of repair and loss of net profits due to business
interruption. See "Results of Operations for the Years ended June
30, 1994, 1993 and 1992" and "Liquidity and Capital Resources" for
further discussion and analysis of the impact of the fire.

During May 1993, operations commenced at the Company's initial
demand side management facilities (collectively, the "Philadelphia
Water Department project"). The Philadelphia Water Department
project consists of two ten megawatt standby power generating
plants. In November 1993, the Company entered into a transaction
under which it sold its interest in the Philadelphia Water
Department project to entities controlled by an unrelated private
investor. The Company continued to rent facilities and all related
generation and associated equipment to the project. The Company
repurchased the project on August 5, 1994 subject to a minority
interest retained by the private investor. See "Recent
Developments", "Results of Operations for the Years ended June 30,
1994, 1993 and 1992" and "Liquidity and Capital Resources".

In January 1994, the Company ceased operations at one of its of
United Kingdom subsidiaries which was in the business of
manufacturing low voltage switchgear. Pretax losses associated
with this United Kingdom subsidiary in fiscal 1994 were $1,200,000
which includes costs of $319,000 associated with the closure of the
business.

In May 1994, actions entitled (i) Hawker Siddeley Power
Engineering v. O'Brien (Parlin) Cogeneration, Inc. (the "Parlin
Action") and (ii) Hawker Siddeley Power Engineering, Inc. v.
O'Brien California Cogen Limited, a California Limited Partnership,
O'Brien Cogeneration, Inc. II and O'Brien Energy Systems, Inc. (the
"Salinas Action") were settled pursuant to an agreement entered
into by the parties (the "Hawker Settlement Agreement"). Pursuant
to the Hawker Settlement Agreement, other than the Company issuing
a promissory note for $1,500,000 to Hawker Siddeley, no money was
exchanged. O'Brien (Parlin) Cogeneration, Inc. was not required to
pay the approximately $5,100,000 contract price withheld and all
parties dismissed their claims related to the Parlin Action.
Pursuant to the Hawker Settlement Agreement, the Salinas Action,
prior to being dismissed, required that the first payment under the
notes be made by October 6, 1994. Therefore, as the payment was
not made, the Salinas Action remains open. See "Recent
Developments" and "Liquidity and Capital Resources".

In September 1993, the Company reached an agreement to settle the
Hartford Steam project litigation with the project's turnkey
contractor, Hawker Siddeley Power Engineering, Inc. Under the
terms of the settlement, the Company relinquished its interest in
the project and its general partner responsibilities. As the
Company's interest in the project was only 5%, management does not
believe the settlement will have a significant impact on the
Company's future results of operations. See "Results of Operations
for the Years ended June 30, 1994, 1993 and 1992".

Results of Operations for the Years ended June 30, 1994, 1993 and
1992

Revenues

Energy revenues for the years ended June 30, 1994, 1993 and 1992
were $62,647,000, $65,136,000 and $71,638,000, respectively. Energy
revenues primarily reflect billings associated with the Company's
Newark Boxboard and du Pont Parlin cogeneration projects as well as
the Company's biogas facilities. The decrease in energy revenues
from 1993 to 1994 was primarily attributable to two separate
mechanical failures at the Company's du Pont Parlin Project while
the decrease in energy revenues from 1992 to 1993 was primarily
attributable to the December 25, 1992 fire at the Newark Boxboard
facility, each of which is separately discussed below.

Revenues recognized at the du Pont Parlin Project were
$37,910,000, $43,729,000 and $40,915,000 for the fiscal years ended
June 30, 1994, 1993 and 1992, respectively. In late September
1993, a gas turbine generator was shut down for unscheduled repairs
until mid-December 1993. In late May 1994, a gas turbine was also
shut down for unscheduled repairs until mid-August 1994. The
Company estimates that these shut downs resulted in lost revenues
of approximately $3,300,000 and $2,300,000 for the fiscal 1994
second and fourth quarters, respectively. Fiscal 1994 revenues
include business interruption proceeds of $726,000 for the second
quarter period. No amounts are recognized for the fourth quarter
interruption because of a 30 day deductible period before insurance
coverage applies.

Revenues at the Newark Boxboard project were $23,082,000,
$19,629,000 and $27,532,000 for the fiscal years ended June 30,
1994, 1993 and 1992, respectively. A fire at the Newark Boxboard
project on December 25, 1992 disabled the plant until full
operations resumed in October 1993. Fiscal 1994 revenues consisted
of business interruption insurance proceeds of $980,000, partial
operations from August to September 1993 and from full operations
beginning in October 1993 through June 30, 1994. In comparison,
fiscal 1993 revenues consist of full operations from July 1992
through December 1992 and $5,880,000 of business interruption
proceeds through June 30, 1993.

In February 1994, the Company and its insurance carrier for the
Newark project reached an agreement concerning the property damage
and business interruption insurance claims submitted in connection
with the fire. Under the terms of the agreement, the insurance
carrier agreed to a minimum settlement of $36,000,000 which covered
a substantial majority of the Company's costs of repair and loss of
net profits due to business interruption. In addition, the Company
has the right to receive up to an additional $1,400,000 upon the
recovery by the insurance carrier of its claims against third
parties. As a result of the insurance property settlement and the
subsequent repairs made to the project, the Company recognized an
involuntary conversion gain of $6,066,000 in the fiscal year ending
June 30, 1994, representing the amount by which the replacement
cost (insurance proceeds) exceeded the net book value of assets
lost.

Energy revenues from the Company's biogas projects for the fiscal
year ended June 30, 1994, 1993 and 1992 were $1,655,000, $1,679,000
and $2,825,000, respectively. Fiscal 1992 revenues included the
Orange County, Amity, Hamms and Republic projects, each of which
was sold or affected by termination of contracts in June 1992.

Equipment sales and services for the years ended June 30, 1994,
1993 and 1992 were $24,304,000, $18,955,000 and $21,854,000,
respectively. Equipment sales and services principally reflect the
operations of O'Brien Energy Services, Puma and American
Hydrotherm. O'Brien Energy Services revenues for the years ended
June 30, 1994, 1993 and 1992 were $7,789,000, $3,067,000 and
$144,000, respectively. The increases are primarily attributable
to the Company expanding its domestic business in the design and
assembly of generator sets and switchgear.

Equipment sales of Puma in the years ended June 30, 1994, 1993 and
1992 were $13,499,000, $12,971,000 and $15,119,000, respectively.
Revenues from 1992 to 1993 decreased primarily as a result of
substantial utilization of Puma's production facilities in 1993 for
internal projects such as the design and assembly of the standby
power systems used in the Philadelphia Water Department project.
Dollar-denominated revenues also declined as a result of a
strengthening of the dollar versus the pound sterling. Fiscal 1994
revenues remain depressed from 1992 levels because of continued
recessionary pressures and increased competition in the European
market.

Equipment sales and services for the years ended June 30, 1994,
1993 and 1992 by American Hydrotherm were $2,990,000, $2,912,000
and $5,742,000, respectively. The decrease in revenues from 1992
levels was primarily due to recessionary pressures and a change in
product mix towards smaller projects.

The balance of equipment sales and services for the years ended
June 30, 1994, 1993 and 1992 consisted of nonproject-related
equipment activities and operation and maintenance activities with
third parties.

Rental revenues were $5,372,000, $3,636,000 and $3,191,000 for the
years ended June 30, 1994, 1993 and 1992, respectively. The
increase in rental revenues in 1994 and 1993 was attributable to
the completion in May 1993 of the Philadelphia Water Department
project. The Company sold its interest in the Philadelphia Water
Department project in November 1993 but continued to own and lease
power generation equipment to the project which in fiscal 1994
amounted to approximately $2,187,000.

Revenues from related parties for the years ended June 30, 1993
and 1992 were $515,000 and $378,000, respectively. These revenues
consisted principally of equipment sales and services. Management
does not anticipate significant revenues from related parties in
the future.

Development fees and other revenues were $14,266,000, $9,450,000
and $3,054,000 for the years ended June 30, 1994, 1993 and 1992,
respectively. Development fees and other revenues for fiscal 1994
include $5,121,000 of revenues recognized in connection with the
sale of the Company's contractual rights to develop certain coalbed
methane reserves. The selling price consisted of a $2,000,000 cash
payment and a production note of $4,500,000. The Company
discounted the note to reflect its estimated net realizable value
in consideration of the Company's plan to monetize certain assets
and accelerate cash flow. Most significantly, included in
development fees and other revenues, in June 1994, the Company sold
its recently acquired rights to develop a standby electric facility
project for $5,000,000. The costs associated with the development
of these rights were insignificant.

Development fees and other revenues for 1993 and 1992 consist of
the sale of certain contractual rights associated with various
projects either under development ($4,866,000 in 1993) or in
operation ($2,048,000 in 1992). Development fees and other
revenues also increased in 1994 and 1993 as a result of the Company
supplying $4,015,000 and $3,989,000 in fiscal 1994 and 1993,
respectively, of fuel under a fuel management contract to the
California Milk Producers project at a negligible profit. In
addition, the Company recognized $480,000 and $779,000 of revenues
for equipment supply agreements associated with the Hartford Steam
project for the years ended June 30, 1993 and 1992, respectively.
The balance of development fees and other consists primarily of
revenues recognized in connection with management fee agreements
associated with the California Milk Producers and Hartford Steam
projects.

Costs and Expenses

Cost of sales for the years ended June 30, 1994, 1993 and 1992
include direct costs associated with the operation of projects of
$49,961,000, $44,889,000 and $46,101,000, respectively. Cost of
energy revenues increased in 1994 versus 1993 as a result of the
Newark Boxboard project resuming full operations in October 1993
after completing repairs caused by the December 1992 fire. The
project operated over nine months in fiscal 1994 as compared to six
months in fiscal 1993. Energy cost increases in 1994 over 1993
were also impacted by gas swap and futures contract gains
recognized in the 1993 fiscal year.

In fiscal 1993, the Company entered into a short term gas swap
agreement intending to levelize the cost of natural gas for the
three month period ended December 31, 1992 (fiscal 1993) and the
three month period ended September 30, 1993 (fiscal 1994). The
Agreement covered approximately 100% of the natural gas consumed by
the Newark Boxboard and du Pont Parlin projects and established a
fixed unit price for contracts in each period. The Company
realized a $1,000,000 gain on the December 1992 contracts and
credited fuel costs for the $1,000,000 cash proceeds received from
the broker. Actual market prices then increased slightly above the
fixed gas swap prices for the September 1993 quarter contracts
thereby eliminating any potential obligation pursuant to the gas
swap agreements for the September 1993 quarter.

A Gas Swap Agreement was also negotiated for the fiscal 1994
second and third quarter fuel costs which resulted in a reduction
of fuel costs of approximately $157,000. Presently, the Company
has no active gas swaps or hedges.

The Company further hedged its gas position against price
increases on a portion of its gas requirements for the remainder of
the fiscal 1993 year through the use of gas futures which resulted
in gains of $510,000 also recognized as an offset to fuel expense
in fiscal 1993.

Approximately seventy percent of the operating costs of the Newark
Boxboard and du Pont Parlin projects consist of natural gas fuel
costs. The Company continues to evaluate strategies to reduce the
risk associated with the volatile nature of natural gas prices and
their impact on gross profit levels. Cost of energy revenues in
fiscal 1994 also increased because the Newark and Parlin projects
were required to operate on an alternative (more expensive) fuel
source for a portion of the third quarter because of natural gas
shortages caused by severe winter conditions.

Cost of equipment sales and services for the years ended June 30,
1994, 1993 and 1992 were $21,890,000, $16,431,000 and $17,746,000,
respectively. Cost of equipment sales and services increased in
1994 primarily as a result of the increase in sales volume at
O'Brien Energy Services. Fiscal 1993 cost of equipment sales and
services increased as a percentage of sales as a result of the
previously discussed change in American Hydrotherm's product mix as
well as the utilization of Puma's facilities for internal projects
such as the Philadelphia Water Department.

Cost of rental revenues for the years ended June 30, 1994, 1993
and 1992 was $2,730,000, $2,458,000 and $1,421,000, respectively.
The increase in fiscal 1994 cost of rental revenues is attributable
to costs associated with a full year's rental to the Philadelphia
Water Department. The Company sold the project to a private
investor in November 1993 but continued to own and lease the
facilities and generation equipment to the project. Cost of rental
revenues increased as a percentage of revenue in 1993 primarily as
a result of depreciation charges on equipment idled while being
modified for use in the Philadelphia Water Department project, as
well as depreciation charges associated with equipment recently
placed in service.

Cost of revenues from related parties for the years ended June 30,
1993 and 1992 was $452,000 and $320,000, respectively. These costs
consist principally of costs associated with equipment sales and
services.

Cost of development and other fee revenue was $9,593,000,
$7,520,000 and $1,408,000, in the years ended June 30, 1994, 1993
and 1992, respectively. These costs consist principally of costs
associated with the sale of various projects either under
development or in operation, costs associated with a gas supply
agreement with the California Milk Producers project, and costs
associated with equipment supply agreements for the Hartford Steam
project and costs of management agreements for the Hartford Steam
and California Milk Producers projects.

Provision for Loss on Equipment Held For Sale

As part of the Company's debt restructuring program and its
efforts to improve both short-term and long-term liquidity, the
Company has actively begun seeking buyers for specific energy
equipment not currently being used in an operating project nor
critical to the completion of any projects in development. These
assets, consisting mainly of gas and steam turbines are being held
for sale in order to raise cash and reduce debt levels. The value
of these assets sold in a secondary market is less than if they
were incorporated into an internally developed operating project.
Accordingly, the Company recorded a non-cash charge against
earnings in the fourth quarter of $6,250,000 to write down the
carrying value of these assets to an estimated resale value of
$8,458,000 based upon appraisals made by the Company.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the years ended
June 30, 1994, 1993 and 1992 were $19,680,000, $21,872,000 and
$13,133,000, respectively. Selling, general and administrative
expenses increased substantially in fiscal 1994 and 1993 over 1992
primarily as a result of increased litigation costs and other
professional services. Total professional fees were $4,955,000,
$4,934,000 and $1,788,000 for 1994, 1993 and 1992 respectively.
Fiscal 1994 and 1993 also included the expensing of certain project
development costs (See Note 8 to the Company's Consolidated
Financial Statements). Additionally, in fiscal 1993, a $1,121,000
charge associated with the Company's relinquishing general partner
responsibilities at the Hartford Steam Project was included in
selling, general and administrative expenses.

Involuntary Conversion Gain

In fiscal 1994, the Company recognized an involuntary conversion
gain of $6,066,000 from the property settlement with the insurance
carrier resulting from the December 25, 1992 fire at the Newark
project. The gain represents the amount by which the insurance
proceeds (replacement cost) exceeded the net book value of the
equipment lost in the fire.

Other Income

Other income for the years ended June 30, 1994, 1993 and 1992 was
$874,000, $993,000 and $1,204,000, respectively. Fluctuations in
other income were primarily attributable to interest income earned
on escrow accounts established in connection with the Newark
Boxboard and du Pont Parlin projects.

Interest and Debt Expense

Interest and debt expense for the years ended June 30, 1994, 1993
and 1992 was $18,013,000, $15,696,000 and $17,340,000,
respectively. The increase in fiscal 1994 interest expense is
attributable to a full year's impact from additional borrowings in
fiscal 1993 as well as from new borrowings in fiscal 1994 incurred
primarily in connection with the Philadelphia Water Department
project. The decrease in interest and debt expense in 1993 was
primarily the result of interest rate decreases on the Company's
floating rate debt as well as debt amortization on the Newark
Boxboard and du Pont Parlin projects. For the years ended June 30,
1994, 1993 and 1992, interest and debt expense includes $8,211,000,
$9,145,000 and $11,284,000, respectively, associated with the
nonrecourse financing on the Newark Boxboard and du Pont Parlin
projects.

Interest Swap

A 1988 non-recourse project loan required that the Company enter
into an Interest Swap Agreement to reduce the risk associated with
a floating interest rate. As required, the Company negotiated an
interest swap agreement with a third party in 1988 fixing the
interest rate at 11% on 65% of the outstanding loan balance. At
June 30, 1994 the floating rate was approximately 5.75%. Interest
expense include costs associated with the interest swap of
approximately $3,253,000, $3,544,000 and $2,912,000 in fiscal 1994,
1993 and 1992, respectively.

Income Taxes

Income tax expense for the years ended June 30, 1994, 1993 and
1992 resulted primarily from not recognizing the future benefit of
net operating losses ("NOLs"). As the Company continues to
generate tax losses due mainly to excess tax over book
depreciation, future utilization of these NOLs is not anticipated
and therefore, these NOLs are not currently being recognized as
deferred tax assets.

Liquidity and Capital Resources

Cash and cash equivalents at June 30, 1994 totalled approximately
$5,681,000 as compared to $5,213,000 at June 30, 1993. Cash and
cash equivalents consist primarily of short-term money market
instruments. However, as described in Note 3 to the Consolidated
Financial Statements, not all such cash balances were available to
the Company due to provisions of the Newark Boxboard and du Pont
Parlin financing agreements.

Restricted cash at June 30, 1994 was $4,594,000 compared to
$5,064,000 at June 30, 1993.

The Company's working capital deficiency at June 30, 1994 was
approximately $125,683,000 as compared to $11,119,000 at June 30,
1993. The substantial increase in the Company's working capital
deficiency is primarily due to the reclassification to current
liabilities of the $49,174,000 balance of all outstanding
Debentures as a result of the Company not making its March 15, 1994
interest payment on its Debentures, $25,010,000 of nonrecourse debt
because of a working capital default and $21,914,000 of recourse
debt because of defaults attributable to cross defaults and the
filing of bankruptcy on September 28, 1994. See "Business--General
Development of Business" and "Legal Proceedings".

As a result of defaults, consisting of defaults in the payment of
interest under each of the Company's three bond Indentures, as well
as defaults under certain of the Company's loan agreements and the
bankruptcy filing the Company reclassified an additional
$21,914,000 for a total of $39,042,000 of its recourse debt as a
current liability. Of this amount, approximately $5,320,000 was
triggered solely by defaults under the Indentures, $3,066,000 by
cross defaults and the non-payment of principal subsequent to year
end and the remainder, $13,528,000, was reclassified because of the
bankruptcy filing on September 28, 1994. The Company was having
discussions with its various lenders regarding the defaults and was
developing a program to restructure this debt. The program was
intended to provide, among other things, an extended amortization
of the debt and the sale of equipment, which is not currently being
utilized in an operating project or which has not been designated
for a project under development. No lender had accelerated the
payment of its loans with Company. The program had met with
approval by several of the Company's lenders. See Note 5 to the
Company's Consolidated Financial Statements.

At June 30, 1994, both the Newark and Parlin projects were in
default of the covenant which requires the maintenance of positive
working capital. On September 26, 1994, the project lenders agreed
to waive this covenant through July 1, 1995, for the Parlin Project
only, provided that during the period that this waiver is in effect
no distribution of any nature whatsoever will be made to the
Company. This waiver will cease to be effective in the event that
the Parlin Project is in compliance with the requirement to
maintain positive working capital at any time prior to June 30,
1995. The lenders were not willing to provide a similar waiver for
the Newark project. As a result of the Newark project not getting
the waiver, $25,010,000 of non-recourse debt has been reclassified
from long-term to short-term debt.

Working Capital Requirements--Capital Resources

During the years ended June 30, 1994 and June 30, 1993, the
Company has suffered significant setbacks. Among these were the
Newark Boxboard project fire, the expenses and significant
diversion of management focus required to repair the Newark
Boxboard plant, the intensification of the Hawker Siddeley
litigation and the Debenture defaults. All of these have made it
difficult for the Company to refinance or sell equity in its Newark
Boxboard project and thus deprived the Company of access to
significant capital which would otherwise have been available for
project development. Additionally, the Indenture governing one
series of the Company's Debentures restricts the ability of the
Company to incur new long-term indebtedness under certain
circumstances.

In response to these developments, the Board of Directors of the
Company initiated a plan to address the short, intermediate and
long-term working capital needs of the Company. Management expects
the short-term (fiscal 1995) needs of the Company to be met through
the monetization of assets or other means of accelerating cash
flow, for example, the sale of operating projects and/or projects
in development.

In order to further enhance short-term cash flow, management has
also offered discounts to certain debtors of the Company for early
payment. In the aggregate, during the period July 1, 1993 through
June 1994, the Company has received $1,400,000 in early
satisfaction of notes receivable of $1,695,000. Under the terms of
the notes, cash would not have been received until periods ranging
from three months to over two years from the date of actual
funding.

In November 1993, the Company entered into a letter of intent and
then in March 1994, the Company entered into a $7,000,000
subordinated loan agreement with Stewart & Stevenson Services,
Inc., a major equipment supplier and operation and maintenance
company to be disbursed upon the completion of certain milestones.
The first disbursement of $1,000,000 was funded January 13, 1994.
The second disbursement of $3,500,000 was funded on March 16, 1994.
Of this amount, $2,300,000 was disbursed to the Company and
$1,200,000 remained in the Newark Boxboard project to prepay
project debt, pay certain expenses of the project and create a
capital improvement fund. The availability of a third disbursement
of $2,500,000 has expired. This third disbursement was intended to
be utilized for prepayment of debt at the Newark Boxboard project
level and to satisfy a $1,000,000 note between the Company and
Stewart & Stevenson. All outstanding principal and interest on the
credit facility is to be satisfied by a percentage of all
distributions made by O'Brien Newark. The Company currently intends
to repay the proceeds of the Stewart & Stevenson credit facility
upon the refinancing or sale of the Newark Project term loan.

NatWest Markets has been retained to evaluate and market
a partial sale, together with a concurrent or subsequent refinancing
of the Newark Boxboard project term loan. The current debt outstanding
on this project is approximately $29,580,000. In addition, management is
currently evaluating a partial sale of the Company's du Pont Parlin project.
Management's objective is to complete these transactions in the near future
in order to generate additional cash flow, and to enter into a strategic
alliance with a project "partner" to enhance refinancing efforts. There can
be no assurance that the above mentioned transactions will occur. In order
to facilitate these financing arrangements, or other financing alternatives,
the Company reacquired in January 1994, a twelve and one-half percent equity
interest in the Newark Boxboard project which it had previously
sold in March 1993.

Furthermore, the Company retained an investment banking firm to develop
plans to enhance shareholder value, including an evaluation of the merits of
selling or merging the Company or forming a strategic alliance. Subsequently,
the Company engaged Jefferies & Company, Inc. to complete the implementation of
the Company's plans to maximize shareholder value. Although the Company has
received indications of interest, the Company's efforts to implement a
restructuring plan ("Restructuring Plan") have been hampered by,
among other things, the ongoing litigation with the Company's
previous principal project turnkey construction contractor (the
"Hawker Siddeley litigation"), the Newark fire, the defaults in the
Debentures and the Company's liquidity problems, and most recently the filing
under Chapter 11 of the Federal Bankruptcy Code.

There can be no assurance that the Company, in the future, will
have adequate cash flow to finance operations and ongoing
development activities or to meet current obligations.

Cogeneration and Waste Heat Recovery Projects - Capital Resources

The Company has previously and expects to continue to arrange for
the construction and permanent funding of its projects through
long-term nonrecourse debt. Depending upon the specifics of the
project and the economic alternatives available, the Company either
retains all of the ownership of a project or participates in
project finance structures involving leases, corporate joint
ventures, and limited partnerships. In the latter instances, the
Company sells all or a portion of a project during its development
or construction stage to third parties, and then participates in
the various profit centers of such projects throughout the
construction stage as well as the life of the project.

Alternatively, the Company may use a debt/equity structure,
whereby the Company retains 100% ownership of the project. In such
instances, the Company's equity position in the project funded
either internally, from borrowings or the sale of securities, or
from financial arrangements with other parties, will enable it to
retain all of the revenues of the project.

Capital Resources - Other Capital Requirements

In addition to the development and construction of projects, the
Company's principal nonoperating expenditures over the next twelve
months are expected to consist of the repayment of various short-
term and long-term debt instruments primarily associated with
equipment activities. In such instances, management anticipates
that the sale of the underlying equipment or the refinancing of
such equipment will provide the funds for repayment.

Standby/Peak Shaving and Biogas Fuel Projects - Capital Resources

Generally, because the capital requirements of standby/peak
shaving and biogas fuel projects are substantially less than those
required by most industrial cogeneration and waste heat recovery
projects, the Company finances the construction and permanent
funding of these standby/peak shaving and biogas projects primarily
through the use of recourse lines of credit or loans with
commercial banks and other lending institutions. Financing terms
generally extend from one to seven years. Project assets are also
leased by the Company on a medium to long-term basis. In most
cases, wholly-owned subsidiaries are established for each project.
Projects may also be structured in such a fashion as to allow the
Company, or other participants, to take advantage of various tax
credits that continue to exist.

At June 30, 1994, the Company had nominal availability under
existing lines of credit. Although the Company had refinanced over
$6,000,000 of debt subsequent to June 30, 1993, there can be no
assurance that the Company will be successful in extending its
current lines of credit or obtaining new lines of credit.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Page

Financial Statements

(i) Consolidated Financial Statements of O'Brien Environmental
Energy Inc.

Index to Consolidated Financial Statements. . . . . . . . . . . . F-1

Report of Independent Accountants . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of June 30, 1994 and 1993. . . . . F-3

Consolidated Statements of Operations
for the years ended June 30, 1994, 1993 and 1992. . . . . . . . F-5

Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1994, 1993 and 1992. . . . . . . . F-6

Consolidated Statements of Cash Flows
for the years ended June 30, 1994, 1993 and 1992. . . . . . . . F-9

Notes to Consolidated Financial Statements. . . . . . . . . . . . F-10

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required for this item is incorporated by
reference to the Company's 1994 Definitive Proxy Statement which
the Company will file with the Securities and Exchange Commission
no later than 120 days subsequent to June 30, 1994.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.

(a) Documents filed as part of this report.

1. Financial Statements

Index to Consolidated Financial Statements

Report of Independent Accountants

Consolidated Balance Sheets as of June 30, 1994 and 1993

Consolidated Statements of Operations for the years ended June
30, 1994, 1993 and 1992

Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1994, 1993 and 1992

Consolidated Statements of Cash Flows for the years ended June
30, 1994, 1993 and 1992

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Index to Financial Statement Schedules

Schedule II--Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees other than Related
Parties

Schedule III -- Condensed Financial Information of Registrant
(to be filed by amendment)

Schedule V--Property, Plant and Equipment

Schedule VI--Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment

Schedule IX--Short-Term Borrowings

3. Exhibits

1.1(20) Form of Letter to Debentureholders
3.1(14) Restated Certificate of Incorporation of the Company and
amendments thereto
3.2(19) Amended Bylaws of the Company
4.1(1) Loan and Security Agreement with First Pennsylvania Bank
N.A. dated August 5, 1985
4.1.1(10) Amendments to Loan and Security Agreement with First
Pennsylvania Bank N.A.
4.2(2) Loan and Security Agreement with Fidelity Bank dated
December 31, 1986
4.3(6) Revolving Credit and Security Agreement with Carteret
Savings Bank, F.A. dated February 3, 1989
4.4(6) Revolving Term Loan Commitment Letter from First Peoples
Bank of New Jersey dated February 16, 1989
4.4.1(6) Amendment to Commitment Letter from First Peoples
Bank of New Jersey dated April 21, 1989
4.4.2(18) Amendment No. 2 to Commitment Letter from First
Peoples Bank of New Jersey dated January 21, 1992
4.4.3(18) Equipment Credit Facility Commitment Letter from
Heller Financial, Inc. dated February 6, 1992
4.5(13) Loan and Security Agreement with Barclays Bank of New
York, N.A. dated July 30, 1990
4.5.1(18) Amendment to Loan and Security Agreement with
Barclays Bank of New York, N.A. dated February 24,
1992
4.6(19) Letter of Credit Agreement with Meridian Bank dated as of
January 21, 1993
4.6.1(19) Loan and Security Agreement with Meridian Bank
dated as of September 29, 1992
4.8(19) Term Loan Agreement dated as of February 26, 1993 with
The Bank of New York
4.10(19) Master Security Agreement dated as of December 23,
1992 with General Electric Capital Corporation
4.13(2) Indenture under which the Company's 7 3/4% Convertible
Senior Subordinated Debentures due March 15, 2002 are
issued
4.13.1(6) Indenture under which the Company's 11% Convertible
Senior Subordinated Debentures due March 15, 2010
are issued
4.13.2(13) Indenture under which the Company's 11% Convertible
Senior Subordinated Debentures due March 15, 2011
are issued
4.14(2) Specimen of Debenture Certificate relating to Indenture
dated as of March 15, 1987
4.14.1(6) Specimen of Debenture Certificate relating to
Indenture dated as of March 15, 1990
4.14.2(12) Specimen of Debenture Certificate relating to
Indenture dated as of March 14, 1991
4.15(21) Subordinated Loan Agreement with Stewart &
Stevenson Services, Inc. dated as of March 11, 1994
10.1 Gas Rights Agreements
10.1.1(1) Gas Rights Agreement between City of Corona and
Watson Biogas Systems ("Watson") dated December 31,
1981 (Corona Project)
10.1.2(1) Assignment of Gas Rights Agreement between Watson
and O'Brien Energy Products, Inc. ("OEP") dated
December 20, 1983 (Corona Project)
10.1.3(1) Assignment of Gas Rights Agreement between Watson
and the Company dated December 31, 1984 (Corona
Project)
10.1.4(1) Methane Gas Agreement between SmithKline Beckman
Corporation, Montgomery County and OEP dated
October 13, 1983 (SmithKline Project)
10.1.5(1) Landfill Gas Lease between FR&S Landfill, AVM
Nursery Corporation ("AVM") and OEP dated December
11, 1982 (Atochem Project-Phase I)
10.1.6(1) Gas Rights Agreement between the Redevelopment
Agency of the City of Duarte and Watson dated
November 11, 1980 (Duarte Project)
10.1.7(1) Assignment of Gas Rights Agreement between Watson
and the Company dated December 30, 1985 (Duarte
Project)
10.1.8(1) Permit Agreement between the City of New York and
Wehran Energy Corporation ("Wehran") dated
September 1, 1981 with attached Amendment dated
January 10, 1986 (Pelham Bay Project)
10.1.9(1) Subpermit Agreement between the Company and Wehran
dated January 10, 1986 (Pelham Bay Project)
10.1.10(1) Assignment Agreement between Wehran and the Company
dated January 10, 1986 (Pelham Bay Project)
10.1.11(2) Landfill Gas Agreement between SCA Disposal
Services of New England, Inc. ("SCA") and the
Company dated March 1986 (Amesbury Project)
10.1.12(1) Landfill Gas Purchase and Sales Agreement between
Manus Corporation and the Company dated April 2,
1986 (Mazzaro Project)
10.1.13(2) Amendment to Landfill Gas Purchase and Sales
Agreement dated November 5, 1986 (Mazzaro Project)
(See 10.1.12)
10.1.14(2) Landfill Gas Rights Agreement between the County of
Volusia and the Company dated April 1986 (Volusia
Project)
10.1.15(2) Landfill Gas Agreement between Joseph R. Amity &
the Company dated September 4, 1986 (Amity Project)
10.1.16(2) Landfill Gas Agreement between Northwest Jersey
Development Company and the Company dated September
2, 1986 (Hamms Project)
10.1.17(3) Amended and Restated Landfill Gas Agreement between
SCA and the Company dated March 27, 1987 (Amesbury
Project)
10.1.18(6) Landfill Gas Agreement between Harold Herbert and
the Company dated February 8, 1989 (Edgeboro
Project)
10.1.19(6) Landfill Gas Agreement among Nuodex, Inc.,
Industrial Land Reclaiming, Incorporated and the
Company dated February 25, 1988 (ILR-Edison
Project)
10.1.20(18) Landfill Gas Agreement between Southwestern Public
Service Authority of Virginia ("SPSA") and the
Company dated October 23, 1991 (SPSA Project)
10.1.21(18) Gas Supply Agreement between The Philadelphia
Municipal Authority ("PMA") and the Company dated
June 30, 1992 regarding the NE Plant (Philadelphia
Water Project)
10.1.22(18) Gas Supply Agreement between the PMA and the
Company dated June 30, 1992 regarding the SW Plant
(Philadelphia Water Project)
10.2 Thermal Supply Agreements
10.2.1(1) Steam Supply Agreement between the Hartford Steam
Company and the Company dated September 19, 1985
(Hartford Steam Project)
10.2.2(18) Steam Purchase Agreement among Philadelphia Thermal
Energy Corporation, Adwin Equipment Corporation,
Grays Ferry Cogeneration Partnership and the
Company dated November 11, 1991 (Schuylkill
Project)
10.3 Power Purchase Agreements
10.3.1(1) Power Purchase Contract between Southern California
Edison Company ("SCE") and the Company dated
October 2, 1984 (Corona Project)
10.3.2(1) Parallel Generation Agreement between Watson and
SCE dated December 31, 1981 (Duarte Project)
10.3.3(1) Amendment to Power Purchase Agreement between SCE
and Watson dated May 20, 1985 (Duarte Project)
10.3.3.2(19) Amendment No. 3 to Power Purchase Agreement between
SCE and the Company dated June 16, 1993 (Duarte
Project)
10.3.4(1) Assignment between Watson and the Company dated
December 30, 1985 (Duarte Project) (See 10.1.7)
10.3.5(1) Purchased Power Contract between the Company and
Unitil Power Corp. dated December 17, 1985
(Amesbury Project)
10.3.6(1) Electricity Purchase Agreement between the
Connecticut Light and Power Company and the Company
dated September 18, 1985 (Hartford Steam Project)
10.3.7(1) Power Purchase Agreement between the Company and
SCE dated June 14, 1985 (California Milk Project)
10.3.8(1) Power Purchase Agreement between the Company and
Pacific Gas and Electric Company ("PG&E") dated
June 18, 1985 (Salinas Project)
10.3.9(1) First Amendment to Power Purchase Agreement between
the Company and PG&E dated January 2, 1986 (Salinas
Project)
10.3.10(2) Power Purchase Agreement between County Sanitation
District No. 1 and the Company dated October 1,
1986 (Orange County Project)
10.3.11(2) Long Term Power Purchase Contract for Cogeneration
and Small Power Production between the Company and
Jersey Central Power and Light ("JCP&L") dated
March 10, 1986 (Newark Boxboard Project)
10.3.12(2) Agreement for Purchase and Sale of Electric Power
between the Company and JCP&L dated October 20,
1986 (E.I. du Pont Parlin Project)
10.3.13(2) Agreement for Purchase and Sale of Electric Power
between the Company and JCP&L dated January 15,
1987 (Hamms Project)
10.3.14(3) Amended and Restated Power Purchase Agreement
between the Company and SCE dated April 15, 1987
(California Milk Project)
10.3.14.1(6) Amendment No. 1 to the Amended and Restated Power
Purchase Contract between SCE and the Company dated
October 4, 1988 (California Milk Project)
10.3.15(3) Agreement between Pennsylvania Power & Light
Company ("PP&L") and the Company dated April 15,
1987 (Amity Project)
10.3.15.1(7) Agreement between PP&L and the Company dated July
20, 1989 (Amity Project)
10.3.16(6) Parallel Generation Agreement between the Company
and Long Island Lighting Company dated February 2,
1990 (Ruco Polymer Project)
10.3.17(18) Power Purchase and Interconnection Agreement
between Public Service Electric and Gas ("PSE&G")
and the Company dated April 9, 1992 (ILR-Edison
Project)
10.3.18(18) Power Purchase and Interconnection Agreement
between PSE&G and the Company dated April 9, 1992
(Edgeboro Project)
10.3.19(18) Agreement for the Sale of Electrical Output to
Virginia Electric and Power Company ("VEPC")
between VEPC and the Company dated April 15, 1992
(SPSA Project)
10.3.20(18) Energy Service Agreement between PMA and the
Company dated June 30, 1992, regarding the NE Plant
(Philadelphia Water Project)
10.3.21(18) Energy Service Agreement between PMA and the
Company dated June 30, 1992 regarding the SW Plant
(Philadelphia Water Project)
10.3.22(18) Agreement for Purchase of Electric Output between
Philadelphia Electric Company and Grays Ferry
Cogeneration Partnership dated July 28, 1992
(Schuylkill Project)
10.3.23(18) Power Purchase Agreement among Non-Fossil
Purchasing Agency Limited,
Norweb plc and the Company dated November 6, 1991
10.3.24(19) Energy Service Agreement dated December 24, 1993
between the City of Philadelphia and O'Brien
(Tinicum) Standby Power, Inc. (Tinicum Project)
10.3.25(19) Energy Service Agreement dated February 28, 1994
between SmithKline Beecham Corporation and O'Brien
Standby Power Energy, Inc. (SmithKline Project)
10.4 Employment Agreements
10.4.1(14) Employment Agreement with Sanders D. Newman, dated
January 1, 1985 and amendment thereto
10.4.2(6) Employment Agreement with Robert Shinn dated May
25, 1989
10.5 Stock Option Plans
10.5.1(1) 1984 Stock Option Plan
10.5.2(4) 1987 Stock Option Plan
10.5.3(16) 1991 Stock Option Plan
10.6 Leases
10.6.1(1) Lease Agreement for premises located at 225 South
Eighth Street, Philadelphia, Pennsylvania dated
August 14, 1984
10.6.2(6) Lease Agreement for premises located at 231 South
Eighth Street, Philadelphia, Pennsylvania dated
March 17, 1989
10.6.3(13) Lease Agreement for premises located at 470 Park
Avenue South, New York, New York dated May 1, 1990
10.6.4(13) Lease Agreement for premises located at 37 Sandwich
Road, Ash, Canterbury, Kent dated June 1, 1990
10.6.5(14) Lease Agreement for premises located in Indiana
County, Pennsylvania dated January 30, 1991
10.8 Construction and Term Loan Agreements
10.8.1(6) Construction and Term Loan Agreement between the
CIT Group/Equipment Financing, Inc. and O'Brien
California Cogen Limited dated March 1, 1988
(California Milk Project)
10.8.2(6) Construction and Term Loan Agreement between the
CIT Group/Equipment Financing, Inc. and O'Brien
California Cogen II Limited dated June 30, 1988
(Salinas Project)
10.8.3(6) Construction and Term Loan Agreement between
National Westminster Bank PLC and O'Brien (Newark)
Cogeneration, Inc. dated July 18, 1988 (Newark
Boxboard Project)
10.8.3.1(13) Amendment No. 1 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Newark) Cogeneration, Inc. dated April 1,
1989 (Newark Boxboard Project)
10.8.3.2(21) Amendment No. 2 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Newark) Cogeneration, Inc. dated as of
June 1, 1989 (Newark Boxboard Project)
10.8.3.3(21) Amendment No. 3 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Newark) Cogeneration, Inc. dated as of
March 11, 1994 (Newark Boxboard Project)
10.8.4(6) Construction and Term Loan Agreement between
National Westminster Bank PLC and O'Brien (Parlin)
Cogeneration, Inc., dated December 1, 1988 (E.I. du
Pont Parlin Project)
10.8.4.1(13) Amendment No. 1 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Parlin) Cogeneration, Inc. dated March 1,
1989 (E.I. du Pont Parlin Project)
10.8.4.2(13) Amendment No. 2 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Parlin) Cogeneration, Inc. dated January
1, 1990 (E.I. du Pont Parlin Project)
10.8.5(14) Term Loan and Working Capital Agreement between The
Mitsui Bank, Limited, New York Branch and O'Brien
California Cogen Limited dated March 29, 1990
(California Milk Project)
10.9 Turnkey Construction Agreements
10.9.1(6) Turnkey Construction Agreement between Hawker
Siddeley Power Engineering Inc. and O'Brien
California Cogen Limited Partnership dated February
18, 1988 (California Milk Project)
10.9.2(6) Turnkey Construction Agreement between Hawker
Siddeley Power Engineering Inc. and O'Brien
California Cogen II Limited dated June 23, 1988
(Salinas Project)
10.9.3(6) Turnkey Construction Agreement between Hawker
Siddeley Power Engineering Inc. and O'Brien
(Newark) Cogeneration, Inc. dated July 8, 1988
(Newark Boxboard Project)
10.9.4(6) Turnkey Construction Agreement between Hawker
Siddeley Power Engineering Inc. and O'Brien
(Parlin) Cogeneration, Inc. dated November 30, 1988
(E.I. du Pont Parlin Project)
10.9.5(13) Turnkey Construction Agreement between Century
Contractors West Inc. and O'Brien California Cogen
II Limited dated August 14, 1990 and Amendment
thereto dated October 26, 1990 (Salinas Project)
10.10 Operation and Maintenance Contracts
10.10.1(6) Operation and Maintenance Contract between
California Cogeneration Operators Inc. and O'Brien
California Cogen Limited dated April 6, 1988
(California Milk Project)
10.10.2(6) Operation and Maintenance Contract between
California Cogeneration Operators Inc. and O'Brien
Cogeneration, Inc. I dated June 1, 1988 (Salinas
Project)
10.10.3(6) Operation and Maintenance Contract between John
Brown Power Limited and O'Brien (Newark)
Cogeneration, Inc. dated October 24, 1988 (Newark
Boxboard Project)
10.10.4(6) Operation and Maintenance Contract between John
Brown Power Limited and O'Brien (Parlin)
Cogeneration, Inc. dated October 24, 1988 (E.I. du
Pont Parlin Project)
10.10.5 Operation and Maintenance Contract between John Brown
Power Limited and O'Brien (Hartford) Cogeneration Limited
Partnership dated October 12, 1988 (Hartford Project)
10.10.6(18) Partnership Agreement of Grays Ferry Cogeneration
Partnership dated October 29, 1991 (Schuylkill
Project)
10.10.7(21) Operation and Maintenance Contract between Stewart
& Stevenson Operations, Inc. and O'Brien (Parlin)
Cogeneration, Inc. dated April 1, 1994 (E.I. du
Pont Parlin Project)
10.11 Agreements for the Sale of Project Assets or Stock
10.11.1(18) Agreement for the Sale and Purchase of Certain
Assets of Westwanda Energy, Inc. ("Westwanda")
among Westwanda, Lafayette Energy Partners, L.P.
and the Company dated June 30, 1992 (Hamms Project)
10.11.2(18) Agreement for the Sale and Purchase of Certain
Assets of O'Brien Environmental Energy, Inc.
between Taylor Energy Partners, L.P. and the
Company dated June 30, 1992 (Amity Project)
10.11.3(19) Supplemented and Restated Agreement between O'Brien
Methane Production, Inc. and BBC/DRI Blacklick
Joint Venture dated August 27, 1993 (Coalbed
Methane)
10.11.4(19) Exclusive Option Agreement dated as of December 16,
1993 with Zahren Financial Corporation and
Memorandum of Understanding related thereto dated
January 31, 1994
10.11.5(19) Stock Purchase Agreement dated November 12, 1993 by
and among OPC Acquisition, Inc., BioGas
Acquisition, Inc. and the Company (Philadelphia
Water Department Project)
10.11.6(19) Stock Purchase Agreement dated September 30, 1992
with Zahren Financial Corporation (SPSA Project)
10.11.7(19) Stock Purchase Agreement dated June 30, 1993 with
ZFC Energy, Inc. (SPSA Project)
10.11.8(19) Agreement of Sale and Purchase dated December 31,
1992 between O'Brien Energy Europe Limited,
Combined Landfill Projects Limited and the Company
(Rowley Project)
10.12 Miscellaneous
10.12.1(6) Amended and Restated Agreement between Atochem,
Inc. and the Company dated October 12, 1987
10.12.2(21) Rights Assignment Agreement dated as of March 31,
1993 between the Company and Bradley Resources
Company
10.12.3(21) Repurchase Agreement dated January 18, 1994 between
the Company and Bradley Resources Company
10.12.4(21) Master Equipment Lease Agreement dated as of
November 19, 1992 between O'Brien Energy Services
Company and Financing For Science and Industry
10.12.5(21) Equipment Lease dated July 28, 1993 between the
Company and BLT Leasing Corp.
10.12.6(21) Fairbanks Purchase Agreement dated June 30, 1994
between the Company and SmithKline Beecham
Corporation
18.1(6) Letter re change in accounting principles
21.1(19) List of Subsidiaries of Registrant
23.1(21) Consent of Coopers & Lybrand
27.1(21) Financial Data Schedule
_____________________________

(1) Incorporated by reference to the Company's Registration
Statement (File No. 33-6463) ordered effective by the
Commission on July 25, 1986.
(2) Incorporated by reference to the Company's Registration
Statement (File No. 33-11789) ordered effective by the
Commission on March 19, 1987.
(3) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1987.
(4) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1988.
(5) Incorporated by reference to the Company's Current Report on
Form 8-K filed on September 22, 1989.
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1989.
(7) Incorporated by reference to the Company's Registration
Statement (File No. 33-32338) ordered effective by the
Commission on March 14, 1990.
(8) Incorporated by reference to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1990.
(9) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1990.
(10) Incorporated by reference to Amendment No. 3 to the Company's
Registration Statement (File No. 33-38940) ordered effective
by the Commission on March 7, 1991.
(11) Incorporated by reference to the Company's Registration
Statement (File No. 33-38940) filed with the Commission on
February 7, 1991.
(12) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement (File No. 33-38940) filed with the
Commission on February 12, 1991.
(13) Incorporated by reference to Amendment No. 2 to the Company's
Registration Statement (File No. 33-38940) filed with the
Commission on March 1, 1991.
(14) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1991.
(15) Incorporated by reference to the Company's Registration
Statement (File No. 33-43733) filed with the Commission on
November 1, 1991.
(16) Incorporated by reference to Amendment No. 2 to the Company's
Registration Statement (File No. 33-43733) filed with the
Commission on December 17, 1991.
(17) Incorporated by reference to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1991.
(18) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1992.
(19) Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993.
(20) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement (File No. 33-53631) filed with the
Commission on June 7, 1994.
(21) Filed herewith.

(b) Reports on Form 8-K

The Company did not file a Current Report on Form 8-K during the
last quarter of the period covered by this Report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned
thereunto, duly authorized on the 10th day of October, 1994.

O'BRIEN ENVIRONMENTAL ENERGY, INC.

By: /s/ FRANK L. O'BRIEN III
----------------------------------
Frank L. O'Brien III
Chairman of the Board
and Chief Executive Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:

Signature Title Date
--------- ----- ----

s/ FRANK L. O'BRIEN III Chairman of the Board, October 10, 1994
- - ---------------------------- Chief Executive Officer,
Frank L. O'Brien III Class B Director

/s/ ROBERT J. SMALLACOMBE President, October 10, 1994
- - ---------------------------- Chief Operating Officer
Robert Smallacombe Class A Director

/s/ RONALD R. ROMINIECKI Vice President/Finance and October 10, 1994
- - ---------------------------- Chief Financial Officer
Ronald R. Rominiecki

/s/ JOEL D. COOPERMAN Vice President, Treasurer October 10, 1994
- - ---------------------------- Class B Director
Joel D. Cooperman

/s/ GEORGE L. BERNSTEIN Class B Director October 10, 1994
- - ----------------------------
George Bernstein

/s/ SANDERS D. NEWMAN Class A Director October 10, 1994
- - ----------------------------
Sanders D. Newman

<PAGE>

O'BRIEN ENVIRONMENTAL ENERGY, INC.
INDEX TO FINANCIAL STATEMENTS

Index to Consolidated Financial Statements . . . . . . . . . .F-1

Independent Accountants Report . . . . . . . . . . . . . . . .F-2

Consolidated Balance Sheets as of June 30, 1994 and 1993 . . .F-3

Consolidated Statements of Operations for the years ended
June 30, 1994, 1993, and 1992. . . . . . . . . . . . . . . .F-5

Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1994, 1993 and 1992 . . . . . . . . . .F-6

Consolidated Statements of Cash Flows
for the years ended June 30, 1994, 1993 and 1992 . . . . . .F-9

Notes to Consolidated Financial Statements . . . . . . . . . F-10

INDEPENDENT ACCOUNTANTS REPORT

The Board of Directors and Stockholders
O'Brien Environmental Energy, Inc.

We have audited the consolidated financial statements and the
financial statement schedules of O'Brien Environmental Energy,
Inc. and subsidiaries ("Company") listed in the indexes on pages
F-1 and S-1, respectively. These financial statements and
financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedules based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of O'Brien Environmental Energy,
Inc. and subsidiaries as of June 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 1994 in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all
material respects, the information required to be included
therein.

As discussed in Note 29 to the consolidated financial
statements, the Company is a defendant in several lawsuits. The
ultimate outcome of the litigations cannot presently be
determined. Accordingly, no provisions for any liabilities that
may result has been made in the accompanying consolidated
statements.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, the Company has experienced significant operating
problems and setbacks which have contributed to its losses and
liquidity problems. Further, O'Brien Environmental Energy, Inc.
filed a voluntary petition for reorganization under Chapter 11 of
the Federal Bankruptcy Code in the United States Bankruptcy Court
on September 28, 1994. These events and circumstances, including
the Company's highly leveraged capital structure, raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are
described in Note 1 to the consolidated financial statements.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 7, 1994

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
(Dollars in thousands)

ASSETS

1994 1993

Current assets:
Cash and cash equivalents $ 5,681 $ 5,213
Restricted cash and cash equivalents 4,594 5,064
Accounts receivable, net 12,100 12,394
Receivable from related parties 633 1,175
Notes receivable, current 780 2,564
Inventories 3,241 4,196
Insurance claims receivable -- 5,255
Other current assets 3,167 1,631
------ -------
Total current assets 30,196 37,492

Property, plant and equipment, net 176,514 194,217

Equipment held for sale 8,458 --

Coalbed methane gas properties held
for sale -- 4,464

Project development costs 5,126 5,136

Notes receivable, noncurrent 5,026 9,315

Notes receivable from officers 238 246

Investments in equity affiliates 3,175 2,515

Excess of cost of investment in
subsidiaries over net assets
at date of acquisition, net 1,987 2,085

Deferred financing costs, net 5,269 5,728

Other assets 1,827 1,331
-------- --------
$237,816 $262,529
======== ========

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
(Dollars in thousands)

LIABILITIES AND STOCKHOLDERS' EQUITY

1994 1993

Current liabilities:
Accounts payable $ 18,358 $ 19,175
Convertible senior subordinated
debentures 49,174 --
Current portion of recourse
long-term debt 39,042 10,419
Current portion of nonrecourse
project financing 35,830 10,758
Accrued interest payable 5,145 2,314
Short-term borrowings 2,386 2,199
Other current liabilities 5,944 3,746
------- ------
Total current liabilities 155,879 48,611

Recourse long-term debt,
net of current portion 7,073 28,012
Convertible senior subordinated
debentures -- 49,174
Nonrecourse project financing,
net of current portion 60,310 97,140
Construction costs payable -- 5,100
Deferred income taxes 12,808 10,895
Other liabilities 1,610 7,922
------- -------
237,680 246,854
------- -------
Commitments and contingencies

Stockholders' equity:
Preferred stock, par value $.01;
shares authorized, 10,000,000; none
issued
Class A common stock, par value $.01,
one vote per share; 40,000,000 shares
authorized; issued 13,055,597;
outstanding - 12,965,397 in 1994
and 1993 130 130

Class B common stock, par value $.01,
ten votes per share; 10,000,000 shares
authorized; issued 4,070,770;
outstanding - 3,905,770 in 1994
and 1993 39 39
Additional paid-in capital 41,353 40,053
Accumulated deficit (40,735) (23,932)
Other (651) (615)
-------- -------
Total stockholders' equity 136 15,675
-------- -------
Total liabilities and stockholders'
equity $237,816 $262,529
======== ========

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1994, 1993 and 1992
(Dollars and shares in thousands, except per share data)

1994 1993 1992

Energy revenues $62,647 $ 65,136 $ 71,638
Equipment sales and services 24,304 18,955 21,854
Rental revenues 5,372 3,636 3,191
Revenues from related parties -- 515 378
Development fees and other 14,266 9,450 3,054
------- ------- -------
106,589 97,692 100,115
------- ------- -------
Cost of energy revenues 49,961 44,889 46,101
Cost of equipment sales and services 21,890 16,431 17,746
Cost of rental revenues 2,730 2,458 1,421
Cost of revenues from related parties -- 452 320
Cost of development fees and other 9,593 7,520 1,408
------- ------- -------
84,174 71,750 66,996
------- ------- -------
Gross profit 22,415 25,942 33,119

Provision for loss on equipment
held for sale 6,250 -- --
Selling, general and administrative
expenses 19,680 21,872 13,133
------- ------- -------
Income (loss) from operations (3,515) 4,070 19,986

Involuntary conversion gain 6,066 -- --
Interest and other income 874 993 1,204
Interest and debt expense (18,013) (15,696) (17,340)
------- ------- -------
Income (loss) before income taxes (14,588) (10,633) 3,850

Provision for income taxes 1,913 3,078 2,438
-------- ------- ------
Net income (loss) $ (16,501) $(13,711) $1,412
======== ======= ======
Net income (loss) per share $ (.98) $ (.82) $ .09
======== ======= ======
Weighted average shares outstanding 16,871 16,821 14,911
======== ======= ======

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1994, 1993 and 1992
(Dollars in thousands)

<TABLE>

Class A Class B Additional Total
Common Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Other Equity
-------- ------- ---------- ----------- ----- ------------

<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1991 $ 82 $ 47 $ 25,761 $ (11,633) $ (22) $ 14,235

Issuance of 3,858,028
shares of Class A Common
Stock in connection with an
offering, net of issuance
costs 38 13,562 13,600

Conversion of 515,620
shares of Class B Common
Stock into Class A
Common Stock in
connection with an offering 5 (5) -

Issuance of 65,464 shares
of Class A Common Stock
upon the exercise of stock
options 1 261 262

Issuance of 16,840 shares
of Class A Common Stock
upon the conversion of
debentures, net of deferred
financing costs 75 75

Currency translation
adjustment (179) (179)

Net income 1,412 1,412
------- ------ -------- --------- ------ --------
Balances, June 30, 1992 $ 126 $ 42 $ 39,659 $(10,221) $ (201) $ 29,405
======= ====== ======== ======== ====== ========

</TABLE>

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1994, 1993 and 1992
(Dollars in thousands)

<TABLE>

Class A Class B Additional Total
Common Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Other Equity
-------- ------- ---------- ----------- ----- ------------

<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1992 $ 126 $ 42 $ 39,659 $ (10,221) $ (201) $ 29,405

Issuance of 94,365 shares
of Class A Common Stock
upon the exercise of stock
options 1 386 387

Conversion of 250,000
shares of Class B Common
Stock into Class A
Common Stock 3 (3)

Currency translation
adjustment (414) (414)

Other 8 8

Net Loss (13,711) (13,711)
------- ------ ------- --------- ------ -------

Balances, June 30, 1993 $ 130 $ 39 $ 40,053 ($23,932) $ (615) $15,675
======= ====== ======== ======== ====== ========

</TABLE>

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1994, 1993 and 1992
(Dollars in thousands)

<TABLE>

Class A Class B Additional Total
Common Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Other Equity
-------- ------- ---------- ----------- ----- ------------

<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1993 $ 130 $ 39 $ 40,053 $ (23,932) $ (615) $ 15,675

Currency translation
adjustment (36) (36)

Excess of purchase
price over predecessor
cost of facilities acquired
(Note 24) (302) (302)

Stock warrants issued 1,300 1,300

Net loss (16,501) (16,501)
------- ------ ------- --------- ------ --------

Balances, June 30, 1994 $ 130 $ 39 $ 41,353 $ (40,735) $ (651) $ 136
======= ====== ======== ========= ====== ========

</TABLE>

See accompanying notes to consolidated financial statements.

<TABLE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1994, 1993 and 1992
(Dollars in thousands)

1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(16,501) $(13,711) $ 1,412
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 10,550 10,098 8,996
Amortization of debt discount
and deferred financing costs 1,752 452 452
Deferred income tax expense 1,913 3,078 2,303
Project development costs expensed 539 1,782 125
Provision for loss on equipment
held for sale 6,250 - -
Involuntary conversion gain (6,066) - -
Gain on sale of projects - (1,691) -
Non-cash litigation costs - 621 -
Other 1,625 2,602 1,078
Changes in operating assets and
liabilities:
Accounts receivable 294 4,424 (5,661)
Inventories 805 (766) (94)
Receivables from related parties 542 97 (444)
Notes receivable 1,784 (314) (1,725)
Accounts payable (2,892) 508 4,886
------- -------- ------
Net cash provided by
operating activities 595 7,180 11,328
------- -------- ------
Cash Flows from investing activities:
Capital expenditures (2,496) (7,207) (7,534)
Capital expenditures and costs to
repair Newark Plant (21,041) (2,641) -
Insurance proceeds for Newark
Plant 27,000 2,000 -
Project development costs (529) (764) (2,752)
Proceeds from the sale of projects,
net of notes receivable 2,000 1,318 -
(Deposits into) withdrawals from
restricted cash accounts 470 (1,856) (1,685)
Other 622 (437) (1,894)
------- -------- ------
Net cash provided by (used for)
investing activities 6,026 (9,587) (13,865)
------- -------- ------

Cash flows from financing activities:
Proceeds from long-term debt 15,622 21,816 13,501
Repayments of long-term debt (21,660) (23,708) (24,485)
Proceeds from stock issuances 387 13,862
Net proceeds (repayments) of short-term
borrowings 187 301 (1,964)
Other (302) - (176)
------- -------- ------
Net cash provided by (used for)
financing activities (6,153) (1,204) 738
------- -------- ------
Net increase (decrease) in cash and cash
equivalents 468 (3,611) (1,799)
Cash and cash equivalents at beginning of
year 5,213 8,824 10,623
------- -------- ------
Cash and cash equivalents at end of year $ 5,681 $ 5,213 $ 8,824
======= ======== ======

See accompanying notes to consolidated financial statements.

</TABLE>

O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

1. Business; Liquidity and Capital Resources:

O'Brien Environmental Energy, Inc. and its subsidiaries (the
"Company") develop, own and operate biogas projects and develops
and owns cogeneration, and waste-heat recovery projects which
produce electricity and thermal energy for sale to industrial
and commercial users and public utilities. In addition, the
Company sells and rents power generation cogeneration and
standby/peak shaving equipment and services.

On September 28, 1994, O'Brien Environmental Energy, Inc., the
parent company, filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the
U.S. Bankruptcy Court for the District of New Jersey to pursue
financial restructuring efforts under the protection afforded by
the U.S. bankruptcy laws. The decision to seek Chapter 11 relief
was based on the conclusion that action had to be taken to
preserve its relationships and maintain the operational strength
and assets of the Company, and to restructure its debt and utilize
its assets in a manner consistent with the interests of all
creditors and shareholders rather than liquidate to satisfy the
demands of a particular group of creditors. The Company expects
to continue its normal activities, including project development
and the sale and/or refinancing of existing projects.

There is negative working capital of $125,683 at June 30,
1994. Furthermore, the Company is severely restricted in
accessing the cash flows of its major operating wholly-owned
subsidiaries (Newark and Parlin) because of certain
restrictive debt covenants and technical and legal
requirements, including an adequate level of distributable
reserves, that arise from these subsidiaries having non-
recourse project financing.

There can be no assurance that the Company's restructuring
efforts will be successful, or that the Company can present a
plan of reorganization which will be accepted by the
bankruptcy court and creditors, consistent with the Company's
requirements in restructuring the obligations. Furthermore,
there can be no assurance that sales of assets can be
successfully accomplished on terms acceptable to the Company.
Under current circumstances, the Company's ability to continue
as a going concern depends upon the successful restructuring
of the Company's obligations and the further redeployment of
assets.

2. Summary of Significant Accounting Policies:

Basis of Presentation:

The consolidated financial statements include the accounts of
the Company and all significant subsidiaries which are more
than 50 percent owned and controlled. Intercompany
transactions and unrealized intercompany profits and losses on
transactions with equity method investees have been eliminated
in consolidation. Foreign subsidiaries with fiscal years
ending on March 31 are included in the consolidated financial
statements. If events occurred between March 31 and June 30
which materially affect the consolidated financial position or
results of operations, they would be reflected in the
consolidated financial statements. Investments in less than
majority-owned entities are recorded at cost plus equity in
their undistributed earnings or losses since acquisition.

Certain reclassifications have been made to conform prior
years' data to the current presentation.

Revenue Recognition:

Energy revenues from cogeneration and biogas projects are
recognized as billed over the term of the contract. Profits
and losses from sales and rental of power generation
equipment, including sales to projects in which the Company
retains less than a 100% interest, are recognized as the
equipment is sold or over the term of the rental. Development
fee revenue is recognized on a cost recovery basis as cash is
received (without future lending provisions), or equity
interest in the partnership increases, whereby revenues are
recognized subsequent to the recovery of all project
development costs.

Inventories:

Inventories, consisting principally of power generation
equipment and related parts held for sale, are valued at the
lower of cost (determined primarily by the specific
identification method) or market.

Property, Plant and Equipment:

Property, plant and equipment are stated at cost and are
depreciated using the straight-line method over the estimated
useful lives of the assets which range from five to thirty
years. Depreciation on equipment held for future projects is
not provided until the equipment is placed in service. For
income tax purposes, the Company uses accelerated depreciation
methods.

Cost of maintenance and repairs is charged to expense as
incurred. Renewals and improvements are capitalized. Upon
retirement or other disposition of items of plant and
equipment, cost of items and related accumulated depreciation
are removed from the accounts and any gain or loss is included
in operations.

Equipment Held For Sale:

Equipment held for sale consists of power generation equipment
not currently being used in an operating project and is valued
at the lower of cost or net realizable value.

Project Development Costs:

Project development costs consist of fees, licenses and
permits, site testing, bids and other charges, including
salary and interest charges, incurred by the Company in
developing projects. For wholly-owned projects, these costs
are transferred to property, plant and equipment upon
commencement of construction and depreciated over the contract
term upon commencement of operations. For projects structured
as partnerships, these costs may be recovered through
development cost reimbursements from the partnership or third
parties, or may be transferred to an investment in the
partnership. It is the Company's policy to expense these
costs in any period in which management determines the costs
to be unrecoverable.

Deferred Financing Costs:

Deferred financing costs are being amortized on a
straight-line basis over the terms of the related financing.

Recourse Long-term Debt and Nonrecourse Project Financing:

Recourse long-term debt consists of collateralized long-term
debt for which repayment is a general obligation of the
Company. Nonrecourse project financing consists of long-term
debt for which repayment obligations are limited to specific
project subsidiaries.

Income Taxes:

Income Taxes are provided based upon the provisions of
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which requires the recognition
of deferred income taxes for the tax consequences of
"temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities. Under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment
date.

Gas Swap Agreements:

The Company enters into gas swap agreements from time to time
to reduce the impact of changes in gas prices on its operating
income. The differentials to be paid or received under such
agreements are accrued and are recorded as increments or
decrements to gas expense.

Interest Rate Swap Agreement:

The Company has entered into an interest rate swap agreement
to reduce the impact of changes in interest rates on certain
of its variable rate nonrecourse debt. The differentials to
be paid or received under such agreements are accrued and are
recorded as increments or decrements to interest and debt
expense.

Amortization of Excess Cost:

Excess of cost of investment in subsidiaries over net assets
at date of acquisition is being amortized by charges to
operations on a straight-line basis over twenty-five years.

Net Income (Loss) per Share:

Net Income (Loss) per share is calculated by dividing net
income (loss) by the weighted average shares of Common Stock
and Common Stock equivalents outstanding. Fully diluted net
income (loss) per share is not presented because conversion of
the convertible senior subordinated debentures and other
Common Stock equivalents would be antidilutive.

Foreign Currency Accounting:

The financial statements of foreign subsidiaries have been
translated in accordance with Statement of Financial
Accounting Standards No. 52, whereby assets and liabilities
are translated at year-end rates of exchange and statements of
operations are translated at the average rates of exchange for
the year. Currency translation adjustments are accumulated in
the other component of stockholders' equity until the entity
is substantially sold or liquidated.

Transaction gains and losses associated with foreign
activities are reflected in operations.

Statements of Cash Flows:

For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with
maturities of three months or less at the time of purchase to
be cash equivalents.

Concentration of Credit Risk:

The Company primarily sells electricity and steam to public
utilities and corporations on the east and west coasts of the
United States under long-term contractual agreements. Also,
the Company services, sells and rents equipment to various
entities worldwide. The Company performs ongoing credit
evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential
credit losses and such losses have been within management's
expectations.

The Company invests its excess cash in deposits with financial
institutions. Those securities typically mature within ninety
days and, therefore, bear minimal risk. The Company has not
experienced any losses on these deposits.

3. Cash and Restricted Cash:

Due to restrictions in the Newark and Parlin project financing
agreements, $2,346 and $2,822 of cash and cash equivalents at
June 30, 1994 and 1993, respectively, is generally available
for use only by those projects.

Additionally, the Company has classified certain cash and cash
equivalents that are not fully available for use in its
operations as restricted. The restricted cash and cash
equivalents relate to debt service reserve accounts for
O'Brien (Newark) Cogeneration, Inc. and O'Brien (Parlin)
Cogeneration, Inc. (See Note 16), and compensating balances
maintained by the Company at financial institutions in
connection with lines of credit extended to its United Kingdom
subsidiaries (See Note 13).

<TABLE>

The restricted cash and cash equivalents consist of the following:

1994 1993
---- ----
<S> <C> <C>
O'Brien (Newark) Cogeneration, Inc. $ 1,503 $ 2,500
O'Brien (Parlin) Cogeneration, Inc. 1,701 1,233
United Kingdom subsidiaries 1,246 1,280
Other 144 51
------- -------
$ 4,594 $ 5,064
======= =======

4. Property, Plant and Equipment:

Property, plant and equipment consist of the following:

1994 1993
---- ----
<S> <C> <C>
Equipment related to energy revenues $170,346 $171,515

Rental equipment 31,050 34,737

Furniture and fixtures 1,631 1,649

Land, buildings and improvements 2,631 1,663

Other equipment 530 823
-------- --------
205,886 210,387

Accumulated depreciation and
amortization (32,630) (27,911)
-------- --------
173,256 182,476

Equipment held for future projects 3,258 11,741
-------- --------
$176,514 $194,217
======== ========

</TABLE>

Depreciation expense was $9,717, $9,643 and $8,561 in 1994,
1993 and 1992, respectively.

Equipment related to energy revenues includes the property and
equipment of the Newark and Parlin cogeneration plants and the
biogas projects.

The Newark project consists of a 52 megawatt cogeneration
power plant in Newark, New Jersey which commenced operations
in November 1990 and is supplying electricity and steam
pursuant to 25-year supply contracts. The facility was
financed utilizing nonrecourse project financing.

The Parlin project consists of a 122 megawatt cogeneration
power plant in Parlin, New Jersey which commenced operations
on June 26, 1991 and is supplying 101 megawatts of electricity
pursuant to a 20-year electric supply contracts and steam
pursuant to a 30-year supply contract. The facility was
financed utilizing nonrecourse project financing.

5. Equipment Held for Sale:

As part of the Company's debt restructuring program and its
efforts to improve both short-term and long-term liquidity, it
has actively begun seeking buyers for specific energy equipment
not currently being used in an operating project nor critical to
the completion of any projects in development. These assets,
consisting mainly of gas and steam turbines are being held for
sale in order to raise cash and reduce debt levels.

The value of these assets sold in a secondary market is less
than if they were incorporated into an internally developed
operating project. Accordingly, the Company recorded a noncash
charge in the fourth quarter in the amount of $6,250 to adjust
the carrying value of these assets to an estimated resale value
of $8,458 based upon appraisals made by the Company.

6. Notes Receivable

Notes receivable consist of the following:

<TABLE>

1994 1993
---- ----
<S> <C> <C>
Note receivable with interest
at 7.25% due August 30, 2003(a) $3,121 --

Note receivable with interest
payments due annually at 8% in
May, and a principal payment of
$6,250 due May 12, 1996 (b) -- $6,250

Note receivable, non-interest
bearing, due in annual principal
installments of $800 through June
1996 (c) 2,137 2,770

Notes receivable originally due in
quarterly installments of $110(d) -- 1,438

Other (e) 548 1,421
------ ------
5,806 11,879
Current portion 780 2,564
------ ------
$5,026 $9,315
====== ======

</TABLE>

(a) Note receivable associated with the sale of coalbed
methane properties in August 1993. Principal and
interest payments are due monthly only to the extent of
a percentage of net revenues generated from the
properties until the earlier of (1) the note is paid in
full or (2) 10 years. The Company discounted the note
to its estimated net realizable value in consideration
of the Company's plans to monetize the note and
accelerate cash flow. During 1994, the Company did not
recognize interest income or amortize the discount
due to disputes with the other party. (See Notes 7 and
20). At June 30, 1994, the note has a face value of
$4,500 and has been discounted by $1,379.

(b) Note receivable associated with the sale of a 12.5%
interest in O'Brien (Newark) Cogeneration, Inc. The
note was used to repurchase the 12.5% interest in
O'Brien (Newark) Cogeneration, Inc. in January 1994.
(See Note 28).

(c) Note receivable associated with the termination of a
power purchase contract (See Note 20). The note is
collateralized by an irrevocable letter of credit. At
June 30, 1994, face value and discount are $2,400 and
$263, respectively, assuming an interest rate of 5.95%

(d) Notes receivable associated with the sale of two biogas
projects in 1992. (See Note 20). In January 1994,
these notes were satisfied with a payment based on an
offer by the Company to discount the notes by $186 for
early repayment.

(e) Notes receivable associated primarily with a direct
finance lease relating to power generation equipment and
with the sale of two biogas projects in development in
1993 (See Note 20). In October 1993, a $331 note
receivable was satisfied with a payment of $265 based on
an offer by the Company to discount the notes for early
repayment.

7. Coalbed Methane Gas Properties Note:

In August 1993, the Company entered into an agreement with an
unrelated third party joint venture to sell substantially all
proved and unproved coalbed methane gas properties for $6,500.
The Company received $2,000 in cash and a production payment
note receivable of $4,500. In addition, the Company has
agreed to contribute up to $800 to complete non-producing
wells into commercial wells which is included in other current
liabilities at June 30, 1994. The production payment note
receivable will be paid from a percentage of net revenues from
the coalbed methane properties until the earlier of (1) the
note is paid in full or (2) 10 years. The Company discounted
the note to its estimated net realizable value in
consideration of the Company's plans to monetize the note and
accelerate cash flow. (See Note 6). Development fees and
other includes $5,121 of revenues recognized in connection
with this sale. (See Note 20).

In May 1994, the joint venture to which the Company sold its
coalbed methane properties, filed a complaint with the
American Arbitration Association. The complaint alleges,
among other things, breach of contract, fraud and conversion
in connection with the agreement between the parties. The
joint venture seeks damages in the amount of approximately
$550 and the cancellation of all remaining payments due under
the promissory note in favor of the Company in the amount of
$4,500. In its answer, the Company has denied the allegations
and counterclaimed against the Joint Venture for breach of
contract in such amount as is necessary to repay the balance
of the promissory note with interest. The Company has,
further, requested that a receiver be appointed to ensure the
performance of the Joint Venture with regard to its
contractual obligations to the Company. The Company does not
feel that a settlement of this arbitration will impair the
net book value of the note receivable.

8. Project Development Costs:

During the years ended June 30, 1994, 1993 and 1992, the
Company determined that certain project development costs
should be expensed. The resulting charges, net of any
recoveries, of $539, $1,782 and $125 for 1994, 1993 and 1992,
respectively, are included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations.

9. Notes Receivable from Officers:

At June 30, 1994 and 1993, the Company had notes receivable
totalling $238 and $246, respectively, from an officer of the
Company. The notes are unsecured, and bear interest at 8.25%
per annum.

10. Investments in Equity Affiliates:

Investment in equity affiliates consist of the following:

1994 1993
---- ----

Gray's Ferry $ 2,293 $ 1,590

Artesia 337 356

PoweRent Limited 438 342

Intrag, Joing Venture 107 227
------- -------
$ 3,175 $ 2,515
======= =======
Gray's Ferry:

In October 1991, O'Brien (Schuylkill) Cogeneration, Inc.,
(O'Brien Schuylkill) a wholly-owned subsidiary, executed a
partnership agreement with Adwin Equipment Company (Adwin) to
develop a qualifying cogeneration facility located in
Philadelphia, Pennsylvania. The partnership will be known as
Grays Ferry Cogeneration Partnership and will develop, own and
operate the cogeneration facility. The partnership intends to
develop this project in two phases, Phase 1 of which will
consist of approximately 40 megawatts. The partnership has a
25-year steam supply contract and a 20-year electric supply
contract. On August 12, 1994, the partnership received a
commitment letter for a $62,000 loan from Canada Imperial Bank
at Commerce to finance Phase I. The Company expects that the
expiration date of the commitment letter will be extended beyond
October 30, 1994, although there can be no assurance that such
extension will be granted or that if granted, will provide
sufficient time to close.

Artesia:

The Artesia project consists of a 32 megawatt cogeneration
facility in Artesia, California which commenced operations in
1990 and is supplying electricity and steam pursuant to 30
year supply contracts. The project is owned and operated by
O'Brien California Cogen Limited, a limited partnership.
O'Brien Cogeneration, Inc. II, a wholly-owned subsidiary of
the Company, is the managing general partner. The Company's
initial equity interest of 3% can increase to a maximum of 50%
on the basis of project performance and returns to the limited
partner. In addition to its share of the limited
partnership's operations, the Company receives annual
management fees of approximately $130 and participates in a
fuel supply partnership.

PoweRent Limited:

PoweRent Limited, an entity in which a subsidiary of the
Company owns a 50% interest, is a United Kingdom company that
sells and rents power generation equipment. The remaining 50%
of PoweRent is owned by an officer of a wholly-owned United
Kingdom subsidiary.

Intrag, Joint Venture:

Intrag, Joint Venture was formed for the purpose of developing
power generation projects in Pakistan; and the manufacture,
sale and/or rental of power generation equipment in Pakistan.
The joint venture agreement expires in June 1995.

The Company's investment in the equity affiliates has been
accounted for using the equity method.

11. Cost in Excess of Net Assets Acquired:

Excess of cost of investment in subsidiaries over net assets
at date of acquisition consists of the following:

1994 1993
---- ----

Excess of investment in subsidiaries
over net assets at date of
acquisition $ 2,466 $ 2,466

Accumulated amortization (479) (381)
------- -------
$ 1,987 $ 2,085
======= =======

Amortization expense amounted to $98 in each of 1994, 1993
and 1992, respectively.

12. Deferred Financing Costs:

Deferred financing costs relate to the Subordinated Debentures
and nonrecourse debt and consist of the following:

1994 1993
---- ----

Deferred financing costs $ 7,080 $ 7,087

Accumulated amortization (1,811) (1,359)
------- -------
$ 5,269 $ 5,728
======= =======

Amortization expense amounted to $452 in each fiscal year
ending June 30, 1994, 1993 and 1992 and is included in
interest and debt expense in the accompanying consolidated
statements of operations.

13. Short-term Borrowings:

As of June 30, 1994 and 1993 short-term borrowings consist of
foreign lines of credit payable to financial institutions
bearing interest at foreign (U.K.) short term rates.
Collateral for the lines of credit consists primarily of
certain restricted cash balances.

14. Recourse Long-Term Debt:

Recourse long-term debt consist of the following:

1994 1993
---- ----

Notes payable to financial
institutions, due in monthly
installments of principal plus
interest at floating rates ranging
from 1% to 4.5% over the prime
rate (prime rate at June 30, 1994
was 7.25%) maturing at various
dates through December 1999,
collateralized by certain energy
equipment having a net book value
of $32,182 at June 30, 1994 $30,481 $27,113

Note payable to unrelated third party,
due in monthly installments with
interest at 12% (a) 5,000

Capital lease obligations, due in
monthly installments at rates up to
13.25%, maturing at various dates
through December 2000,
collateralized by certain energy
and rental equipment having a net
book value of $12,067 at June 30,
1994 9,134 10,828

Other 1,500 490
------- -------
46,115 38,431
Less amount classified as current (b) (39,042) (10,419)
------- -------
$ 7,073 $28,012
======= =======

(a) The Company has reclassified a $5,000 current liability
to long-term debt at June 30, 1994. The $5,000
repurchase option for the Philadelphia Water Department
project reacquired on August 5, 1994 was funded by
long-term financing from an unrelated third party
subsequent to year end. The loan is collateralized by
the common stock of the reacquired subsidiary.

(b) As a result of defaults, consisting of defaults in the
payment of interest under each of the Indentures as
well as defaults under certain of the Company's loan
agreements, the Company reclassified $21,914 out of a
long-term classification for a total of $39,042 of its
recourse debt as a current liability. Of this amount,
approximately $5,320 was triggered solely by defaults
under the Indentures, $3,066 by cross defaults and by
the non-payment of principal subsequent to year end and
the remainder, $13,528 was reclassified because of the
Chapter 11 Bankruptcy filing on September 28, 1994.

Scheduled maturities, including the impact of defaults, of
recourse long-term debt and capital lease obligations,
including interest, for the next five years and thereafter are
as follows:

<TABLE>

Year ending June 30 Recourse Long-term debt Capital Leases
- - ------------------- ----------------------- --------------
<C> <C> <C>
1995 31,929 9,154
1996 930 865
1997 1,039 848
1998 1,163 484
1999 1,298 79
Thereafter 622 159

Interest component on
capital leases -- (2,455)
------- ------
$36,981 $9,134
======= ======

The Company incurred interest charges, exclusive of interest
charges on nonrecourse project financing, of $9,802, $8,265
and $8,423 in 1994, 1993 and 1992, respectively. Of these
amounts, $403, $1,873 and $2,690 were capitalized.

Certain of the recourse long-term debt agreements contain
requirements that the Company will (1) not incur a net loss
during any fiscal year; and (2) not default on other debt
agreements. In addition, the agreements prohibit the
declaration of dividends on common stock.

15. Convertible Senior Subordinated Debentures:

Convertible senior subordinated debentures consist of the
following:

1994 1993
---- ----

7 3/4% Convertible
Senior Subordinated
Debentures due in
March 2002. Conversion
price $4.75 per share $11,419 $11,419

11% Convertible
Senior Subordinated
Debentures due in
March 2010. Conversion
price $5.55 per share 11,500 11,500

11% Convertible
Senior Subordinated
Debentures due in
March 2011. Conversion
price $5.46 per share 26,255 26,255
------- -------
$49,174 $49,174
======= =======

On August 22, 1994, the trustees for each of the 1987
Debentures, 1990 Debentures and 1991 Debentures delivered
acceleration notices to the Company, notifying the Company
that the total principal amount of $49,174 and past due
interest in the amount of $5,243 as of September 20, 1994, is
due and payable by the Company immediately based on the
following factors:

(bullet) The Board of Directors elected not to make the March 15, 1994
or the September 15, 1994 semi-annual required interest
payments on the Debentures which total $5,037. Each semi-
annual required interest payment consists of $442, $632 and
$1,444 for the 1987 Debentures, 1990 Debentures and 1991
Debentures, respectively.

(bullet) The Company is currently in default under the 1987 Indenture's
Funded Indebtedness covenant (as defined in the 1987
Indenture). Such covenant prohibits the Company from
incurring or creating any Funded Indebtedness if after giving
effect to such incurrence or creation, the total outstanding
Funded Indebtedness of the Company on a consolidated bases
would exceed 75% of the sum of Consolidated Stockholders'
Equity and Funded Indebtedness.

Additionally, the Company is in default under the 1987
Indenture, 1990 Indenture and 1991 Indenture due to defaults
on other indebtedness which results in the acceleration of the
maturity of at least an aggregate of $1,000, $2,000 and
$2,000, respectively, of other indebtedness which is not cured
within 60 days, 90 days and 90 days, respectively, after
notice to the Company.

As a result of the losses experienced by the Company, the
Company's Consolidated Stockholders' Equity (as defined in the
1987 Indenture, 1990 Indenture and 1991 Indenture) was $136
and $8,066 at June 30, 1994 and March 31, 1994, respectively.
As a result, the covenant in the 1990 Indenture and 1991
Indenture requiring the Company to purchase 7.5% of the
outstanding 1990 Debentures and 1991 Debentures if the
Company's Consolidated Stockholders' Equity is less than
$10,000 at the end of each of any two consecutive fiscal
quarters has been triggered. Additionally, there is a
covenant in the 1987 Indenture which requires the company to
purchase 7.5% of the outstanding 1987 Debentures if the
Company's Consolidated Stockholders' Equity is less than
$7,500 at the end of each of any two consecutive fiscal
quarters. Purchasing Debentures pursuant to these covenants
would cause severe liquidity problems for the Company. The
Company does not presently expect to be a position to comply
with these covenants.

In May 1994, the Company filed a Registration Statement on
Form S-4 (the "Registration Statement") with the Securities
and Exchange Commission relating to (a) an exchange offer of
40 shares of Series A Cumulative Senior Preferred Stock, 120
Warrants to purchase Class A Common Stock and 20 shares of
Class A Common Stock for each $1 principal amount of 1987
Debentures, 1990 Debentures and 1991 Debentures outstanding
and (b) a solicitation of consents to certain proposed
amendments to the indentures (the "Indentures") governing each
of the 1987 Debentures, 1990 Debentures and 1991 Debentures as
well as the waiver of all defaults under each of the
Indentures. In June 1994, an amendment to the Registration
Statement was filed. Subsequent to such amendment, the
Company began discussions with an ad hoc committee (the "Ad
Hoc Committee") of debentureholders representing holders of
the 1987 Debentures, 1990 Debentures and 1991 Debentures. The
Company entered into a standstill agreement with the Ad Hoc
Committee pursuant to which the Company has agreed, among
other things, to assist the Ad Hoc Committee in its due
diligence efforts. The failure to reach an agreement with the
Ad Hoc Committee was one of the factors upon which the
Company's decision to file for protection under the Bankruptcy
Code was based. (See Note 1).

The debentures are subordinated in right of payment, in the
manner and to the extent set forth in the indenture
agreements, to the prior payment in full of all Senior
Indebtedness, as defined in the indenture agreements, whether
outstanding on the date the debentures were issued or
thereafter created, incurred or assumed.

The debentures are convertible, at any time prior to maturity,
into shares of Class A Common Stock of the Company as provided
in the Indenture agreements. Prior to maturity, the debentures
may be redeemed at the option of the Company, subject to
certain conditions.

The Indentures contain sinking fund requirements that would
require cash payments in 1999 if the events of default
discussed above are resolved.

In accordance with the terms of the Indenture agreements, the
Company is restricted, under certain circumstances, from
declaring or paying cash dividends, making cash distributions,
or acquiring or retiring for value any capital stock of the
Company.

During 1992, $80 of the 7 3/4% debentures were converted into
Class A Common Stock. No debentures were converted during
1994 or 1993.

16. Nonrecourse Project Financing:

Nonrecourse project financing consists of the following:

1994 1993
---- ----
Newark project (a) $29,580 $35,088

Parlin project (b) 66,560 72,810
------- -------
96,140 107,898
Less current portion (35,830) (10,758)
------- -------
$60,310 $97,140
======= =======

The nonrecourse project financing agreements contain various
covenants, the most restrictive of which are the maintenance of
positive working capital, limitation on the payment of dividends
or other distributions to the Company and a restriction on
additional borrowings by the project subsidiaries.

At June 30, 1994, both the Newark and Parlin projects were in
default of the covenant which requires the maintenance of
positive working capital. On September 26, 1994, the project
lenders agreed to waive this covenant through July 1, 1995, for
the Parlin project only, provided that during the period that
this waiver is in effect no distribution of any nature whatsoever
will be made to the Company by the Parlin wholly-owned subsidiary
and that this waiver will cease to be effective in the event that
the wholly-owned subsidiary is in compliance with the requirement
to maintain positive working capital at any time prior to June
30, 1995. The lenders were not willing to provide a similar
waiver for the Newark project. As a result of the Newark project
not getting the waiver, $25,010 of non-recourse debt has been
reclassified from long-term to short-term debt.

(a) The Newark project financing is an obligation of O'Brien
(Newark) Cogeneration, Inc., a wholly-owned subsidiary
of the Company. The project financing was converted
from a nonrecourse construction loan to a nonrecourse
12-year term loan in October 1990. The term loan
provides for a variable interest rate tied to either
LIBOR or the prime rate. The subsidiary has the option
to fix the interest rate for this term loan at
prevailing long-term market rates. At June 30, 1994,
the subsidiary had $29,580 outstanding under the term
loan. The floating rate as of that date was 5.75%.
During 1994, 1993 and 1992, $1,578, $1,759 and $2,790,
respectively, of interest costs were incurred pursuant
to the project financing. The sole collateral for the
term loan is the common stock of O'Brien (Newark)
Cogeneration, Inc., which has net assets of
approximately $46,908 excluding the nonrecourse
financing at June 30, 1994.

(b) The Parlin financing is an obligation of O'Brien
(Parlin) Cogeneration, Inc., a wholly-owned subsidiary
of the Company. The project financing was converted
from a nonrecourse construction loan to a nonrecourse
12-year term loan in December 1990. Through the use of
an interest rate swap agreement, $47,419 of the term
loan has a fixed interest rate of approximately 11% per
annum for a period of 10 years. The Company is exposed
to credit loss in the event of nonperformance by the
other party to the swap. However, the Company does not
anticipate nonperformance. The balance of the loans
have a variable interest rate tied to LIBOR or the prime
rate unless the Company chooses to fix the interest rate
at prevailing long-term market rates. At June 30, 1994,
approximately $19,141 of this loan had a floating rate
of 5.75%. During 1994, 1993 and 1992 $6,633, $7,166 and
$8,357 of interest costs were incurred pursuant to the
term loan which included $3,253, $3,544 and $2,912 for
1994, 1993 and 1992, respectively, of costs associated
with the interest rate swap agreement. The sole
collateral for the term loan is the common stock of
O'Brien (Parlin) Cogeneration, Inc., which has net
assets of approximately $72,176 excluding the
nonrecourse financing at June 30, 1994.

Scheduled maturities of nonrecourse project financing for
the next five years are as follows:

1995 $ 35,830
1996 6,530
1997 6,780
1998 7,900
1999 7,900
Thereafter 31,200
-------
$96,140
=======

17. Stockholders' Equity:

Preferred Stock

The Board of Directors of the Company is authorized to issue
shares of Preferred stock in one or more series and to
determine the rights and preferences of each series.

Common Stock

In January 1992, the Company completed an offering of
3,858,028 shares of Class A Common Stock at $4.00 per share.
Proceeds from the offering amounted to $13,600, net of
issuance costs. In addition, a principal stockholder,
controlled by the Chairman and Chief Executive Officer of the
Company, converted 515,620 shares of Class B Common Stock into
Class A Common Stock and sold the Class A Common Stock shares
at $4.00 per share in connection with this offering.

Except for voting and conversion privileges, shares of Class A
and Class B common stock are identical. Class A stockholders
are entitled to one vote per share while Class B stockholders
are entitled to ten votes per share. Class B common stock is
convertible into Class A common stock on the basis of one
share of Class A common stock for each share of Class B common
stock. All outstanding shares of Class B common stock are
owned by III Enterprises, Inc., a company wholly-owned by the
Chairman and Chief Executive Officer of the Company, which has
controlling voting interest in the Company.

In October 1993, III Enterprises, Inc. filed for bankruptcy
protection under Chapter 11 of the Federal Bankruptcy Code.
On October 6, 1994, the bankruptcy court ordered that the
matter be converted to a proceeding under Chapter 7 of the
Federal Bankruptcy Code. On October 7, 1994, the debtor
appealed this order. In connection with any reorganization
of III Enterprises, Inc., the stock ownership of III Enterprises
which owns the controlling shares of Class B Common Stock of the
Company may be sold to a third party. A change in control of
the Company could significantly affect the direction of management
of the Company and limit the utilization of net operating losses.
(See Note 23).

Outstanding shares amounted to the following:

1994 1993
---- ----
Class A common stock 12,965,397 12,965,397
========== ==========
Class B common stock 3,905,770 3,905,770
========== ==========

At June 30, 1994, the Company had 16,926,574 Class A common
stock shares reserved for issuance in connection with its
stock option plans (2,141,894) and its convertible senior
subordinated debentures (9,284,680) and for options granted
with the sale of the Philadelphia Water Department Project
(5,500,000).

Other

The other component of stockholders' equity includes a foreign
currency translation adjustment of ($587), ($551) and ($137)
at June 30, 1994, 1993 and 1992, respectively, and treasury
stock of $64 at June 30, 1994, 1993 and 1992. Treasury stock
is recorded at cost and consists of 90,200 shares of Class A
common stock and 165,000 shares of Class B common stock,
including 75,000 shares of Class A common stock and 165,000
shares of Class B common stock held by O'Brien Energy Services
at the date of its acquisition by the Company.

18. Stock Options:

The Company's stock option plans provide for the granting of
qualified and/or nonqualified options on Class A common stock
to officers, directors and key employees. Qualified options
are exercisable after one year from the date of the grant and
expire no more than ten years after grant. These options
become exercisable over a 48 month period. Pertinent
information concerning the option plans is as follows:

1994 1993 1992
---- ---- ----

Outstanding at beginning
of year 1,416,874 1,400,868 1,279,832

Options exercised -- (94,365) (65,464)

Options expired (707,000) (258,075) (142,500)

Options granted-nonqualified 1,180,000 316,213 160,000

Options granted-qualified -- 52,233 169,000
--------- --------- ---------
Outstanding at end of year 1,889,874 1,416,874 1,400,868
========= ========= =========
Exercisable 1,846,949 1,279,516 1,246,779
========= ========= =========

Exercise prices range from $1.50 to $5.00 per share for
options granted in 1994 and $4.25 to $4.75 per share for
options granted in 1993 and 1992. The price of options
exercised ranged from $3.75 to $4.75 per share in 1993 and
$1.87 to $4.75 per share in 1992. No options were exercised
in 1994.

19. Business Interruption Insurance Claims:

During 1994, 1993 and 1992, energy revenues include $1,706,
$6,247 and $483 received under net business interruption
insurance claims associated with the Newark and Parlin
cogeneration plants.

20. Development Fees and Other:

In June 1994, the Company sold its recently acquired rights to
develop a standby/peak shaving project for a $5,000 cash
payment which is included in development fees and other
income. The costs associated with the development rights were
insignificant.

In August 1993, the Company sold its contractual rights to
develop certain coalbed methane reserves. The selling price
consisted of a $2,000 cash payment and a production note of
$4,500 with an interest rate of 7.25% payable in monthly
installments only to the extent of a percentage of net
revenues from the properties until the earlier of (1) the note
is payable in full, or (2) a term of ten (10) years. The
Company has discounted the note by $1,379 to reflect a lower
estimated net realizable value in consideration of the
Company's plans to monetize the note and accelerate cash flow.
The previously capitalized costs and remaining drilling
obligation amounted to approximately $5,100 resulting in no
gain on this transaction.

In December 1992, the Company and a utility entered into an
agreement pursuant to which the electric contract previously
entered into was terminated for $4,000 from the utility,
payable in five annual installments of $800 without interest.
The payments are collateralized by a standby letter of credit.
The net present value of the $4,000 was determined to be
$3,462, assuming an interest rate of 5.95%, and is reflected
as development fees and other in the accompanying consolidated
statements of operations. The associated project development
costs amounted to $2,386 which resulted in a net gain of
$1,076.

In December 1992, the Company sold a biogas project located in
the United Kingdom for $821, of which $331 was paid pursuant
to a promissory note with an interest rate of 8% and is
reflected as development and other fees in the accompanying
consolidated statements of operations. The associated project
development costs amounted to $564 which resulted in a net
gain of $257. In October 1993, the promissory note was
satisfied for $265, which reflects a $66 discount for early
payment offered by the Company.

In September 1992, the Company sold a 50% interest in a biogas
project pursuant to a stock purchase agreement. The remaining
50% interest was sold on June 30, 1993. The aggregate sale
price was $625 of which $555 was paid pursuant to a promissory
note with an interest rate of 8%. The costs associated with
the sale amounted to $267 which resulted in a net gain of
$358.

In June 1992, the Company sold the power purchase, landfill
gas and other agreements associated with two biogas projects
that were operated by the Company to two unrelated limited
partnerships for $323 in cash and $1,725 in notes receivable
with interest rates of 9.5% and 10%. The cost associated with
the agreements sold amounted to $503 which resulted in a gain
of $1,545. The sales price of $2,048 and the related costs of
$503 are reflected in development and other fees and cost of
development fees and other, respectively, in the accompanying
consolidated statements of operations. In addition, the
Company entered into equipment rental agreements with the
respective buyers of those projects to lease certain power
generation equipment for annual rentals of $185 through
December 31, 2002. The leases may be extended for six years
at the option of the lessee. Also, the annual rentals may be
reduced if equipment is removed from the project sites by the
Company in accordance with provisions in the rental
agreements. In January 1994, these notes receivable were
satisfied for $1,100, which reflects a $202 discount for early
payment offered by the Company.

During 1994 and 1993 the Company recognized approximately
$4,015 and $3,989, respectively, of revenues associated with
the sale of natural gas to the Artesia project under a fuel
management contract. The costs associated with the fuel
transactions amounted to $4,015 and $3,989, respectively.

In 1992, the Company recognized revenues of $779 in connection
with equipment agreements associated with the Hartford
project. Associated costs were $701. During 1993 and 1992,
the Company also recognized $125 and $227, respectively, of
revenues pursuant to management fee and other agreements with
the Hartford and Artesia projects. Associated costs were $112
and $204, respectively.

21. Litigation Settlement Costs:

In May 1993, O'Brien (Newark) Cogeneration, Inc. and O'Brien
Newark Supply Corporation, wholly-owned subsidiaries, entered
into a settlement agreement with Hawker Siddeley Power
Engineering Inc. and related entities, the turnkey contractor
for the Newark cogeneration project, with regards to
litigation relating to the construction of the Newark
cogeneration plant. The settlement agreement dismissed all
claims between all parties. As a result of the settlement,
the $3,800 construction costs payable relating to retained
payment under the construction contract has been adjusted by
reducing property, plant and equipment by $3,200 with the
remainder representing payments made by the Company.

In September 1993, the Company and certain subsidiaries and an
equity affiliate entered into a settlement agreement with
Hawker Siddeley Power Engineering, Inc. and related entities,
the turnkey contractor for the Hartford cogeneration plant,
with regards to litigation relating to the construction of the
Hartford cogeneration plant. Pursuant to the settlement
agreement, the Company relinquished its 5 percent general
partner interest, paid Hawker $250 and issued a promissory
note for $250 to the succeeding general partner, which
resulted in a total charge of $1,121 for 1993, which is
included in selling, general and administrative expenses in
the accompanying Consolidated Statement of Operations.

22. Involuntary Conversion Gain:

On December 25, 1992, a fire disabled the Newark cogeneration
plant. The damage to the plant caused by the fire has been
repaired. The plant returned to partial operations in August
1993 and resumed full operation in October 1993. The Newark
cogeneration plant generated revenues of $23,082 (including
net business interruption proceeds of $980), $19,629
(including net business interruption proceeds of $5,880), and
$27,532 in 1994, 1993 and 1992, respectively. The capital
expenditures to repair the plant are offset by the property
insurance claim proceeds and is reflected as insurance claims
receivable in the accompanying balance sheet at June 30, 1993.
The Company received $36,000 from its insurance carrier which
covered a substantial majority of the Company's cost of repair
and loss of net profits due to business interruption.
Additionally, the Company recognized an involuntary conversion
gain of $6,066 in fiscal 1994.

23. Income Taxes:

Income (loss) from continuing operations before income taxes
consists of:

</TABLE>
<TABLE>

1994 1993 1992
---- ---- ----
<S> <C> <C> <C>

United States $(12,659) $(10,272) $ 3,973
Foreign (1,931) (361) (123)
------- ------- -------
$(14,588) $(10,633) $ 3,850
======= ======= =======

The income tax provision consists of:

<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
Federal $ -- $ -- $ 100

State -- -- 35

Foreign -- -- --
-------- ------- ------
-- -- 135
Deferred income taxes 1,913 3,078 2,303
-------- ------- -------
$ 1,913 $ 3,078 $ 2,438
======== ======= =======
</TABLE>

The components of the net deferred income tax liabilities are
as follows:

<TABLE>

1994 1993
---- ----
<S> <C> <C>
Deferred income tax liabilities:

Property, plant and equipment $18,964 $15,073
------- -------
Deferred income tax assets:

Net operating loss carryforwards 25,235 18,325
Alternative minimum tax credits 110 110
Investment tax credits 1,623 1,623
Miscellaneous 458 328
Valuation allowance (20,354) (16,208)
------- -------
Total deferred tax assets 6,156 4,178
------- -------
Net deferred income tax liabilities $12,808 $10,895
======= =======
</TABLE>

The increase in the valuation allowance from June 30, 1993 to June 30, 1994
is due primarily to the uncertainty of realizing the benefit of loss carry-
forwards generated in 1994.

A reconciliation between the U.S. Federal statutory tax rate and the
effective tax rate follows:

1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income tax (benefit) on the
amount at federal
statutory rate $(4,959) $(3,615) $ 1,309

State income taxes 387 282 538

Operating income tax losses with
no current tax benefit 5,759 6,248 419

Other 726 163 172
------- ------- -------
Total income tax provision $ 1,913 $ 3,078 $ 2,438
======= ======= =======

</TABLE>

At June 30, 1994, the Company has tax basis net operating loss
carryforwards available to offset future regular taxable
income, and investment tax credit carryforwards available to
offset future regular or alternative minimum federal income
taxes payable. The amount of these carryforwards available
for future utilization could be significantly limited based on
a change in control of the Company in accordance with IRS
regulations. (See Notes 1 and 17). These carryforwards
expire as follows:

Net Operating Investment Tax Credit
Loss Carryforwards Carryforwards
------------------ ---------------------
1998 -- 58

1999 -- 138

2000 400 255

2001 792 240

2002 2,325 409

2003 3,733 82

2004 2,071 174

2005 5,022 52

2006 12,677 215

2007 4,002 --

2008 16,430 --

2009 18,356 --
------- ------
$65,808 $1,623
======= ======

In addition, the Company has $1,685 of unused net operating
loss carryforwards for United Kingdom income tax purposes.
These credits can be carried forward for United Kingdom tax
purposes indefinitely.

An alternative minimum tax is imposed at a 20% rate on the
Company's alternative minimum taxable income which is
determined by making statutory adjustments to the Company's
regular taxable income. Net operating loss carryforwards may
be used to offset only 90% of the Company's alternative
minimum taxable income. The net operating loss carryforwards
for alternative minimum tax purposes are approximately $34,458
for income tax purposes at June 30, 1994. The Company is
subject to the alternative minimum tax resulting in an
alternative minimum tax expense of $100 in 1992. This amount
will be allowed as a credit carryover against regular tax in
the future in the event the regular tax expense exceeds the
alternative minimum tax expense.

24. Transactions with Related Parties:

PoweRent Limited is 50% owned by the Company and 50% by an
officer of a wholly-owned subsidiary. Amounts receivable from
or payable to related parties are noninterest-bearing and are
classified as current, as settlement is expected to occur
within one year.

A summary of activity with related parties is as follows:

(1) The Company leases office space from Pennsport Partnership,
a Pennsylvania partnership in which the Chief Executive
Officer and Principal Stockholder (CEO) of the Company has
a 50% ownership interest. Rental expense for 1994, 1993
and 1992 was $289, $293 and $290, respectively. The
Company also leases office space from Christiana River
Holdings, Ltd., an entity owned by the CEO of the Company.
Rental expense for 1994 was $150.

(2) In 1993 and 1992, the Company recognized $156 and $143,
respectively, of revenue by selling equipment and related
services to PoweRent. The cost of the equipment and
related services was $130 and $96, respectively.

(3) The Company also was charged commissions by O'Brien Power
Systems, Inc. of $647 in 1994 in connection with equipment
sales and services provided to third parties. In 1993 and
1992, the Company recognized $346 and $235, respectively,
of revenue by selling equipment and related services to
O'Brien Power Systems, Inc., a company controlled by a
relative of the CEO of the Company. The cost of the
equipment and related services was $322 and $224,
respectively.

(4) In September 1993, Puma purchased its executive offices and
its principal facility located in Ash, Canterbury, Kent,
United Kingdom from III Enterprises Limited, an entity
owned by the CEO of the Company for approximately $800.
The Company has estimated a fair value of these facilities
indicating a value of approximately $1,100. However,
predecessor cost of $498 has been used to record the assets
purchased and the excess of the purchase price over III
Enterprises Limited's historical net book value of these
facilities has been reflected as an increase in the
accumulated deficit. Prior to September 1993, Puma leased
the facility from III Enterprises Limited with rental expense
amounting to $66, $156 and $155 in 1994, 1993 and 1992, respectively.

In addition, the Company has had transactions with projects
structured as partnerships in which the Company had or retains a
general partnership interest (Note 10).

25. Segment Information and Major Customers:

The Company operates principally in two industry segments: the
developing, owning and operating biogas projects and the
development and ownership of cogeneration and waste heat
recovery projects (energy) and the selling and renting of
power generation, cogeneration and standby/peak shaving
equipment and services (equipment sales, rental and services).
Information with respect to the segments of the business is as follows:

1994 1993 1992
---- ---- ----

Revenues:
Energy $ 76,913 $ 74,587 $ 74,692
Equipment sales,
rental and services 29,676 23,105 25,423
-------- -------- ---------
$106,589 $ 97,692 $ 100,115
======== ======== =========

Identifiable assets:
Energy $180,329 $224,352 $ 222,070
Equipment sales,
rental and services 47,329 29,557 26,722
Corporate assets 10,158 8,620 10,262
-------- -------- ---------
$237,816 $262,529 $ 259,054
======== ======== =========

Operating income (loss):
Energy $ 10,280 $ 14,468 $ 24,520
Equipment sales,
rental and services (4,874) (1,799) 1,283
General corporate
expenses (8,921) (8,599) (5,817)
-------- -------- ---------
$ (3,515) $ 4,070 $ 19,986
======== ======== =========

Depreciation and
amortization expense:
Energy $ 7,345 $ 8,008 $ 8,106
Equipment sales,
rental and services 2,171 1,446 751
Not allocable 1,486 1,096 591
-------- -------- --------
$ 11,002 $ 10,550 $ 9,448
======== ======== ========

Revenue by segment consists of sales to unaffiliated
customers; intersegment sales are not significant. For the
purposes of this presentation, development and other fees are
considered revenues of the energy segment.

Identifiable assets by segment are those assets that are used
in the operations of each segment. Corporate assets are those
assets not used in the operations of a specific segment and
consist primarily of cash, notes receivable from officers and
deferred financing costs. Investments in limited partnerships
are included in the identifiable assets of the energy segment.

Selling, general and administrative expenses have been
allocated to the individual segments on the basis of segment
revenues and geographical location.

Capital expenditures for 1994 and 1993 are primarily
associated with the equipment sales, rental and services
segment. Capital expenditures for 1992 are primarily
associated with the energy segment.

Information with respect to the Company's geographical areas
of business is as follows:

1994 1993 1992
---- ---- ----

Revenues:
United States $ 93,090 $ 83,797 $ 84,560
United Kingdom 13,499 13,895 15,555
-------- -------- ---------
$106,589 $ 97,692 $ 100,115
======== ======== =========

Net income (loss):
United States $(14,570) $(13,350) $ 1,535
United Kingdom (1,931) (361) (123)
-------- -------- ---------
$(16,501) $(13,711) $ 1,412
======== ======== =========

Identifiable assets:
United States $230,343 $252,863 $ 249,544
United Kingdom 7,473 9,666 9,510
-------- -------- ---------
$237,816 $262,529 $ 259,054
======== ======== =========

Revenues from one energy customer accounted for 53%, 65% and 67% of 1994, 1993
and 1992 revenues, respectively.

26. Operating Leases:

The Company leases equipment and primarily conducts its
operations in leased facilities which expire on various dates
through the year 2000. Under the terms of most of the lease
agreements, the Company is required to pay taxes, insurance,
maintenance and other operating costs of the facilities. The
total minimum annual lease payments under non-cancellable
operating lease agreements are as follows:

Year ending June 30,

1995 $ 848

1996 789

1997 788

1998 640

1999 518

Thereafter 528
------
$4,111
======

Total rental expense under various operating leases was approximately
$1,308, $1,434 and $1,182, in 1994, 1993 and 1992.

27. Statements of Cash Flows:

Supplemental disclosure of cash flow information:

1994 1993 1992
---- ---- ----

Interest paid during the
year, net of amounts
capitalized $13,027 $ 15,287 $16,898

Income taxes paid - - 63

Supplemental schedule of noncash investing and financing activities:

1994 1993 1992
---- ---- ----

Transfer of project
development costs to
property, plant and
equipment $ 176 - $ 230

Capital expenditures
included in accounts
payable and
construction costs
payable 875 $ 6,986 (74)

Project development costs
recovered by receipt
of equipment - - 1,501

Other assets included in
accounts payable and
other liabilities - - 719

Conversion of 7 3/4%
convertible
subordinated debentures - - 80

Reduction of property,
plant and equipment
resulting from the
settlement of
litigation 2,400 3,232 -

Notes receivables in
connection with the
sale of projects 3,121 3,590 -

Capital expenditures
acquired by capital
leases - 4,546 -

Exchange of note
receivable for note
payable - 655 -

<TABLE>

28. Quarterly Financial Information (Unaudited):

Quarter End September 30 December 31 March 31 June 30
----------- ------------------------------------------------------------

Fiscal 1994
-----------
<S> <C> <C> <C> <C>
Total revenue $29,650(1)(2) $22,491(3) $26,876 $27,572(4)
Gross profit 7,223 3,146 4,602 7,444
Net (loss) (2,190) (5,765) (902) (7,644)(5)
Net (loss)
per share $ (.13) $ (.34) $ (.05) $ (.46)
======= ======= ======= =======
Fiscal 1993
-----------

Total revenue $27,184 $29,285 $20,036(1) $21,187(1)
Gross profit 10,632 6,092 5,384 3,834
Net income (loss) 2,944 (1,759) 1,471(6) (16,367)(6)(7)
Net income (loss)
per share: $ .18 $ (.10) $ .09 $ (.98)
======= ======= ======= =======
</TABLE>

(1) Revenues for the quarters ended March 31, 1993, June
30, 1993 and September 30, 1993 were negatively
impacted by the Newark Boxboard Project fire which
occurred on December 25, 1992. The plant returned to
partial operation in August 1993 and full operation in
October 1993.
(2) Includes $5,121 of revenues recognized in connection
with the sale of the Company's contractual rights to
develop certain coalbed methane reserves.
(3) Revenues were negatively impacted by an unscheduled
turbine outage at the du Pont Parlin project which
lasted from September 1993 through mid-December 1993.
(4) Revenues include $5,000 from the sale of rights to
develop a standby electric facility project. The costs
associated with this sale were insignificant. Revenues
were negatively impacted by an unscheduled outage at
the du Pont Parlin project which lasted from late May
1994 to mid-August 1994.
(5) Includes the impact of a $6,250 non-cash charge
resulting from a market valuation of equipment being
held for sale in connection with the Company's
restructuring of its recourse debt.
(6) During the quarter ended March 31, 1993, the Company
recognized a net gain of $4,583 in connection with the
sale of a 12 1/2% interest in the Newark Cogeneration
project. On January 18, 1994, Company repurchased the
12 1/2% interest and recorded a charge of $4,583 in the
quarter ended June 30, 1993 to defer the net gain
previously recognized on the sale.
(7) Includes charges for $1,782 for certain project
development costs, $1,121 associated with the Hartford
litigation settlement with Hawker Siddeley and $600
associated with bad debt expense.

29. Litigation:

Hawker Siddeley:

The Company was involved in litigation with Hawker
Siddeley Power Engineering, Inc. ("Hawker"), the
turnkey contractor for the Parlin (the "Parlin Action")
and former Salinas projects (the "Salinas Action"). In
the aggregate, Hawker's lawsuits, as amended, sought
compensatory damages of $15,000 and $3,000 from the
Parlin and former Salinas Projects, respectively. In
May 1994, O'Brien (Parlin) Cogeneration, Inc., O'Brien
Cogeneration Inc. II, wholly owned subsidiaries, and
O'Brien Energy Systems, Inc., entered into a settlement
agreement with Hawker Siddeley Power Engineering, Inc.;
the "Hawker Settlement Agreement". Other than a $1,500
Promissory Note ("the Note") issued by the Company to
Hawker Siddeley, no money was exchanged and O'Brien
(Parlin) Cogeneration, Inc. was not obligated to pay
the $5,100 contract price withheld and all parties
dismissed their claims related to the Parlin Action.
Pursuant to the Hawker Settlement Agreement, the
Salinas Action, prior to being dismissed, required that
the first payment under the note be paid by October 6,
1994. Therefore, as payment was not made, the Salinas
Action remains open.

Other Proceedings:

During September 1993 to November 1993, three actions
were filed against O'Brien (Newark) Cogeneration, Inc.,
a wholly-owned subsidiary, by survivors of three
employees of the operator of the Newark Cogeneration
facility who were killed as the result of a fire which
occurred at the facility in December 1992. The actions
seek the recovery of damages in an unspecified amount.
Insurance counsel estimates that each of the pending
claims could have a value in excess of $1,000. The
amount allocable to the Company, if any, is not
determinable at this time. The Company's insurer has
recently disputed the maximum amounts of coverage under
the Company's policies. If a satisfactory resolution
of this dispute cannot be reached, the Company may be
required to file an action in court to obtain an
adjudication of its rights under its insurance
policies. The Company believes that these claims will
not have a material adverse financial effect on the
Company because (1) the Company has sufficient
undisputed liability insurance coverage and (2) the operator
of the Facility has agreed to indemnify the Company for
any liability arising out of the operator's operation
and maintenance of the facility.

On July 27, 1994, an alleged stockholder of O'Brien
Environmental Energy, Inc. filed suit seeking money
damages in an amount allegedly sustained by the
stockholder. On September 15, 1994, two alleged
debentureholders filed suit seeking money damages in an
amount allegedly sustained by debentureholders who
purchased debentures from September 28, 1992 through
April 12, 1994. The complaints name as defendants
O'Brien Environmental Energy, Inc. and certain of its
officers and directors. The complaints allege that
O'Brien Environmental Energy, Inc. and the other
defendants violated the Securities Exchange Act of 1934
and disseminated or were responsible for the
disseminating of a series of false and misleading
statements concerning the Company's business, results
of operations and future prospects. The suits purport
to be class actions on behalf of all stockholders and
debentureholders, respectively. The Company and other
defendants believe the suits to be without merit and
intend to defend them vigorously.

Although the Company cannot give definitive assurance
regarding the ultimate resolution of the various claims
described above, the Company does not presently believe
the matters described above or the resolution thereof
will have a material adverse impact on the Company's
financial statements.

30. Disclosures about Fair Value of Financial Instruments

The Company has adopted Statement of Financial
Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" which requires certain
disclosures concerning the estimated fair value of
financial instruments. The following disclosures of
the estimated fair value amounts have been determined
based on the Company's assessment of available market
information and appropriate valuation methodologies.

Carrying Fair
June 30, 1994 Amount Value
------------- -------- -----
Assets:

Cash and cash equivalents (1) $ 5,681 $ 5,681
Restricted cash and cash
equivalents (1) 4,594 4,594
Accounts receivable (1) 12,100 12,100
Receivable from related parties (1) 633 633
Notes receivable (1) 5,806 5,806
Notes receivable from officers (1) 238 238

Liabilities:

Accounts payable (1) 12,737 12,737
Short-term borrowings (1) 2,386 2,386
Recourse long-term debt (1) 46,115 46,115
Non-recourse long-term debt (1) 96,140 94,140
Convertible senior subordinated
debentures (2) 49,174 21,996

Off-balance Sheet
Financial Instruments:

Interest Rate Swap (3) -- 4,889

(1) The carrying amount of these items are a reasonable estimate
of their value as of June 30, 1994.

(2) The fair value of convertible senior subordinated debentures
are determined based on market quotes as of June 30, 1994.
The fair value of the Company's convertible senior
subordinated debentures as of September 20, 1994 was
$19,981.

(3) The fair value of interest rate swap in the amount at which
it could be settled based on an estimate obtained from the
dealer.

Fair value estimates are made at a specific point in time,
based on relevant market information about the financial
instruments. These estimates are subjective in nature and
involve uncertainties and matter of significant judgment and
therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates,
including the bankruptcy filing of O'Brien Environmental
Energy, Inc., the parent company, on September 28, 1994.
(See Note 1).

31. Sale of Philadelphia Water Department Project:

On November 12, 1993, the Company sold the capital stock of
O'Brien (Philadelphia) Cogeneration, Inc. ("OPC") and
Philadelphia BioGas Supply, Inc. ("Biogas"), wholly-owned
subsidiaries and issued 5.5 million warrants for Class A
Common Stock to entities controlled by an unrelated private
investor for $5,000 in cash. The warrants are exercisable
at prices ranging from $4.00 to $6.00 per share, and have
been assigned a value of $1,300 which has been reflected in
additional paid in capital. The primary assets of OPC and
Biogas consist of a 20-year energy service agreement and a
digester gas supply agreement with the Philadelphia
Municipal Authority ("Authority"). The Company continues to
own and rent to OPC and Biogas the facilities and all
related generation and associated equipment for the project.
Fiscal 1994 revenues were approximately $2,187. On August
5, 1994, the Company exercised its option to repurchase 83%
of OPC and Biogas for $5,000. The Company is negotiating to
resell this project to a third party in 1995.

<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES

Index to Financial Statement Schedules . . . . . . . . . . . . S-1

Schedule II - Amounts Receivable From Related Parties and
Underwriters, Promoters and Employees Other Than Related
Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . S-2

Schedule III - Condensed Financial Information of Registrant S-3
(to be filed by amendment)

Schedule V - Property, Plant and Equipment . . . . . . . . . . S-4

Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Equipment. . . . . . S-5

Schedule IX - Short-Term Borrowings. . . . . . . . . . . . . . S-6

<TABLE>

O'BRIEN ENVIRONMENTAL ENERGY, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS SCHEDULE II
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
(dollars in thousands)

<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- - -------------------------------------------------------------------------------------------------------------------------------
For
the
Year Balance at
Ended Beginning
June 30 Name of Debtor of Period Additions Deductions Balance at End of Period
------- -------------- ---------- --------- ---------- ------------------------
(1)
Amounts (2) (2)
Collected/ Amounts (1) Non
Settled Written-Off Current Current
- - -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>

1992 O'Brien Machinery Co. 477 646 1,048 75 -
Joel D. Cooperman (A) 140 - - 140
Sanders D. Newman 591 49 - 640
III Enterprises, Inc.
and affiliates 94 262 307 49
Hartford Partnership 81 1,073 539 615
Artesia Partnership 40 342 40 342

1993 Joel D. Cooperman (A) 140 98 238
Sanders D. Newman 640 15 655 -
III Enterprises, Inc.
and affiliates 49 122 57 114
Hartford Partnership 615 559 1,105 69
Artesia Partnership 342 4,791 4,896 237
O'Brien Power Systems, - 839 465 374
Inc.

1994 Joel D. Cooperman (A) 238 238
III Enterprises Inc.
and afilliates 114 523 403 234
Hartford Partnership 69 19 88 -
Artesia Partnership 237 4,150 4,042 345
O'Brien Power Systems, 374 11 410 (25)
Inc.
<FN>
(A) The loan is an unsecured, full recourse loan bearing interest at 8 1/4% per annum and maturing in May 1996.

</TABLE>

CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT SCHEDULE III
(To be filed by Amendment)

<PAGE>

<TABLE>

O'BRIEN ENVIRONMENTAL ENERGY, INC.
PROPERTY, PLANT AND EQUIPMENT SCHEDULE V
(dollars in thousands)

<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - ------------------------------------------------------------------------------------------------------------------------------------
For
the
Year Balance at
Ended Beginning Addition Other Balance at End
June 30 Classification of Period at Cost (1) Retirements Changes of Period
- - ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>

1992 Equipment related to Energy
Revenues $174,705 $ 6,699 $ (789) (2) $ (609) $179,925
Furniture and Fixtures 1,476 134 (17) 1,593
Rental Equipment 11,570 746 (35) 3,361 15,642
Equipment held for future
projects 15,391 1,950 (2,601) 14,740
Land, Building and
Improvements 1,376 155 (254) (2) 1,277
Other Equipment 2,170 30 (15) 2,185
-------- ------- -------- ------- --------
TOTAL $206,688 $ 9,714 $ (1,110) $ 70 $215,362
======== ======= ======== ======= ========

1993 Equipment related to Energy
Revenues $179,925 $ 1,948 $ (1,263) $(9,095) (1) $171,515
Furniture and Fixtures 1,593 133 (13) (64) (1) 1,649
Rental Equipment 15,642 9,049 (1,128) 11,174 (1) 34,737
Equipment held for future
projects 14,740 1,783 (122) (4,660) (1) 11,741
Land, Building and
Improvements 1,277 188 (18) 216 (1) 1,663
Other Equipment 2,185 189 (334) (1,217) (1) 823
-------- ------- -------- ------- --------
TOTAL $215,362 $13,290 $ (2,878) $(3,646) $222,128
======== ======= ======== ======= ========

1994 Equipment related to Energy
Revenues $171,515 $ 1,208 (190) $(2,187) (3) $170,346
Furniture and Fixtures 1,649 66 (1) (83) 1,631
Rental Equipment 34,737 697 (665) (3,719) (3) 31,050
Equipment held for future
projects 11,741 1,105 (9,588) (3) 3,258
Land, Building and
Improvements 1,663 728 (48) (14) 2,329
Other Equipment 823 48 (279) (62) 530
-------- ------- -------- -------- --------
TOTAL $222,128 $ 3,852 $ (1,183) $(15,653) $209,144
======== ======= ======== ======== ========

<FN>
(1) Include transfers between classifications, $3,232 adjustment as a result of the Newark litigation settlement and
fluctuation in exchange rates.
(2) Includes building and equipment sales.
(3) Reflects reclassification of equipment held for sale ($15,767), the Hawker Siddley Settlement ($2,400) and the
increase in basis attributable to the insurance proceeds from the Newark fire property settlement $3,020.

</TABLE>

<TABLE>

O'BRIEN ENVIRONMENTAL ENERGY, INC.
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF SCHEDULE VI
PROPERTY, PLANT AND EQUIPMENT
(dollars in thousands)

<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - ------------------------------------------------------------------------------------------------------------------------------------
For
the
Year Balance at
Ended Beginning Other Balance at End
June 30 Classification of Period Additions Retirements Changes of Period
- - ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>

1992 Equipment related to Energy
Revenues $ 6,399 $ 7,564 $ (149) $ (404) $ 13,410
Furniture and Fixtures 742 171 (2) 911
Rental Equipment 2,749 505 (2) 404 3,656
Land, Building and
Improvements 519 100 619
Other Equipment 827 221 (10) 51 1,089
-------- ------- -------- ------- --------
TOTAL $ 11,236 $ 8,561 $ (163) $ 51 $ 19,685
======== ======= ======== ======= ========

1993 Equipment related to Energy
Revenues $ 13,410 $ 8,008 $ (864) $ (556) (1) $ 19,998
Furniture and Fixtures 911 188 (42) (1) 1,057
Rental Equipment 3,656 1,149 (251) 1,011 (1) 5,565
Land, Building and
Improvements 619 150 (4) 28 (1) 793
Other Equipment 1,089 148 (310) (429) (1) 498
-------- ------- -------- ------- --------
TOTAL $ 19,685 $ 9,643 $ (1,429) $ 12 $ 27,911
======== ======= ======== ======= ========

1994 Equipment related to Energy
Revenues $ 19,998 $ 7,345 (105) $(3,883) (2) $ 23,355
Furniture and Fixtures 1,057 201 (40) (2) 1,218
Rental Equipment 5,565 1,885 (279) (541) (2) 6,630
Land, Building and
Improvements 793 198 (2) 4 993
Other Equipment 498 88 (139) (13) 434
-------- ------- -------- ------- --------
TOTAL $ 27,911 $ 9,717 $ (525) $(4,473) $ 32,630
======== ======= ======== ======= ========

<FN>
(1) Includes transfers between classifications, $(127) adjustment as a result of the Newark litigation settlement
and difference in exchange rates at the end of prior period to beginning of current period. Also includes differences
between average exchange rate and the exchange rate at the end of the related period.
(2) Relates primarily to the adjustment as a result of Newark fire insurance proceeds ($2,530) and for the reclassification of
equipment held for sale ($1,450). Other items include exchange rate fluctuations and reductions resulting from
intercompany transfers.

</TABLE>

<TABLE>

O'BRIEN ENVIRONMENTAL ENERGY, INC. SCHEDULE IX

SHORT-TERM BORROWINGS
(dollars in thousands)

<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - -----------------------------------------------------------------------------------------------------------------------------------
For the Weighted Maximum Amount Average Amount Weighted Average
Year Ended Category of Aggregate Balance at Average Outstanding Outstanding Interest Rate
June 30 Short-Term Borrowings End of Period Interest Rate During the Period During the Period During the Period
- - ---------- --------------------- ------------- ------------- ----------------- ----------------- -----------------
<C> <S> <C> <C> <C> <C> <C>

1992 Banks $ 1,898 13.4% $ 3,862 $ 2,100 14.9%
1993 Banks $ 2,199 9.1% $ 2,620 $ 2,213 11.7%
1994 Banks $ 2,386 8.3% $ 2,760 $ 2,438 8.3%

<FN>
____________________

The average borrowings were determined based on amounts outstanding at each month's end.

The weighted average interest rates during the period were computed by dividing actual interest expense for the period by average
short-term borrowings for the period.

</TABLE>

<PAGE>

$7,000,000

SUBORDINATED LOAN AGREEMENT
Dated as of March 11, 1994

__________________

O'BRIEN (NEWARK) COGENERATION, INC.
a Delaware corporation
(Borrower)

and

STEWART & STEVENSON SERVICES, INC.,
a Texas corporation
(Lender)

__________________

<PAGE>

THIS SUBORDINATED LOAN AGREEMENT dated as of March 11, 1994,
by and between O'BRIEN (NEWARK) COGENERATION, INC., a Delaware
corporation, as Borrower and STEWART & STEVENSON SERVICES, INC. a
Texas corporation, as Lender.

In consideration of the agreements herein and in the other
Loan Documents and in reliance upon the representations and
warranties set forth herein and therein, the parties agree as
follows:

ARTICLE 1 - DEFINITIONS

1.1. Definitions.

Except as otherwise expressly provided, capitalized terms used
in this Agreement and its Exhibits shall have the meanings given in
Exhibit A.

1.2. Rules of Interpretation.

Except as otherwise expressly provided, the rules of
interpretation set forth in Exhibit A shall apply to this Agreement
and the other Loan Documents.

ARTICLE 2 - THE LOAN FACILITY

2.1. Loan Facility.

(a) Availability.

(i) Availability. Subject to the terms and
conditions set forth in this Agreement, Lender agrees to advance to
Borrower (A) on the Closing Date a loan (the "Tranche A Loan") in
the aggregate principal amount of Three Million Five Hundred
Thousand Dollars ($3,500,000) and (B) on the Tranche B Funding Date
a loan (the "Tranche B Loan") in the aggregate principal amount of
Three Million Five Hundred Thousand Dollars ($3,500,000) (the
"Total Loan Commitment"). The Tranche A Loan and the Tranche B
Loan are sometimes referred to herein as the "Loans."

(ii) Loan Interest. Borrowers shall pay
interest on the unpaid principal amount of each Loan from the date
of such Loan until the maturity thereof at a rate per annum equal
to the Prime Rate plus four percent (4%), such rate to change from
time to time as the Prime Rate shall change; provided that such
rate shall not exceed fourteen percent (14%) and shall not be less
than ten percent (10%) at any time, regardless of any changes in
the Prime Rate.

(iii) Loan Payments.

(A) Borrower shall repay to Lender on
each Repayment Date (i) the aggregate unpaid principal amount of
each Loan, in installments payable on such Repayment Date, (x) in
accordance with the repayment schedule set forth on Exhibit C-1
(the "Amortization Schedule"), and (y) on and after the Tranche B
Funding Date, in accordance with the repayment schedule set forth
on Exhibit C-2 (the "Alternate Amortization Schedule"); and (ii)
all accrued interest on the unpaid principal amount of each Loan.
On the Maturity Date any remaining unpaid principal, interest, fees
and costs shall be due and payable.

(iv) Note. The obligation of Borrower to repay
each Loan made by Lender and to pay interest thereon at the rates
provided herein shall be evidenced by a promissory note in the form
of Exhibit B (the "Note") payable to the order of Lender and in the
principal amount of such Loan. Borrower authorizes Lender to
record on the schedule annexed to the Note the date and amount of
each Loan and agrees that all such notations shall constitute prima

facie evidence of the matters noted. Borrower further authorizes
Lender to attach to and make a part of the Note continuations of
the schedule attached thereto as necessary. No failure to make any
such notations shall affect the validity of the Borrower's
obligations to repay the full unpaid principal amount of the Loan
or the duties of Borrower hereunder or thereunder.

(v) Reborrowing. Any amounts that have been repaid
or prepaid under this Agreement may not thereafter be reborrowed or
readvanced to Borrower.

(b) Prepayments.

(i) Terms of all Prepayments. Upon the prepayment
of any Loan (whether such prepayment is an optional prepayment
under Section 2.1(b)(ii) or a mandatory prepayment required by the
terms of this Agreement or the other Loan Documents, including,
without limitation, a prepayment upon acceleration), Borrower shall
pay to Lender all accrued interest, fees and costs to the date of
such prepayment on the amount prepaid. All prepayments of the Loan
shall reduce the remaining payments of principal of the Loan in
inverse order of maturity.

(ii) Optional Prepayments. Subject to
Section 2.l(b)(i), Borrower may, at its option, upon four (4)
Banking Days' notice to Lender, prepay all outstanding Loans in
whole or in part.

(iii) Mandatory Prepayment Upon Refinance
of Senior Loans. Upon any Newark Term Loan Refinancing, Borrower
shall prepay all Loans then outstanding, to the extent that net
proceeds are available to Borrower to do so, and provided that all
such available net proceeds shall be applied first toward repayment
of the Loans outstanding hereunder.

(c) Interest Account and Interest Computations.
Borrower authorizes Lender to record in an account or accounts
maintained by Lender on its books (the "Interest Account") (i) the
date and amount of each principal and interest payment on the Loan
and (ii) such other information as Lender may determine is
necessary for the computation of interest payable by Borrower
hereunder. Borrower agrees that all computations by Lender of
interest shall be conclusive in the absence of manifest error. All
computations of interest on the Loan shall be based on a year of
365 or 366 days and the actual days elapsed.

(d) Repayment of Bridge Loan. If the Tranche B Loan is
borrowed by Borrower, One Million Dollars ($1,000,000) of such
Tranche B Loan shall be simultaneously paid to Lender in
satisfaction (or partial satisfaction) of the balance of the Bridge
Loan then outstanding.

2.2. Other Payment Terms.

(a) Place and Manner. Borrower shall make all payments
due to Lender to Stewart & Stevenson Services, Inc., c/o Texas
Commerce Bank, Houston, Texas, Account No. 00101616119 in lawful
money of the United States and in immediately available funds not
later than 1:00 p.m.

(b) Date. Whenever any payment due hereunder shall fall
due on a day other than a Banking Day, such payment shall be made
on the next succeeding Banking Day, and such extension of time
shall be included in the computation of interest or fees, as the
case may be.

(c) Late Payments. If any amounts required to be paid
by Borrower under this Agreement or the other Loan Document
(including, without limitation, principal or interest payable on
any Loan, and any fees or other amounts otherwise payable to
Lender) remain unpaid after such amounts are due, Borrower shall
pay interest on the aggregate, outstanding balance of such amounts
from the date due until those amounts are paid in full at a per
annum rate equal to the Default Rate.

(d) Net of Taxes, Etc. All payments under this
Agreement and the other Loan Documents shall be made free and clear
of and without deduction, setoff or counterclaim of any kind
whatsoever and in such amounts as may be necessary in order that
all such payments, after deduction or withholding for or on account
of any present or future taxes, levies, imposts, deductions, duties
or other charges or withholdings of whatever nature (other than any
income, franchise or similar tax imposed upon the gross or net
income of Lender by the jurisdiction in which Lender is located)
imposed by any Governmental Authority (collectively the "Taxes"),
shall not be less than the amount otherwise specified to be paid
under this Agreement and the other Loan Documents. If Borrower
shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under any other Loan Documents, (i)
the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.2(d)),
Lender receives an amount equal to the sum Lender would have
received had no such deductions been made, (ii) Borrower shall make
such deductions and (iii) Borrower shall pay the full amount
deducted to the relevant Governmental Authority in accordance with
applicable law. Borrower shall indemnify Lender against liability
for all Taxes due on amounts payable under this Agreement or the
other Loan Documents as and when due and shall promptly (and in any
event not later than thirty (30) days after payment thereof)
furnish to Lender such certificates, receipts and other documents
as may be required (in the judgment of Lender) to establish the
payment of such Taxes and any tax credit to which Lender may be
entitled. Borrower agrees to pay any present or future stamp,
recording or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made
hereunder or under the other Loan Documents or from the execution
or delivery or otherwise with respect to, this Agreement or the
other Loan Documents. The obligations of Borrower under this
Section 2.2(d) shall survive the termination of this Agreement and
the repayment of the Obligations.

(e) Application of Payment. Payments made under this
Agreement or the other Loan Documents shall first be applied to any
fees, costs, charges or expenses payable to Lender hereunder or
under the other Loan Documents, next to any accrued but unpaid
interest, and then to outstanding principal.

2.3. Security.

(a) Security Agreements, etc. The Obligations shall be
secured by, and Borrower shall deliver or cause to be delivered to
Lender, the following:

(i) A Security Agreement in the form of Exhibit D,
duly executed by Borrower (the "Newark Security Agreement");

(ii) If the Tranche B Loan is made, a Distribution
Agreement in the form of Exhibit E-1, duly executed by O'Brien and
Parlin (the "Distribution Agreement");

(iii) If the Tranche B Loan is made. a Lock Box
Agreement in the form of Exhibit E-2, duly executed by O'Brien,
Parlin and the Escrow Agent (the "Lock Box Agreement"); and

(iv) Such other documents, instruments and
agreements as Lender may request to grant to a perfected security
interest in, and pledge of, the Collateral.

(b) Further Assurances. Borrower shall deliver to
Lender each of the foregoing and such other instruments,
agreements, certificates, opinions and documents (including,
without limitation, Uniform Commercial Code financing statements)
as Lender may request to perfect and maintain the security interest
and pledge granted to Lender by the foregoing prior to the Liens or
other interests of any Person other than Permitted Liens and the
security interests of, and pledge to, Lender. Borrower shall fully
cooperate with Lender and perform all additional acts reasonably
requested by Lender to effect the purposes of the foregoing.

ARTICLE 3 - CONDITIONS PRECEDENT

3.1. Conditions Precedent to the Closing Date.

The obligation of Lender to make the Tranche A Loan is subject
to the prior satisfaction of each of the following conditions
(unless waived in writing by Lender):

(a) Delivery to Lender of a copy of one or more
resolutions of Borrower, certified by the appropriate officials of
Borrower as being in full force and effect on the Closing Date,
authorizing the Loans herein provided for and the execution,
delivery and performance of this Agreement and the other Loan
Documents and any instruments or agreements required hereunder or
thereunder to which Borrower is a party;

(b) Delivery to Lender of a certificate from Borrower,
satisfactory in form and substance to Lender, signed by the
appropriate authorized official of Borrower and dated as of the
Closing Date, as to the incumbency of the Person or Persons
authorized to execute and deliver this Agreement and the other Loan
Documents and any instruments or agreements required hereunder or
thereunder to which Borrower is a party;

(c) Delivery to Lender of copies of the Certificate of
Incorporation of Borrower, certified by the Delaware Secretary of
State, and of copies of the Bylaws of Borrower and any agreement
filed in accordance with applicable state law, certified by an
appropriate officer of Borrower;

(d) Delivery to Lender of a certificate issued by the
Delaware Secretary of State as to the good standing of Borrower and
the tax status of Borrower;

(e) All corporate and legal proceedings and all
instruments in connection with the transactions contemplated by
this Agreement shall be satisfactory in form and substance to
Lender, and Lender shall have received all information and copies
of all documents, including records of corporate proceedings and
copies of any approval by any Governmental Authority required in
connection with any transaction herein contemplated, which Lender
may reasonably have requested in connection herewith, such
documents where appropriate to be certified by proper corporate,
partnership or Governmental Authorities;

(f) Delivery to Lender of true and correct copies of
each Newark Operative Document and any supplements or amendments
thereto, all of which shall be in form and substance satisfactory
to Lender, shall have been duly authorized, executed and delivered
by the parties thereto, and shall be certified by an authorized
official of Borrower as of the Closing Date as being true, complete
and correct and in full force and effect, and delivery to Lender of
evidence satisfactory to Lender that each Newark Operative Document
is in full force and effect and that no party to any Newark
Operative Document is or, but for the passage of time or giving of
notice or both will be, in breach of any material obligation
thereunder which is reasonably expected to have a material adverse
effect on the Newark Project, that all appropriate financing
statements were filed and/or recorded as required hereunder or by
law, and that this Agreement has been delivered;

(g) Delivery to Lender of an opinion of Sills Cummis
Zuckerman Radin Tischman Epstein & Gross, special counsel for
Borrower, in substantially the form of Exhibit F-1:

(h) Insurance complying with Section 5.15 hereof shall
be in full force and effect and Lender shall have received (i) a
certificate from Borrower's insurance broker(s), dated as of the
Closing Date and identifying underwriters, type of insurance,
insurance limits and policy terms, listing the special provisions
required as set forth in Section 5.15 hereof, describing the
insurance obtained and stating that such insurance is in full force
and effect and that all premiums then due thereon have been paid
and (ii) certified copies of all policies evidencing such insurance
(or a binder, commitment or certificates signed by the insurer or
a broker authorized to bind the insurer);

(i) No change shall have occurred since the date of this
Agreement in any law or regulation or interpretation thereof that
would subject Lender to any material unreimbursed Tax;

(j) No action, proceeding or investigation shall have
been instituted or threatened. nor shall any order, judgment or
decree have been issued or proposed to be issued by any
Governmental Authority that, as a result of the construction,
ownership, leasing or operation of the Newark Project, the sale of
electricity or steam therefrom or the entering into of any Newark
Operative Document or any transaction contemplated hereby or
thereby, would cause or deem Lender, Borrower or any Affiliate of
any of them to be subject to, or not exempted from, regulation
under the FPA or PUHCA or under state laws and regulations
respecting the rates or the financial or organizational regulation
of electric utilities;

(k) All taxes, fees and other costs payable in
connection with the execution, delivery, recordation and filing of
the documents and instruments referred to in this Section 3.1 shall
have been paid in full;

(l) Lender shall have received a certificate, dated as
of the Closing Date, signed by an authorized officer of Borrower,
in the form of Exhibit G-1 hereto;

(m) Lender shall have received the most recent annual
financial statement (audited if available) and most recent
quarterly financial statements (if available) from Borrower;

(n) Borrower shall have furnished Lender a budget (the
"Operating Budget") for the budgeted income and all expense items
for the Newark Project through the twelve months following the
Closing Date, together with all budget projections and financial
models for the term of the Loans;

(o) Borrower and Lender (and/or certain of Lender's
Affiliates) shall have executed and delivered the Newark O&M
Contract and the Parlin O&M Contract; each shall be in full force
and effect, and no default shall have occurred under any of them;
and the Newark Senior Lender shall have approved in writing the
Newark O&M Contract;

(p) In the reasonable judgment of Lender, there shall
not have occurred any material adverse change in the economics or
feasibility of operating the Newark Project, in the financial
condition, business or property of Borrower which will have a
material and adverse effect on the ability of any of Borrower to
meet its obligations with respect to the Newark Project in the
manner contemplated by and consistent with the Loan Documents and
the Newark Project Documents;

(q) Lender shall have received a UCC-3 (or similar)
report of a date not less recent than one (1) week before the
Closing Date for each of the jurisdictions in which the UCC-1
financing statements are intended to be filed in respect of the
Collateral, showing that upon due filing or recordation (assuming
such filing or recordation occurred on such date), the security
interests created under such Collateral Documents will be prior to
all other financing statements, fixture filings, deeds of trust,
mortgages or other security documents in respect of the Collateral
other than those relating to the Newark Senior Lien;

(r) The Newark Project shall be a Qualifying Facility,
eligible for all the benefits of 18 C.F.R. Sections 301-309, 18 C.F.R. Sections
292.601 and 18 C.F.R. Section 292.602; and

(s) The Consent and Subordination Agreement shall have
been executed and delivered by the parties thereto in form and
substance satisfactory to Lender.

3.2. Conditions Precedent to Tranche B Loan.

The obligation of Lender to make the Tranche B Loan is subject
to the prior satisfaction of each of the following conditions
(unless waived by Lender):

(a) No more than sixty (60) days shall have passed since
the Closing Date;

(b) Redelivery of and/or evidence satisfactory to Lender
in its sole discretion that the conditions set forth in Section 3.1
with respect to the Newark Project are satisfied as of the Tranche
B Funding Date;

(c) The Parlin Senior Lender shall have approved in
writing the Parlin O&M Contract in the form executed by Parlin and
Stewart & Stevenson, the Parlin O&M Contract shall be in full force
and effect, and no default shall have occurred thereunder;

(d) Delivery to Lender of a copy of one or more
resolutions of Parlin, certified by the appropriate officials of
Parlin as being in full force and effect on the Tranche B Funding
Date, authorizing the Loans herein provided for and the execution,
delivery and performance of the Parlin Closing Certificate, the
Lock Box Agreement and the Distribution Agreement and any
instruments or agreements required hereunder or thereunder to which
Borrower is a party;

(e) Delivery to Lender of a certificate from Parlin,
satisfactory in form and substance to Lender, signed by the
appropriate authorized official of Parlin and dated as of the
Closing Date, as to the incumbency of the Person or Persons
authorized to execute and deliver any instruments or agreements
required hereunder to which Parlin is a party;

(f) Delivery to Lender of copies of the Certificate of
Incorporation of Parlin, certified by the Delaware Secretary of
State, and of copies of the Bylaws of Parlin and any agreements
filed in accordance with applicable state law, certified by an
appropriate officer of Parlin;

(g) Delivery to Lender of a certificate issued by the
Delaware Secretary of State as to the good standing of Parlin and
the tax status of Parlin;

(h) Delivery to Lender of true and correct copies of
each Parlin Operative Document and any supplements or amendments
thereto, all of which shall be in form and substance satisfactory
to Lender, shall have been duly authorized, executed and delivered
by the parties thereto, and shall be certified by an authorized
official of Parlin as of the Tranche B Funding Date as being true,
complete and correct and in full force and effect, and delivery to
Lender of evidence satisfactory to Lender that each Parlin
Operative Document and each Newark Operative Document is in full
force and effect and that no party to any Parlin Operative Document
or Newark Operative Document is or, but for the passage of time or
giving of notice or both will be, in breach of any material
obligation thereunder which is reasonably expected to have a
material adverse effect on the Parlin Project or the Newark
Project, respectively, that all appropriate financing statements
were filed and/or recorded as required hereunder or by law, and
that this Agreement has been delivered;

(i) Delivery to Lender of an opinion of: Sills Cummis
Zuckerman Radin Tischman Epstein & Gross, special counsel for
Parlin, in substantially the form of Exhibit F-2;

(j) Lender shall have received (i) a certificate from
Parlin's insurance broker(s), dated as of the Closing Date and
identifying underwriters, type of insurance, insurance limits and
policy terms, listing the special provisions required as set forth
in the Parlin Senior Loan Documents describing the insurance
obtained and stating that such insurance is in full force and
effect and that all premiums then due thereon have been paid and

(ii) certified copies of all policies evidencing such insurance (or
a binder, commitment or certificates signed by the insurer or a
broker authorized to bind the insurer);

(k) No action, proceeding or investigation shall have
been instituted or threatened, nor shall any order, judgment or
decree have been issued or proposed to be issued by any
Governmental Authority that, as a result of the construction,
ownership, leasing or operation of the Parlin Project, the sale of
electricity or steam therefrom or the entering into of any Parlin
Operative Document or any transaction contemplated hereby or
thereby, would cause or deem Lender, Borrower or any Affiliate of
any of them to be subject to, or not exempted from, regulation
under the FPA or PUHCA or under state laws and regulations
respecting the rates or the financial or organizational regulation
of electric utilities;

(l) Lender shall have received a certificate, dated as
of the Tranche B Funding Date, signed by an authorized officer of
Parlin, in the form of Exhibit G-2 hereto.

(m) Lender shall have received the most recent annual
financial statements (audited if available) and most recent
quarterly financial statement (if available) from Parlin:

(n) Parlin shall have furnished Lender an Operating
Budget for the Parlin Project through the twelve months following
the Closing Date, together with all budget projections and
financial models for the term of the Loans;

(o) The Parlin Project shall be a Qualifying Facility,
eligible for all the benefits 18 C.F.R. Sections 301-309, 18 C.F.R.
292.601 and 18 C.F.R. 292.602; and

(p) In the reasonable opinion of Lender, there shall
have been no material adverse change in (i) the financial
condition, business, properties. prospects or operations of any
Newark Major Project Participant or Parlin Major Project
Participant or which will have a material adverse affect on the
ability of such Party to meet its obligations with respect to the
Newark Project or Parlin Project, as applicable. in the manner
contemplated by and consistent with the Newark Operative Documents
and the Parlin Operative Documents.

3.3. Conditions Precedent to Each Loan. The obligation of
Lender to effect or permit any Loan is subject to the further
conditions that, on the date such Loan is to occur, the following
shall be true and correct:

(a) Each representation and warranty set forth in
Article 4 is true and correct as if made on such date;

(b) No Event of Default or Inchoate Default has occurred
and is continuing or will result from such Loan; and

ARTICLE 4 - REPRESENTATIONS AND WARRANTIES

Borrower makes the following representations and warranties to
and in favor of Lender as of the Closing Date. All of these
representations and warranties shall survive the Closing Date and
the making of the Loans:

4.1. Organization. Borrower is a Delaware corporation and is
duly organized, validly existing and in good standing under the
laws of Delaware and Borrower has the full power and authority to
carry on it's business as now conducted, to own or hold under lease
its properties and to enter into and perform its obligations under
each Newark Operative Document to which it is or is to be a party.

4.2. Authorization: No Conflict. Borrower has duly
authorized, executed and delivered each Newark Operative Document
to which Borrower is a party (or such Newark Operative Documents
have been duly and validly assigned to Borrower and Borrower has
assumed the obligations thereunder), and neither Borrower's
execution and delivery thereof nor its consummation of the
transactions contemplated thereby nor its compliance with the terms
thereof (i) does or will contravene the Articles of Incorporation
of Borrower or any other Legal Requirement applicable to or binding
on Borrower or any of it's properties. (ii) does or will
contravene or result in any breach of or constitute any default
under, or result in or require the creation of any Lien (other than
Permitted Liens) upon any of it's property under, any agreement or
instrument to which it is a party or by which it or any of its
properties may be bound or affected or (iii) does or will require
the consent or approval of any Person which has not already been
obtained.

4.3. Enforceability. Each Newark Operative Document to which
Borrower is a party is a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with in terms,
except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors' rights.
None of the Newark Operative Documents to which Borrower is a party
have been amended or modified except in accordance with this
Agreement.

4.4. ERISA. There is no ERISA Plan with respect to Borrower
or any member of the Controlled Group, and neither Borrower nor any
member of the Controlled Group has maintained, contributed to or
been obligated to contribute to any ERISA Plan at any time within
the preceding five (5) years.

4.5. Taxes. Borrower has filed all federal, state and local
tax returns that it is required to file, has paid all taxes it is
required to pay to the extent due (other than those taxes that it
is contesting in good faith and by appropriate proceedings, with
adequate, segregated reserves established for such taxes) and, to
the extent such taxes are not due, has established reserves the are
adequate for the payment thereof and are required by GAAP.

4.6. Business, Debt, Contracts. Etc. Borrower has not
conducted any business other than the business contemplated by the
Newark Operative Document, it has no outstanding Debt or other
material liabilities other than in connection with the Newark
Project, and it is not a party to or bound by any material contract
other than the Newark Operative Documents to which it is a party.

4.7. Investment Company, Holding Company and Power Acts.
Neither Borrower nor any Affiliate is an investment company or a
company controlled by an investment company, within the meaning of
the Investment Company Act of 1940, and Borrower is either not
subject to or is exempt from regulation under PUHCA or the FPA.

4.8. Governmental Regulation. Neither Borrower nor Lender,
nor any Affiliate of either of them will, solely as a result of the
Loans, be subject to, or not exempt from, regulation under the FPA
or PUHCA or under state laws and regulations respecting the rates
or the financial or organizational regulation of electric
utilities.

4.9. Financial Statements. The financial statements of
Borrower (certified by an authorized official of Borrower), a copy
of which will be delivered to Lender on the Closing Date, are true,
complete and correct and fairly present the financial condition of
Borrower as of the date thereof. The financial statements have
been prepared in accordance with GAAP. Borrower has not nor will
have any material liabilities, direct or contingent, except as will
be disclosed in such financial statements or except in connection
with the development of the Newark Project.

4.10. Regulation U, Etc. Borrower is not engaged
principally, or as one of its principal activities in the business
of extending credit for the purpose of purchasing or carrying
margin stock (as defined in Regulations G, T, U or X of the Federal
Reserve Board), and no part of the proceeds of the Loan will be
used by Borrower to purchase or carry any such margin stock or to

extend credit to others for the purpose of purchasing or carrying
any such margin stock.

4.11. Partnerships and Joint Ventures. Borrower is not a
general partner or a limited partner in any general or limited
partnership or a joint venturer in any joint venture.

4.12. Newark Project Documents. Borrower makes, as of the
time made, each of the representations and warranties combined in
the Newark Project Documents or any Newark Additional Project
Document to which Borrower is or will be a party to and for the
benefit of Lender as if the same were set forth at length herein.
All Newark Project Documents and Newark Applicable Permits have
been entered into by or duly and validly assigned to the Newark
Project or Borrower free and clear of all Liens except Permitted
Liens, and all necessary Persons have duly consented to such
assignment. All Newark Operative Documents are in full force and
effect in the form delivered to Lender.

4.13. Existing Defaults. Borrower is not in default under
any material term of any Newark Project Document or any agreement
relating to any obligation of Borrower for or with respect to
borrowed money, and to the best of Borrower's knowledge, no other
party to any Newark Project Document is in default thereunder, in
each case which default would have a material adverse effect on the
Newark Project or on Borrower's ability to perform it's obligations
under the Newark Operative Documents.

4.14. Senior Loan Default. No default or event of default
(however such terms are defined) or occurrence, circumstance or
event, or any combination thereof which, with the lapse of time
and/or the giving of notice, would constitute a default or event of
default, has occurred or is existing under the Newark Senior Loan
Agreement.

4.15. Possession of Franchises, Licenses, Etc. Borrower
possesses all franchises, certificates, licenses, Permits, and
other authorizations from any necessary or advisable Governmental
Authority, free from unduly burdensome restrictions, that are
necessary for the ownership, maintenance and operation of the
Newark Project, and Borrower is not in violation thereof in any
material respect. To the best of Borrower's knowledge, each of the
Newark Major Project Participant possesses all licenses, Permits,
franchises, patents, copyrights, trademarks and trade names, or
rights thereto necessary to perform its duties under the Newark
Operative Documents to which it is a party, and such party is not
in violation of any right of others with respect to any of the
foregoing.

4.16. Offices, Location of Collateral.

(a) The chief executive office or principal place of
business (as such term is used in Division 9 of the Uniform
Commercial Code as in effect in the State of New York from time
to time) of Borrower is located at 225 South Eighth Street,
Philadelphia, Pennsylvania, 19106.

(b) All of the Collateral will be deemed to be located
at the offices of Borrower set forth in Section 4.16(a).

4.17. Adverse Change. There are no facts or conditions
which materially adversely affect or in the future will (so far
as Borrower can now reasonably foresee) have a materially adverse
effect in the economics or feasibility of operating the Newark
Project, or in the financial condition, business or property of
any Newark Major Project Participant, which will have a material
and adverse effect on the ability of any Newark Major Project
Participant to meet its obligations with respect to the Newark
Project in the manner contemplated by and consistent with the
Loan Documents and the Newark Project Documents.

4.18. Hazardous Substance. Except as disclosed on
Exhibit H:

In connection with the construction, power generation and
transmission, waste disposal, and other operations and processes
relating to the Newark Project, no release, emission, or discharge
into the environment of petroleum or petroleum products, hazardous
wastes, hazardous substances, hazardous materials, toxic wastes,
air pollutants, toxic substances, toxic pollutants, hazardous
chemical substance or mixture, imminently hazardous chemical
substance or mixture, radioactive "by product material," "source
material," or "special nuclear material" (hereinafter collectively,
"Hazardous Substance"), as those terms are used in the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, 42 U.S.C. Section 9601 et seq., Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., the Solid Waste Disposal
Act, 42 U.S.C. Section 6901 et seq., the Clean Air Act, 42 U.S.C. Section
7401 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Toxic
Substance Control Act, 15 U.S.C. Section 2601 et seq. (all of the
foregoing laws and regulations being the "Hazardous Substances
Laws"), has occurred, is presently occurring, or is scheduled to
occur other than federally permitted releases or those equal to or
less than reportable quantities, or other than releases, emissions
or discharges that do not or would not exceed applicable standards
or limitations under any other applicable federal, state or local
laws or regulations. No Hazardous Substances are located on the
Newark Project in violation of, and the Newark Project, and
Borrower's use thereof are not in violation of, any environmental
or occupational safety and health laws, or other applicable law or
Legal Requirement now in effect, the effect of which violation, in
any single case or in the aggregate, would materially adversely
affect the Newark Project or Borrower's use thereof, or which, in
any single case or in the aggregate, would impose a material
liability on or jeopardize the interest of Borrower in the Newark
Project or the interest of Lender, or adversely affect the ability
of Borrower to meet the obligations under the operative Documents.
Borrower has no knowledge of any past or existing violations of any
such laws, ordinances or regulations issued by any governmental
authority.

4.19. Litigation. Except as set forth on Exhibit I
hereto, there are no pending or, to the best of Borrower's
knowledge, threatened actions or proceedings of any kind, including
without limitation actions or proceedings of or before any
Governmental Authority, to which Borrower or the Newark Project is
a party or is subject, or by which any of them or any of their
properties or the Newark Project are bound that, if adversely
determined to or against Borrower or the Newark Project would have
a materially adverse effect on the Newark Project, Borrower's
financial condition, business or operation, Borrower's ability to
carry on it's business, or to perform it's obligations under any
Loan Document, nor, to the best of Borrower's knowledge, is there
any basis for any such action or proceeding.

4.20. Permits. There are no Permits under existing law as
the Newark Project is currently operated that are Newark Applicable
Permits other than the Permits described in Exhibit J. Each Newark
Applicable Permit is in full force and effect and is not subject to
any appeals or further proceedings or to any unsatisfied condition
that may allow material modification or revocation.

4.21. Title and Liens. On and after the Closing Date,
Borrower will have good, marketable, insurable and indefeasible
title to the Newark Project free and clear of all Liens,
encumbrances or other exceptions to title other than Permitted
Lien.

4.22. Utilities. All utility services necessary for the
operation of the Newark Project for its intended purposes are
available at the Newark Site.

4.23. Qualifying Facility. The Newark Project qualifies
as a Qualifying Facility.

4.24. Labor Disputes and Acts of God. Neither the
business nor the properties of Borrower are affected by any fire,
explosion, accident, strike, lockout or other labor dispute,
drought, storm, earthquake, embargo, act of God or of the public
enemy, or other casualty (whether or not governed by insurance),
materially and adversely affecting the business or properties or
the operation of Borrower or materially and adversely affecting the
ability of any Newark Major Project Participant to perform its
obligations under any Newark Operative Document to which it is a party.

4.25. Disclosure. To the best of Borrower's knowledge,
there is no fact known to Borrower which Borrower has not disclosed
to Lender which materially adversely affects or, so far as Borrower
can now reasonably foresee, will materially adversely affect the
properties, business or financial or other condition of Borrower,
or the ability of Borrower to perform it's obligations hereunder
and under the other Newark Operative Documents.

4.26. Collateral. The security interests granted to
Lender pursuant to the Collateral Documents in the Collateral (a)
constitute as to personal property included in the Collateral and,
with respect to subsequently acquired personal property included in
the Collateral, will constitute, a perfected security interest
under the UCC and (b) are, and, with respect to such subsequently
acquired property, will be, as to Collateral perfected under the
UCC, superior and prior to the rights of all third Persons now
existing or hereafter arising whether by way of lien, pledge,
security interests, encumbrance, assignment or otherwise. Except
to the extent possession of portions of the Collateral is required
for perfection, all such action as is necessary has been made to
establish and perfect Lender's rights in and to the Collateral,
including any recording, filing, registration, giving of notice or
other similar action. The Collateral Documents relating to the
Collateral and the financing statements relating thereto have been
duly filed or recorded in each office and in each jurisdiction
where required in order to create and perfect the first lien and
security interest described above.

4.27. Trademarks. Borrower owns or has the right to use
all patents, trademarks, service marks, trade names, copyrights,
licenses and other rights, which are necessary for the operation of
its business as presently conducted. Nothing has come to the
attention of Borrower to the effect that (i) any material product,
process, method, substance, part or other material presently
contemplated to be sold by or employed by Borrower in connection
with its business will infringe any patent, trademark, service
mark, trade name, copyright, license or other right owned by any
other Person, (ii) there is pending or threatened any claim or
litigation against or affecting Borrower contesting its right to
sell or use any such product, process, method, substance, part or
other material or (iii) there is, or there is pending or proposed,
any patent, invention, device, application or principle or any
statute, law, rule, regulation, standard or code which would
prevent or inhibit or substantially reduce the projected revenues
of, or otherwise materially adversely affect the business,
condition or operations of, Borrower.

ARTICLE 5 - COVENANTS OF THE BORROWER

Borrower covenants and agrees that so long as this Agreement
is in effect, it will, unless Lender waives compliance in writing:

5.1. Application of Revenues: Use of Proceeds.

(a) Cause an amount payable under Section 7.01(b)(xiii)
of the Newark Senior Loan Agreement equal to the scheduled
principal and interest then due and payable to Lender on such
Repayment Date to be deposited directly into the account of Lender
at Texas Commerce Bank. Houston, Texas, Account No. 00101616119.
Any amounts paid directly to Borrower in violation of this Section
5.1(a) shall be immediately paid by Borrower to Lender, and shall
be held in trust by Borrower for the benefit of Lender until paid
over to Lender; and

(b) Upon and following the occurrence and continuation
of any Event of Default. cause any and all distributions payable
under Section 7.01(b)(xv) of the Newark Senior Loan Agreement
("Distributions") to be deposited directly into the account of
Lender at Texas Commerce Bank, Houston, Texas, Account No.
00101616119. Any amounts paid directly to Borrower in violation of
this Section 5.1(c) shall be immediately paid by Borrower to
Lender, and shall be held in trust by Borrower for the benefit of
Lender until paid over to Lender.

(c) Apply $150.000 of the Tranche A Loan to the reserve
account for heat rate and availability improvements pursuant to the
provisions of the Parlin O&M Agreement.

(d) Permit the simultaneous application by Lender of
$1,000,000 of the Tranche B Loan, if drawn by Borrower, to
prepayment of the Bridge Loan in accordance with Section 2.1(d).

5.2. Payment. Pay all sums due under the Newark Senior Loan
Documents, this Agreement and the other Loan Documents according to
the terms hereof and thereof.

5.3. Notices. Promptly, upon acquiring notice or giving
notice, as the case may be, give written notice to Lender of:

(a) Any litigation pending or, to the knowledge of
Borrower, threatened against Borrower involving claims against
Borrower or the Project in excess of $50,000 in the aggregate or
involving any injunctive or declaratory relief, such notice to
include copies of all papers filed in such litigation and to be
given monthly if any such papers have been filed since the last
notice given;

(b) Any dispute or disputes which may exist between
Borrower and any Governmental Authority and which involve (i)
claims against Borrower which individually exceed $25,000 or in the
aggregate exceed $50,000, (ii) injunctive or declaratory relief,
(iii) revocation or modification or the like of any Newark
Applicable Permit or (iv) any Liens for taxes due but not paid;

(d) Any casualty, damage or loss, whether or not
insured, through fire, theft, other hazard or casualty, or any act
or omission of Borrower, its employees, agents, contractors,
consultants or representatives, or of any other Person if such
casualty, damage or loss affects Borrower or the Project, in excess
of $50,000 for any one casualty or loss, or an aggregate of
$100,000;

(e) Any cancellation or material change in the terms,
coverages or amounts of any insurance described in Section 5.15;

(f) Any matter which has resulted or is likely, in light
of other circumstances affecting such Person, to result in a
material adverse change in any Newark Major Project Participant's
financial condition or operations;

(g) Initiation of any condemnation proceedings involving
the Project or any portion thereof;

(h) Any contractual obligations incurred by Borrower
exceeding $250,000 per year in the aggregate for the Newark
Project, not including any obligations incurred pursuant to the
Newark Operative Documents or any obligation contemplated in the
then applicable annual Operating Budget;

(i) Any act by Borrower to become a surety, guarantor,
endorser or accommodation endorser for a third party other than
endorsement of negotiable instruments for collection purposes;

(j) Any termination or material event of default or
notice thereof under any Newark Project Document; and

(k) Any default or event of default (however such terms
are defined) under the Newark Senior Loan Documents.

5.4. Financial Statements, Report, Etc. Deliver to Lender or
cause to be delivered to Lender in form and detail reasonably
satisfactory to Lender such financial or other or statements, lists
of property and accounts, budgets, forecasts or reports relating to

the Newark Project, Borrower or O'Brien, as Lender may reasonably
request.

5.5. Cooperation. Perform, on request of Lender, such
reasonable acts as may be necessary or advisable to carry out the
intent of this Agreement and the other Loan Documents.

5.6. Existence, Conduct of Business, Properties, Etc. Except
as otherwise expressly permitted under this Agreement, (a) maintain
and preserve its existence as a Delaware corporation and all
material rights, privileges and franchises necessary or desirable
in the normal conduct of its business, (b) perform all of its
material contractual obligations under the Newark Operative
Documents and all other agreements and contracts by which it is
bound, maintain all necessary Permits and licenses, including all
Newark Applicable Permits, with respect to its business and the
Newark Project, and (c) engage only in the business contemplated by
the Newark Operative Documents.

5.7. Obligations. Pay all obligations, howsoever arising, as
and when due and payable, including taxes and tax claims, except
(a) such as may be contested in good faith or as to which a bona
fide dispute may exist, provided that Lender is satisfied in its
reasonable discretion that nonpayment of such obligation pending
the resolution of such contest or dispute will not in any way
endanger or materially adversely affect the Newark Project or that
provision is made to the satisfaction of Lender in its sole
discretion for the posting of security (other than the Collateral)
for or the bonding of such obligations or the prompt payment
thereof in the event that such obligation is payable and (b)
Borrower's trade payables which shall be paid in the ordinary
course of business.

5.8. Damage and Cancellation Payments. Except as otherwise
expressly permitted under the Newark Senior Loan Agreement, apply
the proceeds of any surety, performance or similar bonds and any
liquidated or other damages paid in respect of damage payments or
performance payments by Persons involved in the operation of the
Newark Project, to prepay the Senior Loan.

5.9. Books, Records, Access Thereto. Maintain adequate books,
accounts and records with respect to Borrower and the Newark
Project and prepare all financial statements required hereunder in
accordance with GAAP and in compliance with the regulations of any
Governmental Authority having jurisdiction thereof, and permit
employees or agents of Lender at any reasonable times and upon
reasonable prior notice to inspect all of Borrower's properties,
including the Newark Project, and to examine or audit all of
Borrower's books, accounts and records and make copies and
memoranda thereof.

5.10. Qualifying Facility. Take or cause to be taken all
necessary or appropriate actions (a) so that the Newark Project
will be a Qualifying Facility at all times hereafter until all
amounts due Lender under this Agreement have been paid in full, and
(b) to maintain Borrower's and the Newark Project's exemptions from
regulation under the FPA and PUHCA.

5.11. Preservation of Rights, Further Assurances, Etc.

(a) Preserve, protect and defend the rights of Borrower
under each and every Newark Project Document, including prosecution
of suit to enforce any right of Borrower thereunder and enforcement
of any claims with respect thereto;

(b) From time to time, execute, acknowledge, record,
register, deliver and/or file all such notices, statements,
instruments and other documents (including any financing statement,
continuation statement, certificate of title or estoppel
certificate relating to any Loan) stating the interest and charges
then due and any known defaults and take such other steps as may be
necessary or advisable to render fully valid and enforceable under
all applicable laws the right, liens and priorities of Lender with
respect to all Collateral and other security from time to time
furnished under this Agreement or intended to be so furnished, in
each case in such form and at such times as shall be satisfactory

to Lender, and pay all fees and expenses (including attorneys'
fees) incident to compliance with this Section 5.11(b).

5.12. Taxes. Other Government Charges and Utility Charges.
Pay, or cause to be paid, as and when due and prior to delinquency,
all taxes, assessment and governmental charges of any kind that may
at any time be lawfully assessed or levied against or with respect
to Borrower or the Newark Project, all utility and other charges
incurred in the operation, maintenance, use, occupancy and upkeep
of the Newark Project. and all assessment and charges lawfully made
by any Governmental Authority for public improvements that may be
secured by a lien on the Newark Project.

5.13. Compliance with Laws, Instruments, Etc. At its
expense, promptly (a) comply, or cause compliance, in all material
respects, with all laws, rules, regulations and Legal Requirements.
including without limitation laws, rules, regulations and Legal
Requirements, relating to pollution control, environmental
protection, equal employment opportunity employee benefit plans,
ERISA Plans and employee safety, with respect to the operation and
maintenance of the Newark Project, and (b) procure, maintain and
comply, or cause to be procured. maintained and complied with, in
all material respects, all Permits required for any use of the
Newark Project or any part thereof, then being trade or
contemplated by the Newark Operative Documents, except that
Borrower may, at its expense, contest by appropriate proceedings
conducted in good faith the validity or application of any such
law, rule or regulation provided that (i) neither Lender nor
Borrower would be subject to any criminal liability for failure to
comply therewith and (ii) all proceedings to enforce such law, rule
or regulation against Lender, Borrower, or the Newark Project or
any part of any of them, shall have been duly and effectively
stayed during the entire pendency of such contest.

5.14. Compliance with Terms of Newark Operative Documents,
Etc. Observe and perform all of its obligations under this
Agreement, the other Loan Documents and each and every one of the
other Newark Operative Documents to which it is a party.

5.15. Maintenance of Insurance.

(a) Borrower shall, without cost to Lender, maintain or
cause to be maintained on its behalf in effect at all times that
Borrower has any outstanding Obligations owing to Lender insurance
that satisfies the requirement set forth in the Newark Senior Loan
Agreement, as in effect as of the date hereof and without giving
effect to any waiver of any such requirement by the Senior Lender.
Lender shall be named as an additional loss payee or an additional
insured under such policies after the Newark Senior Lender is paid
in full all obligations owed to Newark Senior Lender under the
Newark Senior Loan Documents.

(b) Upon request by Lender, Borrower shall furnish to
Lender a certificate signed by a duly authorized representative of
Borrower, showing the insurance then maintained by or on behalf of
Borrower pursuant to the Newark Senior Loan Agreement and stating
that such insurance complies in all material aspects with the terms
thereof, together with evidence of payment of the premiums thereon.
In the event that at any time such insurance shall be reduced or
cease to be maintained. then (without limiting the rights of Lender
hereunder in respect of the Event of Default which arises as a
result of such failure) Lender may at its option maintain any of
the insurance required hereby and, in such event, Borrower shall
reimburse Lender upon demand for the cost thereof together with
interest thereon at a rate per annum equal to the Default Rate, but
in no event shall the rate of interest exceed the maximum rate
permitted by law.

5.16. Warranty of Title. Borrower has and will maintain
(a) good, marketable and insurable tide to the Newark Project
subject only to Permitted Liens, and (b) good, marketable,
insurable and indefeasible title to all of its other respective
properties and assets (other than properties and assets disposed of
in the ordinary course of business) to the extent that failure to
do so would materially adversely affect the Newark Project or

Borrower's ability to carry on in business or perform its
obligations under the Loan Documents and/or the Newark Senior Loan
Documents.

5.17. Event of Eminent Domain. If an Event of Eminent
Domain shall be threatened or occur with respect to any Collateral,
Borrower (a) shall promptly upon discovery or receipt of notice of
any such threat or occurrence provide written notice of either to
Lender, (b) shall diligently pursue all its right to compensation
against the relevant Governmental Authority in respect of such
Event of Eminent Domain, (c) shall not, without the written consent
of Lender, which consent shall not be unreasonably withheld,
compromise or settle any claim against such Governmental Authority
(d) shall hold all amounts and proceeds (including instruments)
received in respect of any Event of Eminent Domain ("Eminent Domain
Proceeds") in trust for the benefit or the Operative Lender.
segregated from other funds of Borrower, for application in
accordance with Section 7.3 and (e) shall forthwith pay over to
Operative Lender all such amounts and proceeds in the same form as
received (with any necessary endorsement) to be held and applied in
accordance with the provisions of Sections 7.2 and 7.3. Borrower
consents to the participation of Lender in any eminent domain
proceedings, and Borrower shall from time to time deliver to
Operative Lender all instruments requested by it to permit such
participation.

5.18. Indemnification.

(a) Borrower shall indemnify, defend and hold harmless
Lender and its respective officers, directors, shareholders,
controlling persons, employees, agents and servants (collectively,
the "Indemnitees") from and against and reimburse the Indemnitees
for:

(i) any and all claims, obligations, liabilities,
losses, damages, penalties, stamp or other similar taxes, actions,
suits, judgments, costs and expenses (including attorneys' fees) of
whatever kind or nature, whether or not well founded, meritorious
or unmeritorious, demanded, asserted or claimed against any such
Indemnitee in any way relating to, or arising out of or in
connection with this Agreement, the other Newark Operative
Documents, or the Newark Project, except for claims against any
such Indemnitee based on the gross negligence or willful misconduct
of any such Indemnitee;

(ii) any and all losses, claims, liabilities,
damages, injuries (to person, property, or natural resources),
costs, expenses, actions or causes of action, arising in connection
with the release or presence of any Hazardous Substance at the
Newark Project, whether foreseeable or unforeseeable, including,
without limitation, all costs of removal and disposal of such
Hazardous Substances, all reasonable costs required to be incurred
in (i) determining whether the Newark Project is in compliance and
(ii) causing the Newark Project to be in compliance with all
applicable Legal Requirements, all reasonable costs associated with
claims for damages to persons or property, and reasonable
attorneys' and consultants' fees and court costs; and

(iii) any and all claims, obligations,
liabilities. losses, damages, penalties, actions, suits, costs and
expenses (including attorneys' fees) of whatever kind or nature,
whether or not well founded, meritorious or unmeritorious,
demanded, asserted or claimed against any Indemnitee in any way
relating to, or arising out of or in connection with the disputes,
circumstances and events described in Exhibit I and any claims,
suits, liabilities against Borrower or any of its Affiliates.

(b) The provisions of this Section 5. 18 shall survive
foreclosure of the Collateral Documents and satisfaction or
discharge of Borrower's obligations hereunder, and shall be in
addition to any other rights and remedies of Lender.

(c) In case any action, suit or proceeding shall be
brought against any Indemnitee. such Indemnitee shall notify
Borrower of the commencement thereof, and Borrower shall be
entitled, at its expense, acting through counsel acceptable to such
Indemnitee, to participate in, and, to the extent that Borrower

desires, to assume and control the defense thereof. Such Indemnitee
shall be entitled, at its expense, to participate in any action,
suit or proceeding the defense of which has been assumed by the
Borrower. Notwithstanding the foregoing, Borrower shall not be
entitled to assume and control the defenses of any such action,
suit or proceedings if and to the extent that, in the opinion of
such Indemnitee and its counsel, such action, suit or proceeding
involves the potential imposition of criminal liability on such
Indemnitee or a conflict of interest between such Indemnitee and
Borrower or between such Indemnitee and other Indemnitee, and in
such event (other than with respect to disputes between such
Indemnitee and other Indemnitee) Borrower shall pay the reasonable
expenses of such Indemnitee in such defense.

(d) Borrower shall report to such Indemnitee on the
status of such action, suit or proceeding as developments shall
occur and at least within sixty (60) days of the previous report.
Borrower shall deliver to such Indemnitee a copy of each document
filed or served on any party in such action, suit or proceeding,
and each material document which Borrower possesses relating to
such action, suit or proceeding.

(e) Notwithstanding Borrower's rights hereunder to
control certain actions, suits or proceedings, any Indemnitee
against whom any claim is made shall be entitled to compromise or
settle any such claim if such Indemnitee determines in its
reasonable discretion that failure to compromise or settle such
claim is reasonably likely to have a material adverse effect on
such Indemnitee, the Newark Project or such Indemnitees interest in
the Newark Project. Any such compromise or settlement shall be
binding upon Borrower for purposes of this Section 5.18.

(f) Upon payment of any claim by Borrower pursuant to
this Section 5.18 or other similar indemnity provisions contained
herein to or on behalf of an Indemnitee, Borrower, without any
further action, shall be subrogated to any and all claims that such
Indemnitee may have relating thereto, and such Indemnitee shall
cooperate with Borrower and give such further assurances as are
necessary or advisable to enable Borrower vigorously to pursue such
claims. Payment thereof by any Indemnitee or the payment by such
Indemnitee of any judgment or claim successfully perfected against
such Indemnitee shall constitute a Prime Rate Loan and shall be
payable upon demand of such Indemnitee.

(g) Any amounts payable by Borrower pursuant to this
Section 5.18 shall be regularly payable within thirty (30) days
after Borrower receives an invoice for such amounts from any
applicable Indemnitee.

5.19. ERISA. Either (i) Borrower will not establish,
maintain, contribute to or become obligated to contribute to any
ERISA Plan, or suffer or permit any member of the Controlled Group
to do so, or (ii) if any ERISA Plan is so established, maintained
or contributed to or so becomes the obligee of contributions,
(1) Borrower and each member of the Controlled Group shall have at
all times fulfilled their obligations under the minimum funding
standards of ERISA and the Code for each such ERISA Plan, shall at
all times be in compliance in all material respects with applicable
provisions of ERISA and the Code and shall not incur any liability
to the PBGC or any ERISA Plan under Title IV of ERISA, and (2)
within thirty (30) days after (A) the occurrence of any reportable
event (as defined in section 4043(b) of ERISA) with respect to any
ERISA Plan, (B) the complete or partial withdrawal by Borrower or
any member of the Controlled Group from any Multiemployer Plan or
(C) any Multiemployer Plan enters reorganization status or becomes
insolvent, Borrower shall report such occurrence to Lender and
furnish such information as Lender may reasonably request with
respect thereto.

ARTICLE 6 - NEGATIVE COVENANTS

Borrower covenants and agrees that so long as this Agreement
is in effect, it will not.
without the written consent of Lender:

6.1. Continent Liabilities. Except as provided in this
Agreement, become liable as a surety, guarantor, accommodation
endorser or otherwise, for or upon the obligation of any other
Person; provided, however, that this Section 6.1 shall not be
deemed to prohibit:

(a) The acquisition of goods, supplies or merchandise in
the normal course of business or normal trade credit; or

(b) The endorsement of negotiable instruments received
in the normal course of its business.

6.2. Limitations on Liens. Create, assume or suffer to exist
any Lien, securing a charge or obligation on the Newark Project or
on any of the Collateral, whether now owned or hereafter acquired,
except Permitted Liens.

6.3. Indebtedness. Incur, create, assume or permit to exist
any Debt except (a) the Senior Obligations (b) the Loans,
(c) additional indebtedness in an aggregate principal amount not
exceeding $7,000,000, of which (i) an aggregate principal amount of
$6,500,000 may be incurred solely to satisfy final judgments for
the payment of money rendered in connection with the fire at the
Newark Project which occurred on December 25, 1992 and (ii) an
aggregate principal amount of $500,000 may be incurred without
restriction, and (d) any obligations in connection with the Newark
Project (which obligations are not otherwise contrary to any of the
terms and conditions of the Loan Documents) which may be construed
to be Debt hereunder.

6.4. Sale or Lease of Assets. Sell, lease, assign, transfer
or otherwise dispose of assets, whether now owned or hereafter
acquired, (i) except in the ordinary course of its business as
permitted by the Newark Senior Loan Agreement and as contemplated
by the Newark Operative Documents and (ii) except for obsolete,
worn out or replaced property not used or useful in its business;
and in each case at fair market value.

6.5. Changes. Change the nature of its business or expand its
business beyond the business contemplated in the Newark Senior Loan
Agreement and the Newark Operative Documents.

6.6. Distributions. Directly or indirectly, make or declare
any distribution (in cash, property or obligation) on, or other
payment on account of, any interest in Borrower, unless pursuant to
Section 7.1 hereof.

6.7. Investments. Make or permit to remain outstanding any
advances or loans or extensions of credit to, or purchase or own
any stock, bonds, notes, debentures or other securities of any
Person, except as permitted under the Newark Senior Loan Agreement.

6.8. Transactions with Affiliates. Directly or indirectly,
enter into any transaction or series of transactions with or for
the benefit of an Affiliate unless such transaction is on
substantially the same terms as are available in an arms-length
transaction in the commercial marketplace.

6.9. Regulations. Directly or indirectly apply any part of
the proceeds of the Loan or any Project Revenues to the purchasing
or carrying of any margin stock within the meaning of Regulation G,
T, U or X of the Federal Reserve Board, or any regulations,
interpretations or rulings thereunder.

6.10. Partnerships. Become a general or limited partner
in any partnership or a joint venturer in any joint venture.

6.11. Dissolution. Liquidate or dissolve, or sell or
lease or otherwise transfer or dispose of all or any substantial
part of its property, assets or business, or combine, merge or
consolidate with or into any other entity.

6.12. Amendments. Cause, consent to or permit any
material amendment, modification, variance or waiver of timely
compliance with any terms or conditions of any Newark Project
Document or cancel or terminate any Newark Operative Document
(except upon expiration of the stated term thereof) to which
Borrower is a party other than termination or modification of any
of the O&M Agreements in accordance with the terms thereof.

6.13. Compliance with Newark Operative Documents. Do or
permit (to the extent within its control) to be done in, upon or
about the Newark Project or any part thereof, anything that is
likely to result in the material diminution or impairment of the
operation, efficiency, capacity, utility, output, reliability,
performance, utility, availability or value thereof; do or permit
(to the extent within its control) to be done any act under the
Newark Operative Documents, or omit or refrain from any act under
the Newark Operative Documents, where such act done or permitted to
be done, or such omission of or refraining from action, would
materially adversely affect the Newark Project or the interests of
Lender under any of the Loan Documents.

6.14. Name and Location; Fiscal Year. Change its name or
the location of its principal place of business without notice to
Lender at least ninety (90) days prior to such change or change its
fiscal year.

6.15. Use of Newark Project. Use, or permit to be used,
the Newark Project for any purpose other than for the operation and
maintenance of the Newark Project as contemplated by or otherwise
permitted by the Newark Operative Documents without the prior
written approval of Lender, such approval not to be unreasonably
withheld.

6.16. Assignment. Assign its rights hereunder or under
any of the Newark Operative Documents to any Person, or create and
deliver any ownership interest in Borrower to any Person other than
those existing on the Closing Date if such assignment shall reduce
the amounts available for payment to Lender pursuant to Section
7.01(b)(xiii) of the Newark Senior Loan Agreement as in effect on
the Closing Date.

6.17. Transfer of Interests. Cause, make, suffer, permit
or consent to any sale, assignment or transfer of any ownership
interest or other interest in Borrower if such sale shall reduce
the amounts available for payment to Lender pursuant to Section
7.01(b)(xiii) of the Newark Senior Loan Agreement as in effect on
the Closing Date. As used herein, the transfer of an ownership
interest in Borrower shall include direct and indirect transfers,
including without limitation sale of stock or ownership interests
in the Borrower or other Person who has an ownership interest in
Borrower.

6.18. Abandonment of Newark Project. Voluntarily abandon
the operation of the Newark Project.

6.19. Hazardous Substance. Release, emit or discharge
into the environment any Hazardous Substances in excess of
permitted levels or reportable quantifies or in violation of other
permitted concentrations standards or limitations under any
Hazardous Substance Laws, Legal Requirements or Newark Applicable
Permits in connection with the Newark Project.

6.20. ERISA. Establish, maintain, contribute to or
become obligated to contribute to any ERISA Pian or suffer or
permit any member of the Controlled Group to do so.

6.21. Modification of Newark Senior Loan Agreement.
Modify the express levels of distribution set forth in Section
7.01(b) of the Newark Senior Loan Agreement so as to reduce amounts
available for payment to Lender pursuant to Section 7.01(b)(xiii)
or Section 7.01(b)(xv) thereunder, except in accordance with the
terms of the Consent and Subordination Agreement.

ARTICLE 7 - APPLICATION OF FUNDS

7.1. Application of Project Revenues.

(a) All amounts available for payment of Subordinated
Loans (as such term is defined in the Newark Senior Loan Agreement)
pursuant to Section 7.01(b)(xiii) of the Newark Senior Loan
Agreement shall be applied (i) toward the scheduled principal and
interest then due and payable to Lender on such Repayment Date, and
(ii) after payment in full of the scheduled principal and interest
then due and payable to Lender, as otherwise set forth in such
Section 7.01(b).

(b) Upon and following the occurrence and continuation
of any Event of Default, all Distributions under Section
7.01(b)(xv) of the Newark Senior Loan Agreement deposited in
Lender's account pursuant to Section 5.1(b) hereof shall be applied
(i) toward payment in full of all outstanding Obligations of
Borrower to Lender, and, (ii) after payment in full of all
Obligations of Borrower to Lender, to Borrower.

7.2. Application of Insurance Proceeds.

(a) Each of the parties hereto agree that all amounts
and proceeds (including instruments) in respect of the proceeds of
any insurance policy required to be maintained by Borrower
hereunder ("Insurance Proceeds") shall, except as otherwise
provided in clause (b) below, be paid by the respective insurers
directly to Operative Lender and if paid to Borrower, such
Insurance Proceeds shall be received only in trust for Operative
Lender, shall be segregated from other funds of Borrower, and shall
be forthwith paid over to Operative Lender in the same form as
received (with any necessary endorsement). Each of the parties
hereto agrees, to the fullest extent that it effectively may do so
under applicable law, and subject to subsection (b) of this Section
7.2 that Operative Lender shall apply all such insurance Proceeds
to the repayment of the Senior Obligations in accordance with the
Newark Senior Loan Documents and, if applicable, the Loans and
shall remit any excess Insurance Proceeds after payment of such
amounts to Borrower.

(b) If an Event Of Default or Inchoate Default shall
have occurred and be continuing, then any provisions of the
foregoing Section 7.2(a) to the contrary notwithstanding, the
Insurance Proceeds may be applied by Operative Lender to curing
such Event of Default or Inchoate Default. Any Insurance Proceeds
remaining thereafter shall be applied as provided in Section
7.2(a).

7.3. Application of Eminent Domain Proceeds. All Eminent
Domain Proceeds shall be paid by the condemning authority directly
to Operative Lender, and, if paid to Borrower, such Eminent Domain
Proceeds shall be received only in trust for Operative Lender,
shall be segregated from other funds of Borrower and shall
forthwith be paid over to Operative Lender in the same form as
received (with any necessary endorsement). To the extent any
Eminent Domain Proceeds remain after all obligations owing from
Borrower to Senior Lender and Lender have been satisfied, such
Eminent Domain Proceeds shall be released to Borrower.

ARTICLE 8 - EVENTS OF DEFAULT: REMEDIES

A. Events of Default.

The occurrence of any of the following events shall constitute
an event of default ("Even of Default") hereunder:

8.1. Failure to Make Payment. Borrower shall fail to pay
within 15 days of the due date, in accordance with the terms of
this Agreement, (a) any principal on any Loan on the date that such
sum is due, (b) any interest on any Loan on the date that such sum
is due, or (c) any other fee, cost, charge or other sum due under
this Agreement on the date that such sum is due.

8.2. Warranties Untrue. Any representation or warranty of
Borrower herein, in any Loan Document or in any agreement,
instrument or certificate executed pursuant hereto in connection
with any transaction contemplated hereby shall be false or
misleading in any material respect when made and shall remain
material at the time in question, and as a result thereof, there is
a material and adverse effect on Borrower's ability to meet its
obligations under the Loan Documents as determined by Lender in its
sole discretion; provided that no Event of Default shall occur if
within ten (10) days of the date on which Borrower receives notice
(from any source) that such representation or warranty is false or
misleading, Borrower causes such representation or warranty to be
true and correct.

8.3. Judgments. A final judgment or judgments shall be
entered against Borrower or, after the Tranche B Funding Date,
Parlin in the aggregate amount of $1,000,000 or more which remain
unstayed or unsatisfied for 30 days after entry, and which will
materially impair or inhibit Borrower's use of the Newark Project
or Parlin's use of the Parlin Project, as applicable, for the
purpose for which such Project was intended.

8.4. Misstatements; Omissions. Any financial statement,
representation, warranty or certificate made or prepared by, under
the control of or on behalf of Borrower and furnished to lender
pursuant to this Agreement, or in any separate document to be
delivered to Lender hereunder or under any other Loan Document,
shall contain an untrue or misleading statement of a material fact
or shall fail to state a material fact necessary to make the
statements therein not misleading as of the date made and as a
result thereof, there is a material and adverse effect on
Borrower's ability to meet its obligations under the Loan Documents
as determined by Lender in its sole discretion, provided that no
Event of Default shall occur pursuant hereto, if within ten (10)
days of the date on which Borrower receives notice (from any
source) that such untrue or misleading statement or failure to
state a material fact has occurred, Borrower shall eliminate or
otherwise addresses to the satisfaction of Lender any such material
and adverse effects relating to such misleading statement or
failure to state a material fact.

8.5. Bankruptcy; Insolvency. Borrower shall institute a
voluntary case seeking liquidation or reorganization under the
Bankruptcy Law (or any successor statute), or shall consent to the
institution of an involuntary case thereunder against it; or
Borrower shall file a petition, answer or consent or shall
otherwise institute any similar proceeding under any other
applicable federal or state law, or shall consent thereto; or
Borrower shall apply for, or by consent or acquiescence there shall
be an appointment of, a receiver, liquidator, sequestrator, trustee
or other officer with similar powers, or Borrower shall make an
assignment for the benefit of creditors; or Borrower shall admit in
writing its inability to pay its debts generally as they become
due; or if an involuntary case shall be commenced seeking the
liquidation or reorganization of Borrower under the Bankruptcy Law
(or any successor statute) or any similar proceeding shall be
commenced against Borrower under any other applicable federal or
state law or a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer having similar powers of
Borrower or of all or a part of Borrower's property, shall have
been entered; or any other similar relief shall be granted against
Borrower under any applicable federal or state law, any of which
shall remain unstayed and in effect for a period of 60 consecutive
days.

8.6. Cross Default. Borrower shall default (i) in the payment
of any principal, interest or other amount due under any agreement
involving the borrowing of money or the advance of credit and the
outstanding amount or amounts payable under all such agreements
exceeds $50,000 in the aggregate and such default has a material
adverse effect on Borrower's ability to make timely repayment of
the Loans, or (ii) in the payment of any amount due under any
guarantee of any agreement or obligation of the type described in
the foregoing clause, if in either case, pursuant to such default,
the holder of the obligation concerned exercises its right to
accelerate the maturity of the indebtedness evidenced thereby.

8.7. ERISA. If Borrower or any member of the Controlled Group
should maintain or become obligated to contribute to an ERISA Plan
and (a) a reportable event (as defined in Section 4043(b) of ERISA)
shall have occurred with respect to any ERISA plan; or (b) a
trustee shall be appointed by a United States District Court to
administer any ERISA Plan; or (c) the PBGC shall institute
proceedings to terminate any ERISA Plan; or (d) a complete or
partial withdrawal by Borrower or any member of the Controlled
Group from any Multiemployer Plan shall have occurred, or any
Multiemployer Plan shall enter reorganization status or shall
become insolvent; provided that any of the events described in this
Section 8.7 shall involve (X) one or more ERISA Plans that are
single-employer plans (as defined in Section 4001(a)(15) of ERISA)
and under which the aggregate amount of vested unfunded liabilities
(including vested unfunded liabilities which arise or might arise
as the result of the termination of such ERISA Plan or Plans),
and/or (Y) one or more Multiemployer Plans to which the aggregate
liabilities of Borrower or the members of the Controlled Group,
shall exceed One Hundred Thousand Dollars ($100,000).

8.8. Breach of Newark Project Documents.

Borrower or any other party thereto shall breach or default
under any material term, condition, provision, representation or
warranty contained in any Newark Project Document or other
Agreement (other than the Loan Documents) to which Borrower is a
party and Lender shall have reasonably determined that the effect
of such breach or default will have a material adverse effect on
Borrower's ability to perform its obligations under the Loan
Documents or Lender's interests in Distributions from the Newark
Project or the Collateral and such breach or default shall continue
unremedied for thirty (30) days after notification from Lender to
Borrower; provided, however, that if the breach or default cannot
be remedied within such thirty (3) days despite Borrower's and/or
such other party's, as the case may be, best efforts to do so,
Lender will not unreasonably withhold its consent to an extension
of such time for such additional periods as is reasonably necessary
to cure such breach of default if remedial action is promptly
instituted within such 30-day period and is thereafter diligently
pursued until the breach or default is corrected; and provided
further that Borrower shall not be in violation of this Section 8.8
if Borrower shall be contesting in good faith any alleged breach by
Borrower of any Newark Project Document.

8.9. Breach of Terms of Agreement.

(a) Borrower shall (i) fail to perform or observe any of the
covenants set forth in Sections 5.1, 5.2 or 5.6, or Sections 6.1
through 6.21 or Sections 7.1, 7.2 or 7.3 or, after the Tranche B
Funding date, Parlin shall fail to perform or observe any of the
covenants set forth in the Parlin Distribution Agreement and, in
each case, such failure has a material, adverse effect on
Borrower's ability to make timely repayment of the Loans, and such
failure to perform or observe such covenants remains in effect for
30 days; or

(b) Borrower or, after the Tranche B Funding date, parlin
shall fail to perform or observe any other covenant to be observed
or performed by it hereunder or under any Loan Document and not
otherwise specifically provided for therein or in Section 8.9(a),
and such failure shall continue unremedied for a period of thirty
(30) days after Borrower or Parlin, if applicable, becomes aware
thereof or receives written notice thereof from Lender, provided,
however, that if such default is of a nature such that it cannot
reasonably be cured within such thirty (30) day period, an Event of
Default shall not result therefrom so long as (i) Borrower or
Parlin, if applicable, has, promptly upon discovery thereof, given
written notice to Lender of such default (provided, that if any
Event of Default is cured within any applicable time period
specified herein, or waived or temporarily waived by Lender, the
failure alone to give notice of such Event of Default as provided
in this sentence shall not be deemed an Event of Default);
(ii) Borrower or Parlin, if applicable, as promptly as practicable
commences action reasonably designed to cure such default and
continues diligently to pursue such action and (iii) Lender in its
sole discretion shall have determined and shall continue to
conclude that such default does not have a material adverse effect
on Borrower's or Parlin's, if applicable, ability to perform its
obligations hereunder or under the other Newark Operative Documents
or a material adverse effect on Lender's interests in the Project.

8.10. Loss of Qualifying Facility Status.

(a) The Newark Project or, after the Tranche B Funding date,
the Parlin Project shall cease to be a Qualifying Facility and all
periods for cure of such loss of Qualifying Facility status shall
have expired under applicable law; or

(b) Borrower or, after the Tranche B Funding Date, Parlin,
shall lose its exemption from regulation under PUHCA and all
periods for cure of such loss of exemption shall have expired under
applicable law.

8.11. Security. Any of the Collateral Documents, once
executed and delivered, shall, except as the result of the acts or
omissions of Lender, in any material respect fail to provide Lender
the liens, security interest, rights, titles, interest, remedies,
powers or privileges intended to be created thereby or cease to be
in full force and effect, or the validity thereof or the
applicability thereof to the Loan, the Note, or any other

obligations purported to be secured or guaranteed thereby or any
part thereof shall be disaffirmed by or on behalf of Borrower or
any other party thereto or there shall occur a default or event of
default (however defined) under any of the Collateral Documents,
such default or event of default shall not have been cured within
ten (10) days after its occurrence and Lender shall determine in
its sole discretion that such default or event of default would
have a material adverse effect on the Project or Borrower's ability
to perform its obligations under the Newark Operative Documents, or
would materially impair Lender's security position.

8.12. Breach of Parlin Project Documents. After the
Tranche B Funding Date: Parlin or any other party thereto shall
breach or default under any material term, condition, provision,
representation or warranty contained in any Parlin Project Document
or other Agreement to which Parlin is a party and Lender shall have
determined that the effect of such breach or default will have a
material adverse effect on Lender's interests in Distributions from
the Parlin Project or the Collateral and such breach or default
shall continue unremedied for 10 days after notification from
Lender to Parlin; provided, however, that if the breach or default
cannot be remedied within such 10 days despite Parlin's and/or such
other party's, as the case may be, best efforts to do so, Lender
will not unreasonably withhold its consent to an extension of such
time for such additional periods as is reasonably necessary to cure
such breach of default if remedial action is promptly instituted
within such 10-day period and is thereafter diligently pursued
until the breach or default is corrected; and provided further that
Parlin shall not be in violation of this Section 8.12 if Parlin
shall be contesting in good faith any alleged breach by Parlin of
any Parlin Project Document.

8.13. Breach of Senior Loan Documents. An event of
default (however such term is defined) shall occur and be
continuing under (i) the Newark Senior Loan Agreement or any of the
Newark Senior Loan Documents or, (ii) after the Tranche B Funding
Date, the Parlin Senior Loan Agreement or any of the Parlin Senior
Loan Documents.

B. Remedies

Subject to the provisions of the Consent and Subordination
Agreement, (i) upon the occurrence and during the continuation of
an Event of Default specified under Section 8.1 (or automatically
upon the occurrence of an Event of Default under Section 8.5), and
(ii) upon the occurrence and during the continuation of any other
Event of Default specified herein pursuant to, or at a time during,
which the Newark Senior Lender has accelerated the obligations of
Borrower under the Newark Senior Loan Documents, Lender may
(i) terminate any obligation on its part to make or continue any
Loan and (ii) declare and make all sums of outstanding principal
and accrued but unpaid interest remaining under this Agreement
together with all fees, costs and charges due hereunder or under
any other Loan Document, immediately due and payable, without
further notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or other notices or
demands of any kind, all such notices and demands being waived;
provided, however, that Lender shall look solely to Distributions
(and, after the Tranche B Funding Date, amounts available for
payment to Lender pursuant to the Lock Box Agreement) for repayment
of such accelerated outstanding principal and interest. Lender may
also exercise any or all of the following rights and remedies, in
any combination or order that it may elect, in addition to such
other rights or remedies as Lender may have hereunder, under the
Collateral Documents or at law or in equity.

8.14. No Further Loan. Upon the occurrence and during the
continuation of an Event of Default, Lender may refuse, and shall
not be obligated, to make the Tranche B Loan.

8.15. Cure. Upon the occurrence and during the
continuation of an Event of Default, Lender may, but shall not be
obligated to, loan to or on behalf of Borrower to pay any Project
Cost or to cure any Event of Default or Inchoate Default hereunder
and to cure any default and render any performance under any
Project Document as Lender in its sole discretion may consider
necessary or appropriate, whether to preserve and protect the
Collateral or Lender's interests therein or for any other reason,
and all sums so expended, together with interest on such total
amount at the Default Rate, shall be repaid by Borrower to Lender
on demand and shall be secured by the Loan Documents,

notwithstanding that such expenditures may, together with amounts
advanced under this Agreement, exceed the amount of the Total Loan
Commitment.

8.16. Remedies Under Loan Documents. Subject to the
provisions of the Consent and Subordination Agreement, upon the
occurrence and during the continuation of an Event of Default,
Lender may exercise any and all rights and remedies available to it
under any of the Loan Documents, pursuant to the Collateral
Documents.

ARTICLE 9 - SCOPE OF LIABILITY

9.1. Scope of Liability. Notwithstanding any other provision
of the Loan Documents, there shall be no recourse against any
Affiliate of Borrower, or any of its respective Affiliates,
stockholders, partners, officers, directors, employees, or agents
except for, on or after the Tranche B Funding Date, parlin, for any
liability to Lender arising in connection with any breach or
default under this Agreement except to the extent the same is
enforced against and limited to Borrower, Parlin (on and after the
Tranche B Funding Date), or the Collateral, and Lender shall look
solely to Borrower, Parlin (on and after the Tranche B Funding
Date) and the Collateral in enforcing rights and obligations under
and in connection with the Loan Documents, provided that (a) the
foregoing provisions of this Article 9 shall not constitute a
waiver, release or discharge of any of the indebtedness, or of any
of the terms, covenants, conditions, or provisions of this
Agreement, the Notes, any other Collateral Document or Loan
Document, and the same shall continue until fully paid, discharged,
observed, or performed; (b) the foregoing provisions of this
Article 9 shall not limit or restrict the right of Lender to name
Borrower or any other Person as a defendant in any action or suit
for foreclosure or for the exercise of any other remedy under or
with respect to this Agreement, the Security Agreement or any other
Loan Document, or for injunction or specific performance, so long
as no judgment in the nature of a deficiency judgment shall be
enforced against any of Borrower's or Parlin's respective
Affiliates, stockholders, partners, officers, directors, employers
or agents out of any property, assets or funds other than the
Collateral; (c) the foregoing provisions of this Article 9 shall
not in any way limit or restrict any right or remedy of Lender (or
any assignee or beneficiary thereof or successor thereto) with
respect to, and all of such Persons shall remain fully liable to
the extent that it would otherwise be liable for its own actions
with respect to, any fraud, gross negligence or willful
misrepresentation, or misappropriation of Project Revenues or any
other earnings, revenues, rents, issues, profits or proceeds from
or of the Collateral that should or would have been paid as
provided herein or paid or delivered to Lender (or any assignee or
beneficiary thereof or successor thereto) towards any payment
required under this Agreement or any other Loan Document; (d) the
foregoing provisions of the Article 9 shall not in any way restrict
any right or remedy of Lender or its Affiliates (or any assignee or
beneficiary thereof or successor thereto) with respect to, and all
of such Persons shall remain fully liable with respect to, the
obligations of the Persons described above under the O&M
Agreements, to the extent such liability is not expressly limited
by the terms of the O&M Agreements; and (e) nothing contained
herein shall limit the liability of any Person rendering a legal
opinion pursuant to this Agreement relating solely to such
liability of such Person as may arise under such opinion. The
limitations on recourse set forth in this Article 9 shall survive
the termination of this Agreement and the full payment and
performance of the Obligations of Borrower hereunder and under the
other Newark Operative Documents.

ARTICLE 10 - MISCELLANEOUS

10.1. Addresses.

Any communications between the parties hereto or notices
provided herein to be given may be given to the following
addresses:

If to Lender: Stewart & Stevenson Services, Inc.
16415 Jacinto Port
Houston, TX 77015
Attention: David Herberger, Esq.

If to Borrower: O'Brien (Newark) Cogeneration, Inc.
St. James Place at 8th Street
Philadelphia, PA 19106
Attention: Joel Cooperman, President

All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be considered as
properly given (a) if delivered in person, (b) if sent by overnight
delivery service (including Federal Express, ETA, Emery, Purolator,
DHL, Airborne and other similar overnight delivery services),
(c) in the event overnight delivery services are not readily
available, if mailed by first class United States Mail, postage
prepaid, registered or certified with return receipt requested or
(d) if sent by prepaid telegram, or by telecopy confirmed by
telephone. Notice so given shall be effective upon receipt by the
addressee, except that communication or notice so transmitted by
telecopy or other direct written electronic means shall be deemed
to have been validly and effectively given on the day (if a Banking
Day and, if not, on the next following Banking Day) on which it is
transmitted if transmitted before 4 p.m., recipient's time, and if
transmitted after that time, on the next following Banking Day;
provided, however, that if any notice is tendered to an addressee
and the delivery thereof is refused by such addressee, such notice
shall be effective upon such tender. Any party shall have the
right to change its address for notice hereunder to any other
location within the continental United States by giving of thirty
(30) days' notice to the other parties in the manner set forth
hereinabove.

10.2. Additional Security; Lender's Right to Set-Off. Any
deposits or other sums at any time credited or due from Lender and
any Distributions, securities or other property of Borrower in the
possession of Lender (other than such property as is in the
possession of Lender or its Affiliates solely in its capacity as a
party to any of the O&M Agreements) may at all times be treated as
collateral security for the payment of the Loan and the Note and
all other obligations of Borrower to Lender under this Agreement
and the other Loan Documents, and the Borrower hereby pledges to
Lender and grants Lender a security interest in and to all such
deposits, sums, securities or other property. Regardless of the
adequacy of any other Collateral, Lender may execute or realize on
the security interest in any such deposits or other sums credited
by or due from Lender to Borrower, may apply any such deposits or
other sums to or set them off against Borrower's obligations to
Lender under the Note and this Agreement at any time after the
occurrence and during the continuance of any Event of Default.

10.3. Delay and Waivers. No delay or omission to exercise
any right, power or remedy accruing to Lender upon the occurrence
of any Event of Default or Inchoate Default or any breach or
default of the Borrower under this Agreement or any other Loan
Document shall impair any such right, power or remedy of Lender,
nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring, nor shall any waiver of any single
Event of Default, Inchoate Default or other breach or default be
deemed a waiver of any other Event of Default, Inchoate Default or
other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the
part of Lender of any Event of Default, Inchoate Default or other
breach or default under this Agreement or any other Loan Document,
or any waiver on the part of Lender of any provision or condition
of this Agreement or any other Loan Document, must be in writing
and shall be effective only to the extent in such writing
specifically set forth. All remedies, either under this Agreement
or any other Loan Document or by law or otherwise afforded Lender,
shall be cumulative and not alternative.

10.4. Costs, Expenses and Attorneys' Fees; Commitment
Letter Fees, Etc. Borrower will pay to Lender fifty percent (50%)
of Lender's reasonable costs and expenses in connection with the
preparation, negotiation, and closing of this Agreement and the
documents contemplated hereby, including the reasonable fees,
expenses and disbursements of Latham & Watkins, and the travel and
out-of-pocket costs incurred by Lender. Borrower will reimburse
Lender for all costs and expenses, including reasonable attorneys'
fees, expended or incurred by Lender in enforcing this Agreement or
the other Loan Documents in connection with an Event of Default or
Inchoate Default, in actions for declaratory relief in any way
related to this Agreement or in collecting any sum which becomes
due lender on the Note or under the Loan Documents.

10.5. Entire Agreement. This Agreement and any agreement,
document or instrument attached hereto or referred to herein
integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral negotiations and prior
writings in respect to the subject matter hereof. In the event of
any conflict between the terms, conditions and provisions of this
Agreement and any such agreement, document or instrument, the
terms, conditions and provisions of this Agreement shall prevail.
This Agreement and the other Loan Documents may only be amended or
modified by an instrument in writing signed by Borrower and Lender.

10.6. Governing Law. This Agreement, and any instrument
or agreement required hereunder (to the extent not expressly
provided for therein), shall be governed by, and construed under,
the laws of the State of New York.

10.7. Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal
or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

10.8. Headings. Paragraph headings have been inserted in
this Agreement as a matter of convenience for reference only and it
is agreed that such paragraph headings are not a part of this
Agreement and shall not be used in the interpretation of any
provision of this Agreement.

10.9. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP and practices consistent with those applied in the preparation
of the financial statements submitted by Borrower to Lender, and
all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles and practices.

10.10. Additional Financing. The parties hereto
acknowledge that Lender has made no agreement or commitment to
provide any financing except as set forth herein.

10.11. No Partnership, Etc. Lender and Borrower intend
that the relationship between them shall be solely that of creditor
and debtor. Nothing contained in this Agreement, the Note or in
any of the other Loan Documents shall be deemed or construed to
create a partnership, tenancy-in-common, joint tenancy, joint
venture or co-ownership by or between lender and Borrower or any
other Person. Lender shall not be in any way responsible or liable
for the debts, losses, obligations or duties of Borrower or any
other Person with respect to the Projects or otherwise. All
obligations to pay real property or other taxes, assessments,
insurance premiums, and all other fees and charges arising from the
ownership, operation or occupancy of the Projects and to perform
all obligations under any agreements and contracts relating to the
Projects shall be the sole responsibility of Borrower.

10.12. No Setoff by Borrower. Borrower and Lender (and/or
certain of Lender's Affiliates) are party to the Newark O&M
Contract, and Borrower's Affiliates are party, with Lender (and/or
certain of Lender's Affiliates), to the Parlin O&M Contract and
Artesia O&M Contract. Notwithstanding any dispute or claims for
payment, performance, or otherwise, between Borrower and/or its
Affiliates and/or Lender and/or its Affiliates with respect to the
O&M Contracts, Borrower shall have no right of setoff with respect
to Borrower's obligations under this Agreement and/or such
Contracts, and Borrower hereby waives for itself and its
Affiliates, to the extent permitted under applicable law, any and
all such rights of setoff.

10.13. Security Agreements. Reference is hereby made to
the Security Agreements for the provisions, among others, relating
to the nature and extent of the security provided thereunder, the
rights, duties and obligations of Borrower and the rights of Lender
with respect to such security.

10.14. Limitation on Liability. No claim shall be made by
Borrower, its Affiliates against Lender or any of its Affiliates,
directors, employees, attorneys or agents for any special,
indirect, consequential or punitive damages in respect of any
breach or wrongful conduct (whether or not the claim therefor is
based on contract, tort or duly imposed by law), in connection

with, arising out of or in any way related to the transactions
contemplated by this Agreement or the other Newark Operative
Documents and Parlin Operative Documents or any act or omission or
event occurring in connection therewith; and Borrower hereby
waives, releases and agrees not to sue upon any such claim for any
such damages, whether or not accrued and whether or not known or
suspect to exist in its favor; provided, however, that nothing in
this Section 10.14 shall limit or restrict Borrower's rights, if
any, to recover consequential damages under the O&M Agreements
against the parties thereto, to the extent Borrower is so permitted
pursuant to the express terms of such agreements.

10.15. Waiver of Jury Trial. LENDER AND BORROWER HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OR CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF
LENDER OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR LENDER TO ENTER INTO THIS AGREEMENT.

10.16. Consent to Jurisdiction. Lender and Borrower agree
that any legal action or proceeding by or against Borrower or with
respect to or arising out of this Agreement, the Note, or any other
Loan Document shall be brought in the courts of the State of New
York in and for the County of New York, or of the United States of
America for the Southern District of New York, as Lender may elect.
By execution and delivery of the Agreement, Lender and Borrower
accept, for themselves and in respect of their property, generally
and unconditionally, the jurisdiction of the aforesaid courts.
Lender and Borrower irrevocably consent to the service of process
out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or
certified airmail, postage prepaid, to Lender or the Borrower, as
the case may be, at their respective addresses for notices as
specified herein and that such service shall be effective five (5)
Banking Days after such mailing. Nothing herein shall affect the
right to serve process in any other manner permitted by law or the
right of Lender to bring legal action or proceedings in any other
competent jurisdiction. Notwithstanding the foregoing, service of
process shall not be deemed mailed to Lender until a copy of all
matters to be served have been mailed to Latham & Watkins, 505
Montgomery Street, Suite 1900, San Francisco, California 94111,
Attn: Tim Flato or such other Person as Lender may hereafter
designate by notice given pursuant to Section 10.1. Lender and the
Borrower further agree that the aforesaid courts of the State of
New York and of the United States of America shall have exclusive
jurisdiction with respect to any claim or counterclaim of the
Borrower based upon the assertion that the rate of interest charged
by Lender on or under this Agreement, the Loan and/or the other
Loan Documents is usurious. Lender and the Borrower hereby waive
any right to stay or dismiss any action or proceeding under or in
connection with any or all of the Project, this Agreement or any
other Loan Document brought before the foregoing courts on the
basis of forum non-conveniens.

10.17. Usury. Nothing contained in this Agreement or the
Note shall be deemed to require the payment of interest or other
charges by the Borrower or any other Person in excess of the amount
which Lender may lawfully charge under any applicable usury laws.
In the event that Lender shall collect moneys which are deemed to
constitute interest which would increase the effective interest
rate to a rate in excess of that permitted to be charged by
applicable law, all such sums deemed to constitute interest in
excess of the legal rate shall, upon such determination, at the
option of the holder of the Notes, be returned to Borrower or
credited against the principal balance of the Notes then
outstanding.

10.18. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
Borrower may not assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of Lender
which may be given or withheld in Lender's sole discretion. Any
assignment or participation by Lender hereunder shall be subject to
the Consent and Subordination Agreement.

10.19. Counterparts. This Agreement may be executed in one
or more duplicate counterparts and when signed by all of the
parties listed below shall constitute a single binding agreement.

IN WITNESS WHEREOF, the parties have caused this Subordinated
Loan Agreement to be duly executed by their officers or partners
thereunto duly authorized as of the day and year first above
written.

O'BRIEN NEWARK COGENERATION, INC., a
Delaware corporation

By:/s/
-------------------------------------
Name:
Title:

STEWART & STEVENSON SERVICES, INC., a
Texas corporation

By:/s/
--------------------------------------
Name:
Title:

By:/s/
--------------------------------------
Name:
Title:
<PAGE>

TABLE OF CONTENTS

Page

ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . .1
1.1. Definitions. . . . . . . . . . . . . . . . . . . . . .1
1.2. Rules of Interpretation. . . . . . . . . . . . . . . .1

ARTICLE 2 THE LOAN FACILITY . . . . . . . . . . . . . . . . . .1
2.1. Loan Facility. . . . . . . . . . . . . . . . . . . . .1
2.2. Other Payment Terms. . . . . . . . . . . . . . . . . .3
2.3. Security.. . . . . . . . . . . . . . . . . . . . . . .4

ARTICLE 3 CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . .5
3.1. Conditions Precedent to the Closing Date . . . . . . .5
3.2. Conditions Precedent to Tranche B Loan.. . . . . . . .7
3.3. Conditions Precedent to Each Loan. . . . . . . . . . .9

ARTICLE 4 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 10
4.1. Organization . . . . . . . . . . . . . . . . . . . . 10
4.2. Authorization: No Conflict . . . . . . . . . . . . . 10
4.3. Enforceability . . . . . . . . . . . . . . . . . . . 10
4.4. ERISA. . . . . . . . . . . . . . . . . . . . . . . . 10
4.5. Taxes. . . . . . . . . . . . . . . . . . . . . . . . 11
4.6. Business, Debt, Contracts. Etc . . . . . . . . . . . 11
4.7. Investment Company, Holding Company and Power
Acts . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8. Governmental Regulation. . . . . . . . . . . . . . . 11
4.9. Financial Statement. . . . . . . . . . . . . . . . . 11
4.10. Regulation Etc. . . . . . . . . . . . . . . . . 11
4.11. Partnerships and Joint Ventures . . . . . . . . 11
4.12. Newark Project Document . . . . . . . . . . . . 11
4.13. Existing Default. . . . . . . . . . . . . . . . 12
4.14. Senior Loan Default . . . . . . . . . . . . . . 12
4.15. Possession of Franchises, Licenses, Etc.. . . . 12
4.16. Offices, Location of Collateral . . . . . . . . 12
4.17. Adverse Change. . . . . . . . . . . . . . . . . 12
4.18. Hazardous Substance . . . . . . . . . . . . . . 13
4.19. Litigation. . . . . . . . . . . . . . . . . . . 13
4.20. Permits . . . . . . . . . . . . . . . . . . . . 13
4.21. Title and Liens . . . . . . . . . . . . . . . . 14
4.22. Utilities . . . . . . . . . . . . . . . . . . . 14
4.23. Qualifying Facility . . . . . . . . . . . . . . 14
4.24. Labor Disputes and Acts of God. . . . . . . . . 14
4.25. Disclosure. . . . . . . . . . . . . . . . . . . 14
4.26. Collateral. . . . . . . . . . . . . . . . . . . 14
4.27. Trademarks. . . . . . . . . . . . . . . . . . . 14

ARTICLE 5 COVENANTS OF THE BORROWER . . . . . . . . . . . . . 15
5.1. Application of Revenues: Use of Proceeds . . . . . . 15
5.2. Payment. . . . . . . . . . . . . . . . . . . . . . . 15
5.3. Notices. . . . . . . . . . . . . . . . . . . . . . . 16

<PAGE>

5.4. Financial Statements, Report, Etc. . . . . . . . . . 17
5.5. Cooperation. . . . . . . . . . . . . . . . . . . . . 17
5.6. Existence, Conduct of Business, Properties, Etc. . . 17
5.7. Obligations. . . . . . . . . . . . . . . . . . . . . 17
5.8. Damage and Cancellation Payments . . . . . . . . . . 17
5.9. Books, Records, Access Thereto . . . . . . . . . . . 17
5.10. Qualifying Facility . . . . . . . . . . . . . . . . 18
5.11. Preservation of Rights, Further Assurances,
Etc . . . . . . . . . . . . . . . . . . . . . . . . 18
5.12. Taxes. Other Government Charges and Utility
Charges . . . . . . . . . . . . . . . . . . . . . . 18
5.13. Compliance with laws, Instrument, Etc. . . . . . . 18
5.14. Compliance with Terms of Newark Operative
Documents, Etc. . . . . . . . . . . . . . . . . . . 19
5.15. Maintenance of Insurance. . . . . . . . . . . . . . 19
5.16. Warranty of Title . . . . . . . . . . . . . . . . . 19
5.17. Event of Eminent Domain . . . . . . . . . . . . . . 19
5.18. Indemnification . . . . . . . . . . . . . . . . . . 19
5.19. ERISA . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE 6 NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . 21
6.1. Continent Liabilities. . . . . . . . . . . . . . . . 21
6.2. Limitations on Liens . . . . . . . . . . . . . . . . 21
6.3. Indebtedness . . . . . . . . . . . . . . . . . . . . 21
6.4. Sale or Lease of Assets. . . . . . . . . . . . . . . 21
6.5. Changes. . . . . . . . . . . . . . . . . . . . . . . 22
6.6. Distributions. . . . . . . . . . . . . . . . . . . . 22
6.7. Investments. . . . . . . . . . . . . . . . . . . . . 22
6.8. Transactions with Affiliates . . . . . . . . . . . . 22
6.9. Regulations. . . . . . . . . . . . . . . . . . . . . 22
6.10. Partnerships. . . . . . . . . . . . . . . . . . . . 22
6.11. Dissolution . . . . . . . . . . . . . . . . . . . . 22
6.12. Amendments. . . . . . . . . . . . . . . . . . . . . 22
6.13. Compliance with Newark Operative Documents. . . . . 22
6.14. Name and Location; Fiscal Year. . . . . . . . . . . 22
6.15. Use of Newark Project . . . . . . . . . . . . . . . 22
6.16. Assignment. . . . . . . . . . . . . . . . . . . . . 22
6.17. Transfer of Interests . . . . . . . . . . . . . . . 22
6.18. Abandonment of Newark Project . . . . . . . . . . . 23
6.19. Hazardous Substance . . . . . . . . . . . . . . . . 23
6.20. ERISA . . . . . . . . . . . . . . . . . . . . . . . 23
6.21. Modification of Newark Senior Loan Agreement. . . . 23

ARTICLE 7 APPLICATION OF FUNDS. . . . . . . . . . . . . . . . 23
7.1. Application of Project Revenues. . . . . . . . . . . 23
7.2. Application of Insurance Proceeds. . . . . . . . . . 23
7.3. Application of Eminent Domain Proceeds . . . . . . . 24

ARTICLE 8 EVENTS OF DEFAULT: REMEDIES . . . . . . . . . . . . 24

<PAGE>

A. Events of Default . . . . . . . . . . . . . . . . . . . . 24
8.1. Failure to Make Payment. . . . . . . . . . . . . . . 24
8.2. Warranties Untrue. . . . . . . . . . . . . . . . . . 24
8.3. Judgments. . . . . . . . . . . . . . . . . . . . . . 24
8.4. Misstatements; Omissions . . . . . . . . . . . . . . 24
8.5. Bankruptcy; Insolvency . . . . . . . . . . . . . . . 24
8.6. Cross Default. . . . . . . . . . . . . . . . . . . . 25
8.7. ERISA. . . . . . . . . . . . . . . . . . . . . . . . 25
8.8. Breach of Newark Project Documents . . . . . . . . . 25
8.9. Breach of Terms of Agreement . . . . . . . . . . . . 25
8.10. Loss of Qualifying Facility Status. . . . . . . . . 26
8.11. Security. . . . . . . . . . . . . . . . . . . . . . 26
8.12. Breach of Parlin Project Documents. . . . . . . . . 26
8.13. Breach of Senior Loan Documents . . . . . . . . . . 27
B. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 27
8.14. No Further Loan . . . . . . . . . . . . . . . . . . 27
8.15. Cure. . . . . . . . . . . . . . . . . . . . . . . . 27
8.16. Remedies Under Loan Documents . . . . . . . . . . . 27

ARTICLE 9 - SCOPE OF LIABILITY . . . . . . . . . . . . . . . . 27
9.1. Scope of Liability . . . . . . . . . . . . . . . . . 27

ARTICLE 10 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . 28
10.1. Addresses . . . . . . . . . . . . . . . . . . . . . 28
10.2. Additional Security; Lender's Right to Set-
Off . . . . . . . . . . . . . . . . . . . . . . . . 29
10.3. Delay and Waivers . . . . . . . . . . . . . . . . . 29
10.4. Costs, Expenses and Attorneys' Fees;
Commitment Letter Fees, Etc. . . . . . . . . . . . 29
10.5. Entire Agreement. . . . . . . . . . . . . . . . . . 29
10.6. Governing Law . . . . . . . . . . . . . . . . . . . 29
10.7. Severability. . . . . . . . . . . . . . . . . . . . 29
10.8. Headings. . . . . . . . . . . . . . . . . . . . . . 29
10.9. Accounting Terms. . . . . . . . . . . . . . . . . . 30
10.10. Additional Financing . . . . . . . . . . . . . . . 30
10.11. No Partnership, Etc. . . . . . . . . . . . . . . . 30
10.12. No Setoff by Borrower . . . . . . . . . . . . . . 30
10.13. Security Agreements . . . . . . . . . . . . . . . 30
10.14. Limitation on Liability . . . . . . . . . . . . . 30
10.15. Waiver of Jury Trial . . . . . . . . . . . . . . . 30
10.16. Consent to Jurisdiction . . . . . . . . . . . . . 30
10.17. Usury . . . . . . . . . . . . . . . . . . . . . . 31
10.18. Successors and Assigns . . . . . . . . . . . . . . 31
10.19. Counterparts . . . . . . . . . . . . . . . . . . . 31

<PAGE>

EXHIBITS

A DEFINITIONS

B FORM OF NOTE

C-1 AMORTIZATION SCHEDULE

C-2 ALTERNATE AMORTIZATION SCHEDULE

D SECURITY AGREEMENT

E-1 DISTRIBUTION AGREEMENT

E-2 LOCK BOX AGREEMENT

F-1 OPINION OF COUNSEL TO BORROWER

F-2 OPINION OF COUNSEL TO PARLIN

G-1 BORROWER CLOSING CERTIFICATE

G-2 PARLIN CLOSING CERTIFICATE

H HAZARDOUS SUBSTANCES

I PENDING LITIGATION

J PERMITS

<PAGE>

AMENDMENT NO. 2

Dated as of June 1, 1989

CONSTRUCTION AND TERM CREDIT AGREEMENT

Dated as of July 18, 1988

between

O'BRIEN (NEWARK) COGENERATION, INC.

and

NATIONAL WESTMINSTER BANK PLC

Acting through its NEW YORK BRANCH

AMENDMENT NO. 2, dated as of June 1, 1989, (the "Amendment")
to the Construction and Term Credit Agreement, dated as of July
18, 1988, as amended by Amendment No. 1 to Credit Agreement,
dated as of April 1, 1989 (the "Credit Agreement") between
O'BRIEN (NEWARK) COGENERATION, INC., a Delaware corporation (the
"Company"), and NATIONAL WESTMINSTER BANK PLC, acting through its
New York branch (the "Bank").

W I T N E S S E T H:
WHEREAS, the parties desire to amend certain provisions of
the Credit Agreement.

NOW, THEREFORE, the Company and the Bank hereby agree as
follows:

<Page 3

SECTION I. Definitions.

Unless otherwise defined herein, all capitalized terms used
herein which are defined in the Credit Agreement shall have their
respective meanings as therein defined.

SECTION II. Amendments.

The Credit Agreement is amended as follows:

1. The definition of "Eurodollar Loan" is amended in its
entirety to read as follows:

"'Eurodollar Loan' shall mean a loan bearing the
Eurodollar Rate plus the Eurodollar Margin."

2. The definition of "Eurodollar Margin" in Article I is
amended in its entirety to read as follows:

"'Eurodollar Margin' shall have the meaning ascribed
thereto in Section 2.10(a)(i) hereof."

3. The definition of "Interest Period" in Article I is
amended in its entirety to read as follows:

"'Interest Period' shall mean, with respect to
each Bank Rate Loan or Eurodollar Loan, as applicable,
the period commencing on the date of such Loan and,
thereafter, each subsequent period commencing on the
day immediately succeeding the last day of the
immediately preceding Interest Period and ending on the
last day of such period as selected by the Company
pursuant to the provisions below. The duration of each
such Interest Period shall be (a) in the case of a Bank
Rate Loan, not less than one (1) day, and (b) in the
case of a Eurodollar Loan, 30, 60, 90 or 180 days, or,
if available in the sole determination of the Bank, one
year, as the Company may, upon notice received by the
Bank not later than 10:00 a.m., New York City time, on
the third Business Day prior to the first day of the
Interest Period selected; provided, however, that:

(i) if any Interest Period would otherwise end on
a day which is not a Business Day, that Interest Period
shall be extended to the next succeeding Business Day
unless such Business Day falls in another calendar
month, in which case such Interest Period shall end on
the next preceding Business Day;

(ii) the Company may not select an Interest Period
that would extend beyond the Construction Loan
Expiration Date; and

(iii) the duration of any Interest Period which
commences before any Semi-annual Payment Date and would
otherwise end after such Semi-annual Payment Date shall
end on such Semi-annual Payment Date with respect to
the principal amount of the Term Loan being repaid on
such date."

4. Subsection 2.03(a)(iii) is amended in its entirety to
read as follows:

"(iii) The interest rate option and Interest
Period selected by the Company to apply to such
Construction Loan, including the initial Interest
Period for a specified number of days and, for a Loan
for which the Eurodollar Rate is selected, the
commencement date with respect to the Eurodollar Rate
for such Loan, subject to the provisions set forth in
the definition of Interest Period; and"

5. A new subsection 2.03(f) is added to Section 2.03:
"(f) Any Construction Loan may be comprised of
one or more (i) Bank Rate Loan or (ii) Eurodollar Loan,
or any combination of the foregoing, as the Company
shall determine from time to time and notify the Bank
in accordance with the terms hereof; provided, however,
that any Bank Rate Loan or Eurodollar Loan shall each
be in a minimum aggregate amount of $500,000."

6. Subsection 2.07(a) is amended in its entirety to read
as follows:

"(a) At least three (3) Business Days prior to
the Construction Loan Expiration Date the Company shall
provide prior written notice to the Bank setting forth
the total principal amount of the proposed Term Loan
determined in accordance with Section 2.05(a) hereof,
as well as the interest rate option(s) to apply to the
Term Loan and the duration of the initial Interest
Period(s) with respect to such interest rate option(s).
Such notice having been so provided, and subject to the
satisfaction of the conditions set forth in Section
4.03 hereof in the Bank's sole discretion, on the
Construction Loan Expiration Date the Bank shall
release the proceeds of its Term Loan to the Company at
the Bank's Lending Office no later than 6:00 p.m., New
York City time, in funds immediately available at such
Lending Office. The proceeds of the Term Loan together
with the Equity Contribution, if then due, shall
immediately be applied to payment of the outstanding
principal amount of the Construction Loan Note."

7. Subsection 2.08(a)(iii) is amended in its entirety to
read as follows:

"(iii) on the last day of the first Interest
Period to terminate following receipt by the Bank of
its portion of Insurance Proceeds pursuant to Section

7.02(b)(iii) hereof or Eminent Domain Proceeds pursuant
to the Section 7.03 hereof."

8. Subsection 2.08(b)(iii) is amended in its entirety to
read as follows:

"(iii) on the last day of the first Interest
Period to terminate following receipt by the Bank of
its portion of Insurance Proceeds pursuant to Section
7.02(b)(iii) hereof or Eminent Domain Proceeds pursuant
to the Section 7.03 hereof."

9. Section 2.10 is amended in its entirety to read as
follows:
"Section 2.10. Interest.

(a) The Company agrees to pay interest on the
unpaid principal amount of the Loans from the date
thereof to maturity (whether by acceleration or
otherwise), at a rate per annum (based on a year of 360
days and actual days elapsed) for each day of the
applicable Interest Period equal to either (1) the
Eurodollar Rate for such day plus the applicable
Eurodollar Margin if such Loan is a Eurodollar Loan, or
(2) the Bank Rate for such day if such Loan is a Bank
Rate Loan. Interest shall accrue from, and include the
date of a Loan, to and including the date of any
repayment and shall be payable in accordance with
Section 2.14(a) hereof. The following describes the
two interest rate options:

(i) Eurodollar Loan. If any Loan or
portion of a Loan is a Eurodollar Loan,
interest at a rate equal to the Eurodollar
Rate for such day plus the applicable
Eurodollar Margin. The "Eurodollar Margin"
shall be equal to the following percentages;
(i) 7/8 of 1% per annum during the period
from the Closing Date to and including the
Construction Loan Expiration Date, (ii) 1 and
1/8% per annum during the period from the
Construction Loan Expiration Date to and
including the date which is the sixth
anniversary thereof, (iii) 1 and 1/4% per
annum during the period from the sixth
anniversary thereof to and including the
ninth anniversary thereof and (iv) 1 and 3/8%
per annum thereafter.

(ii) Bank Rate Loan. If any Loan or a
portion of a Loan is a Bank Rate Loan,
interest at a rate equal to the Bank Rate for
such day.

(b) Not later than three (3) Business Days prior
to the last day of any Interest Period, the Company
shall notify the Bank by irrevocable written notice as
to the duration of the next succeeding Interest Period

and the interest rate option(s) selected. If the
Company fails to give such notice to the Bank, Section
2.11(d) hereof shall be applicable."

10. Subsection 2.14(a) is amended in its entirety to read
as follows:
"(a) The Company shall make each payment to the
Bank hereunder, under the Notes or otherwise in
connection with the Loans without defense, set-off or
counterclaim not later than 4:00 p.m., New York City
time, on the day when due in Dollars to the account of
National Westminster Bank PLC, New York Branch, as
directed by the Bank in writing. Any such payments
received after 4:00 p.m., New York City time, on any
day will be deemed to have been received on the next
succeeding Business Day. Interest on Bank Rate Loans
shall be payable on the last day of each March, June,
September and December and on maturity. Interest on
Eurodollar Loans shall be payable on the last day of
the applicable Interest period; provided, however, that
interest on any Eurodollar Loan with an Interest Period
of 90 days or greater shall be payable on the last day
of each 90-day period within such Interest Period."

11. Item number 9 of Exhibit C to the Credit Agreement is
amended to read in its entirety as follows:

"9. $___________ of the Construction Loan shall
be a Bank Rate Loan for which the initial Interest
Period shall be one (1) day. At the expiration of this
initial Interest Period such Bank Rate Loan shall
automatically daily renew as a Bank Rate Loan having an
Interest Period of one (1) day until the Company gives
the Bank written notice pursuant to the terms of this
Agreement specifying a different Interest Period and/or
Loan type. - and/or - $______ of the Construction Loan
shall be a Eurodollar Loan for which the initial
Interest Period shall be __________ days at the
Eurodollar Rate with a term commencing on ___________
__, 19__ with respect to such Eurodollar Loan."

12. Section II, Paragraph 14 of Amendment No. 1 to the
Credit Agreement, dated as of April 1, 1989, is amended to read
in its entirety as follows:

'Exhibit B to the Credit Agreement is deleted in
its entirety and a new Exhibit B, in the form attached
hereto, is substituted therefor.'

SECTION III. Continuous Effect.

SECTION IV. Governing Law.

This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.

SECTION V. No Novation.
This Amendment does not extinguish the outstanding
indebtedness or discharge or release the lien or priority of any
mortgage, security agreement or any other security for the
obligations of the Company. Nothing herein shall be construed as
a substitution or novation of the original indebtedness or
instruments securing the same, which shall remain in full force
and effect, except as expressly modified hereby or by instruments
executed concurrently herewith and in accordance herewith. The
Company agrees that at any time, and from time to time, at the
expense of the Company, the Company will promptly execute and
deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the
Bank may reasonably request, in order to perfect and protect
rights granted or purported to be granted hereby or to enable the
Bank to exercise and enforce its rights and remedies hereunder.

SECTION VI. Representations and Warranties.

The Company represents and warrants that (a) all of the
representations and warranties set forth in Article III of the
Credit Agreement are true and correct in all material respects on
and as of the effective date hereof with the same effect as if
made on such date and (b) as of the date hereof, the Company is
in compliance with all of the terms and provisions set forth in
the Credit Agreement on its part to be performed and no Event of
Default or event which, upon the giving of notice or lapse of
time or both, would constitute an Event of Default has occurred
and is continuing.

SECTION VII. Security Agreement.

The Company hereby confirms that all of the amounts owed to
the Bank under the Construction Note are secured by the Security
Agreement and that the Security Agreement shall be deemed to be
amended hereby to the extent necessary (i) to accomplish the
foregoing and (ii) to confirm and acknowledge that the
"Obligations," as defined in Section 8 of the Security Agreement,
include the obligations under the Credit Agreement (as amended by
this Amendment) and all amendments, extensions, renewals or
substitutions, if any, subsequent hereto.

SECTION VIII. Counterparts.

This Amendment may be executed in two or more counterparts,
each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, as of
the day and year first above written.

O'BRIEN (NEWARK)
COGENERATION, INC.

By:/s/
---------------------------------
Name:
Title: President

NATIONAL WESTMINSTER BANK PLC,
acting through its New York Branch

By:/s/
----------------------------------
Name:
Title:

<PAGE>

AMENDMENT NO. 3,
WAIVER AND CONSENT

Dated as of March 11, 1994

CONSTRUCTION AND TERM CREDIT
AGREEMENT

Dated as of July 18, 1988,
as amended

between

O'BRIEN (NEWARK) COGENERATION, INC.

and

NATIONAL WESTMINSTER BANK PLC

AMENDMENT NO. 3, WAIVER AND CONSENT, dated as of March 11,
1994 (this "Amendment") to the Construction and Term Credit
Agreement, dated as of July 18, 1988, as amended by Amendment No.
1, dated as of April 1, 1989 and Amendment No. 2, dated as of
June 1, 1989 (as heretofore amended, the "Credit Agreement"),
between O'BRIEN (NEWARK) COGENERATION, INC., a Delaware
corporation (the "Company") and NATIONAL WESTMINSTER BANK PLC
(the "Bank").

W I T N E S S E T H

WHEREAS, the Bank has loaned, and the Company has borrowed,
certain amounts pursuant to the terms and conditions of the
Credit Agreement;

WHEREAS, the Company desires to borrow certain monies from
Stewart and Stevenson Services, Inc., a Texas corporation (the
"Subordinated Lender");

WHEREAS, the Subordinated Lender has agreed to lend amounts
not in excess of an aggregate principal amount of $7,000,000 to
the Company on a subordinated basis (the "Subordinated Loans")
pursuant to a certain Subordinated Loan Agreement, dated as of
March 11, 1994, between the Company and the Subordinated lender,
a copy of which is attached hereto as Exhibit A (as such
agreement is in effect on the date hereof, the "Subordinated Loan
Agreement");

WHEREAS, the Company has requested the Bank to, among other
things, consent to the incurrence of the Subordinated Loans of
the Company under, and to the Company's execution, delivery and
performance of, the Subordinated Loan Agreement under the terms
of the Credit Agreement;

WHEREAS, the Company has also requested the Bank to consent
to the Company's execution, delivery and performance of the
Operation & Maintenance Contract, dated as of January 12, 1994,
between the Company and Stewart & Stevenson Operations, Inc. (the
"Operator"), a wholly-owned subsidiary of the Subordinated
Lender, a copy of which is attached hereto as Exhibit B (as such
agreement is in effect on the date hereof, the "Operating
Agreement");

WHEREAS, the parties hereto desire to amend and waive
certain provisions of the Credit Agreement, all upon the terms
and conditions set forth herein.

NOW, THEREFORE, the Company and the bank hereby agree as
follows:

SECTION I. Definitions.

Unless otherwise defined herein, all capitalized terms used
herein which are defined in the Credit Agreement shall have their
respective meanings as therein defined.

SECTION II. Amendments.

1. Clause (d) of the definition of "Expenses" in Article I
is amended in its entirety to read in its entirety as follows:

"(d) the amounts (i) owed to the Operator under Section 6.1
of the Operating Agreement or (ii) paid into the Shortfall
Account or Major Repair Reserve Account as required under the
Operating Agreement."

2. The definition of "Financing Documents" in Article I is
amended by adding the phrase ", the Subordination Agreement"
after the word "Notes" appearing therein.

3. The definition of "Operator" in Article I is amended in
its entirety to read as follows:

"'Operator' shall mean Stewart & Stevenson Operations, Inc.,
a Delaware corporation and its permitted successors and assigns,
and any substitute operator approved by the Bank."

4. The definition of "Operator Consent Agreement" in
Article I is amended in its entirety to read as follows:

"'Operator Consent Agreement' shall mean the Consent to
Assignment of Operation and Maintenance Agreement, dated as of
March 11, 1994, among the Company, the Bank and the Operator."

5. The definition of "Operating Agreement" in Article I is
amended in its entirety to read as follows:

"Operating Agreement" shall mean the Operation and
Maintenance Contract, dated as of January 12, 1994, between the
Company and the Operator, as the same may be supplemented,
modified or otherwise amended from time to time."

6. The definition of "Operating Guarantor" in Article I is
amended in its entirety to read as follows:

"'Operating Guarantor' shall mean Stewart & Stevenson
Services, Inc., a Texas corporation."

7. The definition of "Operating Guaranty" in Article I is
amended in its entirety to read as follows:

"'Operating Guaranty' shall mean the guaranty by the
Operating Guarantor of the obligations of the Operator under the
Operating Agreement."

8. The definition of "Operating Guaranty Consent
Agreement" in Article I is amended in its entirety to read as
follows:

"'Operating Guaranty Consent Agreement' shall mean the
Consent to Assignment of Operation and Maintenance Agreement,
dated as of March 11, 1994, among the Company, the Bank and the
Operating Guarantor."

9. The definition of "Parent" in Article I is amended in
its entirety to read as follows:

"'Parent' shall mean O'Brien Environmental Energy, Inc.
(formerly known as O'Brien Energy Systems, Inc.), a Delaware
corporation, and its permitted successors and assigns."

10. The definition of "Revenues" in Article I is amended in
its entirety to read as follows:

"'Revenues' shall mean, for any period, all operating and
nonoperating receipts, revenues, renewals, fees, income and other
moneys of the Company, including, without limitation, liquidated,
performance and other damage payments or other amount payable
under the Project Agreements, in each case calculated under GAAP,
any investment earnings on the accounts of the Company, and the
proceeds of Permitted Debt (but excluding (i) Insurance Proceeds
other than the proceeds of business interruption insurance and
(ii) interest earned on amounts deposited in the Shortfall
Account)."

11. The following additional definitions are added to
Article 1 in their appropriate alphabetical order:

"'Amendment No. 3, Waiver and Consent' shall mean Amendment
No. 3, Waiver and Consent, dated as of March 11, 1994, to this
Agreement."

"'Bank Share' shall mean an amount equal to 50% of
Distributable Cash."

"'Company Share' shall mean an amount equal to 50% of
Distributable Cash."

"'Distributable Cash' shall mean, on any date of
determination, all amounts remaining in the Revenue Account on
such date after giving effect to the application of proceeds
thereto pursuant to Sections 7.01(b)(i) - (xiv), inclusive."

"'Excess Insurance Proceeds' shall have the meaning provided
in Section 7.01(h).

"'Major Repair Reserve Account' shall mean the account of
that name established pursuant to Section 7.01 hereof."

"'Repayment Amount' shall mean an aggregate principal amount
of $3,500,000 which has been prepaid on the Term Loan after the
date of Amendment No. 3, Waiver and Consent (not including any
payments as a result of scheduled installments of principal or
any prepayments made pursuant to Section 2.08(b))."

"'Reserve Requirement Amount' shall mean an amount equal to
$2,000,000 remaining in the Reserve Requirement Sub-Account."

"'Restoration Program' shall mean all repairs, replacements,
reconstruction or acquisitions in connection with the Project
arising as a result of the fire at the Project which occurred on
December 25, 1992, and all work, repairs and reconstruction which
have been or are still to be performed and replacements, repairs,
reconstruction and acquisitions which have been or are still to
be made with respect thereto, including, without limitation, the
wastewater demineralization system or program being implemented
at the Project."

"'Shortfall Account' shall mean the account of that name
established pursuant to Section 7.01 hereof."

"'Stewart & Stevenson Security Agreement' shall mean the
Loan Agreement, dated as of March 11, 1994, between the Company
and Stewart & Stevenson Services, Inc., as in effect on the date
of Amendment No. 3, Waiver and Consent."

"'Subordinated Loan Agreement' shall mean the Subordinated
Loan Agreement, dated as of March 11, 1994, between Stewart &
Stevenson, Inc. and the Company, providing for loans, on a
subordinated basis, not in excess of an aggregate principal
amount of $7,000,000 outstanding at any time, as in effect on the
date of Amendment No. 3, Waiver and Consent."

"'Subordinated Loans' shall mean the loans and other Debt
and obligations of the Company under or in connection with the
Subordinated Loan Agreement."

"'Subordination Agreement' shall mean the Subordination
Agreement, dated as of March 11, 1994, among the Company, Stewart
& Stevenson, Inc. and the Bank, as amended, modified or
supplemented from time to time in accordance with its terms."

"'Subordinated Loan Repayment Date' shall mean the date on
which the Subordinated Loan Agreement has been terminated and all

Subordinated Loans and other obligations thereunder or in respect
thereof have been repaid in full."

"'Tranche A Subordinated Loan' shall mean the Tranche A Loan
under the Subordinated Loan Agreement not to exceed an aggregate
principal amount of $3,500,000, provided that the aggregate
principal amount of the Tranche A Subordinated Loan and the
Tranche B Subordinated Loan shall not exceed $7,000,000."

"'Tranche B Subordinated Loan' shall mean the Tranche B Loan
under the Subordinated Loan Agreement not to exceed an aggregate
principal amount of $4,000,000, provided that the aggregate
principal amount of the Tranche A Subordinated Loan and the
Tranche B Subordinated Loan shall not exceed $7,000,000, and,
provided further that in the event the Tranche A Subordinated
Loan exceeds $3,000,000, the maximum aggregate principal amount
of the Tranche B Subordinated Loan shall be reduced by the amount
of such excess."

12. Section 2.08 of the Credit Agreement is amended to add
a new subclause (c) thereto to read as follows:

(c) In addition to the payment provisions set forth in
Section 2.08(b), the Term Loan shall be subject to mandatory
prepayment as follows:

(i) on the date of the funding of the Tranche A
Subordinated Loan in an of $1,000,000;

(ii) on the date of the funding of the Tranche B
Subordinated Loan in an amount of $2,500,000;

(iii) so long as the Subordinated Loan Repayment Date
has not occurred, in the event the Reserve Requirement Sub-
Account is fully funded in the amount of the Reserve Requirement
Amount, in an amount equal to 50% of Excess Insurance Proceeds
(after giving effect to amounts necessary to so fund the Reserve
Requirement Sub-Account pursuant to Section 7.01(h)(i)), on the
date such Excess Insurance Proceeds are received by or on behalf
of the Company or any of its affiliates;

(iv) so long as the Subordinated Loan Repayment Date
has not occurred, if (A) the Repayment Amount has been satisfied
and (B) the Reserve Requirement Amount is satisfied, in an amount
equal to the Bank Share of Distributable Cash on the date, and to
the extent, such Distributable Cash on the date, and to the
extent, such Distributable Cash exists after giving effect to the
application of the Bank Share of Distributable Cash to fund the
Reserve Requirement Sub-Account pursuant to Section 7.01(h) and,
if necessary, after giving effect to the application of

Distributable Cash pursuant to Section 2.08(c)(v) which was
applied to the Repayment Amount;

(v) so long as the Subordinated Loan Repayment Date
has not occurred, if (A) the Repayment Amount has not been
satisfied and (B) the Reserve Requirement Amount is satisfied, in
an amount equal to (1) the Bank Share of Distributable Cash on
the date, and to the extent, such Distributable Cash exists after
giving effect to the application of Distributable Cash to fund
the Reserve Requirement Sub-Account pursuant to Section 7.01(h)
plus (2) the Company Share of Distributable Cash on the date, and
to the extent, such Distributable Cash exists after giving effect
to the application of Distributable Cash to fund the Reserve
Requirement Sub-Account pursuant to Section 7.01(h), provided,
however, that in the event the Subordinated Loans have been and
remain accelerated in accordance with the terms of the
Subordinated Loan Agreement, the Company Share of such
Distributable Cash shall not be made as a prepayment on the Term
Loan in accordance with subclause (2) hereof and shall instead be
applied in accordance with Section 7.01(b)(xv)(3).

Each such prepayment pursuant to this Section 2.08(c) shall
be applied to the outstanding installments of principal of the
Term Loan in the inverse order of scheduled maturities."

13. Section 6.03 of the Credit Agreement is hereby amended
by (i) deleting the word "and" following subclause (d) therein,
(ii) deleting the period after subclause (e) therein and
substituting the phrase"; and" therefor and (iii) adding a new
subclause (f) which shall read as follows:

"(f) so long as the Subordinated Loan Repayment Date has not
occurred, no Distributions may be made after the date of
Amendment No. 3, Waiver and Consent unless the Repayment Amount
shall have been applied to the prepayment of the Term Loan;
provided, however that nothing in this Section 6.03(f) shall
prohibit the application of an amount equal to the Company Share
of Distributable Cash to the payment in respect of the
Subordinated Loans in the event the Subordinated Loans are
accelerated in accordance with the terms of the Subordinated Loan
Agreement".

14. Section 6.06 of the Credit Agreement is hereby amended
by adding the following to the end thereof:

"or (d) any amendment, supplement, or modification of,
or waiver with respect to, any of the terms or
provisions of the Subordinated Loan Agreement, the
Stewart & Stevenson Security Agreement or any of the
documents, instruments or agreements relating thereto."

15. A new Section 6.12 shall be added to the Credit
Agreement following Section 6.11 thereof to read as follows:

"SECTION 6.12. Hazardous Substance. Release emit or
discharge into the environment any Hazardous Substances (as
defined in the Subordinated Loan Agreement) in excess of
permitted levels or reportable quantities or in violation of
other permitted concentrations standards or limitations under any
Hazardous Substance Laws (as defined in the Subordinated Loan
Agreement), Legal Requirements or Government Approvals."

16. A new Section 6.13 shall be added to the Credit
Agreement following Section 6.12 thereof (as added pursuant to
paragraph 15 of this Amendment) to read as follows:

"SECTION 6.13 Bonding of Liens. In the event the Tranche A
Subordinated Loan has been funded and mechanic's liens,
contractors lien's or similar liens or claims have been filed by
any vendor or contractor or other Person in respect of the
Restoration Program, the Company shall, not later than March 31,
1994, bond such liens and claims in an amount, and with a surety
company, acceptable to the Bank, or otherwise satisfy such liens
and claims to the satisfaction of the Bank."

17. Section 7.01(b) of the Credit Agreement is amended by
deleting subsections (i) through (xi), inclusive, therein and the
last paragraph thereof and substituting the following therefor:

(i) to the payment of Expenses and
the payment of any bonus payments to the
Contractor due under the Construction
Contract;

(ii) to the payment of interest on
the Term Loan;

(iii) to the payment of principal of
the Term Loan;

(iv) to the payment of Bank Fees;

(v) to the payment of any other
amounts due and payable to the Bank;

(vi) to the deposit into the
Reserve Account of the amount, if any,
required to be deposited therein pursuant to
Section 7.01(c) and 7.01(h), provided,
however, that in the event the Reserve
Requirement Amount has been satisfied and
amounts therein have been applied in

accordance with Section 7.01(h), amounts from
the Revenue Account shall be applied to
replenish the Reserve Requirement Sub-Account
to the Reserve Requirement Amount solely to
the extent proceeds are available pursuant to
Section 7.01(b)(xiv) or Section 7.01(h)(i);

(vii) to the payment of
extraordinary expenses except for those
required to be paid from the Collateral
Account;

(viii) to the payment of any amounts
owed to the Operator under the Operating
Agreement;

(ix) to the deposit into the
Shortfall Account of the amount, if any,
required to be deposited therein pursuant to
Section 7.01(f);

(x) to the deposit into the Major
Repair Reserve Account of the amount, if any,
required to be deposited therein pursuant to
Section 7.01(g);

(xi) to the payment of principal
and interest on outstanding Permitted Debt,
if any, other than any such Debt constituting
the Subordinated Loans;

(xii) if applicable, to the deposit
into the Surplus Cash Flow Sub-Account of an
amount necessary to maintain such Sub-Account
at $500,000;

(xiii) to the payment of scheduled
principal and interest on outstanding
Subordinated Loans but only to the extent
Distributions would be permitted to be made
pursuant to Section 6.03 (without giving
effect to Section 6.03(f)) and further
subject to the terms and provisions of the
Subordination Agreement;

(xiv) to the extent the Reserve
Requirement Amount was satisfied and funds in
the Reserve Requirement Sub-Account have been
used in accordance with Section 7.01(h), to
the deposit in the Reserve Requirement Sub-
Account of the amount required to be

deposited therein pursuant to Section 7.01(c)
and Section 7.01(h) to cause the Reserve
Requirement Amount to remain satisfied; and

(xv) in an amount equal to the
Company Share of Distributable Cash, to the
extent permitted by Section 6.03 and in
accordance with Section 7.01(c), either
(1) to the making of Distributions, provided
all mandatory prepayments on the Term Loan
are made at such time in accordance with
Section 2.08(c), there has been no
acceleration of the Subordinated Loans in
accordance with the terms and provisions of
the Subordinated Loan Agreement and, unless
the Subordinated Loan Repayment Date has
occurred, the Repayment Amount has been
satisfied, (2) to the deposit into the
Reserve Requirement Sub-Account to the extent
required pursuant to Section 7.01(h) and to
the repayment of the Term Loan to the extent
required pursuant to Section 2.08(c)(v) or
(3) in the event the Subordinated Loans have
been accelerated in accordance with the terms
and provisions of the Subordinated Loan
Agreement, to the payment of the Subordinated
Loans in accordance with the terms and
provisions of the Subordination Agreement.

The Bank shall have the right to debit the Operating Account, to
the extent necessary to make the payments described in clauses
(ii), (iii), (iv), (v), (vi), (ix), (x), (xi) and (xv) of this
Section 7.01(b). Upon the occurrence of an Event of Default, the
Bank may liquidate all Permitted Investments held in the
Operating Account, and apply the proceeds thereof to the payment
of the Obligations in such order as the Bank shall elect."

18. Section 7.01 of the Credit Agreement is amended by
adding the following new clauses (f), (g) and (h):

"(f) Shortfall Account. (i) On the date hereof, the
Company is establishing an account with the bank which
shall be known as the "Shortfall Account" and which
shall bear interest under such terms and at such rate
as may be set by the Bank from time to time on similar
savings accounts. Monthly, beginning at the end of the
first month occurring after the Effective Date, as such
term is defined in the Operating Agreement, the Company
shall, from funds available pursuant to Section
7.01(b)(ix), deposit into the Shortfall Account such
amounts, if any, as are required to be distributed to

fund the first major overhaul of the gas turbine
pursuant to Section 5.4 of Appendix 5 of the Operating
Agreement until such time as the balance in the
Shortfall Account shall equal $600,000. Each month
during such period, the Company shall provide the bank
with a certificate signed by the Chief Financial
Officer of the Company stating the amount, if any,
required to be distributed as set forth in the previous
sentence. All interest or dividends earned on amounts
on deposit in the Shortfall Account shall be added to
the principal balance of the account; provided,
however, that any interest or dividends accruing at any
time that the amount on deposit in the Shortfall
Account is greater than or equal to $600,000 shall be
deemed to constitute Revenues and shall be applied in
accordance with Section 7.01(b). Upon the occurrence
and during the continuance of an Event of Default, the
Bank may apply all funds in the Shortfall Account to
the satisfaction of the Obligations in such order as it
shall elect.

(ii) Amounts in the Shortfall Account shall be
released (1) if provided for in the then current
Operating Budget or (2) upon the bank's receipt and,
after consultation with the Bank's Engineer, the bank's
approval of a certificate of an officer of the Company
setting forth the amount and purpose of the
expenditure(s), and certifying that such expenditure(s)
(x) constitute all or part of the first major overhaul
of the Project's gas or steam turbines and (y) have not
been included in any prior certificate or in any
payment under 7.01(b)(i). After the first major
overhaul of such turbines has been completed, any
amounts remaining in the account shall be transferred
to the Major Repair Reserve Account, and the Shortfall
Account shall be closed.

(g) Major Repair Reserve Account. On the date hereof,
the Company is establishing an account with the Bank
which shall be known as the "Major Repair Reserve
Account." Monthly, beginning at the end of the first
month occurring after the Effective Date, as such term
is defined in the Operating Agreement, the Company
shall, from funds available pursuant to Section
7.01(b)(ix), deposit into the Major Repair Reserve
Account such amounts, if any, as are required to be
distributed pursuant to Section 5.4 of Appendix 5 of
the Operating Agreement to fund (i) the second and any
subsequent major overhauls of the gas turbines, steam
turbines, the gas turbine generator and the steam
turbine generator, (ii) hot gas path inspections of the

gas turbine, and (iii) combustion inspections of the
gas turbine ((i), (ii) and (iii) collectively, the
"Major Repairs"). Each month during such period, the
Company shall provide the Bank with a certificate
signed by the Chief Financial Officer of the Company
stating the amount, if any, required to be distributed
as set forth in the previous sentence. Upon the
occurrence and during the continuance of an Event of
Default, the Bank may apply all funds in the Major
Repair Reserve Account to the satisfaction of the
Obligations in such order as it shall elect.

(ii) Amounts in the Major Repair Reserve Account shall
be released (1) if provided for in the then current
Operating Budget or (2) upon the Bank's receipt and,
after consultation with the Bank's Engineer, the Bank's
approval of a certificate of an officer of the Company
setting forth the amount and purpose of the
expenditure(s), and certifying that such expenditure(s)
(x) constitute a Major Repair and (y) have not been
included in any prior certificate or in any payment
under 7.01(b)(i).

(h) Notwithstanding anything to the contrary set forth
in Section 7.01(c) or in any other Financing Document
or other agreement, instrument, document, or writing,
on the date of Amendment No. 3, Waiver and Consent the
Company hereby reestablishes the Reserve Requirement
Sub-Account with the Bank. Such Reserve Requirement
Sub-Account shall remain in effect until all
Obligations have been paid in full. The Reserve
Requirement Sub-Account shall be funded as follows:

(i) To the extent proceeds of insurance are
received by or on behalf of the Company or
any affiliate thereof in connection with
claims arising from events giving rise to the
Restoration Program in excess of all amounts
due to contractors and in respect of all work
remaining to be performed on the Restoration
Program (such excess, the "Excess Insurance
Proceeds"), an amount equal to (A) 50% of the
Excess Insurance Proceeds shall (x) be
deposited into the Reserve Requirement Sub-
Account up to an amount such that the amount
on deposit in the Reserve Requirement Sub-
Account equals the Reserve Requirement Amount
at all times and (y) any remaining proceeds
after the application pursuant to subclause
(x) shall be applied in accordance with
Section 2.08(c)(iii), and (B) the remaining

50% of such Excess Insurance Proceeds may be
applied in accordance with Section 7.02(c).

(ii) From the proceeds of Distributable Cash
as follows:

(A) If the Repayment Amount has
been satisfied, an amount equal to
the Bank Share of Distributable
Cash shall be deposited to the
extent necessary to satisfy the
Reserve Requirement Amount at all
times, with all remaining amounts
of such Bank Share to be applied to
the repayment of the Term Loan
pursuant to Section 2.08(c);

(B) Subject to Section
7.01(h)(ii)(C), if the Repayment
Amount has not been satisfied, an
amount equal to the Bank Share of
Distributable Cash plus the Company
Share of Distributable Cash shall
be deposited to the extent
necessary to satisfy the Reserve
Requirement Amount at all times,
with all remaining amounts of such
Bank Share and Company Share to be
applied to the repayment of the
Term Loan pursuant to Section
2.08(c).

(C) If the Repayment Amount has
not been satisfied, but the
Subordinated Loans have been and
remain accelerated in accordance
with the terms of the Subordinated
Loan Agreement and remain
outstanding, an amount equal to the
Bank Share of Distributable Cash
shall be deposited to the extent
necessary to satisfy the Reserve
Requirement Amount at all times,
with all remaining amounts of such
Bank Share to be applied to the
repayment of the Term Loan pursuant
to Section 2.08(c).

(D) If such proceeds are being
deposited into the Reserve
Requirement Sub-Account to

<Page 14>
replenish amounts therein to the
Reserve Requirement Amount as a
result of the application of
amounts in the Reserve Requirement
Sub-Account in accordance with the
terms of this Section 7.01(h), an
amount equal to the Bank Share of
Distributable Cash plus the Company
Share of Distributable Cash shall
be deposited to the extent
necessary to satisfy the Reserve
Requirement Amount at all times.

Amounts on deposit in the Reserve Requirement Sub-
Account shall be used solely to prepay or repay the
outstanding principal amount of, and interest on, the
Term Loan at such times as the Revenues shall be
insufficient therefor. Notwithstanding anything to the
contrary set forth in Section 7.01(c), including,
without limitation, the second paragraph thereof, or in
any other Financing Document or other agreement,
instrument, document or writing, in no event shall the
Company request the Bank to release, nor shall the Bank
release, any amounts in the Reserve Requirement Sub-
Account to the Company until all Obligations are paid
in full.

19. Section 7.02 of the Credit Agreement is amended by
adding the following new subsection (c) thereto immediately
following subsection (b), which new subsection (c) shall read as
follows:

"(c) Notwithstanding anything to the contrary
set forth herein, 50% of the amount of Excess
Insurance Proceeds may be retained by the
Company and distributed to the Parent upon
request."

20. Section 7.07 of the Credit Agreement is amended by
adding the following new text to the start of the first sentence:

"With the exception of funds held in the Shortfall Account,"

21. Section 8.01(h) of the Credit Agreement is hereby
amended by (i) deleting the reference to "Hawker Siddeley"
wherever such term appears therein and substituting the term
"Guarantor" therefor and (ii) restating the proviso appearing
therein following subclause (v) to read in its entirety as
follows:

"provided, however, that no Event of Default shall have
occurred under this Section 8.01(h) as a result of any of the
event, actions or occurrences listed in clauses (i) through (v),
inclusive, of this Section 8.01(h) relating to the Contractor,
the Operator, the Guarantor, JCP&L, PSE&G, Paperboard, the Gas
Supplier or the Parent if (x) the Company shall have obtained and
delivered to the Bank written evidence satisfactory to the Bank
in its sole discretion that the Contractor, the Operator, the
Guarantor, JCP&L, PSE&G, Paperboard or the Gas Supplier, as the
case may be, or in the case of each of such events, actions, or
occurrences relating to the Parent, each of such Persons, shall
be able to continue to perform its obligations under any of the
Project Agreements to which such Person is a party, or (y) the
Company shall have obtained a replacement for the Contractor, the
Operator, the Guarantor, JCP&L, PSE&G, Paperboard or the Gas
Supplier, as the case may be, or in the case of each of such
events, actions, or occurrences relating to the Parent, each of
such persons, which replacements shall be acceptable to the Bank
to perform the obligations under the Project Agreements to which
such Person is a party; or"

22. Article IX of the Credit Agreement is amended by
(i) deleting the word "and" appearing at the end of clause (b)
thereof, (ii) deleting the semicolon at the end of clause (c)
thereof, and substituting the phrase ", and" therefor and
(iii) adding a new subclause (d) prior to the proviso therein
which shall read as follows:

"(d) as a result of any payment made by the
Bank in respect of the Subordinated Loans
pursuant to Section 7.01(h) and the
Subordination Agreement;"

SECTION III. Waiver and Consent.

1. The Bank hereby waives Section 6.10 of the Credit
Agreement solely to permit the incurrence of an aggregate
principal amount of Subordinate debt not in excess of $7,000,000
outstanding at any time pursuant to and in accordance with the
terms and provisions of the Subordinated Loan Agreement in effect
on the date hereof, provided that all the obligations and
indebtedness incurred thereunder (including, without limitation,
the Subordinated Loans) shall constitute Subordinate Debt and
shall be subject to the Subordination Agreement attached hereto
as Exhibit C, which Subordination Agreement shall have been duly
executed and delivered by the Company and the Subordinated Lender
and, provided further, that notwithstanding anything to the
contrary set forth in the Credit Agreement, the Tranche A
Subordinated Loan Conditions (as defined herein) must be
satisfied and no funds in the Operating Account shall be applied
at the times and to the extent set forth in Section 7.01(b)(xiii)

(as such Section has been renumbered after giving effect to
paragraph 17 of this Amendment) if payments in respect of the
Subordinate Debt or otherwise in respect of the "Junior Debt" (as
defined in the Subordination Agreement) are prohibited pursuant
to the terms of the Subordination Agreement. The Company hereby
agrees and acknowledges that the Subordinated Loans outstanding
under the Subordinated Loan Agreement constitute Subordinate Debt
and shall be applied against $750,000 of the permitted amount of
Unsecured Debt and Subordinate Debt set forth in clause (c) of
Section 6.10 until the aggregate outstanding principal amount of
Subordinated Loans are less than $250,000, in which case such
Subordinated Loans will be applied against such permitted amount
on a dollar for dollar basis.

As used herein, "Tranche A Subordinated Loan Conditions"
shall mean that the consent and waiver of the Bank hereunder to
the Tranche A Subordinated Loan shall be subject to the Bank's
satisfaction that no mechanics' liens, contractors' liens or
similar liens or claims have been or are likely to be filed by
Century Contractors West Inc. ("Century") or any vendor or
contractor in respect of the Restoration Program, or, in the
event any such liens or claims have been or are likely to be
filed, either (A) all such liens or claims shall have been bonded
in amounts, and with a surety company, acceptable to the Bank in
its sole discretion, (B) Insurance Proceeds have been received by
the Bank in an amount sufficient to satisfy all such liens and
claims or (C) the bank shall have been provided evidence
satisfactory to it in its sole discretion that Century, and any
other vendor or contractor which is reasonably likely to file any
such lien or claim, has agreed to not take any enforcement action
on or in respect of any such liens or claims until a date no
earlier than March 31, 1994.

2. The Bank hereby consents to the execution and delivery
by the Company of the Operation and Maintenance Contract by and
among the Company, as owner, and Stewart and Stevenson
Operations, Inc., as operator, dated as of January 12, 1994, and
in the form attached hereto as Exhibit B, and the substitution of
Stewart and Stevenson Operations, Inc. as Operator.

3. The Bank hereby consents to the making of Distributions
of proceeds from the (A) Tranche A Loan (as defined in the
Subordinated Loan Agreement) in an amount not to exceed
(i) $2,000,000 in the aggregate in the event the Tranche A Loan
has been funded in an amount of $3,000,000 and (ii) $2,000,000
plus the amount of the Tranche A Loan over $3,000,000 (which
Tranche A Loan shall not in any event exceed $3,500,000) and
(B) Tranche B Loan (as defined in the Subordinated Loan
Agreement) in an amount not to exceed $1,500,000 less the amount
by which the Tranche A Loan exceeds $3,000,000 in the aggregate,
subject, in each case to the terms and conditions of the Credit

Agreement as amended hereby. The Company acknowledges and agrees
that no Distribution may be made, nor any loans or advances made
to any Person from the proceeds, of the Tranche A Loan or the
Tranche B Loan in excess of the amounts set forth in the
immediately preceding sentence.

4. The bank hereby agrees that, for purposes of
determining compliance with Section 5.09 of the Credit Agreement
as at June 30, 1994 and December 31, 1994 only, the Reserve
Requirement Sub-Account shall be deemed to be funded at an amount
equal to $2,000,000 except in the event where the Tranche B Loan
has not been advanced, in which case the Reserve Requirement Sub-
Account shall be deemed to be funded in the amount of $1,000,000.

SECTION IV. Continuous Effect.

Except as expressly amended hereby, all of the terms and
provisions of the Credit Agreement shall remain in full force and
effect and are hereby restated as of the date hereof, ratified
and confirmed. On and after the effective date of this
Amendment, whenever the Credit Agreement is referred to in the
Credit Agreement, in any of the other Financing Documents or in
any of the other documents, agreements or instruments executed an
delivered in connection therewith it shall be deemed to mean the
Credit Agreement as amended hereby.

SECTION V. Governing Law.

This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.

SECTION VI. No Novation.

This Amendment does not extinguish the outstanding
indebtedness or discharge or release the lien or priority of any
mortgage, security agreement or any other security for the
obligations of the Company. Nothing herein shall be construed as
a substitution or novation of the original indebtedness or
instruments securing the same, which shall remain in full force
and effect, except as expressly modified hereby or by instruments
executed concurrently herewith and in accordance herewith. The
Company agrees that at any time, and from time to time, at the
expense of the Company, the Company will promptly execute and
deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the
Bank may reasonably request, in order to perfect and protect
rights granted or purported to be granted hereby or to enable the
Bank to exercise and enforce its rights and remedies hereunder.

SECTION VII. Representations and Warranties.

The Company represents and warrants that (a) all of the
representations and warranties set forth in Article III of the
Credit Agreement are true and correct in all material respects on
and as of the effective date hereof with the same effect as if
made on such date, (b) as of the date hereof, the Company is in
compliance with all of the terms and provisions set forth in the
Credit Agreement on its part to be performed and no Event of
Default or event which, upon the giving of notice or lapse of
time or both, would constitute an Event of Default has occurred
and is continuing and (c) the amount of liens and claims of
Century and any other vendor or contractor which is reasonably
likely to file any such lien or claim in respect of the
Restoration Program are not in excess of $3,800,000 in the
aggregate.

SECTION VIII. Effectiveness.

This Amendment shall become effective upon satisfaction of
the following conditions:

(i) execution and delivery of this Amendment by
the Company, the Parent and the Bank;

(ii) execution and delivery of the Subordination
Agreement by the Company, the Subordinated
Lender and the Bank;

(iii) delivery of opinions of counsel to the
Company and Parent and counsel to the
Operator and Subordinated Lender in the form
attached as Exhibit D hereto; and

(iv) there are no Proceedings by or against the
Company or the Parent on the date of
effectiveness of this Amendment.

SECTION IX. Security Agreement, etc.

The Company hereby confirms that all of the Obligations are
secured by the Collateral under the Security Documents and
confirm and acknowledge that the Obligations include the
obligations under the Credit Agreement (as amended by this
amendment) and all amendments, extensions, renewals or
substitutions, if any, subsequent hereto. The Company
acknowledges and agrees, and by its signature hereto Parent
acknowledges and agrees, that nothing contained herein shall be a
waiver by the Bank in any of its rights in any of the Collateral.

SECTION X. Responsibility.

(i) Neither the Bank nor any of its participants makes
any representation or warranty with respect to the Subordinated
Loan Agreement or any other document, instrument or agreement in
connection therewith or related thereto.

(ii) Neither the Bank nor any of its participants makes
any express or implied representation for warranty to any person
with respect to the legality, validity, genuineness, subsistence,
priority or value of the Subordinated Loan Agreement or
Subordinated Loans or of the repayment obligations of the Company
or any security therefor.

(iii) The Company agrees and acknowledges that it has
made its own analysis of its financial condition and ability to
perform its obligations under the Subordinated Loan Agreement and
Subordinated Loans, and it is not relying on the Bank nor any of
its participants in any way in connection therewith.

(iv) The Company agrees and acknowledges that it will
not have, and will not assert or seek to exercise, any right of
legal redress against the Bank or any participant in respect of
the Subordinated Loan Agreement, any related document, or the
Subordinated Loans.

SECTION XI. Counterparts.

This Amendment may be executed in two or more counterparts,
each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, as of
the day and year first above written.

O'BRIEN (NEWARK) COGENERATION, INC.

By:/s/
----------------------------------
Name:
Title:

NATIONAL WESTMINSTER BANK PLC

By:/s/
---------------------------------
Name:
Title:

Agreed to and Acknowledged:

O'BRIEN ENVIRONMENTAL ENERGY, INC.

By:/s/
- - ----------------------------------
Name:
Title:

OPERATION & MAINTENANCE CONTRACT

by and among

O'BRIEN (PARLIN) COGENERATION, INC.

as OWNER,

and

STEWART & STEVENSON OPERATIONS, INC.

as OPERATOR

dated as of April 1, 1994

PARLIN PROJECT

<PAGE>
TABLE OF CONTENTS
PAGE

AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .

ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . .

ARTICLE 2 SCOPE OF SERVICES TO BE PROVIDED BY OPERATOR . . . . .

ARTICLE 3 OWNER'S RESPONSIBILITIES . . . . . . . . . . . . . . .

ARTICLE 4 OPERATION OF THE PROJECT . . . . . . . . . . . . . . .

ARTICLE 5 TERM; TERMINATION AND DEFAULT. . . . . . . . . . . . .

ARTICLE 6 ANNUAL MANAGEMENT FEE; REIMBURSABLE COSTS. . . . . . .

ARTICLE 7 COVENANTS TO PERFORM . . . . . . . . . . . . . . . . .

ARTICLE 8 LIQUIDATED DAMAGES . . . . . . . . . . . . . . . . . .

ARTICLE 9 BILLING AND PAYMENTS . . . . . . . . . . . . . . . . .

ARTICLE 10 FORCE MAJEURE; STRIKES. . . . . . . . . . . . . .

ARTICLE 11 INSURANCE . . . . . . . . . . . . . . . . . . . .

ARTICLE 12 DISPUTE RESOLUTION. . . . . . . . . . . . . . . .

ARTICLE 13 INTENTIONALLY OMITTED . . . . . . . . . . . . . .

ARTICLE 14 PAYMENT OF FINES AND PENALTIES. . . . . . . . . .

ARTICLE 15 DEFECTIVE WORK. . . . . . . . . . . . . . . . . .

ARTICLE 16 OPERATOR'S REPRESENTATIONS. . . . . . . . . . . .

ARTICLE 17 OWNER'S REPRESENTATIONS . . . . . . . . . . . . .

ARTICLE 18 INTENTIONALLY OMITTED . . . . . . . . . . . . . .

ARTICLE 19 INDEMNIFICATION . . . . . . . . . . . . . . . . .

ARTICLE 20 INTENTIONALLY OMITTED . . . . . . . . . . . . . .

ARTICLE 21 MISCELLANEOUS PROVISIONS. . . . . . . . . . . . .

<PAGE>

APPENDIX 1 OPERATIONS AND MAINTENANCE STAFF. . . . . . . . .

APPENDIX 2 PERFORMANCE . . . . . . . . . . . . . . . . . . .

APPENDIX 3 GAS TURBINE DEGRADATION,. . . . . . . . . . . . .

APPENDIX 4 SCOPE OF ARTICLE 6 PAYMENTS . . . . . . . . . . .

APPENDIX 5 LIQUIDATED DAMAGES AND BONUS . . . . . . . . . .

APPENDIX 6 OPERATING PERIOD INSURANCE. . . . . . . . . . . .

APPENDIX 7 GUARANTEE . . . . . . . . . . . . . . . . . . . .

APPENDIX 8 MOBILIZATION BUDGET . . . . . . . . . . . . . . .

OPERATION AND MAINTENANCE CONTRACT dated as of April 1, 1994
by and among O'BRIEN (PARLIN) COGENERATION, INC., a Delaware
Corporation having its principal place of business at 225 South
Eighth Street, Philadelphia, Pennsylvania 19106, hereinafter called
"Owner," and STEWART & STEVENSON OPERATIONS, INC., a Delaware
corporation having its principal place of business at 16415
Jacintoport Blvd., Houston TX 77015, hereinafter called "Operator",
whose obligations hereunder shall be fully guaranteed by Stewart &
Stevenson Services, Inc. pursuant to the Guarantee in Appendix 7.

RECITALS

WHEREAS, Owner has constructed and desires to operate a gas
and #2 fuel oil fired 110 net megawatt cogeneration facility for
the production of electricity and steam at property owned by E.l
Dupont De Nemours & Company (Inc.) in Sayerville, New Jersey (as
further described in Article 1 hereof, the "Project");

WHEREAS, Owner has selected Operator to operate and maintain
the Project;

WHEREAS, Operator is willing to operate and maintain the
Project in good working order in accordance with the terms of
this Agreement; and

WHEREAS, Operator is willing to covenant to operate and
maintain the Project to meet or exceed certain performance
standards, as provided in the Appendices to this Agreement;

AGREEMENT

NOW THEREFORE, in consideration of the mutual promises and
agreements of the Parties herein expressed, and intending to be
legally bound, the Parties hereby agree as follows:

Article 1

DEFINITIONS

In construing this Agreement and the Appendices hereto, the
following terms shall have the meanings herein assigned to them:

Agreement shall mean this Operation and Maintenance
Agreement (including all Appendices hereto), as it may be
amended, restated or supplemented from time to time in accordance
herewith.

Agreement Date means the date that appears on the cover page
of this Agreement, which shall be the date that this Agreement is
executed by both Parties.

Agreement Month means each month within each Agreement Year,
commencing on the first day of the month next following the
Effective Date and on the first day of every month thereafter,
except that the first Agreement Month shall commence on the
Effective Date.

Agreement Year means (i) in the case of the first Agreement
Year, the period commencing on the Effective Date and ending on
the next June 30, and (ii) in the case of each succeeding

Agreement Year, the twelve-month period ending on each June 30
thereafter, provided the ceiling amounts applicable to the Annual
Management Fee and Liquidated Damages, and all other amounts
payable with respect to, and calculations (such as Availability)
based upon, an Agreement Year shall be adjusted rata for the
first Agreement Year to the extent that the first Agreement Year
consists of less than 12 calendar months.

Annual Management Fee means the annual fee to be paid by
Owner to Operator, as described in Section 6.1 hereof.

Annual Operating Plan means the annual plan for the
operation and maintenance of the Project as described in Section
4.3 hereof.

Approvals and Permits means all approvals, permits,
licenses, certificates, inspections and authorizations required
by any Governmental Authority arising out of, incident to or
related to the operation and maintenance of the Project.

Average Calculated Heat Rate shall have the meaning
described in Appendix 2.

Average Expected Heat Rate shall have the meaning described
in Appendix 2.

Availability means the percentage of time the Project is
made available to operate as determined in accordance with the
formula set forth in Appendix 2.

Bonus shall have the meaning described in Appendix 5 herein.

Business Day means any day other than a Saturday, Sunday, or
legal holiday in the State of New Jersey.

Change in Law means (a) the adoption, promulgation or
modification after the Effective Date of (i) any federal statute,
regulation, ruling or executive order not adopted, promulgated or
modified or officially published in The Congressional Record or
The Federal Register on or before the Effective Date or (ii) any
State, local or administrative statute, ordinance, regulation or
executive order that was not so adopted, promulgated or modified
on or before the Effective Date, or (b) the imposition by a
Governmental authority of any material conditions in connection
with the issuance, renewal or modification of any official
permit, license or approval after the Effective Date, which in
the case of either (a) or (b) established requirements affecting
the operation or maintenance of the Project materially more
burdensome than the most stringent requirements (x) in effect as
of the Effective Date, (y) agreed to in any applications of Owner
for official permits, licenses or approvals pending as of the
Effective Date or (z) contained in any official permits,
licenses, or approvals with respect to the Project obtained as of
the Effective Date; provided, however, that a change in any
income tax law shall not constitute a Change in Law hereunder.

Change in Project Agreements means any amendment after the
Effective Date to the Project Agreements, or any one of them, or
the Site Lease which established requirements affecting the
operation or maintenance of the Project materially more
burdensome than the requirements contained in either of the
Project Agreements or the Site Lease as of the Effective Date.

Claims has the meaning set forth in Section 21.22 (c)
hereof.

Contract Capacity shall have the meaning set forth in the
Electricity Purchase Agreement.

Credit Agreement means the Construction and Term Credit
Agreement entered into between Owner and Lender as of December 1,
1988 as amended and as it may be amended further and supplemented
from time to time.

Default has the meaning set forth in Sections 5.3 and 5.4
hereof.

Dispute means any claim, dispute, disagreement or other
matter in question between Operator and Owner that arises with
respect to the terms and conditions of this Agreement or with
respect to the performance, nonperformance or breach by Operator
or Owner of their respective obligations under this Agreement.

Effective Date shall mean the date the Operator accepts
care, custody, and control of the Project and commences the
services described in Article 2 hereof, such date being no later
than 15 April 1994.

Electricity Purchase Agreement means the agreement dated
October 28, 1986, as amended between the Electricity Purchaser
and O'Brien Energy Systems, Inc. for the sale of the electricity
output of the Project, as such agreement has been assigned to
Owner and as such agreement may be further amended, restated or
supplemented from time to time.

Electricity Purchaser means Jersey Central Power & Light
Company.

Energy Revenues means, for any Agreement Month, Agreement
Year or other referenced period, the sum of (a) gross revenues
received during such Agreement Month, Agreement Year or other
referenced period from all sales of electricity and steam
generated by the Project and (b) any amount paid as liquidated
damages by, or recovered pursuant to any judgment against, or
settlement with, the Electricity Purchaser or the Steam Purchaser
pursuant to the Electricity Purchase Agreement or the Steam
Purchase Agreement in such Agreement Month, Agreement Year or
other referenced period in respect of any Dispute regarding the
amounts due to Owner pursuant to the Electricity Purchase
Agreement or the Steam Purchase Agreement, net of all reasonable
costs of collecting such amounts.

Force Majeure shall mean the following acts, events or
occurrences to the extent such acts, events or occurrences
prevent the operation or maintenance of the Project: act of God,
war, declared or undeclared, reasonably unforeseeable Change in
Law, a Change in Project Agreements, riot, revolution, freight
embargoes, fires, labor strike, walkout or similar labor Dispute
(official or unofficial) (but excluding a strike by the employees
of Operator, the employees of Operator's subcontractor(s) or a
Dispute limited to the Site), sabotage, the act of, or failure to
act in accordance with the terms hereof by the other Party to
this Agreement, breaking of or accidents to machinery or
equipment caused directly by an act of God or by the act or
omission of a third party (other than Operator's
subcontractor(s)) over whom the affected Party has no control, or
any other cause reasonably unforeseeable and beyond the
reasonable control of the affected Party arising after the
Effective Date: provided that (i) any such act, event or
occurrence resulting from the negligence (by commission or

omission) of the affected Party or any of its subcontractors
shall not constitute Force Majeure, (ii) unexplained breakdowns
and unexplained accidents to machinery or equipment shall not
constitute Force Majeure.

Fuel means the natural gas and/or alternate fuel necessary
for the normal operation and maintenance of the Project.

Governmental Authority means any Federal, state, local,
administrative or other governmental authority having
jurisdiction over the project, including any department,
subdivision, commission, board, bureau, agency or instrumentality
thereof.

Guarantee means the guarantee set out in Appendix 7.

Guarantee Points means the guarantees set forth by the
Operator for Availability and Heat Rate as shown in Appendix 2
and Appendix 5.

Guarantor means Stewart & Stevenson Services, Inc.

Heat Rate shall have the meaning described further in
Appendix 2.

Interconnection Facilities means the interconnection
equipment and other facilities to be maintained by the
Electricity Purchaser as set forth in the Electricity Purchase
Agreement which are required to connect the Project to the
electrical supply system operated by the Electricity Purchaser.

ISO shall mean the base condition of the Project or a
component of the Project to be used for comparison in determining
the Heat Rate or Availability. The reference conditions stated as
follows shall apply: fifteen (15) degrees Celsius ("C"), sixty
percent (60%) relative humidity, the altitude of the Project, no
inlet or exhaust losses, and a steam delivery rate of [42,000
Ibm/hr at 155 psig and 365"F.]

Lender means the National Westminster Bank PLC.

Liquidated Damages means the payments described in Section
8.1 and Appendix 5 hereof.

Major Breakdown means sudden breakdowns not attributable to
Operator negligence to the gas turbine rotors and casings, the
gas turbine generator rotors and stators, the steam turbine
rotors and casings, the steam turbine generator rotors and
stators and the waste heat recovery boilers.

Major Repairs shall mean overhauls of the gas turbine, the
steam turbine, and the gas turbine and steam turbine generators,
hot gas path inspections of the gas turbine, combustion
inspections of the gas turbine.

Manuals means the manuals to be provided by Owner, as the
same may be updated from time to time by Operator pursuant to
Section 2.11 hereof, and such other manuals and similar materials
as may be required to be prepared and maintained by Operator with
respect to the Project in order to comply with Requirements of
Law.

Meter Error shall have the meaning described in Appendix 2.

Mobilization and Program Implementation Period means the
period commencing on the Effective Date and ending on June 30,
1994 as further described in Section 2.1.

Operating Margin shall mean the amount calculated as per
Section 5.4 in Appendix 5.

Operator means Stewart & Stevenson Operations, Inc.

Output means the electrical energy produced by the Project
(after subtracting parasitic load and electrical energy supplied
to the Steam Purchaser) at the Point of Delivery (as defined in
the Electricity Purchase Agreement).

Owner means O'Brien (Parlin) Cogeneration, Inc.

Party or "Parties" means Owner and/or Operator.

Performance means the combination of Availability and Heat
Rate as further described and determined in Appendix 2 herein.

Person means an individual, corporation, partnership,
business trust, joint venture, company, firm, Unincorporated
association, governmental body or any other entity.

PPI shall mean the Producer Price Index for Finished Goods
as published annually by the Bureau of Labor Statistics. The base
month for this index shall be January 1994. The Parties
acknowledge that if this index can be specified for the region of
the United States where the Project is located, then the
regionalized index shall be used.

Prime Rate has the meaning given it in the Credit Agreement.

Project has the meaning given it in the Recitals and
includes the buildings and other structures, fixtures, machinery,
equipment, materials and things of all kinds used in connection
with the cogeneration facility at the Site, and all substitutes,
additions, replacements and modifications thereto.

Project Agreements means the Electricity Purchase Agreement
and the Steam Purchase Agreement and the Dupont Electricity
Purchase Agreement dated 18 Jan 1988.

Reimbursable Costs means the costs to be reimbursed by Owner
to Operator pursuant to Article 6 and as discussed further in
Article 2 and Appendix 4 herein.

Requirement of Law shall mean any statute, rule, regulation,
code, standard, ordinance or other law of any Governmental
Authority and any order, including an injunction, judgment, writ,
award, determination or decree of any arbitrator, court or other
Governmental Authority, in each as applicable to or binding upon
the Project (including the use, maintenance and operation thereof
or any Party or to which the Project (including the use,
maintenance and operation thereof or any Party is subject,
including those relating to building, environmental (including

those relating to emissions, discharges, disposals, hazardous
wastes or materials), health and safety matters, the giving of
notices and access to the Project.

SCR System means the selective catalytic reduction system
constituting a component of the Project.

Site means the real property in Sayerville, New Jersey on
which the Project is constructed, operated and maintained, as
more fully described in the Steam Purchase Agreement.

Site Lease means the ground lease for the Site entered into
between Owner and Steam Purchaser on 02 January 1987, as such
lease may be amended, restated or supplemented from time to time.

Steam Purchase Agreement means the agreement dated December
8, 1986 as amended between the Steam Purchaser and Owner
(formerly O'Brien Cogeneration IV, Inc.) for the sale of the
steam output of the Project, and as such agreement may be further
amended, restated or supplemented from time to time.

Steam Purchaser means E.l DuPont De Nemours & Company
(Inc.).

Term means the term of this Agreement as provided in Section
5.1 hereof and any extensions or renewals thereof.

Time Period shall mean those parts of a day, week, or
calendar year defined below (subject to modification in
accordance with the Electricity Purchase Agreement), appropriate
to the context:

<TABLE>

<CAPTION>
SEASON A SEASON B SEASON C

<S> <C> <C> <C>
TIME PERIOD 01 December 01 June 01 March
to to to
28 or 29 February 30 September 31 May
and
01 October
to
30 November
8 a.m. to 8 p.m. On-Peak with On-Peak with On-Peak without
Monday through Friday Capacity Capacity Capacity
Natural Gas Natural Gas Natural Gas
and Oil

8 p.m. to 8 a.m plus Off-Peak Off-Peak Off-Peak
All day Saturday, Natural Gas Natural Gas Natural Gas
Sunday, and Holidays and Oil

</TABLE>

Uncontrollable Circumstance shall have the meaning given to
such term in Section 5.6 hereof.

<PAGE 7>
ARTICLE 2

SCOPE OF SERVICES TO BE PROVIDED BY OPERATOR

2.1 Mobilization and Program Implementation Period.
Beginning on the Effective Date and in conjunction with its other
responsibilities under Article 2 herein, the Operator will
commence a Mobilization and Program Implementation Period During
this period, which shall continue until June 30, 1994, Operator
shall oversee the temporary personnel described in Appendix 8
herein in the initiation of (i) the Operator's programs relating
to safety, training, qualification, maintenance, inventory
control, accounting, and administration and (ii) an improvement
in the safety, cleanliness, and material conditions of the
Project. The Parties recognize that the purpose of this
mobilization is to allow the Operator to concentrate the efforts
of its permanent employees at the Project on qualification and
the safe, reliable generation of electricity and steam while at
the same time implementing the programs and conditions necessary
to fulfil its obligations under this Article 2 throughout the
Term of this Agreement.

2.2 Intentionally Omitted.

2.3 Continuous Operation. Beginning on the Effective Date
and throughout the Term of this Agreement, Operator shall operate
and maintain the Project, according to the terms of this
Agreement and each Annual Operating Plan, in such a manner as to
maximize operating hours and net Energy Revenues, giving due
consideration to (a) the Off-peak, on-peak, seasonal, capacity
structures and bonus price incentives in the Electricity Purchase
Agreement and the Steam Purchase Agreement, (b) avoiding
excessive Fuel consumption and other excessive variable costs of
electricity and steam production, (c) generally accepted and
sound engineering Practices, (d) the design parameters of the
Project and (e) the Manuals. Operator shall to the extent
practical and in accordance with (a) through (e) above, arrange
scheduled maintenance during such periods as will both minimize
the loss of Energy Revenues and comply with the requirements of
the Project Agreements.

2.4 Proper Maintenance. Operator shall maintain the entire
Project at all times properly and in a good, clean, orderly
condition, and shall perform or cause to be performed all
necessary maintenance and clean-up, implementation of necessary
repairs and replacements and the purchase and installation of
necessary replacement equipment or parts of the Project. Operator
shall maintain appropriate inventories of replacement equipment,
spare parts and consumables. Operator shall perform or cause to
be performed in accordance with manufacturer's recommendations
normal and customary overhauls of the Project equipment,
including the major overhauls anticipated at about 50,000 and
100,000 hours of gas turbine operation, or as otherwise may be
required. Operator shall not make any additions, alterations or
other changes to the Project which are not included in the
approved Annual Operating Plan without the written approval of
Owner. For expenditures made by Operator under Section 6.2.3
herein, Operator shall use contractors from a list which has been
approved by Owner. For major overhauls and other expenditures not
covered by the ceiling in Section 6.2.2, Owner shall have the
exclusive right to select the subcontractor utilized by Operator.
Operator will supervise the subcontracts for these repairs on the
Owner's behalf. Contractors on such list shall be mutually
acceptable to the Parties, and consent for an addition or
deletion of a contractor from such list shall not be unreasonably
withheld. Should Owner desire that Operator utilize a contractor
not on said list, Operator shall not have liability for defects
in the work or for reductions in Output directly caused by such work.

2.5 Compliance. Operator shall operate and maintain the
Project in compliance with all applicable Requirements of Law and
all Approvals and Permits. Operator furthermore covenants to
perform its obligations in accordance with the Site Lease and the
Project Agreements, including, without limitation, obligations to
demonstrate "Contract Capacity" and perform such other tests as
are required under the Electricity Purchase Agreement and/or
Steam Purchase Agreement, such demonstrations and tests to be
undertaken and performed by Operator. If at any time Operator
discovers a defect in the Project that would prevent or inhibit
the Project from complying under this section it shall
immediately notify Owner of such defect.

2.6 Site Maintenance. Operator shall (i) maintain the Site
in a good, safe, clean, orderly, and well landscaped condition,
(ii) maintain the exterior of all structures on the Site
(excluding structural repairs thereto) in a safe, clean and
attractive condition, and (iii) not make any changes in the
landscaping of the Site or the exterior appearance of the Project
unless specifically approved in writing by Owner.

2.7 Maximum Efficiency. Consistent with the Manuals, sound
operating and engineering practice and Owner's objective of
maximizing the economic efficiency of Project operations,
Operator shall operate the Project so as to maximize the useful
life of the equipment and minimize downtime for repairs.

2.8 Safety Procedures. Operator shall comply with all
applicable safety procedures, whether contained in the Manuals,
required by insurance companies, or required by applicable
Requirements of Law or the terms of any Approvals and Permits,
necessary or appropriate to prevent accidents or injuries to
Persons or damage to property on or about the Site.

2.9 Intentionally Omitted.

2.10 Scope of Services. Operator shall provide, subject to
reimbursement pursuant to Section 6.2, full-time office services,
including bookkeeping and secretarial services, office equipment,
and supplies, as well as other services, according to the
requirements described in Appendix 4 hereto.

2.11 Revise Manuals. Operator shall, as often as necessary
but not less often than annually, review, revise and update the
Manuals that are kept by the Operator at the Site.

2.12 Provisions. In order to satisfy Operator's obligations.
Operator shall provide, or cause to be provided by
subcontractors:

2.12.1 All permanent staff, temporary staff and
specialists for the operation and maintenance of the Project
including the permanent staff described in Appendix 1. Operator
shall be solely responsible for the screening, hiring, assignment
and supervision of all such personnel.

2.12.2 All spare parts (other than spare parts supplied
by Owner under Section 3.2) required for the operation and
maintenance of the Project. Spare parts shall be held in
inventory for immediate replacement of parts required to maintain
the operation of the Project.

2.12.3 All consumables (other than consumables supplied
by Owner under Section 3.4) required for the operation and
maintenance of the Project.

2.12.4 Policies of insurance in accordance with Article
11 and Appendix 6 hereof.

2.12.5 The repair and/or replacement of any broker or
damaged parts or components of the Project (including the
installation and replacement of spare parts and components for
the SCR System provided at Owner's cost pursuant to Section 3.6).

2.12.6 The preparation, generation, maintenance and
storage at the Site of all operating and maintenance logs,
performance data, records, cost data and scheduled reports on
behalf of Owner, such information to be prepared, generated and
maintained in accordance with the applicable requirements of the
Project Agreements.

2.13 Waste Disposal Operator shall handle and arrange for on
Owner's behalf the disposal of solid and liquid waste and
Hazardous Materials generated by the Project by licensed, insured
contractors in a safe manner and in accordance with all Approvals
and Permits and Requirements of Law.

ARTICLE 3

OWNER'S RESPONSIBILITIES

3.1 Acceptance of Project. The responsibility for the
continuous operation of the Project, as provided in Section 2.3,
shall be delivered to Operator, and Operator shall accept and
shall be deemed to have accepted such responsibility, on the
Effective Date.

3.2 Spare Parts Inventory. Owner will establish and provide
an initial inventory of spare parts reasonably acceptable to the
Parties which shall consider the recommendations of the equipment
vendors and the Project Availability requirements of Owner:
Operator shall, at the Owner's request, procure the inventory of
behalf of the Owner.

3.3 Provision of Project Facilities. Owner shall provide
Operator with a site office, workshop, messing and associated
facilities. The office and workshop shall be furnished and
equipped by Owner to recognized standards to enable Operator to
fulfill its obligations under this Agreement.

3.4 Site Services. Owner shall provide the following Site
services as necessary for the operation and maintenance of the
Project in accordance with Section 2.7, at no cost to Operator:
Ingress and egress to the Site including reasonable Site security
systems, fuel, water, ammonia, waste water disposal, standby
power, electricity and other Site services and materials of a
similar nature reasonably required for the operation and
maintenance of the Project and not required to be provided by
Operator under Article 2 hereof. No Party shall have any
liability to any other Party for any performance shortfall to the
extent such shortfall is caused by disruption of or interruption
to these services, unless caused by such Party's negligence.

3.5 Approvals and Permits. Owner shall be responsible for
obtaining and maintaining all permits, authorizations,
franchises, licenses and other approvals necessary for the
Project to be legally authorized to operate, and shall provide
Operator with a copy of all Approvals and Permits. Operator shall
provide full and reasonable continuing cooperation in obtaining
and maintaining all such permits, authorizations, franchises,
licenses and other approvals necessary to permit it to operate
the Project. Operator shall review Owner's applications for
accuracy if requested.

3.6 SCR System: Interconnection Facilities. Owner shall pay
for all spare parts and replacement components of the SCR System
and all off-site refurbishment repairs to the SCR System pursuant
to separate agreement with the vendor of the SCR System. At
Owner's option, Operator shall accept an assignment of the
agreement(s) with the vendor of the SCR System and shall perform
the obligations of Owner thereunder from and after the effective
date of such assignment provided that (i) Owner shall reimburse
Operator for the actual costs incurred by Operator in performing
such obligations and (ii) Owner shall be entitled to require
Operator to re-assign the SCR System Agreement(s) to Owner at any
time upon reasonable notice to Operator. Owner and Operator
furthermore agree and acknowledge that Electricity Purchaser is
to maintain, repair and/or replace the Interconnection Facilities
or components thereof as and when necessary for the operation of
the Project and any failure by Electricity Purchaser to do so
shall, to the extent such failure prevents or limits the
operation and maintenance of the Project, constitute Force
Majeure; provided that Owner shall have no liability to Operator
for Electricity Purchaser's failure to maintain, repair and/or
replace the Interconnection Facilities and any such failure by
Electricity Purchaser shall not constitute a breach by Owner
under this Agreement.

3.7 Access to Project Documents. Owner will provide
Operator all Project related documents and changes thereto
required for the performance of Operator's responsibilities
hereunder. These shall be maintained in confidence by Operator.

ARTICLE 4

OPERATION OF THE PROJECT

4.1 Party Representatives. Within five (5) days after the
Agreement Date, each Party shall notify the other in writing of
its designation of an individual to act as its representative
with respect to matters which may arise with respect to the
operation of the Project. At any time after the initial
designation by any Party of its representative, such Party may
designate a successor representative by similar written notice to
the other Party.

4.2 Visits and Reviews by Owner. Owner and its
representatives shall have the right, during both normal working
hours and other hours during which any representative of Operator
is on the Site, to stay at the Site throughout the term of the
Agreement in order to monitor Operator's performance under this
Agreement and to inspect the Site and any part or component of
the Project, and all other things pertaining to the operation of
the Project, and may take all reasonable steps necessary to
verify Operator's performance pursuant to this Agreement,
provided that should such inspections adversely affect the safety
at or Availability of the Project, Operator shall have no
liability to Owner thereunder. Owner and its representatives
shall also have the right to take visitors, after reasonable
notice, onto the Site and into the Project to observe the various
services which Operator performs; provided that such visits shall
be conducted in a manner so as to minimize interference with

Operator's obligations hereunder. Owner, its representatives, and
its visitors shall at all times adhere to the Operators visitor
policy at the Site, which shall not unreasonably interfere with
Owners ability to bring visitors to the Site during normal
business hours.

4.3 Annual Operating Plan. Not later than forty-five (45)
days prior to the first day of each Agreement Year (with the
exception of the first Agreement Year during which there will be
no Annual Operating Plan), Operator shall submit to Owner for
approval a proposed Annual Operating Plan for the upcoming
Agreement Year. The Annual Operating Plan shall describe in
detail maintenance and overhaul schedules, staffing plans,
capital expenditure requirements, equipment acquisitions and
spare parts inventories (including a breakdown of capital items
and expense items), hours of operation, holidays to be observed
(if any), schedules of contract services, projected electricity
and steam generated for sale, projected Energy Revenues and such
other matters as Owner may reasonably require. The proposed
Annual Operating Plan shall also include a budget for operation
and maintenance of the Project, including the estimated prices
based on time and materials for all anticipated operating and
maintenance costs for the upcoming Agreement Year. Owner shall
indicate in writing its approval or disapproval of the Annual
Operating Plan within fifteen (15) days of such submission, and
in the event of disapproval, the parties shall promptly meet and
subject to the terms set forth in the last sentence of this
Section 4.3 and Article 12, resolve in good faith any areas of
disagreement. If the Annual Operating Plan is not agreed to by
Owner and Operator or resolved in accordance with Article 12
herein by the commencement of the Agreement Year to which it will
apply, the previous year's plan shall remain in effect and all
budgeted expenditures shall escalate at the PPI for the previous
twelve month period. Any actions proposed under the Annual
Operating Plan shall be consistent with the Manuals and Operator's
obligations as described in Sections 2.3 and 7.1. The Annual Operating Plan
shall be updated quarterly. Operator shall notify Owners soon as
reasonably possible of any significant deviations or
discrepancies from the projections contained in the Annual
Operating Plan. Any adjustment to manpower requirements proposed
by Operator shall be subject to Owner's prior written approval.

4.4 Monthly Summary. Operator shall provide Owner, in a
form reasonably acceptable to Owner, a monthly summary of all
operations and scheduled maintenance activities performed by
Operator during the preceding month, together with all costs (by
category) which make up the Reimbursable Costs associated
therewith, and a comparison of the current total of such costs
for the Agreement Year with the budget prepared pursuant to the
Annual Operating Plan. A revised annual budget shall also be
prepared in the event of the significant deviations or
discrepancies from the budget prepared pursuant to the Annual
Operating Plan. Operator shall also cooperate with Owner in
complying with the reporting requirements set forth in Section
5.06(m) of the Credit Agreement subject to the provisions of
Section 4.3.

4.5 Unscheduled Maintenance. Operator shall perform or
cause to be performed all maintenance, repair and replacement
requirements of the Project (excluding only the Interconnection
Facilities) notwithstanding that the same were not anticipated or
included in the approved Annual Operating Plan, and shall attempt
to perform any such maintenance that will require an interruption
in electrical generation during Off-Peak Time Periods with the
exception of maintenance required during emergencies. Operator
shall undertake such work and notify Owner as soon as such notice
is reasonably practicable. Owner's obligation to reimburse
Operator for such work shall be subject to the limitations in
Article 6.

ARTICLE 5

TERM; TERMINATION AND DEFAULT

5.1 Initial Term and Renewal. The Term of this Agreement
shall commence on the Effective Date, and shall conclude on the
last day of the ninth (9th) Agreement Year. The Parties, upon
mutual consent, shall have the option to extend the Term of this
Agreement for an additional six (6) years by notice in writing
not less than six (6) months prior to the end of the initial
Term.

5.2 Rights to Terminate. Owner shall have the option to
terminate this Agreement in the event of a Default by Operator as
set forth in Section 5.3, in the event of an Uncontrollable
Circumstance as set forth in Section 5.6(a), or in the event of a
strike as provided in Section 1 0.2. Operator shall have the
option to terminate this Agreement in the event of a Default by
Owner as set forth in Section 5.4(b); provided, in the event of
an alleged Owner Default which is disputed in good faith by
Owner, Operator must continue to operate the Project but may
simultaneously pursue its remedies for Owner's alleged Default in
arbitration proceedings under Article 12.

5.3 Default by Operator. Each of the following shall
independently constitute a Default by Operator:

(a) The failure or refusal by Operator, unless
excused, in any case, by Force Majeure (i) to operate, repair and
maintain the Project in accordance with this Agreement: (ii) to
earn greater than 20% of the Annual Management Fee for two
consecutive Agreement Years due to the payment of Liquidated
Damages under Appendix 5 herein; (iii) to comply with applicable
Requirements of Law or Approvals and Permits; or (iv) to fulfill
any of its other obligations, whether designated as agreements,
covenants or otherwise, under this Agreement; provided, however,
that a failure or refusal under (i), (iii) or (iv) shall not
constitute a Default unless and until:

(i) Owner has given notice to Operator specifying
Operator's default or defaults; and

(ii) Operator either has not corrected such
default, or has not initiated reasonable
steps to correct the same within 10 days of
its receipt of such notice and thereafter
does not continue to take all reasonable
steps necessary to expeditiously correct such
default.

(b) The persistent or repeated failure of Operator to
timely perform its obligations in accordance with the terms of
this Agreement, notwithstanding the payment by Operator of
Liquidated Damages or other amounts provided for under this
Agreement.

(c) The commencement by Operator or Guarantor of a
voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by
Operator or Guarantor to the entry of an order for relief in an
involuntary case under any such law, or the consent by Operator
or Guarantor to the appointment of, or taking possession by, a
receiver, liquidator, assignee, trustee, custodian, sequestrator
(or similar official) of Operator or Guarantor or of any
substantial part of either of their properties, or the making by

Operator or Guarantor of any general assignment for the benefit
of creditors, or the failure by Operator or Guarantor generally
to pay its debts as they become due or any corporate action in
furtherance of any of the foregoing.

(d) The issuance by court having jurisdiction over
Operator of a decree or order for relief in respect of Operator
in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
the appointment by any such court of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official)
of Operator or any substantial part of its property, or the
ordering by any such court of the winding up or liquidation of
the affairs of Operator if such decree or order shall remain
unstayed and in effect for a period of sixty (60) consecutive
days.

(e) the failure of Operator to make any payment due
Owner under the terms of this Agreement as and when the same
becomes due under Section 9.1, unless such refusal is permitted
under Section 9.3 hereof.

(f) the occurrence of any default under the Guarantee.

5.4 Default by Owner. Each of the following shall
constitute a Default by Owner:

(a) The failure or refusal by Owner to fulfill its
obligations under this Agreement, unless excused by an
Uncontrollable Circumstance or by Force Majeure; provided,
however, that such failure or refusal shall not constitute a
Default unless and until:

(i) Operator has given written notice to Owner
specifying Owner's default or defaults: and

(ii) Owner either has not corrected such default
or has not initiated reasonable steps to
correct the same within 10 days of its
receipt of such notice, and thereafter does
not continue to take all reasonable steps
necessary to expeditiously correct such
default.

(b) The failure or refusal by Owner to make any
payment due Operator under the terms of this Agreement as and
when the same becomes due under Section 6.1, Section 6.2, or
Section 9.1, unless such refusal is disputed pursuant to Section
9.2 hereof, in which event such Dispute shall be subject to the
terms of Section 9.4.

(c) The commencement by Owner of a voluntary case
under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by Owner to the entry
of an order for relief in an involuntary case under any such law,
or the consent by Owner to the appointment of, or taking
possession by, a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) of Owner or of any
substantial part of either of its properties, or the making by
Owner of any general assignment for the benefit of creditors, or
the failure by Owner generally to pay its debts as they become
due or any corporate action in furtherance of any of the
foregoing.

(d) The issuance by court having jurisdiction over
Owner of a decree or order for relief in respect of Owner in an
involuntary case under any applicable bankruptcy, insolvency or

other similar law now or hereafter in effect, or the appointment
by any such court of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of Owner or any
substantial part of its property, or the ordering by any such
court of the winding up or liquidation of the affairs of Owner if
such decree or order shall remain unstayed and in effect for a
period of sixty (60) consecutive days.

5.5 Termination for Events of Default.

(a) If Owner elects to terminate this Agreement, Owner
shall give Operator notice of the termination date, which shall
be not less than 5 nor more than 20 days from the date the notice
is given. Termination in the event of a Default by either Party
shall not affect any accrued liabilities or obligations
hereunder.

(b) If Owner terminates this Agreement, Owner may
require Operator to vacate the Site and make the Project
available to Owner and may pursue such remedies for Operator's
breach of this Agreement (except as limited by the last sentence
of Section 8.1 and by Section 21.21) as may be available to Owner
under applicable law. Operator shall pay Owner all Liquidated
Damages accrued through the date of termination.

5.6 Termination for Uncontrollable Circumstances. In the
event of (i) material damage to or destruction of the Project not
caused by the negligence of Owner, or (ii) interruption of the
operation of the Project caused by Force Majeure which materially
impairs the operation of the Project for at least two hundred
seventy (270) consecutive days, or (iii) if any part of the
Project or the Site is taken by eminent domain and such taking
materially impairs the operation of the Project, or (iv) in the
event a Change of Law which renders operation of the Project as
intended illegal, or (v) in the event of the cessation of
operation of the Project, Owner shall have the option in any of
such circumstances (each, an "Uncontrollable Circumstance"), to
terminate this Agreement, and the obligations of the Parties
shall cease except for obligations that have accrued prior to the
effective date of such termination.

5.7 Transfer of Operations on Termination. If this
Agreement is terminated by Owner as a result of a Default by
Operator under Section 5.3 or expires under Section 5.1, Operator
shall cooperate and work with Owner or any other party operating
the Project to achieve a prompt and smooth transition. Owner
shall have the right immediately to retake possession of the
Project, as well as all tools, spare parts, drawings and Manuals.
Operator shall (a) grant to Owner a paid-up, royalty-free
nonexclusive license to any patents, trademarks, copyrights and
trade secrets and "shop rights" which were utilized by the
Operator in the performance of this Agreement and are necessary
in order to operate and maintain the Project; (b) supply all
repair parts, Project supplies and any proprietary components
needed for continuing the operation and maintenance of the
Project in the manner contemplated by this Agreement, which, if
not already paid for by Owner, shall be supplied at fair market
prices; (c) assign or cause to be assigned for the benefit of
Owner, or any subsequent Project manager or operator, all
maintenance and supply contracts relative to the Project that the
Operator retains the right to assign and use its best efforts to
cause any other Site specific maintenance and supply contracts to
be so assigned; and (d) at the Owner's request and expense,
assist Owner, or any subsequent Project manager or operator, for
a period not to exceed ninety (90) days as may reasonably be
necessary to enable Owner to continue with the operation and
maintenance of the facility. Operator shall make available to
Owner and its representatives all operational, technical and

non-technical information, whether or not proprietary, licenses
and Approvals and Permits in its possession or control necessary
to continue the operation of the Project.

5.8 Rights and Remedies. Except as otherwise provided
herein, all rights and remedies of the Parties under any
provision of this Agreement shall be cumulative and in addition
to any other rights and remedies provided for by law (including
all forms of legal and equitable relief and may, to the extent
permitted by law, be exercised concurrently or separately, and
the exercise of any one right or remedy shall not be deemed to be
an election of such right or remedy or to preclude or waive the
exercise of any other right or remedy. With respect to equitable
remedies, the Parties acknowledge that any condition which
incapacitates the operation of the Project, or any part thereof,
constitutes immediate, imminent, substantial and irreparable harm
to Owner, and the Parties hereto consent to the entry of
temporary immediate injunctive relief to restrain such harm,
where appropriate.

5.9 Right of Intervention. In the event Operator fails to
deliver steam, as requested, to the Steam Purchaser or its
successors or assigns for any reason for longer than 24-hours
unless excused by force majeure under the Steam Purchase
Agreement, as amended from time to time, Owner or its designees,
may, at its option, intervene and immediately attempt to remedy
the failure to deliver steam and Operator shall assist Owner or
its designee in such efforts.

ARTICLE 6

ANNUAL MANAGEMENT FEE: REIMBURSABLE COSTS

6.1 Annual Management Fee

Owner shall pay to Operator an Annual Management Fee of
$500,000 for each Agreement Year during the Term hereof, which
shall be payable in monthly installments in arrears during the
Term of this Agreement payable within 30 days following the date
of invoice. The Annual Management Fee shall be paid to Operator
during the Term hereof, notwithstanding any on-going Disputes
between the Parties regarding other matters hereunder and shall
not, in the event of a Dispute regarding a proposed offset or
reduction, be subject to offset or reduction for amounts claimed
to be owed to Owner by Operator unless such amount shall have
been reduced to and incorporated in a final decision under the
Dispute resolution provisions in Article 12. The Annual
Management Fee shall be reduced if Performance in any Agreement
Year is below the conditions set forth in Appendix 2, as provided
in Section 8.1 and Appendix 5. If the Operator fails to pay
accrued, undisputed Liquidated Damages in any Agreement Year in
accordance with the provisions of Article 9 herein, Owner may
elect to reduce the Annual Management Fee in the subsequent
Agreement Year by the amount of Liquidated Damages not under
Dispute owed to Owner.

6.2 Reimbursable Costs. In addition to the Annual
Management Fee, Owner shall pay the following Reimbursable Costs:

6.2.1 The actual cost of recruitment and employment of
permanent staff shown in Appendix 1 from and after the Effective
Date, such cost to include employment related benefits applicable
to Operator's permanent employees at the Site at no more than
forty (40) percent of the sum of (i) all wages in respect of
non-overtime hours and (ii) the straight-time portion of all
wages in respect of overtime hours. Notwithstanding this
provision, the amounts payable to Operator for such costs in any

Agreement Year shall not exceed $1,670,000 provided that in the
event that such costs in any Agreement year shall be less than
$1,670,000, the difference between $1 ,670,000 and the amount
expended shall be accrued on a cumulative basis for each
Agreement Year and applied against such costs incurred in any
subsequent Agreement Year in excess of $1,670,000.

6.2.2 The actual cost of consumables, water treatment
chemicals, outside contractors supplying services under this
paragraph, spare parts and repairs and/or replacement components
supplied by Operator in accordance with the provisions of
Sections 2.12.2. 2.12.3, 2.12.5, 2.13 and 4.5 hereof.
Notwithstanding this provision, except as otherwise provided in
this Agreement, the amounts payable to Operator for such costs in
any Agreement Year shall not exceed $1,017,000: provided that in
the event that such costs in any such years shall be less than
$1,017,000, the difference between $1,017.000 and the amount
expended shall be accrued on a cumulative basis for each
Agreement Year and applied against such costs incurred in any
subsequent Agreement Year in excess of $1,017,000.
Notwithstanding the foregoing, costs incurred by the Project to
conduct major overhauls of the combustion and steam turbines, hot
gas path inspections of the combustion turbine, annual combustion
inspections and to repair Major Breakdowns shall not be subject
to the ceiling set forth in this section but shall be incurred as
direct costs by the Owner. Owner shall have the right to contract
for such services directly, subject to Operator's responsibility
to supervise the provision of such services.

6.2.3 Any other costs incurred by Operator with Owner's
prior approval and not otherwise covered by Section 6.2.1 and/or
6.2.2 hereof, including but not limited to any insurance premium
paid by Operator, subject to the terms of Article 11, interest
carrying costs (at a per annum rate not to exceed the Prime Rate
plus 1%) on any overdue payments due Operator by Owner; provided,
Operator shall pay the income and franchise taxes arising out of
any payments made hereunder to Operator. Any Federal, state or
other sales, use, value-added, gross receipts or similar tax with
respect to the operation and maintenance of the Project (such as
a sales tax on direct cost of replacement parts used by Operator)
shall be included in this section but shall not require Owner's
approval to the extent that they are incurred through
expenditures under Section 6.2.1 or 6.2.2.

6.2.4 During the Mobilization and Program Implementation
Period, Owner shall pay Operator all costs as identified in
Appendix 8 invoiced to Owner and not also incurred as a
Reimbursable Cost for the same expenditure up to a ceiling of
$393,925. Each capital expenditure under this Section in excess
of $10,000 shall require Owner approval which shall not be
unreasonably withheld. Operator shall deliver invoices stating
the costs incurred during the prior Agreement Month. Such costs
incurred shall be due within 30 days following the date of
invoice.

6.2.5 Notwithstanding the provisions of 6.2.1 and 6.2.2
above, Operator shall reimburse Owner for all costs referred to
in 6.2.1 and 6.2.2 to the extent any such costs arise out of
equipment failures caused by the negligence of Operator.

6.2.6 In the event the Operator's Reimbursable Costs
under either Section 6.2.1 or 6.2.2 exceed the applicable ceiling
amount in any Agreement Year, Operator shall be entitled to
utilize any unused cost allowance under either of these two
Sections in order to cover the excess costs. Any unexpended
amounts with respect to any accrued unused cost allowance under
Sections 6.2.1 and 6.2.2 at the end of the initial Term of this
Agreement or at the end of any extension thereof will be shared
on an equal basis between Owner and Operator.

6.3 Adjustment of Maximum Compensation. The Annual
Management Fee in 6.1 above, the ceiling amounts in 6.2.2, and
the Operating Margin amounts in Appendix 5 shall be adjusted at
the beginning of each Agreement Year after the initial Agreement
Year during the Term to reflect changes in the PPI. The ceiling
amount in 6.2.1 shall be adjusted at the beginning of each
Agreement Year after the initial Agreement Year during the Term
to reflect charges in the United States Department of Labor's
Employment Cost Index (the "ECI") (Table 2 - Seasonally Adjusted
Wages and Salaries) effective as at January 1, 1994. The parties
acknowledge that if the ECI is issued as a regional ECI for the
area of the United States where the Project is located, the
regional ECI will be used.

6.4 Adjustment for Change in Law or Change in Project
Agreements. To the extent the Reimbursable Costs contemplated by
Sections 6.2.1 and 6.2.2 increase or decrease in any Agreement
Year as a direct consequence of either a Change in Law which is
reasonably unforeseeable as of the Effective Date or a Change in
Project Agreements, Operator shall notify Owner in detail of the
nature and extent of the increased or decreased Reimbursable
Costs resulting from the Change in Project Agreements or Change
in Law, as the case may be, and the ceiling amounts in Section
6.2.1 , 6.2.2 and 6.3 shall be adjusted for that Agreement Year
and for any subsequent Agreement Years affected, only to the
extent necessary to reflect the change in Reimbursable Cost
caused by such Change in Project Agreements or Change in Law.

6.5 Adjustment for Certain Events. To the extent the
Reimbursable Costs contemplated by Sections 6.2.1 and 6.2.2
increase in any Agreement Year as a direct consequence of
breaking of or accident to machinery or equipment directly caused
by an act of God or by the act or omission of a third party
(excluding subcontractors of Operator) over whom Operator has no
control, Operator shall promptly notify Owner in detail of the
nature and extent of the increased Reimbursable Costs and the
circumstances surrounding the breaking or accident, and the
ceiling amounts in Section 6.2.1 and 6.2.2 shall be increased,
for that Agreement Year only to the extent necessary to permit
Operator to be reimbursed for the increase in Reimbursable Costs.
In either case above, the Parties may agree to have the Owner
directly pay for the costs above, such agreement shall not be
unreasonably withheld. In the event of a Dispute regarding such
increased costs paid by the Operator, Owner shall pay to Operator
the undisputed amount of any such increase, but shall have the
right to escrow any Disputed amounts until such time as the
Dispute is resolved by the Parties pursuant to Article 12. At
such time any amount placed in escrow plus interest shall be paid
to the Parties in such proportions as are determined in
accordance with the final resolution.

ARTICLE 7

COVENANTS TO PERFORM

7.1 Minimum Performance. Operator warrants that it shall
achieve at least 85% of the Annual Operating Plan projection for
production of electricity and steam in each Agreement Year:
provided that Electricity Purchaser and Steam Purchaser's demand
is consistent with the projections in the Annual Operating Plan
for that Agreement Year.

ARTICLE 8

LIQUIDATED DAMAGES
<PAGE 18>

8.1 Liquidated Damages. In the event that Operator shall
fail to achieve the Performance goals set forth in Appendix 2 and
Appendix 5 in any Agreement Year, then Operator shall pay to
Owner Liquidated Damages according to the terms set forth in
Appendix 5. Liquidated Damages shall, except for Owner's right to
terminate this Agreement pursuant to Section 5.2, be the sole
remedy of Owner and the sole liability of Operator for Operator's
failure to meet the Performance requirements set forth in
Appendix 2 and Appendix 5.

8.2 Billing of Liquidated Damages. Not later than twenty
(20) days after the end of each Agreement Year, Operator shall
render a statement to Owner, with all necessary and appropriate
supporting documentation, calculating the amount of Liquidated
Damages due to Owner, in accordance with Section 8.1 and Appendix
5, for the period from the beginning of the Agreement Year
through the end of such Agreement Year. Any amounts due to Owner
on account of Liquidated Damages shall be paid by Operator
simultaneously with the delivery of a statement therefor, but
Owner's acceptance of such amounts shall not preclude it from
disputing under Section 9.2 the accuracy of the amount of
Liquidated Damages owed as set forth on the statement. Any Bonus
payable to Operator under Appendix 5 shall be payable in
accordance with Section 9.1 herein.

ARTICLE 9

BILLING AND PAYMENTS

9.1 Invoices. Operator shall render invoices to Owner
monthly for Reimbursable Costs. Said invoices shall be
accompanied by all relevant documentation including payroll data
and benefits computations for the relevant staff and specialists
and all relevant invoices for consumables, water treatment
chemicals, spare parts and replacement components. Each
undisputed invoice shall be paid, subject to Section 9.2. not
later than thirty (30) days after receipt thereof by Owner. Owner
invoices to Operator as contemplated by this Agreement shall be
paid by Operator, subject to Section 9.3, not later than thirty
(30) days after receipt thereof by Operator.

9.2 Owner's Dispute. Owner may, within fifteen (15) days
after receiving any invoice or statement rendered pursuant to
Sections 9.1 or 8.2 , by written notice to Operator, Dispute any
amount set forth in such invoice or statement: provided that
Owner shall pay undisputed amounts notwithstanding the existence
of any Dispute with respect to the balance of such payment.

9.3 Operator's Dispute. Operator may, within fifteen (15)
days after receiving an invoice from Owner, by written notice to
Owner, Dispute any amount set forth in such invoice; provided
that Operator shall pay undisputed amounts notwithstanding the
existence of any Dispute with respect to the balance of such
payment.

9.5 Dispute Resolution. Operator and Owner shall, as soon
as practicable after either Party's receipt of any notice
pursuant to Section 9.2 or 9.3 above, attempt in good faith to
resolve all Disputed items described therein. If all such
Disputed items are not so resolved within thirty (30) days after
receipt by either Party of such notice, either Party may, within
ninety (90) days thereafter, commence Dispute resolution
procedures pursuant to Article 1 2, in accordance therewith. In
the event that such Dispute resolution procedures result in an
award in favor of either Party, the other Party shall pay any
balance owed with interest provided in Section 21.18.

<PAGE 19>
ARTICLE 10

FORCE MAJEURE: STRIKES

10.1 Effect of Force Majeure. In the event that either
Operator or Owner shall be prevented by Force Majeure from
performing or fully performing its obligations under this
Agreement (other than obligations to make payments required
herein, which may not be excused by Force Majeure), the Party
unable to perform or fully perform shall promptly notify the
other Party and shall keep the other Party informed of the
situation for the duration of such event. Upon the giving of such
notice, the obligations of the Party giving the notice shall be
reduced during, but no longer than, the continuance of the Force
Majeure, provided such obligations shall be reduced only to the
extent the affected Party's performance is adversely affected
solely by the Force Majeure, and only to the extent such adverse
effects cannot be mitigated by the affected Party's best efforts.
The affected Party shall use its best efforts to resume
performance as quickly as possible and shall suspend or operate
at less than full performance only for such period of time as is
necessary as a result of the Force Majeure.

10.2 Strikes. In the event of a whole or partial
non-operation of the Project due to a strike or other form of
labor action by Operator's personnel, Owner shall have the right
to continue operating the Project and to retain such other
personnel or agents as Owner in its sole discretion deems
necessary or advisable for such purposes. If any strike or labor
stoppage that affects the Operator's ability to perform its
duties hereunder continues for a period beyond thirty (30) days,
Owner shall be entitled to terminate this Agreement.

ARTICLE 11

INSURANCE

11.1 Insurance Coverage. (a) During the Term of this
Agreement, Operator shall provide and maintain such policies as
shown in Appendix 6(B), the costs of which shall be a
Reimbursable Cost under Section 6.2.3 herein. Owner shall provide
and maintain such policies as shown in Appendix 6(A) herein. The
terms of all such policies shall comply with the provisions of
Section 5.03 of the Credit Agreement. The cost of all such
insurance shall be Reimbursable Costs as described in Section 6
2.3.

(b) Certificates of Insurance evidencing the coverages
provided by Operator and copies of such policies shall be
delivered to Owner prior to the Effective Date. Owner, the
Lender, Steam Purchaser, and any Person who owns an interest (as
mortgagee, secured party, for otherwise) in the Site or who has
the right (present or contingent) to own the Project, and any of
their respective successors and assigns, shall be named as
additional insureds under specified policies. These certificates
as well as all insurance policies required by this Article shall
contain a provision that the policy will not be cancelled or
allowed to expire or amended in any material manner (including as
to scope, type or limits of coverage), until at least ten (10)
days prior written notice or such additional advance notice as
may be required under Section 5.03 of the Credit Agreement has
been given to Owner and all other Persons named as additional
insureds. Should Operator fail to provide or maintain insurance
coverage pursuant to this Section, Owner shall have the right but
not the obligation to provide or maintain such coverage.

(c) All insurance provided by Operator shall be with
reputable and solvent insurance carriers which are reasonably
satisfactory to Owner and Lender and licensed to do business in
the State of New Jersey.

11.2 Waiver of Subrogation. Operator and Owner hereby waive
any and every claim for recovery from the other for any and all
loss or damage resulting from the performance of this Agreement,
to the extent such loss or damage is recovered under the
insurance policies described herein. All insurance policies shall
contain waivers of subrogation as to Steam Purchaser.

ARTICLE 12

DISPUTE RESOLUTION

12.1 Procedure. In the event a Dispute arises between Owner
and Operator regarding the application or interpretation of any
provision of this Agreement which has not been resolved pursuant
to Section 9.5, the aggrieved party shall promptly notify the
other party to this Agreement of the Dispute within ten (10)
Business Days after such Dispute arises. If the parties shall
have failed to resolve the Dispute within ten (10) Business Days
after deliver of such notice, each party shall, within five (5)
Business Days thereafter, nominate a senior officer of its
management to meet at the Facility, or at any other mutually
agreed location, to resolve the Dispute. Should the parties be
unable to resolve the Dispute to their mutual satisfaction within
(i) ten (10) Business Days after such nomination, or (ii) in the
case of a dispute under Article 9, in the time provided in
Section 9.5, the Dispute shall be resolved by binding arbitration
under the auspices of the American Arbitration Association
("AAA"). The Parties shall endeavor to agree upon a single
arbitrator qualified by education and training to pass upon the
particular question or questions in Dispute. If the Parties
cannot agree within five (5) days on a single arbitrator, an
arbitrator shall be appointed by the AAA. The decisions of the
arbitrator shall be in writing, signed, and shall be binding on
the Parties as to any question or questions so submitted to
arbitration. The compensation and expenses of the arbitrator
shall be paid in equal proportions by Owner and Operator. All
performance required by either party under this Agreement shall
continue during arbitration proceedings. In the event either
Party refuses or otherwise fails to abide by the decision
rendered by the arbitrator(s), judgement may be entered against
such Party upon such decision in accordance with applicable law
in any court having jurisdiction thereof.

ARTICLE 13

INTENTIONALLY OMITTED

ARTICLE 14

PAYMENT OF FINES AND PENALTIES

14.1 Payment of Fines and Penalties. Notwithstanding the
provisions of Section 6.5, payment at any time of any fine or
penalties payable to any state or the United States as a result
of the Operator's failure to operate and maintain the Project in
accordance with Requirements of Law or Approvals and Permits

applicable to the operation and maintenance of the Project shall
be the sole responsibility of Operator and such fines or
penalties shall not result in any increase of the costs to be
borne by Owner.

ARTICLE 15

DEFECTIVE WORK

15.1 Work to be Fit. Operator warrants that the operation
and maintenance services described in Article 2 will be performed
properly, in a competent, cost-conscious manner and by qualified
personnel, in accordance with sound and generally accepted
operating and engineering practices, and that said services will
be generally fit for their prescribed purpose performed to be a
standard of the highest quality.

15.2 Consequence of Breach. In the event Operator fails to
perform its work as required by this Agreement, Operator shall at
its cost re-perform any defective service, replace any unfit or
unqualified personnel and repair or replace any components of the
Project damaged as a consequence of said failure.

15.3 Vendor Warranties. Operator shall obtain, when
available and subject to Owner's prior written approval, on
commercially reasonable terms, one-year vendor warranties for all
spare parts and replacement parts, other than parts having a
useful life of less than one year and parts supplied by Owner
pursuant to Section 3.2 or 3.6. Any warranties received from
outside vendors or subcontractors shall be passed through to
Owner, but Operator shall maintain, administer and assist Owner
in the enforcement of such warranties. The costs of all such
warranties to the extent not included in the normal purchase
price shall be Reimbursable Costs and shall not be subject to the
ceilings described in Article 6.

ARTICLE 16

OPERATOR'S REPRESENTATIONS

Operator represents and warrants that:

16.1 Corporate Standing: Authorization. It is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware. The execution, delivery and
performance of this Agreement are within Operator's corporate
powers. The execution, delivery and performance of this Agreement
(i) has been duly authorized by all requisite corporate action;
and (ii) does not violate any existing Requirement of Law or any
agreement, certificate, undertaking, commitment, instrument or
other document to which it or any of its assets may be bound or
affected.

16.2 Enforceability. This Agreement constitutes its legal,
valid and binding obligations enforceable against it in
accordance with its respective terms, except as such enforcement
may be limited by bankruptcy, moratorium, insolvency and similar
debtor rights laws, and has been executed and delivered by its
duly authorized officers.

16.3 No Violation of Law. It is not in violation of any
Requirement of Law which violations, individually or in the
aggregate, could materially affect Operator's performance of any
obligations under this Agreement.

16.4 Litigation. It is not a party to any legal,
administrative, arbitration, investigatorial or other proceeding
or controversy pending, or, to the best of its knowledge,
threatened, which could materially adversely affect its ability
to perform its obligations under this Agreement.

16.5 Qualifications. It has: (i) examined each of the
Project Agreements thoroughly and it is very familiar with their
terms; (ii) substantial experience in the operation and
maintenance of cogeneration plants and is fully qualified to
operate and maintain the Project in accordance with the terms
hereof; and (iii) thoroughly familiarized itself with the
conditions under which the obligations entered into hereunder are
to be performed and correlated its observations with the
requirements hereof.

16.6 Waiver of Liens. It will cause each subcontractor to
waive and release, to the extent it may do so, any and all liens
and/or encumbrances which it or they have or may have against
Owner or the Project on account of work to be performed pursuant
to this Agreement. Before any subcontractor performs any work
pursuant to this Agreement, it shall (i) obtain the consent of
each such subcontractor to such a waiver of liens and
encumbrances; and (ii) file a copy of such a waiver of liens and
encumbrances with Governmental Authorities required by Owner.

16.7 Intentionally Deleted.

16.8 Default under Project Agreements. It shall not take any
action which would cause a default under the Site Lease or the
Project Agreements.

16.9 Approvals and Permits. It is the holder of all material
Approvals and Permits in general required to conduct its business
in the State of New Jersey. Except for Approvals and Permits
required to be maintained by Owner pursuant to Section 3 5, no
consent (except consents, if any hereof of any Person, and no
Approval and Permit of, notice of report to, or registration,
filing or declaration with, any Person, is or will be required,
in connection with its execution, delivery and performance of
this Agreement.

16.10 General. No representation or warranty by it
contained herein contains any untrue statement of any material
fact or any omission of any material fact necessary to make such
representation or warranty not misleading in light of the
circumstances under which it was made.

ARTICLE 17

OWNER'S REPRESENTATIONS

Owner represents and warrants as follows:

17.1 Corporate Standing; Authorization. It is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware. The execution, delivery and
performance of this Agreement are within Owner's corporate

powers. The execution, delivery and performance of this Agreement
(i) has been duly authorized by all requisite corporate action;
and (ii) does not and will not violate any Requirement of Law or
any agreement, certificate, undertaking, commitment, instrument
or other document to which it is a party or by which it or any of
its assets may be bound or affected.

17.2 Enforceability. This Agreement constitutes its legal,
valid and binding obligations, enforceable against it in
accordance with its respective terms, except as such enforcement
may be limited by bankruptcy, moratorium, insolvency and similar
debtor rights laws, and has been executed and delivered by its
duly authorized officers.

17.3 No Violation of Law. It is not in violation of any
Requirement of Law which violations, individually or in the
aggregate, could materially affect Owner's performance of any
obligations under this agreement.

17.4 Litigation. It is not a party to any legal,
administrative, arbitration. investigatorial or other proceeding
or controversy pending, or, to the best of its knowledge,
threatened, which could materially adversely affect its ability
to perform its obligations under this Agreement.

17.5 Approvals and Permits. It is the holder of all material
Approvals and Permits in general required to conduct its business
and will use reasonable efforts to acquire prior to the Effective
Date all Approvals and Permits necessary to operate the Project.
Except for the Approvals and Permits to be maintained by it
pursuant to Section 3.5 hereof, no consent (except consents, if
any, obtained prior to the date hereof of any Person, and no
Approval and Permit of, exemption by, notice or report to, or
registration, filing or declaration with, any Person, is or will
be required in connection with its execution, delivery and
performance of this Agreement.

17.6 Capability of Project to Comply with Project
Agreements. Owner represents that the Project has been designed
and constructed to comply with the Project Agreements, and is
capable of meeting such requirements if operated in accordance
with prudent utility practice.

17.7 General. No representation or warranty by it contained
herein contains any untrue statement of any material fact or any
omission of any material fact necessary to make such
representation or warranty not misleading in light of the
circumstances under which it was made.

ARTICLE 18

INTENTIONALLY OMITTED

ARTICLE 1 9

INDEMNIFICATION

19.1 Operator Indemnity.

Operator shall indemnify, defend and hold harmless
Owner and Lender and their respective officials, officers,
employees and gents (all of the aforementioned being hereinafter
referred to as the "Owner Indemnified Parties") from and against
any Claims arising out of, incident to the or related to the

Operator's performance of this Agreement, made by any Person
(other than the Owner Indemnified Parties), whether based on
contractor (including any breach of any agreement respecting any
subcontractor but specifically excluding any breach of the
Project Agreements or the Site Lease), strict liability or
otherwise (except to the extent any such Claims arise out of, are
incident to or related to the negligence of or the breach of this
Agreement by any Owner Indemnified Parties, in which event the
Claims shall be borne by the Parties in proportion to the
respective fault of each party), including (i) any Claims by or
otherwise involving any employee of Operator, any subcontractor,
any Person directly or indirectly employed by any of them and any
other Person for whose acts they may be liable or otherwise
responsible, and (ii) any Claims respecting or made by any
Governmental Authority, infringement of proprietary rights,
non-payments of amounts due subcontractors, bodily injury,
sickness, death, injury, and injury or destruction of tangible
property of any Person. The indemnification obligations under
this Article 19.1 shall not be limited by any limitation on the
amount or type of damages, compensation or other employee benefit
payable under any worker compensation or other employee benefit
acts or insurance policies. The indemnity provisions contained in
this Article 19.1 shall in no manner amend or otherwise modify or
limit any other of Operator's obligations expressed elsewhere in
this Agreement except as expressly provided with respect to
liquidated damages.

19.2 Owner Indemnity. Owner shall indemnify, defend and
hold harmless Operator and its officials, officers, employees and
agents (the "Operator Indemnified Parties") from and against any
Claims arising out of, incident to or related to Owner's failure
to perform its obligations hereunder with respect to the Project
made by any Person (other than Operator and the Operator
Indemnified Parties) whether based on contract, tort (including
negligence, by commission or omission), strict liability or
otherwise (except to the extent any such Claims arise out of, are
incident to or related to the negligence of or the breach of this
Agreement by Operator Indemnified Parties, which event the Claims
shall be borne by the Parties in proportion to the respective
fault of each Party), including (i) any Claims by or otherwise
involving any employee of Owner, or any Person for whose acts
Owner may be liable or otherwise responsible, and (ii) any Claims
respecting or made by any Governmental Authority, infringement of
proprietary rights, non-payment of amounts due subcontractors,
bodily injury, sickness, death, injury, and injury or destruction
of tangible property of any Person. The indemnification
obligation under this Article 19.2 shall not be limited to any
limitation on the amount or type of damages, compensation or
other benefits payable under any workman compensation or other
benefit payable under any workman compensation or other benefit
acts or insurance policies. The indemnity provisions contained in
this Article 19.2 shall in no manner amend or otherwise modify or
limit any other of Owner's obligations expressed elsewhere in
this Agreement.

19.3 Cooperation Regarding Claims. If any Party hereto or
the Lender (each an "Indemnified Party") shall receive notice or
have knowledge of any Claim that may result in a claim for
indemnification by such Indemnified Party against a Party
pursuant to this Article 19, such Indemnified Party shall, as
promptly as possible, give the indemnifying Party notice of such
Claim, including a reasonable detailed description of the facts
and circumstances relating to such Claim, and a complete copy of
all notices, pleadings and other papers related thereto, and the
basis for its potential claim for indemnification with respect
thereto in reasonable detail: provided that failure promptly to
give such notice or to provide such information and documents
shall not relieve the indemnifying Party of any obligation of
indemnification it may have under this Article 19 unless such
failure shall materially diminish the ability of such
indemnifying Party to respond to or to deferred the Indemnified
Party failing to give such notice against such Claim. The

Indemnified Parties shall consult with each other regarding, and
cooperate in respect of, the response to and the defense of any
such Claim, and the Party against whom indemnification is claimed
shall, upon its acknowledgement in writing of its obligation to
indemnify, the Indemnified Party seeking indemnification be
entitled to assume the defense or to represent the interests of
the Indemnified Party seeking indemnification in respect of such
Claim, which shall include the right to select and direct legal
counsel and other consultants, appear in proceedings on behalf of
such Indemnified Party and to propose, accept or reject offers of
settlement, all at its sole cost.

ARTICLE 20

INTENTIONALLY OMITTED

ARTICLE 21

MISCELLANEOUS PROVISIONS

21.1 Entire Agreement. This Agreement contains the entire
understanding of the Parties with respect to the subject matter
hereof and supersedes any and all prior agreements and
commitments with respect thereto.

21.2 Further Assurance. Each Party agrees that upon request
of any other Party, it shall, from time to time, do any and all
other acts and things as may reasonably be required to carry out
its obligations hereunder and to consummate the transactions
contemplated hereby, including the execution and delivery of
documents.

21.3 Amendments. No change, amendment or modification of
this Agreement shall be valid or binding upon the Parties unless
made in writing by all Parties.

21.4 Joint Effort. Preparation of this Agreement has been a
joint effort of the Parties and this Agreement shall not be
construed more severely against one of the Parties.

21.5 Terminology. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter
gender, shall include all other genders; the singular shall
include the plural, and vice versa. Titles of Articles and
Sections are for convenience only, and neither limit nor amplify
the provisions of this Agreement. This Agreement shall always be
deemed to mean this Agreement and the Appendices hereto. All
references herein to Articles, Sections and subsections shall
refer to the corresponding Articles, Sections or subsections of
this Agreement unless specific reference is made to Articles,
Sections or subsections of another document. Use of the words
"hereby", "herein" "hereunder" and similar words shall be deemed
to refer to this Agreement in its entirety and not merely to the
Articles, Sections or subsections thereof wherein any such word
may appear.

21.6 Notice. Any notice, demand, offer, consent, report,
approval or other written instrument required or permitted to be
given pursuant to this Agreement shall be in writing signed by
the Party giving such notice and shall be sent via facsimile with

the original hand delivered or sent by receipt confirmed telex or
registered letter to the other Party at address as set forth
below and shall be effective upon receipt.

(a) if delivered to Owner:

O'Brien (Parlin) Cogeneration, Inc.
225 South 8th Street
Philadelphia, PA 19106
Attn: President
Fax: (215) 627-1839

with a copy to:

Mr. Robert Rauch
O'Brien (Parlin) Cogeneration, Inc.
P.O. Box 640
17 Glen Andrews Road
White Sulphur Springs, W.VA 24986

Fax: (304) 536-4617

(b) if delivered to Operator:

Vice President General Manager
Stewart & Stevenson Operations, Inc.
7400 Roundpond Rd.
Syracuse, NY 13212
Fax: (315) 452-9951

with a copy to:

President
Stewart & Stevenson Operations, Inc.
16415 Jacintoport Blvd.
Houston, TX 77015
Fax: (713) 457-7596

Each Party shall have the right to change the place to which
notice shall be sent or delivered by similar notice sent or like
manner to the other Parties, The effective date of notice issued
pursuant to this Agreement shall be as of the addressee's receipt
of such notice.

21.7 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance(s) shall be
invalid or unenforceable to any extent, (a) the remainder of this
Agreement and the application of such provision to other
Person(s), entity(ies) or circumstance(s) shall not be affected
thereby and (b) each such provision shall be enforced to the
greatest extent permitted by law.

21.8 Assignment. Operator shall neither assign nor otherwise
transfer this Agreement (or any right or obligation contained
herein) without the prior written consent of Owner and Lender (if
Lender requires that its consent be obtained) and any such
assignment, subletting or other transfer without such consent
shall be void. Owner shall have the right to assign this
Agreement (i) as security for or as required by any lender of
funds to Owner or (ii) in connection with a sale or transfer of
the Project and/or the Site Lease.

21.9 No Waiver. No consent or waiver, express or implied by
a Party to or of any breach or default by the Party in the
performance by it of any of its obligations hereunder shall be
deemed or construed to be a consent or waiver to or of any other
breach or default in the performance by such Party of the same or
any other obligation of such Party hereunder. Except as otherwise
provided herein, failure on the part of a Party to complain of
any act or failure to act of the other Party or to declare such
other act or failure to act of the other Party or to declare such
other Party in default, irrespective of how long such failure
continues, shall not constitute a waiver by a Party of its rights
hereunder.

21.10 Applicable Law. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the
State of New Jersey, exclusive of conflicts of laws provisions.
For the purposes of this Agreement, the Parties hereby submit to
the jurisdiction of the courts of the state of New Jersey.

21.11 Successors and Assigns. Subject to the
restrictions on transfers set forth herein, this Agreement shall
inure to the benefit of, be binding upon and be enforceable by
and against the Parties and their respective successors and
assigns.

21.12 Appendices. All Appendices referred to in this
Agreement shall be fully incorporated into this Agreement by such
reference and shall be deemed to be an integral part of this
Agreement.

21.13 Relationship of Parties.

(a) Nothing contained in this Agreement shall be construed
as constituting a joint venture or partnership between Operator
and Owner. Operator shall be deemed to be an independent
contractor. Operator's creditors shall not be third party
beneficiaries under this Agreement.

(b) Operator hereby declares that it is engaged in an
independent business and agrees to perform the services as an
independent contractor and not as the agent, employee or servant
of Owner. Operator has and hereby retains the right to exercise
full control and supervision of its services and full control
over the employment, direction, compensation and discharge of all
persons assisting it in the performance of this Agreement.
Operator agrees to be solely responsible for all matters relating
to the payment of its employees, including compliance with social
security. Operator agrees to be responsible for its own actions
and those of its subordinates, employees, and subcontractors
during the life of this Agreement. Without Owner's approval,
Operator shall have no authority to make any statements
representations or commitment of any kind or take any action
which shall be binding upon Owner.

21.14 Survival of Agreements. All of the
representations, warranties, covenants and agreements of each of
the Parties, including those contained in Article 12 hereof,

shall survive the execution and delivery and performance of this
Agreement and the consummation of the transaction contemplated
hereby except as provided herein.

21.15 Dollar Amounts. All amounts of money in this
Agreement are denominated in United States Dollars.

21.16 Business Day. In the event that an obligation to
be performed under this Agreement fails due on a Saturday, Sunday
or legal holiday in the State of New Jersey, the obligation shall
be deemed due on the next Business Day thereafter.

21.17 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an
original, but all of which when taken together shall constitute
but one agreement. It shall not be necessary that any counterpart
be signed by all Parties so long as each Party shall have
executed two counterparts.

21.18 Overdue Obligations to Bear Interest. All amounts
due hereunder, whether as damages, credits, revenue or
reimbursements, that are not paid when due shall bear interest at
1% over the Prime or Base Rate of Citibank, N.A. , on the amount
outstanding from time to time, on the basis of a 365-day year,
counting the actual number of days elapsed, and all such interest
accrued at any time shall, but only to the maximum extent
permitted by applicable law, be deemed added to the amount due,
as accrued.

21.19 Proprietary Information. If either Party transmits
to the other any information (including, without limitation,
drawings, technology, reports and designs) which the disclosing
Party designated in writing as "proprietary information", the
receiving Party shall receive and hold such proprietary
information in confidence, shall use it exclusively in connection
with the Project (including necessary disclosures on a
proprietary basis, to others directly engaged in the operation or
financing of the Project such as consultants, trustees and
lenders engaged for that purpose provided that such third Party
shall consent in writing to be bound by the provision of this
Section 21.19, but in any event excluding disclosures to other
Project suppliers) and shall not publish or otherwise disclose it
to others.

Notwithstanding the foregoing restrictions, either Party
will have the right to disclose proprietary information furnished
hereunder to a governmental authority to the extent required by
such governmental authority; provided, however, that if such
Party undertakes to so use such proprietary information, it
agrees to give the other Party advance written notice of such
undertaking, to make reasonable efforts to secure confidential
treatment of such proprietary information by the governmental
authority in questions and to permit such other Party to
participate in discussions with such governmental authority with
regard to such confidential treatment. In the event that efforts
to secure confidential treatment are unsuccessful, the owner of
the proprietary information shall have the right, if legally
permissible to revise such proprietary information to make it
nonproprietary or to minimize the loss of its proprietary value.

21.20 Intentionally Omitted.

21.21 No Consequential Damages. In no event shall either
Party be liable (whether based on contract, indemnity, warranty,
tort, strict liability or otherwise) for any special, incidental,

exemplary, indirect or consequential damages, including but not
limited to, loss of profits or revenues, arising from the
performance or non-performance of such Party's obligations under
this Agreement, except to the extent provided in Section 8.1.

21.22 Environmental Liability.

(a) In no event shall Operator be responsible for present
or future "Claims" (hereinafter defined) directly or indirectly
related to or arising out of the actual or alleged existence,
generation, use, collection, treatment, storage, transportation,
recovery, removal, discharge or disposal of "Hazardous Material"
(hereinafter defined) at the Site and/or adjacent areas, arising
out of the period prior to the Effective Date. Without limiting
the foregoing, Owner shall defend, indemnify and hold Operator
harmless against, and shall reimburse Operator for such Claims.

(b) In no event shall Owner be responsible for present or
future Claims directly or indirectly related to or arising out of
the actual or alleged existence, generation, use, collection,
treatment, storage, transportation, recovery, removal, discharge
or disposal of Hazardous Material at the Site arising out of the
negligent, wilful, reckless acts or omissions of Operator or any
of their officials, agents or employees, contractors or
subcontractors of any tier and Operator shall defend, indemnify
and hold Owner harmless against, and shall reimburse Owner for
such Claims: provided, however, that nothing contained herein
shall be construed as requiring Operator to take any corrective
action with respect to any Hazardous Material in existence prior
to the start-up of the Project unless directed to do so by a
Governmental Authority, in which case the corrective actions so
undertaken shall be deemed a Claim within the contemplation of
paragraph (a) of this Section 21.22.

(c) As used in this Agreement, "Claims" shall mean any and
all claims, demands, causes of action, suits, proceedings,
administrative proceedings, lawsuits, judgments, decrees, debts,
damages, liabilities, court costs and reasonable attorneys' fees
including, but not limited to, the cost of civil fines or
penalties or other expenses incurred, assessed or sustained by or
against the affected Party whether asserted under a theory of
strict liability or otherwise.

(d) As used in this section 21.22, "Hazardous Materials"
shall mean materials defined as "hazardous substances",
"hazardous wastes" or "solid wastes" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
42 U.S.C. 9601-9675, and any amendments thereto the Resource
Conversation and Recovery Act, 42 U.S.C. 6901 -6987, and any
amendments thereto, the New Jersey Industrial Site Recovery
Act(N.J.S.A. 13:1 K-6 et. seq.) ("ISRA"); or the New Jersey Spill
Compensation and Control Act (N.J-S.A. 58:10-23.11 et. seq.) and
any other substance, the existence of which on the Site imposes
any liability or responsibility on any Person under any present
or future applicable federal, state, local or common law relating
to the protection of the environment or public health and safety,
whether similar or dissimilar to the foregoing.

(e) If ISRA must be complied with during the Term of this
Agreement, Operator shall reasonably assist Owner in preparing
and filing with the appropriate Governmental Authority the
notices, plans, submissions and other materials and information
necessary to comply with ISRA; provided that the cost of any
outside consultants, sampling and cleanup (or other remedial
work) shall be deemed a Claim, the cost and expense of which is
to be borne by the Owner, except as provided in paragraph (b) of
this Section. If no cleanup (or other remedial work) is required
under ISRA, the costs of any outside consultants and/or sampling
work performed in order to comply with ISRA shall be borne by the
Owner. All aspects of any ISRA proceedings and all filings made
in connection therewith shall be performed only after mutual
consultation of Owner and Operator. Owner shall pay for all costs
referred to in this subparagraph (e) except as provided in
paragraph (b) of this Section.

21.23 Owner's Approval. Wherever in this Agreement
Owner's approval is set forth as a condition, such approval shall
not be unreasonably withheld.

21.24 Lender's Approval. The Parties acknowledge that
this Agreement shall only become effective upon written approval
by the Lender. If such approval is not received within sixty (60)
days, this Agreement shall be null and void, and neither Party
shall have any further obligation to the other.

IN WITNESS WHEREOF, the Parties have hereto set their hands
and seals as of the 1st day of April, 1994.

O'Brien Parlin Cogeneration, Inc.

By:/s/
---------------------------------------

Title:

Stewart & Stevenson Operations, Inc.

By:/s/
-----------------------------------------

Title:

<PAGE 1>
RIGHTS ASSIGNMENT AGREEMENT

RIGHTS ASSIGNMENT AGREEMENT dated as of March 31, 1993
("Agreement") by and between O'Brien Environmental Energy, Inc., a
Delaware corporation ("Seller') having its principal executive
offices at 225 South Eighth Street, Philadelphia, Pennsylvania
19106, and BRADLEY RESOURCES COMPANY, a partnership with its
principal place of business at P.0. Box 761, Southport, Connecticut
06490 ("Purchaser").

WITNESSETH:

WHEREAS, Seller is the owner of all of the issued and
outstanding common stock of O'Brien (Newark) Cogeneration, Inc., a
Delaware corporation (the "Company"); and

WHEREAS, Purchaser desires to purchase and Seller desires to
sell all right, title and interest in certain of Seller's Rights
(as defined below), upon the terms and conditions set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements hereinafter contained, the
receipt and legal sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, Seller and Purchaser agree as
follows:

1. Agreement to Deliver Rights. Seller hereby covenants and
agrees with Purchaser that immediately upon Seller's receipt
thereof it will pay to Purchaser via transfer of immediately
available funds an amount equal to 12.5% of (i) all dividends (in
cash, in kind or otherwise) or other distributions made by the
Company to Seller, including all proceeds (in cash, in kind or
otherwise) of any liquidation or dissolution of the Company; and
(ii) except as otherwise agreed, all proceeds (in cash, in kind or
otherwise) received by Seller from any sale of the issued and
outstanding stock of the Company; and (iii) any other payments made
by the Company to Seller in its capacity as a stockholder of the
Company; provided, however, that to the extent (and only to the
extent) any such proceeds, distributions or other payments are
required to be delivered to National Westminster Bank (the "Bank")
pursuant to the Pledge and Security Agreement dated as of July 13,
1988 between the Bank and the Company (the "Pledge Agreement"), or
to any other lender who has refinanced the loan to the Company made
by the Bank, such 12.5% shall not apply to such amounts and Seller
shall not have any obligation to pay Purchaser based on such
amounts actually paid or transferred to the Bank (collectively,
"Rights" or "Purchased Assets"). Seller hereby sells, assigns,
transfers and conveys to Purchaser good title to all of the
Purchased Assets free and clear of all claims, liens, charges and
encumbrances created or permitted by Seller. Seller agrees that
from and after the date of this Agreement it will not cause or
permit the Company to directly or indirectly issue any stock or
other Equity Interests.

2. Purchase Price.

Purchase Price; Method of Payment. The purchase price
(the "Purchase Price") payable by Purchaser for the Purchased
Assets shall be SIX MILLION TWO HUNDRED AND FIFTY THOUSAND DOLLARS
($6,250,000). The Purchase Price has been paid by Purchaser at the
Closing by delivery to Seller of a promissory note in the amount of
the Purchase Price (the "Note').

3. Closing. The parties acknowledge that simultaneously
with the execution and delivery of this Agreement (a) Seller has
executed and delivered to Purchaser a secretary's certificate to
the effect that resolutions have been duly adopted by Seller's
Board of Directors approving this Agreement and the transactions
contemplated hereby, which resolutions are certified to be in full
force and effect as of the date hereof; and (b) Purchaser has
executed and delivered the Note to Seller.

4. Representations and Warranties of Seller. For the
purpose of inducing Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby pursuant to the
terms and conditions hereof, Seller represents and warrants to
Purchaser as follows:

(a) Organization of Seller. Seller is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware. Seller has delivered to Purchaser
true and complete copies of the certificate of incorporation and
by-laws of Seller.

(b) Organization of the Company. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company is duly
qualified to do business in the State of New Jersey, and is not
required to be qualified to do business in any other state. Seller
has delivered to Purchaser true and complete copies of the
Certificate of Incorporation and by-laws of the Company.

(c) Power and Authorization; Binding Obligations.
Seller has the power and authority to execute, deliver and perform
this Agreement. The execution, delivery and performance of this
Agreement by Seller has been duly authorized by all necessary
corporate action on the part of Seller. Seller has duly and
validly executed this Agreement. This Agreement is a valid and
binding obligation of Seller enforceable against Seller in
accordance with its terms, except that the enforceability of this
Agreement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and the discretion of the courts in
granting equitable remedies.

(d) Capitalization. Seller owns all of the issued and
outstanding stock of the Company, consisting of 100 shares of
common stock, free and clear of all claims, liens, charges and
encumbrances, except those liens in favor of the Bank pursuant to
the Pledge Agreement. There are no other equity interests issued
by the Company of any kind or nature whatsoever, whether currently
issued, contingent or otherwise (including common stock, warrants,
options, preferred stock and other rights convertible into or
otherwise transferrable into any of the foregoing) ("Equity
Interests").

(e) Title to Purchased Assets. Seller has good and
marketable title to the Purchased Assets, free and clear of all
claims, liens, charges and encumbrances.

(f) Conflicts; Consents. The execution, delivery and
performance of this Agreement will not, with or without notice or
the lapse of time or both, conflict with, constitute a default or
breach under, give any right to any person to terminate or to
accelerate any liability or impose any penalty under or to
otherwise modify, or otherwise violate, any agreement to which
Seller or the Company is a party (including, without limitation,
the documents pursuant to which Seller and/or the Company is a
party with the Bank) or by which Seller or the company or any of
its assets may be bound or under which Seller or the Company has
rights or any Legal Requirement. No consent of, designation,
declaration, registration or other filing with or notification to
any person by or on behalf of Seller or the company is required

relating to, arising out of or in connection with the execution,
delivery or performance of this Agreement by Seller, except for
such as have been duly made or obtained or which may be required on
a post-closing basis.

(g) No Default. The Company is not in default, nor to
Seller's knowledge is any other party (except Hawker Siddeley Power
Engineering, Inc.) in default, in the performance of, and the
Company is not aware of any circumstances which exist or with
notice or passage of time would constitute a default under, any
material agreement to which the Company is a party, which default
would have a material adverse effect on the business, condition
(financial or other), results of operations or prospects of the
Company.

(h) Financial Statements of Seller; No Material
Liability. The audited consolidated financial statements and
schedules of Seller included in the Annual Report on Form 10-K of
Seller for the period ended June 30, 1992 (copies of which have
previously been delivered to Purchaser) present fairly the
consolidated financial position, results of operations and cash
flows of the Seller and its consolidated subsidiaries at the dates
and for the periods to which they related and have been prepared in
accordance with generally accepted accounting principles applied on
a consistent basis, except as otherwise stated therein. The
unaudited consolidated financial statements and the related notes
included in Quarterly Report on form 10-Q of Seller for the period
ended December 31, 1992 (copies of which have previously been
delivered to Purchaser) present fairly the consolidated financial
position, results of operations and cash flows of Seller and its
consolidated subsidiaries at the dates and for the periods to which
they relate, subject to year-end audit adjustments, and have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis except as otherwise stated
therein. To Seller's actual knowledge, and except as disclosed to
or known by Purchaser since December 31, 1992, Seller has not
incurred any material liabilities other than in the ordinary course
of business. Since December 31, 1992, there has not been any
material adverse change in the condition (financial or otherwise),
operations results of operations or assets of Seller except as
otherwise disclosed to Purchaser or as Purchaser is otherwise
aware.

(i) Financial Statements of the Company; Absence of
Material Liabilities. Except as may be indicated in any Notes
thereto or audit report thereon, each of the balance sheet, income
statement and statement of cash flow (including any related Notes
thereto) for the Company as of or for the period ended June 30,
1992 were prepared in accordance with GAAP and fairly presents, as
the case may be, the financial position, the results of operations
and cash flow at the dates and for the periods to which they
related except (i) as otherwise stated therein or (ii) as otherwise
disclosed to Purchaser or as Purchaser is otherwise aware. To
Seller's actual knowledge, since the date of such financial
statements (other than as disclosed to or known by Purchaser) the
Company has not incurred any material liabilities other than in the
ordinary course of business. Since December 31, 1992, there has
not been any material adverse change in the condition (financial or
otherwise), operations, results of operations or assets of the
Company except as otherwise disclosed to Purchaser or as Purchaser
is otherwise aware.

(j) Disclosure. No representations or warranties by
Seller in this Agreement contains any untrue statement of a
material fact or omits to state a material fact required to be
stated herein to make the statements contained herein, in light of
the circumstances under which they were made, not misleading. None
of the written information and documents which have been or will be
furnished by Seller or any representatives of Seller to Purchaser
or any of the representatives of Purchaser in connection with the
transactions contemplated by this Agreement contains or will

contain, as the case may be, any untrue statement of a material
fact, or omits or will omit to state a material fact necessary in
order to make the statements therein not misleading, in each case
in light of the circumstances in which made, except, however, to
the extent that same may be reflected in any written information or
documents provided to Purchaser or as otherwise disclosed to
Purchaser or as Purchaser is otherwise aware (it being confirmed
that purchaser is not relying upon representations or warranties of
the Company or Seller made to third parties contained in documents
other than this Agreement).

5. Representations and Warranties of Purchaser. For the
purpose of inducing Seller to enter into this Agreement and to
consummate the transactions contemplated hereby pursuant to the
terms and conditions hereof, Purchaser represents and warrants to
Seller as follows:

(a) Power and Authorization; Binding Obligations.
Purchaser has the power and authority to execute, deliver and
perform this Agreement (including the execution, delivery and
performance of the Note). The execution, delivery and performance
of this Agreement by Purchaser has been duly authorized by all
necessary partnership action on the part of Purchaser. Purchaser
has duly and validly executed this Agreement. This Agreement is a
valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms, except that the
enforceability of this Agreement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and the discretion of
the courts in granting equitable remedies.

(b) Investigation; Pledge Agreement; Investment Intent.
Purchaser has conducted an investigation of the Purchased Assets
and the operations of the business of Seller and the Company.
Purchaser acknowledges that it has been given access to all
information requested in connection with its review and examination
of the Purchased Assets and the business and affairs of Seller and
the Company, including without limitation financial statements
certified by independent public accountants, and is familiar with
the business affairs of Seller and the Company. Purchaser has
reviewed the Pledge Agreement and acknowledges and agrees that the
Company may only make distributions to its stockholders and the
Seller may retain the proceeds from the sale of the Company's
stock, in accordance with certain enumerated conditions. For the
purpose of conducting these investigations, Purchaser has employed
the services of its own agents, representatives, experts and
consultants. In all matters relating to its decision to acquire
the Purchased Assets, Purchaser is, except for the provisions
herein, relying upon the advice of its own agents, consultants and
other representatives. Purchaser is purchasing the Rights for
investment purposes only and not with a view toward resale or other
distribution.

(c) Conflicts; Consents. The execution, delivery and
performance of this Agreement will not, with or without notice or
the lapse of time or both, conflict with, constitute a default or
breach under, give any right to any person to terminate or to
accelerate any liability or impose any penalty under or to
otherwise modify, or otherwise violate, any agreement to which
Purchaser is a party or by which Purchaser or any of its assets may
be bound or under which Purchaser has rights or any Legal
Requirement. No consent of, designation, declaration, registration
or other filing with or notification to any person by or on behalf
of Purchaser is required relating to, arising out of or in
connection with the execution, delivery or performance of this
Agreement by Purchaser, except for such as have been duly made or
obtained or which may be required on a post-closing basis.

6. Right of First Refusal.

(a) Right of First Refusal. Purchaser shall not at any
time Transfer (as herein defined) all or any part of its Rights
unless and until it shall obtain the written consent of Seller,
such consent not to be unreasonably withheld or delayed, or it
shall comply in full with the requirements of this Section 6.

(1) Notice. If Purchaser desires to Transfer
all or any part of its Rights, Purchaser shall serve upon Seller
written notice (the "First Notice") of its intention to do so. The
First Notice shall constitute an offer on the part of Purchaser to
sell to Seller all of the Rights owned by Purchaser on the price
and other terms therein described. Such offer shall be accepted in
whole or rejected by Seller by notice to Purchaser (the "Second
Notice") within sixty (60) days of receipt of the First Notice. If
such offer of all of the Rights is accepted by Seller, then the
closing of the purchase and sale shall be effected as provided for
in Section 6. Seller shall not be permitted to purchase less than
all of Purchaser's Rights.

(2) Right to Offer Rights to Non-Parties. If
Purchaser's offer pursuant to the First Notice to sell all of its
Rights shall not have been accepted, then, the Purchaser's offer
shall be deemed to have been rejected and:

A. All restrictions imposed by this
Agreement upon the sale of the Rights of Purchaser shall be
suspended for a period of four (4) months (the "Suspension
Period"), commencing on the earlier of the date of (i) either
the mailing of the Second Notice or (ii) sixty (60) days after
the mailing of the First Notice during which period Purchaser
may sell all of its Rights pursuant to a bona fide
arms'-length sale transaction to a third party purchaser (the
"Proposed Purchaser") provided that (i) the sale to the
Proposed Purchaser is on terms no more favorable to the
Proposed Purchaser than those contained in the First Notice;
and (ii) Seller does not object to the Proposed Purchaser in
accordance with the next sentence. Seller shall have the
right to object to the Proposed Purchaser only if Seller has
a substantial business reason (which shall include the case
wherein a Proposed Purchaser has an interest materially
adverse to that of the Company or Seller) (it being agreed by
Seller that such standard imposes on Seller a significantly
greater burden than a "consent not to be unreasonably
withheld" standard). Seller shall advise Purchase promptly of
its decision and Seller shall, upon Purchaser's request,
advise Purchaser whether it objects to such person prior to
Purchaser commencing and/or finishing its negotiations with
such person.

B. All sales pursuant to a rights sale
contract referred to in clause 2(A) immediately above shall be
made in accordance with applicable federal and state
securities laws and Seller can require Purchaser to furnish to
Seller, at Purchaser's expense, an opinion of counsel,
reasonably acceptable as to the form, substance and issuer
thereof, that such sale is exempt from applicable federal and
state securities registration requirements. All Rights sold
pursuant to this Subsection 6(a) to a Proposed Purchaser shall
continue to be subject to all the terms of this Agreement and
as a precondition to the effectiveness of a sale of the
Rights, the Proposed Purchaser shall execute a writing to such
effect reasonably satisfactory to Seller.

C. If, at the conclusion of the
Suspension Period Purchaser still owns any Rights all
restrictions imposed by this Agreement on the sale of

Purchaser's Rights shall automatically once again become fully
effective and applicable.

(3) Closing. The closing of any purchase and
sale pursuant to Section 6(a)(1) shall take place at 10:00 a.m. on
a date which is not less than thirty (30) and not more than
forty-five (45) days after the acceptance in whole of the offer by
Seller.

(4) "Transfer" shall mean to directly or
indirectly give, sell, assign, transfer, pledge, hypothecate,
mortgage, create a security interest in, create any other lien on
or in any other manner whatsoever encumber or dispose of any record
or beneficial ownership of all or any part of the Rights, or the
entrance into any contract or other document to do any of the
foregoing provided that Transfers shall not include transfers by
bequest or intestacy permitted by the next sentence.
Notwithstanding the preceding sentence or any other provision
herein to the contrary, any permitted transferee of Purchaser which
is an individual may bequeath or pass by intestacy his interests in
the Rights to any one or more members of his family provided that
such transferee(s) continue to be subject to all the terms of this
Agreement and as a pre-condition to the effectiveness of such
transfer of the Rights, the transferee(s) shall execute a writing
to such effect reasonably satisfactory to Seller. Any attempted
Transfer not made in accordance with the terms hereof shall be void
ab initio.

(5) Timing and Amount of Payments. The future
purchase price provided for in Section 6(a)(1) shall be paid by
Seller to Purchaser by wire transfer of immediately available funds
provided that any amount payable under the Note as of such Closing,
including any interest accrued as of such date, whether or not then
due, shall reduce the amount required to be paid by Seller under
this Section 6(a)(5) and any such amounts so offset under the Note
shall be extinguished.

7. Survival of Agreements; No Implied Representations.
Except as may be expressly provided to the contrary in this
Agreement, all of the representations, warranties, covenants or
agreements of either party contained herein shall survive the
execution, delivery and performance of this Agreement. Seller is
making no representation or warranty whatsoever, express or
implied, except those express representations and warranties made
by Seller in this Agreement. Subject to the foregoing, Purchaser
acquires the Purchased Assets "as is" and "where is". Nothing
outside of the representations and warranties expressly made by
Seller in this Agreement is or shall be deemed to be a
representation or warranty of Seller for any purpose whatsoever.

8. Other Agreements.

(a) Consent Required for Certain Affiliated
Transactions. Seller agrees that it will not enter into, and will
not cause or permit any of its affiliates to enter into, any
agreements or other arrangements with the Company other than those
which are on terms and conditions no less favorable to the Company
than terms and condition which could be obtained pursuant to
arms'-length negotiations with an independent third party.

(b) Tax Sharing Arrangements. Within 30 days after the
date hereof the Company and Seller will enter into a tax sharing
arrangement which will provide that (i) the Company will pay Seller
an amount equal to the share of income, franchise and similar taxes
it would be responsible for as a stand alone corporation provided
that Seller and the Company may agree that the Company is not
obligated to make such payments to Seller and (ii) Seller will pay
to the Company an amount which arises from any reduction in any
taxes of Seller by reason of any losses that the Company may have.

The Rights shall apply to all payments by the Company to the Seller
pursuant to the tax sharing arrangement.

(i) Each party agrees to indemnify, defend and hold
harmless the other party from and against any losses, liabilities,
expenses, including reasonable attorneys fees, damages and other
costs ("Losses") incurred or suffered arising from or in connection
with any of the following actions by such party: (A) any
misrepresentation or breach of a warranty by a party in this
Agreement; or (B) any breach of a covenant by a party in this
Agreement.

(ii) Seller agrees to indemnify, defend and hold
Purchaser harmless from and against any and all Losses incurred or
suffered by Purchaser in its capacity as an owner of the Rights
which shall arise out of or result from:

(A) any of the following related to the
December 1992 fire at the Company's cogeneration facility
(the "Facility"): wrongful death, personal injury or
other claims, actions taken by governmental authorities
and property damage, to the extent any such Losses exceed
property, business interruption and other insurance
proceeds received by the Company in respect thereof; and

(B) claims made by Hawker Siddeley Power
Engineering Inc. (or its subcontractors or suppliers, or
its or its subcontractors' or suppliers' affiliates,
successors or assigns) (collectively "Hawker Siddeley")
related to the design, engineering, procurement or
construction of the Company's Facility.

Any amounts and other consideration which may be paid to the
Company by or on behalf of Hawker Siddeley in connection with the
settlement of, judgment on or other disposition the Company's
claims in the above-described litigation shall not, whether or not
distributed to Seller, be directly or indirectly subject to the
Rights and, accordingly, any such amount received by Seller which
is paid to the Bank to reduce the loan to the Company shall not
directly ar indirectly inure to the benefit of Purchaser, it being
understood that a reduction in such loan will increase the proceeds
available to the Seller from a sale of OBN Stock. Seller shall
advise in writing the Purchaser of the receipt of any such amounts
and of the amount of any such assets included in any distribution
to Seller (and a statement confirming that Purchaser is not
entitled to a portion of such assets pursuant to this Section
8(c)).

(d) Information. Seller agrees to cause the Company to
provide the following information to Purchaser: (i) quarterly
unaudited financial statements of the Company; (ii) information
respecting material transactions respecting the Company; (iii)
information respecting any other material business developments
respecting the Company; and (iv) any other information related to
the Company (including, without limitation, its business and
financial condition) as may reasonably be requested from time to
time by the Purchaser. Purchaser agrees that it shall hold
confidential any information provided to it pursuant to this
Section 8(d) except to the extent such information becomes
generally available to the public other than as a result of
disclosure by Purchaser or becomes available to Purchaser on a
non-confidential basis from a source other than the Company that is
not bound by a confidentiality agreement with the Company.

9. Miscellaneous.

(a) Definitions. The following shall have the following
meaning when used in this Agreement:

"Legal Requirements" shall mean, as to any person, the
certificate of incorporation and by-laws or other organizational or
governing documents of such person, and any rule, regulation,
ordinance, law, judicial decision, determination, order, including
an injunction, judgment, writ, award or decree, permit, grant,
license or other authorization of an arbitrator, court or other
governmental authority, in each case applicable to or binding upon
such person, including the conduct of their business, or any of
their properties, assets or revenues or to which such person or any
of their properties, assets or revenues are subject.

(b) Entire Agreement; Further Assurances. This
Agreement contains the entire understanding of the parties with
respect to the subject matter hereof.Without limiting the
generality of any provisions of this Agreement, each party agrees
that upon request of any other party, it shall, from time to time,
do any and all other acts and things as may reasonably be required
to carry out its obligations hereunder, to consummate the
transactions contemplated hereby, and to effectuate the purposes
hereof.

(c) Maximization of Value of Rights. Seller shall cause
Company, at all times after May 12, 1994, except as may be
prohibited by any contractual third party obligations or laws, to
distribute quarterly with respect to its stock all cash receipts of
Company not required, as determined by the Board of Directors in
the good faith exercise of its discretion, for Company operations,
including for lease payments, debt service obligations, all third
party obligations, required repair and maintenance of facilities,
capital investment programs in effect, and reasonable reserves, as
specifically identified in resolutions adopted from time to time by
the Company's Board of Directors, for further capital investments
and contingencies, it being the goal of Seller and Purchaser to
make the Rights as valuable to Purchaser as is consistent with
Company's legitimate requirements for cash from time to time.

(d) Rights and Remedies. All rights and remedies of the
parties under any provision of this Agreement shall be in addition
to any other rights and remedies provided for by any Legal
Requirement (including all forms of legal and equitable relief,
including specific performance). All rights and remedies
contemplated in the preceding sentence shall be independent and
cumulative, and may, to the extent permitted by law, be exercised
concurrently or separately, and the exercise of any one right or
remedy shall not be deemed to be an election of such right or
remedy or to preclude or waive the exercise of any other right or
remedy.

(e) Amendments. No amendment or modification of this
Agreement shall be valid or binding upon the parties unless made in
writing and executed by the parties.

(f) No Waiver. No consent or waiver, express or
implied, by a party to or of any breach by a party in the
performance by it of any of its obligations hereunder shall be
deemed or construed to be a consent or waiver to or of the breach
in the performance by such party of the same or any other
obligation of such party hereunder. Failure on the part of any
party to complain of any act or failure to act of any other party
or to declare any other party in default, irrespective of how long
such failure continues, shall not unless otherwise herein provided
to the contrary constitute a waiver by a Party of its rights

hereunder. All consents and waivers shall be in writing.

(g) Governing Law; Arbitration; Consent to Jurisdiction.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New Jersey, exclusive of
conflicts of laws provisions. Each party hereby agrees that in any
action, service of process or notice which is in writing and sent
by certified or registered mail, return receipt requested, postage
prepaid, shall have the same force and effect as if notice was
personally served upon such party. Any controversy or claim
arising out of or relating to this Agreement or the Note, or the
breach thereof, shall be settled by binding arbitration by a panel
of three arbitrators in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon
the award rendered in the arbitration may be entered in any court
having jurisdiction thereof. Each party hereby consents to be
subject to the personal jurisdiction of any court located in the
State of New Jersey in any action or proceeding to enforce an
arbitration award. Any arbitration shall be concluded in a
mutually agreeable location in New Jersey.

(h) Successors and Assigns. This Agreement shall inure
to the benefit of, be binding upon and be enforceable by and
against the parties and their respective administrators, heirs,
estates, legatees, devisees, distributees, personal and legal
representatives, executors, successors and permitted assigns.

(i) Severability; Enforceability. If any provision of
this Agreement or the application thereof to any person(s) or
circumstance(s) shall be invalid or unenforceable to any extent,
(i) the remainder of this Agreement and the application of such
provision to other person(s) or circumstance(s) shall not be
affected thereby; and (ii) each such provision shall be enforced to
the greatest extent permitted by Legal Requirements. It is agreed
that any covenants pursuant to which Seller is obligated under this
Agreement shall cease after the date Purchaser is no longer the
owner of any Rights provided this provision shall not limit the
application of Section 8(c).

(j) Brokers and Finders. Seller and Purchaser each
represent and warrant to the other that no finder, broker, agent or
other intermediary has acted or purported to act on its behalf in
connection with the negotiation, preparation or consummation of
this Agreement.

(k) Joint Effort. Preparation of this Agreement has
been a joint effort of the parties and this Agreement shall not be
construed more severely against any party.

(l) Notices. Any notice or other communication required
or permitted to be given pursuant to this Agreement shall be in
writing signed by the party giving such notice or its agent and
shall be deemed to have been duly given to a party and effective
upon receipt if sent by registered or certified mail, return
receipt requested, or by Federal Express or similar overnight
delivery service against a signed receipt to the addresses for each
party set forth below (or at such other addresses as any party may
designate by written notice to the other in the manner provided
above):

If delivered to Seller:

O'Brien Environmental Energy, Inc.
225 South Eighth Street
Philadelphia, PA 19106
Attn: Mr. Randall Schrader

with a simultaneous copy to:

Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, NJ 07102
Attn: Jerry Genberg, Esq.
Victor H. Boyajian, Esq.

If delivered to Purchaser:

Bradley Resources Company
P.O. Box 761
Southport, Connecticut 06490
Attn: Mr. George W. Holbrook, Jr.

Mr. Randy Goldenhersh
Combined Energy Company
999 18th Street
Suite 3450
Denver, Colorado 90202

with a simultaneous copy to:

Haradon Beatty, Esq.
Holland & Hart
555 17th Street
Suite 2900
Denver, Colorado, 80202

(m) Terminology. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter
gender, shall include all other genders; the singular shall include
the plural, and vice versa. Titles of sections are for convenience
only, and shall not modify rights and obligations created by this
Agreement. All references herein to sections shall refer to the
corresponding sections of this Agreement unless specific reference
is made to sections of another document.

(n) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original,
but all of which when taken together shall constitute but one
Agreement. It shall not be necessary that any one counterpart be
signed by the Parties so long as each Party shall have executed a
counterpart.

IN WITNESS WHEREOF, the Parties have hereto set their hands
and seals as of the 31st day of March, 1993.

ATTEST: O'BRIEN ENVIRONMENTAL ENERGY, INC.

__________________________ By:/s/
----------------------------------
Name:
Title:

ATTEST: BRADLEY RESOURCES COMPANY

By:_______________________ By:/s/George W. Holbrook, Jr.
-----------------------------------
George W. Holbrook, Jr.

REPURCHASE AGREEMENT

DATE: January 18, 1994

PARTIES: O'Brien Environmental Energy, Inc., a Delaware
corporation ("O'Brien"), and Bradley Resources Company, a
partnership ("Bradley").

RECITALS: Pursuant to a Rights Assignment Agreement between
Bradley and O'Brien, dated as of March 31, 1993 (the "Rights
Agreement"), O'Brien sold to Bradley, and Bradley purchased from
O'Brien, the right to receive 12.5 percent of all dividends and
certain other payments to O'Brien from O'Brien's subsidiary,
O'Brien (Newark) Cogeneration, Inc., a Delaware corporation
("Newark").

Bradley, in consideration for the rights acquired pursuant
to the Rights Agreement and all associated representations,
warranties, indemnifications and other obligations (the
"Rights"), delivered to O'Brien Bradley's Non-Negotiable
Promissory Note made by Bradley and payable to O'Brien, dated as
of March 31, 1993, in the original principal amount of $6,250,000
(the "Note"), and the guaranty of the Note made by George W.
Holbrook, Jr., a general partner of Bradley, dated as of March
31, 1993 (the "Guaranty").

Since the date of the execution and delivery of the Rights
Agreement, the Note, and the Guaranty, O'Brien's circumstances
have changed, and O'Brien deems it to be in O'Brien's best
interests, in order to facilitate O'Brien's obtaining required
third party debt or equity financing, for it to acquire the
Rights previously sold to Bradley in exchange for the Note and
the Guaranty and all rights thereunder.

Bradley, in light of O'Brien's circumstances and Bradley's
evaluation of the project operated by Newark, at O'Brien's
request and in consideration of the assignments and releases
herein contained, is willing to permit O'Brien to repurchase the
Rights.

AGREEMENTS: In consideration of their mutual promises herein
contained, and for other good and valuable consideration, the
parties agree as follows:

1. Assignment of Rights Agreement. By its execution of
this Agreement, conditioned upon O'Brien's execution of this
Agreement and the delivery of the Note and Guaranty by O'Brien,
as provided in Section 2, Bradley hereby assigns to O'Brien all
of Bradley's right, title, and interest, free and clear of all
liens and encumbrances of any kind whatsoever, in and to the

Rights and all of its other rights to, in and under the Rights
Agreement. Immediately upon Bradley's receipt of the original
Note and the Guaranty from O'Brien, transmitted by O'Brien as
provided in Section 2, Bradley will send to O'Brien, by overnight
express delivery, Bradley's copy of the fully executed Rights
Agreement. Bradley represents and warrants that it has not
transferred, nor committed to transfer, any interest in the
Rights or any other right under or interest in the Rights
Agreement to any person or entity.

2. Assignment of Note and Guaranty. By its execution of
this Agreement, conditioned upon Bradley's execution of this
Agreement, O'Brien hereby assigns to Bradley all of O'Brien's
right, title, and interest in and to and under the Note
(including but not limited to any claim for accrued interest
under the Note) and the Guaranty (including but not limited to
any claim under the Guaranty). Concurrent with its execution of
this agreement, O'Brien is transmitting to Bradley, by overnight
express delivery, the original of the Note and O'Brien's executed
copy of the Guaranty. O'Brien represents and warrants that it
has not transferred, nor committed to transfer, any right under
or interest in the Note or the Guaranty to any person or entity.

3. No Third Party beneficiaries. This Agreement is
intended to be for the benefit of the parties and their
respective successors and assigns only, and it is not intended to
create any third party beneficiaries, implied trusts, or similar
implied agreements, nor may the provisions hereof be enforced by
any person or entity not a party hereto.

4. Assignment; Binding Effect. Neither party may assign
this Agreement or any of its rights and duties hereunder without
the prior written consent of the other party. Subject to this
limitation on assignments, this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective successors and assigns.

5. Amendment and Waiver.. This Agreement may not be
amended nor any provision herein waived except by an instrument
in writing signed by the party to be charged with such amendment
or waiver and delivered by such party to the party claiming the
benefit of such amendment or waiver. No waiver of any provision
of this Agreement shall be deemed or shall constitute a waiver of
any other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver, unless otherwise provided in the
written waiver.

6. Entire Agreement; Prior Representations; Amendments.
This Agreement embodies the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes
all prior representations, agreements and understandings, oral or

written, with respect to the Rights, the Rights Agreement, the
Note, and the Guaranty. Notwithstanding the representations
which may have been made by the parties in connection with the
transactions described herein, O'Brien and Bradley agree that
(a) neither of them has relied on any representations by the
other with respect to such transactions except those contained in
this Agreement or the Exhibit hereto, and (b) their execution of
this Agreement specifically precludes any claim for negligent
misrepresentation by either of them based on the other's
representations which are not contained in this Agreement or the
Exhibit hereto.

7. Choice of Law. IN VIEW OF THE MULTISTATE CHARACTER OF
THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT, THE PARTIES
AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF COLORADO
AS IF IT WERE ENTERED INTO WITHIN SUCH STATE AND PERFORMED SOLELY
IN SUCH STATE BY PERSONS RESIDENT IN SUCH STATE AT ALL RELEVANT
TIMES.

8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original
instrument, but all of which together shall constitute one and
the same instrument.

The parties, by their duly authorized officer or partners,
as the case may be, have executed and delivered this Agreement
effective as of the date and year first above written.

Bradley Resources Company

By:/s/George W. Holbrook, Jr.
-----------------------------
George W. Holbrook, Jr.
General Partner

O'Brien Environmental Energy, Inc.

By:/s/Joel Cooperman
---------------------------------
Joel Cooperman, Vice President

MASTER EQUIPMENT LEASE AGREEMENT

MASTER EQUIPMENT LEASE AGREEMENT dated as of November 19,
1992, between O'BRIEN ENERGY SERVICES COMPANY (hereinafter called
"Lessee"), a Delaware corporation that has its executive office
and principal place of business at 900 Church Street, Wilmington,
Delaware 19801 and FINANCING FOR SCIENCE AND INDUSTRY, INC.
(hereinafter called "Lessor"), a Delaware corporation with its
principal place of business at 10 Waterside Drive, Farmington,
Connecticut 06032-3065.

In consideration of the mutual covenants hereinafter
contained , Lessee and Lessor agree as follows:

1. Agreement for Lease of Agreement. Lessor shall lease
to Lessee and Lessee shall lease from Lessor, upon the terms and
conditions specified in this Master Lease and the applicable
Rental Schedule, the Equipment as described in the applicable
Rental Schedule including Schedule A of such Rental Schedule and
this Master Lease. Each Rental Schedule shall incorporate the
terms of this Master Lease and shall constitute a separate lease
(the term "this Lease" shall refer collectively to the applicable
Rental Schedule and this Master Lease). Only the signed copy of
each Rental Schedule and not this Master Lease shall constitute
chattel paper the possession of which can perfect a security
interest. In the event of a conflict between the provisions of
this Master Lease and the provisions of any Rental Schedule, the
provisions of the Rental Schedule shall prevail.

2. Delivery and Acceptance of Equipment. (a) Lessor and
Lessee agree that the Vendor (as hereinafter defined) of the
Equipment will deliver the Equipment to Lessee at the location
specified in the applicable Rental Schedule. Such delivery shall
be delivery of the Equipment by Lessor to Lessee under this
Lease. Provided that no Event of Default has occurred, no event
which with the passage of time or giving of notice would be an
Event of Default has occurred and is continuing, and the
conditions set forth in the next following paragraph have been
met, Lessor hereby authorizes Lessee, acting as Lessor's agent,
to accept for Lessor, and in Lessor's name, the Equipment from
the Vendor upon delivery pursuant to the purchase contract for
the Equipment. Such acceptance shall be acceptance of the
Equipment by Lessee under this Lease. Nevertheless, if within
five business days after Lessee has received delivery of an item
of the Equipment, Lessee has not given Lessor written notice of a
defect therein and Lessor has not notified Lessee not to accept
the Equipment, Lessee shall be deemed to have (a) acknowledged
receipt of such item of the Equipment in good condition and
repair and (b) accepted such item of the Equipment under this
Lease. Lessee agrees to confirm any acceptance of the Equipment
by Lessee by executing a Certificate of Inspection and Acceptance
and providing the same to Lessor in accordance with the notice
provision hereof on or about the Lease Commencement Date, but no
later than the date for payment to the Vendor.

(b) Conditions precedent to every progress payment and
Lease Term Commencement shall include that (i) no payment shall
be past due to Lessor or any assign of Lessor from Lessee,
Sublessee, or any Guarantor, whether as a lessee, a guarantor or
in some other capacity; (ii) Lessee shall be in material
compliance with the provisions of this Lease and Sublessee shall
be in material compliance with the provisions of the Sublease;
(iii) all documentation then required by Lessor's counsel shall
have been received by Lessor; (iv) Lessee, Sublessee and any
Guarantor shall not be in default under any material contract to
which Lessee, Sublessee or any Guarantor is a party or by which
it or its property is bound; (v) no party to the PMA Contract

shall have breached its warranties, covenants or obligations
thereunder and the PMA Contract shall be in full force and
effect, (vi) the Sublease shall have been signed and delivered by
the parties thereto and shall be in a form acceptable to Lessor
and shall include a covenant that the accounts receivable of
Sublessee under the PMA Contract only will be assigned, pledged
or hypothecated if the interest of the assign, pledgee or secured
party will be subordinated to a security interest of Lessor in
such accounts receivable as security for the obligations of
Sublessee under the Sublease, (vii) Lessee shall have assigned
the Sublease and the rental payments thereunder to Lessor as
security for the obligations of Lessee under this Lease, and (ix)
there shall not have been any material adverse change or
threatened material adverse change in the financial or other
condition, business, operations, properties, assets or prospects
of Lessee, Sublessee or any Grantor since June 30, 1992, or from
the written information that has been supplied to Lessor prior to
November 19, 1992 by Lessee or any Guarantor.

3. Disclaimer of Warranties. LESSEE ACKNOWLEDGES THAT IT
HAS SELECTED BOTH THE EQUIPMENT AND EVERY MANUFACTURER AND OTHER
VENDOR OF THE EQUIPMENT, THAT LESSEE HAS NOT RELIED UPON LESSOR
FOR SUCH SELECTION AND THAT LESSEE HAS A COPY OF THE PURCHASE
CONTRACT(S) FOR LESSOR'S PURCHASE OF THE EQUIPMENT. LESSOR HAS
NOT MADE AND SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY,
FITNESS FOR USE, FITNESS FOR A PARTICULAR PURPOSE OR TITLE OF THE
EQUIPMENT (OR ANY PART THEREOF) OR AS TO COMPLIANCE WITH
SPECIFICATIONS, COMPLIANCE WITH GOVERNMENTAL REGULATIONS,
QUALITY, SELECTION, INSTALLATION, SUITABILITY, PERFORMANCE,
CONDITION, DESIGN, ABSENCE OF DEFECTS, OPERATION, OR NON-
INFRINGEMENT OF PATENT, COPYRIGHT, TRADEMARK OR OTHER
INTELLECTUAL PROPERTY RIGHTS OF THE EQUIPMENT (OR ANY PART
THEREOF). LESSEE SHALL LEASE THE EQUIPMENT "AS IS, WHERE IS".
LESSOR HEREBY DISCLAIMS ANY AND ALL SUCH WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED. LESSEE AND LESSOR AGREE
THAT ALL RISKS INCIDENT TO THE MATTERS REFERRED TO IN THIS
SECTION ARE TO BE BORNE BY LESSEE. Lessor has and shall have no
responsibility for the installation, adjustment or servicing of
the Equipment. The provisions of this Section have been
negotiated and are intended to be a complete exclusion and
negation of any representations or warranties by Lessor, express
or implied, with respect to the Equipment that may arise pursuant
to any law now or hereafter in effect, or otherwise. In no event
shall defect in, or unfitness of, any or all of the Equipment, or
any breach of warranty or representation by any or every
Manufacturer or other Vendor relieve Lessee of the obligation to
pay rent or to make any other payments required hereunder or to
perform any other obligation hereunder. Without limiting the
generality of the foregoing, Lessor shall not be responsible or
liable for any (i) defect, either latent or patent, in any of the
Equipment or for any direct or consequential damages therefrom,
(ii) loss of use of any of the Equipment or for any loss of
profits or any interruption in Lessee's business occasioned by
Lessee's inability to use any or all of the Equipment for any
reason whatsoever, or (iii) in the event that any Vendor delays
or fails to make delivery of any or all of the Equipment or fails
to fulfill or comply with any purchase contract or order. For as
long as no Event of Default shall have occurred hereunder, Lessor
hereby transfers and assigns to Lessee during the Lease Term (as
hereinafter defined) all right and interest of Lessor in any
Manufacturer's and other Vendor's warranties with respect to any
and all of the Equipment, and agrees to execute all documents
reasonably necessary to effect such transfer and assignment,
except that to the extent any rights of Lessor with respect to
the Equipment may not be assigned or otherwise be available to
Lessee, Lessor shall instead use reasonable efforts to enforce
such rights against such Manufacturers or other Vendors but only
upon the request and at the expense of Lessee.

4. Primary Term. The Primary Term for each item of the
Equipment shall commence on the Lease Commencement Date provided
for by the Rental Schedule for such Equipment, and unless sooner
terminated pursuant to the provisions of this Lease, shall be for
the number of calendar months set forth in such Rental Schedule,
plus the number of days remaining in any partial calendar month
if the Lease Commencement Date occurs on other than the first day
of a month. Notwithstanding the foregoing, the provisions of
this Master Lease on indemnification of Lessor by Lessee shall
apply between Lessor and Lessee with respect to any Equipment
from the time that any order for the Equipment is placed by
Lessor.

5. Rent. (a) Lessee shall pay to Lessor in cash or by
check as rent for the Equipment during the Lessee Term, the
amounts provided for in the Rental Schedule ("Basic Rent") for
such Equipment on the dates designated therein ("Payment Dates"),
at the location of Lessor set forth therein, or at such other
address or to such other person or entity as lessor, from time to
time, may designate.

(b) Lessee shall also pay to Lessor on demand, by
check, all amounts which Lessee is required to pay Lessor
pursuant to this Lease (other than Basic Rent) including but not
limited to amounts payable by reason of payments by Lessor to any
Vendors in advance of the delivery of such Equipment or the
commencement of the Lease Term for such Equipment, together with
every additional charge, interest and cost which may be added for
non-payment or late payment of any such amount or of Basic Rent.
All such amounts shall constitute additional rent ("Additional
Rent") and Lessor shall provide Lessee with notification as to
the amount of such Additional Rent. If Lessee shall fail to pay
any Additional Rent, Lessor shall have all rights, powers and
remedies with respect thereto as are provided herein or by law in
the case of non-payment of Basic Rent.

(c) With respect to any amount of Basic Rent or
Additional Rent not received by Lessor within seven days from
when due hereunder, Lessee shall pay to Lessor interest on such
amount from the due date thereof until payment is received by
Lessor at two percent per month or the highest rate of interest
on amounts past due that is not unlawful, whichever is lower (the
"Default Interest Rate"). Additionally, with respect to each such
instance of late payment, Lessee shall pay to Lessor, within
seven days of notification that such payment is due, a collection
fee of $500, which fee approximates Lessor's administrative
costs, at minimum, to collect such unpaid Basic Rent or
Additional Rent.

(d) LESSEE AGREES THAT TIME IS OF TIME ESSENCE TO
LESSOR IN LESSEE'S MAKING PAYMENTS OF BASIC RENT AND ADDITIONAL
RENT WHEN SUCH PAYMENTS BECOME DUE.

(e) This Lease is a net-net-net lease and,
notwithstanding any other provisions of this Lease, it is
intended that Basic Rent and Additional Rent shall be paid
without notice, demand, counterclaim, setoff, deduction or
defense and without abatement, suspension, deferment, diminution
or reduction. Lessee shall perform all its obligations under this
Lease at its sole cost and expense. Except to the extent
otherwise expressly specified herein, the obligations and
Liabilities of Lessee hereunder shall in no way be released,
discharged or otherwise affected for any reason, including,
without limitation: (i) any defect in the condition, quality or
fitness for use of the Equipment or any part thereof; (ii) any
damage to, removal, abandonment, salvage, loss, scrapping or
destruction of or any requisition or taking of the Equipment or
any part thereof; (iii) any restriction, prevention or

curtailment of or interference with any use of the Equipment or
any part hereof; (iv) any defect in title or rights to the
Equipment or any lien on such title or rights or on the
Equipment; (v) any change, waiver, extension, indulgence or other
action or omission in respect of any obligation or liability of
Lessor; (vi) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like
proceedings relating to Lessee or any action taken with respect
to this Lease by any trustee or receiver of Lessee or by any
court, in any such proceeding; (vii) any claim that Lessee has or
might have against any Person (as hereinafter defined), including
without limitation Lessor; (viii) any failure on the part of
Lessor to perform or comply with any of the terms hereof or of
any other agreement; (ix) any invalidity, unenforceability or
disaffirmance of this Lease or any provision hereof against or by
Lessee; or (x) any other occurrence whatsoever, whether similar
or dissimilar to the foregoing, whether or not Lessee or Lessor
shall have notice or knowledge of any of the foregoing. To the
extent permitted by law, Lessee waives all rights now or
hereafter conferred by statute or otherwise to quit, terminate,
cancel, rescind or surrender this Lease, or to any diminution or
reduction of Basic Rent or Additional Rent payable by Lessee
hereunder.

6. Lessee's Representations and Warranties. Lessee
represents and warrants (and if requested by Lessor, promptly
will provide supporting documents to the effect and an opinion of
counsel substantially in the form requested by Lessor) that as of
the date that Lessee signs this Master Lease, as of any date that
Lessor makes a payment to a Vendor prior to the date all
Equipment has been accepted for lease hereunder, as of each date
that any Equipment is accepted for lease hereunder and as of each
Lease Commencement Date pursuant to a Rental Schedule hereunder:
(i) all items of the Equipment are new and unused as of the Lease
Commencement Date, unless otherwise specified in the applicable
Rental Schedule; (ii) Lessee and Sublessee are each duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, and is qualified and in
good standing to do business wherever necessary to carry on its
present business and corporations, including the jurisdictions
where the Equipment is or will be located; (iii) Lessee has the
power to enter into this Lease and the other instruments and
documents including the Sublease executed by Lessee in connection
herewith (together with this Lease, the "Transactional
Documents") and to pay and perform its obligations under this
Lease and the other Transactional Documents; (iv) this Lease and
the other Transactional Documents have been duly authorized,
executed and delivered by Lessee, and constitute the valid, legal
and binding obligations of Lessee enforceable in accordance with
their terms; (v) Sublessee has the power to enter into the
Sublease and the other instruments and documents executed by
Sublessee in connection therewith and to pay and perform its
obligations under the Sublease; (vi) the Sublease has been duly
authorized, executed and delivered by Sublessee, and constitutes
the valid, legal and binding obligation of Sublessee enforceable
in accordance with its terms; (vii) no vote or consent of, or
notice to, the holders of any class of stock of Lessee or
Sublessee is required, or if required, such vote or consent has
been obtained or given, to authorize the execution, delivery and
performance of this Lease, the Sublease and the other
Transactional Documents by Lessee and Sublessee; (viii) neither
the execution and delivery by Lessee or Sublessee of this Lease,
the Sublease or the other Transactional Documents, nor the
consummation by Lessee or Sublessee of the transactions
contemplated hereby or thereby, nor compliance by Lessee or
Sublessee with the provisions hereof or thereof, conflicts with
or results in a breach of any of the provisions of any
Certificate of Incorporation or By-laws or partnership or trust
agreement or certificate of Lessee or Sublessee, or to the best
of Lessee's knowledge and belief of any applicable law, judgment,
order, writ, injunction, decree, award, rule or regulation of any
court, administrative agency or other governmental authority, or
of any indenture, mortgage, deed of trust, other agreement or
instrument of any nature to which Lessee or Sublessee is a party
or by which it or its property is bound or affected or pursuant

to which it is constituted, or constitutes a default under any
thereof or will result in the creation of any lien, charge,
security interest or other encumbrance upon any of the Equipment,
other than the interests therein of Lessor or any Assignee (as
hereinafter define), or will in any manner adversely affect
Lessor's or any Assignee's right, title and interest in any of
the Equipment; (ix) to the best of Lessee's knowledge and belief,
no consent, approval, withholding of objection or other
authorization of or by any court, administrative agency, other
governmental authority or any other Person is required, except
such consents, approvals or other authorizations which have been
duly obtained and are in full force and effect and copies of
which have been furnished Lessor, in connection with the
execution, delivery or performance by Lessee and Sublessee, or
the consummation by Lessee and Sublessee, of the transactions
contemplated by this Lease, the Sublease and the other
Transactional Documents; (x) there are no actions, suits or
proceedings pending, or, to the knowledge of Lessee or Sublease,
threatened, in any court or before any administrative agency or
other governmental authority against or affecting Lessee or
Sublessee, which , if adversely decided would or could,
individually or in the aggregate, materially and adversely affect
the financial or other condition, business, operations,
properties, assets or prospects of Lessee or Sublessee or the
ability of Lessee or Sublessee to perform any of its obligations
under this Lease, the Sublease or under the other Transactional
Documents, except for any such actions, suits or proceedings that
Lessee has described in writing to Lessor by delivering to Lessor
copies of the periodic reports filed with the SEC by O'Brien
Environmental Energy; (xi) to the best of Lessee's knowledge and
belief, no Event of Default or event or condition which upon the
passage of time, the giving of notice, or both, would constitute
an Event of Default, exists or is continuing; (xii) to the best
of Lessee's knowledge and belief, there has been no material
adverse change or threatened change in Lessee's, Sublessee's, any
Guarantor's or any Manufacturer's financial or other condition,
business, operations, properties, assets or prospects since the
date of Lessee's, Sublessee's, such Guarantor's or Manufacturer's
most recent financial statements reported on by an independent
public accounting firm prior to the date of this Master Lease,
since the dates of each such Person's interim and annual
financial statements, if any, subsequent to such prior
statements, or from the written information that has been
supplied to Lessor by Lessee, Sublessee, such Guarantor or such
Manufacturer; (xiii) to the best of Lessee's knowledge and
belief, Lessee or Sublessee possesses any and all authorizations,
certifications and licenses which are or may be required to use
and operate the Equipment; (xiv) to the best of Lessee's
knowledge and belief, the actual Acquisition Cost pursuant to the
applicable Rental Schedule of each item of the Equipment does not
exceed the fair and usual price for like quantity purchases of
such item and reflects all discounts, rebates and allowances for
the Equipment given to Lessee, Sublessee, any Guarantor or any
affiliate of Lessee, Sublessee or any Grantor by any Vendor or
other Person including, without limitation, discounts for
advertising, prompt payment, testing or other services; (xv) all
information supplied to Lessor by Lessee, Sublessee or any
Guarantor is correct and does not omit any statement necessary to
make the information supplied not misleading; and (xvi) the
financial statements of Lessee, Sublessee and any Guarantor have
been prepared in accordance with generally accepted accounting
principles consistently applied and accurately and completely
present the financial condition and the results of operations of
Lessee, Sublessee and such Guarantors at the dates of and for the
periods covered by such statements.

7. Identification Marks. To the extent requested by
Lessor or if required by applicable law, Lessee shall affix to
the Equipment at Lessee's expense signs, labels, or other forms
of notice to disclose Lessor's ownership of, and the interest of
any Assignee in, the Equipment. Lessee shall keep and maintain
such signs, labels or other forms of notice affixed to the
Equipment throughout the Lease Term. Lessor may furnish such
signs, labels or other forms of notice to Lessee. Except as

otherwise directed by Lessor, Lessee shall not allow the name of
any person other than Lessor and Lessee to be placed on any part
of the Equipment as a designation that might reasonably be
interpreted as a claim of ownership.

8. Fees and Taxes. Lessee agrees to pay promptly when
due, and to indemnify and hold Lessor harmless from, all license,
title, registration and recording fees whatsoever, all taxes
including, without limitation, sales, use, franchise, personal
property, excise, import, export and stamp taxes and customs
duties, and all charges together with any penalties, fines or
interest thereon which are assessed, levied or imposed by any
governmental or taxing authority against Lessor with respect to
any or all of the Equipment or the purchase, acquisition,
ownership, construction, installation, shipment, delivery, lease,
possession, use, maintenance, condition, operation, control,
return or other disposition thereof or the rents, receipts or
earnings arising therefrom which accrue or are payable with
respect to the Equipment or this Lease or which are assessed, are
based on a valuation date, or are due during or with respect to
the Lease Term or any subsequent peril until the Equipment has
been returned to Lessor pursuant to the provisions of this Lease
or until the Equipment has been purchased by Lessee pursuant to
any purchase option provisions of this Lease, excluding, however,
any taxes solely measured by Lessor's net income from the general
operation of Lessor's business. In the event any such fees, taxes
or charges are paid by Lessor, or if Lessor is required to
collect or pay any thereof, Lessee shall reimburse Lessor
therefor (plus any penalties, fines or interest thereon) promptly
upon demand. Unless and until Lessor notifies Lessee in writing
to the contrary, Lessee shall file and pay any personal property
taxes levied or assessed on the Equipment directly to the levying
authority. Upon Lessor's written request, Lessee shall submit to
Lessor satisfactory evidence of payment by Lessee of any or all
amounts for which Lessee is required to make payment or to
indemnify Lessor hereunder that are paid by Lessee, and of the
filing of any and all reports, returns an other documentation
required in connection with any such payment. In the event Lessor
elects to pay the personal property taxes directly to a levying
authority, Lessor shall submit to Lessee a copy of its personal
property tax return and its receipt for the full amount of such
personal properly taxes so paid by Lessor. All of the obligations
of Lessee under this Section shall continue in full force and
effect notwithstanding any expiration, termination, rescission or
cancellation of this Lease. Lessee acknowledges that Lessor may
not be exempt from the payment of any of the amounts referred to
herein, even though Lessee might have been exempt therefrom if it
were the owner or purchaser of the Equipment, and Lessee agrees
that this Section shall apply, and the amounts due from it
hereunder shall be due, whether or not Lessee might itself have
otherwise been exempt from any such payments. Subject to the
foregoing, Lessee shall have the right to contest in good faith
any such taxes levied or imposed by any governmental or taxing
authority, provided that Lessee shall have given Lessor not less
than ten days prior notice of its intention to contest and full
particulars of the proposed contest and that in the opinion of
Lessor the proposed contest will not adversely effect the
interests of Lessor or any Assignee.

9. General Indemnity. (a) Lessee shall indemnify Lessor
and any Assignee (as hereinafter defined), and their respective
agents and servants, against, and agrees to defend, protect, save
and keep them harmless from, any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits,
costs, expenses and disbursements, including reasonable
attorneys' fees and expenses and costs for customs, completion,
performance and appeal bonds, of whatsoever kind and nature
(including, without limitation, for negligence, tort liability,
damages by reason of strict or absolute liability, punitive
damages, and indirect and consequential damages, but excluding
any such amounts imposed or incurred as a result of Lessor's
gross negligence or willful misconduct), imposed on or incurred

by or assessed against Lessor and/or any Assignee, in any way
relating to or arising out of (i) the failure of Lessee to
provide or obtain any certificates, documents, consents,
authorizations, clearances, licenses, permits or instruments
required hereunder or under any of the other Transactional
Documents, or (ii) the ordering, construction, installation,
delivery, testing, ownership, lease, possession, use,
maintenance, operation, control, movement, import, export,
shipment, condition, or return of the Equipment (including but
not limited to latent and other defects, whether or not
discoverable by Lessor or Lessee, and any claim for patent,
trademark, copyright, software or other intellectual property
infringement) until such time as the Equipment shall have been
returned to Lessor pursuant to the provisions of this Lease or
until the Equipment shall have been purchased by Lessee pursuant
to any purchase option provisions of this Lease.

(b) The obligations of Lessee under this Section shall
survive the payment of all known obligations under and any
expiration, termination, rescission or cancellation of this
Lease, and are expressly made for the benefit of and shall be
enforceable by Lessor, its successors and any Assignee.

10. Use of Equipment; Location; Liens. (a) During the
Lease Term, Lessee warrants and agrees that the Equipment shall
be used and operated and otherwise be in material compliance with
any established operating procedures therefor of any Manufacturer
and all statutes, regulations and orders of any governmental body
having power to regulate the Equipment or its use. Lessee shall
bear and pay all costs of such compliance. Lessee shall not
permit the Equipment to be used or maintained in any manner or
condition that would violate, or could result in the termination
of, the insurance policies carried by Lessee pursuant to the
provisions of this Lease on insurance, or in any manner or
condition or for any purpose for which, in the opinion of any
Manufacturer, the Equipment is not designed or suited.

(b) Lessee agrees that without Lessor's prior written
consent, it will not remove any of the Equipment from the
location specified in the Rental Schedule for such Equipment
other than for repairs or maintenance or permit any of the
Equipment to be used by anyone other than Lessee, Sublessee,
Lessee's or Sublessee's employees or a responsible independent
contractor engaged by Lessee or Sublessee.

(c) During the Lease Term and until the Equipment has
been returned to Lessor pursuant to the provisions of this Lease
or until the Equipment is purchased by Lessee pursuant to any
purchase option provisions of this Lease, Lessee will not
directly or indirectly create, incur, assume or suffer to exist
any mortgage, security interest, lien or encumbrance on the
Equipment or Lessor's or any Assignee's title thereto or interest
therein, except in the name of Lessor and its successor(s) and
any Assignee. Lessee, at its own expense, will promptly take such
action as may be necessary to keep the Equipment free and clear
of, and to duly discharge, any such mortgage, security interest,
lien or encumbrance not excepted above.

(d) Lessee agrees to procure and maintain in effect
all licenses, certificates, permits and other approvals and
consents required by federal, state and local laws and
regulations in connection with Lessee's possession, use,
operation and maintenance of the Equipment.

(e) Lessee shall cooperate fully with Lessor or any
Assignee to perfect and record their respective security
interests in connection with the Transactional Documents, and
will pay such Persons their reasonable costs related thereto.
Lessee authorizes Lessor to file financing statements that are

signed only by Lessor. Lessee authorizes Lessor to file financing
statements that are signed for Lessee or Sublessee by Lessor in
any jurisdiction when permitted by law or local authority and
Lessee hereby grants to Lessor power-of-attorney to act as
Lessee's and Sublessee's attorney-in-fact to sign Lessee's and
Sublessee's names on financing statements as "Debtor", if Lessee
or Sublessee shall not sign the same upon request of Lessor.

11. Maintenance and Repairs; Additions to Equipment.
(a) Lessee shall, for the entire Lease Term, at its sole
expense, maintain all of the Equipment in good, safe and
efficient operating repair, appearance and condition, will keep
all components of the Equipment properly calibrated and aligned,
will make all required adjustments, replacements and repairs and
will obtain and install any upgrades for the Equipment that are
announced and available for sale by a Manufacturer (collectively,
"maintenance and repair"). Such maintenance and repairs shall
include, but not be limited to, all recommended or advised by a
Manufacturer, all required or advised by cognizant governmental
agencies or regulatory bodies and all commonly performed by
prudent business and/or professional practice. All maintenance
and repairs to any item of the Equipment shall be made in
accordance with industry practice by persons with substantial
skill and knowledge in maintaining and repairing the Equipment.

(b) Lessee shall not modify the Equipment or permit
the Equipment to be modified if such modification shall not
maintain or enhance the value of the Equipment. Any replacements,
substitutions, additions, attachments, accessions, parts,
fittings, accessories, modifications, enhancements, maintenance
and repairs and other upgrades to the Equipment whenever made
shall be considered accessions to the Equipment and shall
automatically become the property of Lessor.

(c) All instruction manuals, published statements of
capabilities and technical specifications, service, maintenance
and repair records, installation, qualification, certification
and calibration reports, usage logs, and printed material
relating to the Equipment shall be deemed part of the Equipment.
Computer programs, programming codes, operating systems, data
processing instructions, series of instructions or statements
which are machine readable, and any like symbols or signals
usable by an electronic data processing system (collectively
"Software") that has been or shall be installed or entered in the
Equipment shall become a part of the Equipment. Whenever Lessee
acquires Software licenses from other parties, with respect to
the Software such licenses shall automatically and without
further action by Lessee be assigned to Lessor and become through
assignment a part of the Equipment transferable to any future
user of the Equipment for use with the Equipment.

12. Loss, Damage or Destruction of Equipment. (a) Lessee
shall bear all risks of damage to, taking of, or theft, loss or
destruction of, any or all of the Equipment commencing as of the
date of this Master Lease and continuing throughout the Lease
Term and until such Equipment has been returned to Lessor or
purchased by Lessee pursuant to any purchase option provisions of
this Lease. Except as otherwise herein expressly provided, no
damage to, taking of or theft, loss or destruction of any
Equipment shall impair any obligation of Lessee to Lessor under
this Lease, including, without limitation, the obligation to pay
Basic Rent.

(b) In the event that any item of Equipment shall
become lost, stolen, destroyed or damaged from any cause
whatsoever, Lessee agrees to promptly notify Lessor in writing of

such fact, fully informing Lessor of the details thereof. If any
item of Equipment is damaged (unless the same, in the opinion of
Lessor is irreparably damaged, in which case the provisions of
this Lease with respect to a Casualty Occurrence shall apply),
Lessee shall, at its sole cost and expense, place the same in
good repair, condition and working order or replace the same with
"like property" having the same value and operating capabilities
and useful life at least equal to the damaged Equipment prior to
the date of such damage, which property shall thereupon become
subject to this Lease with title thereto in Lessor. Lessor shall
release its interest in satisfactorily replaced damaged Equipment
to Lessee or the insurance carrier as appropriate. In the event
that an item of Equipment has been damaged, but not irreparably,
if no Event of Default has occurred and is continuing hereunder,
upon receipt by Lessor by Lessor of evidence, satisfactory to
[original illegible] by Lessor as a result of such damage for the
purpose of reimbursing Lessee for the costs of repairing,
restoring or replacing such item.

(c) In the event that any item of Equipment shall
become lost, stolen, destroyed or irreparably damaged from any
cause whatsoever, or if any item of Equipment or Lessor's title
thereto shall be requisitioned or seized by any governmental
authority (each such occurrence being herein called a "Casualty
Occurrence") during the Lease Term and until it has been returned
to Lessor pursuant to the provisions of this Lease or until the
Equipment is purchased by Lessee pursuant to any purchase option
provisions of this Lease, Lessee shall promptly notify Lessor in
writing of such fact, fully informing Lessor of all details of
the Casualty Occurrence in question, and shall pay Lessor in cash
the "Stipulated Loss Value" as set forth in the Table of
Stipulated Loss Values attached to the Rental Schedule pursuant
to which such item of Equipment is leased hereunder, calculated
as of the date of the Casualty Occurrence. Lessee may furnish a
placement item to be substituted for any lost, stolen, destroyed
or irreparably damaged item of the Equipment provided the
replacement item in Lessor's opinion is of equal or greater value
and free of liens or encumbrances. This payment or the
replacement shall be made within 30 days following the Casualty
Occurrence, together with the Basic Rent accrued and unpaid with
respect to such Equipment as of the date of the Casualty
Occurrence, plus all Additional Rent or amounts owing with
respect to such Equipment on such date of payment.

(d) Upon the payment of the Stipulated Loss Value of
the Equipment in question in accordance with the terms of this
Section, and the payment of all Basic Rent, Additional Rent and
any other sums then due hereunder, this Lease shall terminate
with respect to the Equipment or part thereof suffering the
Casualty Occurrence and all Lessor's rights and title to such
Equipment shall pass to Lessee, "as is" and "where is", without
any representation or warranty by, or recourse to, Lessor, as
provided by the provisions of this Master Lease on disclaimer of
warranties and as evidenced by a duly executed bill of sale
naming Lessor as the seller and Lessee as the buyer.

(e) Provided that no Event of Default has occurred and
is continuing and no event that with the passage of time or
giving of notice, or both, would be an Event of Default has
occurred and is continuing, any insurance proceeds received as
the result of a Casualty Occurrence with respect to any or all
items of the Equipment shall be applied first in reduction of any
other then unpaid obligation of Lessee to Lessor hereunder and
second in reduction of Lessee's obligation to pay the Stipulated
Loss Value for such item if not already paid by Lessee to Lessor,

or, if already paid by Lessee, to the reimbursement of Lessee
therefor, and the balance of the insurance proceeds, if any,
shall be paid to Lessee.

13. Reports; Inspections. Lessee will cause to be
furnished to Lessor, if requested, from time-to-time a statement
showing the condition and such other information regarding the
Equipment as Lessor may reasonably request. Lessor and any
Assignee shall have the right, upon reasonable notice to Lessee,
to inspect the Equipment including Lessee's records with respect
to the Equipment, to copy such records, and if an uncured Event
of Default shall exist, to inspect and copy Lessee's records with
respect to the financial statements Lessee is required to furnish
Lessor or has warranted to Lessor pursuant to this Lease. Any
inspection by Lessor or any Assignee shall not be deemed to be
approval or acknowledgment by Lessor or such Assignee of the
safety, freedom from defects, performance or compliance with
specifications or governmental requirements of the Equipment or
of the conformity of the Equipment or such financial statements
to the requirements or warranties of this Lease, and the
disclaimers set forth in the provisions of this Master Lease on
disclaimer of warranties shall apply to any such inspection.
Lessee shall pay or reimburse Lessor for Lessor's costs and
travel expenses for one such inspection per year, and for
Lessor's costs, travel expenses and salaries and the charges and
such expenses of Lessor's advisers for the inspection following
an inspection which encountered a breach of the requirements of
this Lessee or the warranties of Lessee pursuant to this Lease.
Travel expenses for any inspection shall not exceed $1,000.

14. Insurance. During the Lease Term and until all
Equipment has been returned to Lessor pursuant to the provisions
of this Lease or until the Equipment is purchased by Lessee
pursuant to any purchase option provisions of this Lease, Lessee
shall procure and maintain at its expense with reputable insurers
reasonably acceptable to Lessor (i) insurance on all of the
Equipment in an amount not less than the Equipment's Stipulated
Loss Value insuring against all risks of loss or damage to the
Equipment and against such other risks as Lessee would, in the
prudent management of its properties, maintain with respect to
similar equipment owned by it, and (ii) comprehensive public
liability and property damage insurance, in such amounts as shall
be satisfactory to Lessor but for not less than the greater of
$1,000,000 or the amounts customarily maintained by parties
similar to Lessee for similar leased equipment with similar
contemplated use, insuring Lessor and any Assignees, as their
interests may appear, against liability for death, bodily injury,
professional malpractice, and property damage arising out of or
resulting from the design, construction, manufacture, ownership,
use, operation, lease or maintenance of, or otherwise in
connection with, the Equipment. On the policies referred to in
clause (i) such insurance shall name Lessor (and any Assignees)
as the loss payee as its interest ny appear so that (and Lessor
and Lessee hereby agree that) the insurance proceeds payable
under such policies will be payable and paid solely to Lessor
(and to any Assignees). On the policies referred to in clause
(ii), such insurance will name Lessor (and any Assignees) as an
additional insured as its interests may appear. All such policies
shall provide that they may not be invalidated against Lessor (or
any Assignees) because of any violation of a condition or a
breach of warranty of the policies or application therefor by
Lessee, that they may not be altered or canceled except after 30
days' prior written notice to Lessor, and that Lessor and any
Assignee have the right but not the obligation to pay the
premiums with respect to coverage required by this Lease in order
to continue such insurance in effect or to obtain like coverage.
Under the policies of insurance required to be maintained by
Lessee pursuant to this Master Lessee, Lessee agrees to cause the
insurance carrier to waive any right of subrogation in each
instance as such right may exist against Lessor or any Assignee
and for any and all loss or damage to the Equipment. Lessor is
hereby appointed Lessee's attorney-in-fact to endorse any check
or draft which may be payable to Lessee in order to collect the

proceeds of such insurance. Lessee shall deliver to Lessor, prior
to the beginning of the Lease Term with respect to any of the
Equipment and at such other time or times as Lessor may request,
a certificate or other evidence satisfactory to Lessor of the
maintenance of such insurance. Lessor shall be under no duty to
examine such policies, certificates or other evidence of
insurance or to advise Lessee in the event that its insurance is
not in compliance with this Lease. In the event of failure on the
part of Lessee to provide such insurance, Lessor may, at its
option, but without obligation, provide such insurance and add
the amount of the premiums to the rents due hereunder, and Lessee
shall, upon Lessor's demand, pay the same as Additional Rent.

15. Return of Equipment. (a) At the end of the Lease Term
for any Equipment, if the purchase option set forth in this
Master Lease shall not have been exercised, Lessee at its sole
expense shall forthwith return possession of such Equipment
without omissions to Lessor by:

(i) properly preparing, crating and/or assembling such
Equipment (in accordance with the Manufacturer's instructions if
such instructions exist) for shipment by common carrier with all
containers and pieces labeled with model, part and unit numbers
and descriptions; and

(ii) shipping such Equipment by common carrier, with
insurance and freight prepaid, to a place designated by Lessor
within a 1,000 mile radius of the specified location under this
Lease for such equipment. Lessor shall pay additional shipping
charges incurred because of distances in excess of such 1,000
miles.

The insurance required by clause (ii) above shall provide
that in the event of loss such insurance shall pay Lessor in cash
directly the "Stipulated Loss Value" as set forth in the Exhibit
to the Rental Schedule calculated as of the Payment Date next
preceding the date of loss.

(b) When the Equipment is returned to Lessor it shall
be complete. The condition of the Equipment including Software
upon receipt by Lessor shall be not less than (i) meeting all
specifications for such fully upgraded equipment as published
most currently by the respective Equipment vendor(s) ,
Manufacturer(s) or supplier(s) (collectively referred to,
together with their successors and assigns, if any, as
"Vendors"), (ii) in fully operational condition, (iii) capable of
being installed and operated in the normal course by another
user, (iv) legally qualified for future use or operation of the
Equipment by another lessee or purchaser of the Equipment, (v)
free of defects, visible or concealed, including, but not limited
to, damage or malfunction of any kind, electrical shorts, fluid
restrictions or blockages, disconnections, breakage or the like,
(vi) safe for routine and usual operation, (vii) in compliance
with any and all pertinent governmental or regulatory rules, laws
or guidelines for its operation or use, (viii) free of Lessee's
markings or labelings, and (ix) free of any advertising or
insignia not requested by Lessor that was placed on the Equipment
by Lessee.

(c) Lessor reserves the right to inspect the Equipment
within 30 days of its return to verify compliance with the
provisions of this Master Lease on Equipment maintenance and
repairs and additions and on return of Equipment. Should there be
less than full compliance, Lessor at its option may (i) perform
or cause to be performed through service organizations of its own
choosing such maintenance and repairs, including upgrades,
replacements, the obtaining of paid-up Software licenses and
other services, is it deems necessary to effect such compliance,
(ii) require Lessee to perform or cause to be performed such
maintenance and repairs, including upgrades, replacements, the
obtaining of paid-up Software licenses and other services, as
Lessor deems necessary to effect such compliance and/or (iii)
reasonably estimate the costs to effect such compliance. Lessee

shall pay to Lessor the costs for performance of (i) or (ii)
above, or the estimated costs under (iii) above, in any such case
including the costs of the inspection(s). If maintenance and
repairs, including upgrades, replacements, and the obtaining of
paid-up software licenses and other services, are necessary to
place any of the Equipment under any Rental Schedule in the
condition required by this Lease, Lessee shall continue to pay to
Lessor monthly Additional Rent at the last prevailing rate during
the Lease Term for Basic Rent on the Equipment under such Rental
Schedule for the period of delay until all such required
maintenance and repairs can be performed, or for the period of
time reasonably necessary to accomplish such maintenance and
repairs. For any such period that applies, Lessee shall continue
to provide the insurance required during the Lease term. However,
Lessor' s acceptance of such rent and provision of insurance
during such period shall not constitute a renewal of the Lease
Term, a waiver of Lessor's right to prompt return of such
Equipment in the condition required by this Section, or a waiver
of Lessor's right to possession of such Equipment.

(d) Should the inspection reveal any item(s) of the
Equipment to be missing, Lessee shall be responsible for paying
to Lessor promptly the Stipulated Loss Value of such item(s) of
the Equipment computed as of the last Payment Date prior to the
end of the Lease Term, plus the amount of any impairment of the
Fair Market Value of the remaining item(s) of the Equipment due
to the absence of such missing item(s) of the Equipment.

(e) In the event that Lessee fails to return any of
the Equipment when required, at the election of Lessor effected
by notice to Lessee, the Lease Term for such Equipment shall be
extended on a month-to-month basis on the same terms as
previously in effect, an Lessee shall pay to Lessor monthly in
advance Basic Rent for such Equipment at the last prevailing rate
during the unextended Lease Term, until such Equipment has been
returned to Lessor pursuant to the provisions of this Lease.
Notwithstanding any month-to-month continuance of this Lease,
Lessor may resort to any remedies available to it under this
Lease, at law or in equity, to recover such Equipment at any time
following the end of such extended Lease Term.

16. Lessor's Ownership; Equipment To Be and Remain Personal
Property. (a) Lessee acknowledges and agrees that it does not
have, and by execution of this Lease and/or payments and
performance hereunder it shall not have or obtain, any title to
the Equipment, nor any property right or interest, legal or
equitable, therein, except its rights as Lessee hereunder and
subject to the terms hereof. Lessee shall not have or claim a
security interest and shall not seek or obtain replevin, detinue,
specific performance, sequestration, claim and delivery, or like
remedies in or for this Lease, any rents under this Lease, any or
all of the Equipment, any items of personal property identified
to become items of the Equipment, or any proceeds of any or all
of the foregoing.

(b) All of the Equipment shall be and remain personal
property notwithstanding the manner in which the Equipment may be
attached or affixed to realty. Upon the expiration, cancellation
or termination of the Lease Term of any or all of the Equipment,
Lessee shall have the obligation, and Lessor shall have the
right, to move, or cause the removal of, such Equipment from the
premises where the same is then located, for return to Lessor
pursuant to the provisions of this Master Lease on return of
equipment and, if applicable, on Events of Default, whether or
not any of the Equipment is affixed or attached to realty or to
any building. In the exercise of its rights, Lessor shall not be
liable for any damage to the realty or any such building or other
real or personal property occasioned by any removal of the
equipment by Lessee or its agents or by any removal of the

Equipment in a commercially reasonably manner by Lessor or its
agents. Lessee further covenants and agrees that Lessee will, at
the request of Lessor, obtain and deliver to Lessor concurrently
with the execution and delivery of each Rental Schedule, a
waiver, in recordable form, from the owner and any landlord,
tenant or holder of any lien or encumbrance on the realty or
building(s) on or in which any of the Equipment described in such
Rental Schedule shall be located, under which such owner,
landlord, tenant and holder (i) agree and consent that such
Equipment is and shall be personal property, owned by and
removable by Lessor upon the expiration, cancellation or
termination of the Lease Term thereof, and (ii) waive any rights
of distraint or similar rights with respect to such Equipment.

(c) If Lessee is unable to return, or is prevented
from returning, any of the Equipment to Lessor upon the
expiration, cancellation or termination of the Lessee Term as
required under the provisions of this Master Lease on return of
Equipment, for any reason whatsoever, including, but not limited
to, the assertion by any third party of any claim against such
Equipment, or of any right with respect thereto, whether or not
resulting from the manner in which such Equipment is affixed or
attached to, or installed in, the realty or any building(s)
thereon or any other personal or real property, or from the
failure of any owner, landlord or tenant of said realty (or the
building(s) thereon) or the holder of any lien or encumbrance to
execute the waiver in writing of such fact, for all purposes of
this Lease such Equipment shall be deemed to have been the
subject of a Casualty Occurrence. Thereupon, Lessee shall pay to
Lessor the amounts provided for by the provisions of this Master
Lease on loss, damage or destruction of Equipment, with respect
to such Equipment, at the time, in the manner, and with the
consequences provided by such provisions.

(d) Notwithstanding the foregoing provisions of this
Section, without Lessor's prior written consent, Lessee shall not
permit any of the Equipment to be attached or affixed to,
imbedded in or incorporated into any building, structure, real
estate or other personal or real property.

17. Other Covenants. (a) Lessee agrees to furnish, upon
Lessor's request, such financial, business and operational
information concerning Lessee, Sublessee an any Guarantor, as
Lessor or its assigns may reasonably request during the Lease
Term. Additionally, Lessee shall furnish to Lessor and its
assigns two complete copies of Lessee's, Sublessee's and every
Guarantor's (i) quarterly interim financial statements within 60
days of the close of each of the first three fiscal quarters of
every year, certified by the chief financial officer of,
respectively, Lessee, Sublessee or such Guarantor and (ii) annual
financial statements within 100 days of the close of each fiscal
year reported on by independent accountants without material
adverse qualification or comment, such quarterly and annual
financial statements of Lessee and any Guarantor to be furnished
without notice or demand therefor and of Sublessee to be
furnished upon Lessor's request. All such financial statements
shall be prepared in accordance with generally accepted
accounting principles consistently applied, and shall accurately
and completely present Lessee's, Sublessee's and every
Guarantor's financial condition and results of operations at the
dates of and for the periods covered by such statements.

(b) Lessee, Sublessee or any Guarantor shall promptly
furnish to Lessor copies of (i) filings that Lessee, Sublessee or
any Guarantor makes with the SEC or other government agencies
under the securities laws including but not limited to definitive
proxy statements, registration statements, prospectuses and
tender offer filings, and reports on holdings or acquisitions of

securities, relating to proxy solicitations, and on Form 10-K,
10-Q, 8-K or similar forms, and any amendments to such filings,
and (ii) press releases of Lessee, Sublessee or any Guarantor.

(c) If Lessee, Sublessee or any Guarantor or a general
partner of Lessee, Sublessee or any Guarantor is a corporation,
Lessee shall give Lessor notice of all meetings of the
stockholders of such corporation and copies of all materials that
are furnished to the stockholders for the meetings at the same
time that the notice or materials are sent to the stockholders.
If Lessee, Sublessee or any Guarantor or a general partner of
Lessee, Sublessee or any Guarantor is a partnership, Lessee shall
give Lessor notice of all meetings of such partnership and copies
of all materials that are furnished to the partners for the
meetings at the same time that the notice or materials are sent
to the partners. Lessor shall have the right to have its
representative attend any and all such meetings at the expense,
including travel costs, of Lessee, such expenses in any calendar
year together with the expenses provided for by the last sentence
of Section 13 of this Master Lease not to exceed $1000.

(d) There shall be no actual or overtly threatened
conflict with, or material violation of, any statute, regulation,
standard or rule relating to Lessee, its present or future
operations, or the Equipment.

(e) All information supplied to Lessor or its assigns
by Lessee, Sublessee or any Guarantor shall be correct as of the
date thereof and shall not omit any material statement necessary
to make the information supplied not be misleading. There shall
be no material breach of the representations, warranties and
covenants made by Lessee in connection with this Lease, by
Sublessee in the Sublease or by any Guarantor in connection with
a Guaranty.

(f) Lessee shall give Lessor notice of any change in
the address of the executive office or principal place of
business of Lessee not less than 15 days prior to the change.

(g) No change shall occur in the control, and no
material change shall occur in the ownership, of Lessee,
Sublessee or any Guarantor, and no Guarantor shall assert in
writing that the obligations of the Guarantor as a Guarantor or
in its Guaranty are not in full force and effect.

18. Events of Default. If one or more of the following
events (hereinafter called "Events of Default" or an "Event of
Default") shall occur:

(i) default shall be made in the payment of any Basic Rent
or Additional Rent due under this Master Lease or under any
Rental Schedule hereto, and any such default shall continue for
more than 10 days after the due date thereof;

(ii) any representation or warranty by Lessee, Sublessee or
any Guarantor made in this Master Lease, the Sublease, or in any
Guaranty or other Transactional Document or certificate furnished
to Lessor in connection with this Lease or the Sublease or
pursuant to this Lease or the Sublease shall at any time prove to
be incorrect in any material respect;

(iii) Lessee or Sublessee shall make or permit any
unauthorized assignment or transfer of this Master Lease or any
Rental Schedule to this Master Lease or the Sublease or of any of

Lessee's or Sublessee's rights and obligations hereunder or
thereunder, or Lessee or Sublessee shall make or permit any
unauthorized sublease or transfer of any Equipment or the
possession of any Equipment;

(iv) Lessee or Sublessee shall default in the observance
and/or performance of any other covenant, condition or agreement
on the part of Lessee or Sublessee to be observed and/or
performed under this Master Lease, under any Rental Schedule
hereto, under the Sublease, or under any other Transactional
Document, which default is not governed by paragraphs (i), (ii)
or (iii) above, and such default shall materially continue for
more than 30 days after written notice from Lessor to Lessee
specifying the default and demanding the same to be remedied;

(v) Lessee, Sublessee or any Guarantor shall make an
assignment for the benefit of creditors, or cease being in
substantially the same line or lines of business in which it is
presently engaged, or generally fail to pay its debts as they
become due, or become insolvent or commence a voluntary case
under the federal Bankruptcy Code as now or hereafter constituted
or any other applicable federal or state bankruptcy, insolvency
or similar law, or admit in writing its inability to pay its
debts as they mature, or consent to the appointment of a trustee
or receiver, or a trustee or a receiver shall be appointed for
Lessee, Sublessee or any Guarantor or for a substantial part of
Lessee's, Sublessee's or any Guarantor's property without such
party's consent and such appointment shall be not dismissed for a
period of 60 days; there shall have been entered a decree or
order for relief by a court having jurisdiction in respect of
Lessee, Sublessee or any Guarantor, or approving as properly
filed a petition seeking a reorganization, arrangement,
adjustment or composition of or in respect of Lessee, Sublessee
or any Guarantor in an involuntary proceeding or case under any
applicable federal or state bankruptcy, insolvency or other
similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee or similar official of Lessee, sublessee or
any Guarantor or of any substantial part of its property, or
ordering the winding-up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect
for a period of 60 days, or there shall have been filed a
petition by or against Lessee, Sublessee or any Guarantor under
any bankruptcy law or other insolvency law and, if petition is
filed against Lessee, Sublessee or such Guarantor, the petition
is not withdrawn or dismissed within 60 days after the date of
filing; or Lessee, Sublessee or any Guarantor' shall cease doing
business as a going concern or shall liquidate or be dissolved;

(vi) Lessee, Sublessee or any Guarantor shall, without the
prior written consent of Lessor, enter into a merger,
consolidation or division, effect a share exchange of its
outstanding stock for the stock of other corporation, make a
tender offer for equity securities of a publicly held entity, or
sell or otherwise dispose of all or a major part of its assets or
of assets that produce all or a major part of its revenues or
profits; provided, however, that Lessee, Sublessee or any
Guarantor, without violating the provisions of this clause, may
consolidate with or merge with a corporation or other entity
organized under the laws of one of the states of the United
States (the surviving entity, a "successor"), or sell except by
means of a sale and leaseback arrangement) all or substantially
all of its business and assets to such a successor, on the
condition that any successor expressly assume in writing all of
the obligations of Lessee pursuant to this Lease, Sublease
pursuant to the Sublease, or of such Guarantor pursuant to its
Guaranty, and that the net tangible assets an the net worth
(determined in accordance with generally accepted accounting
principles) of the successor after the consolidation, merger or
sale shall be at least equal to the net tangible assets and the
net worth of Lessee, Sublessee or such Guarantor, as the case may
be, immediately prior to the consolidation, merger or sale;

(vii) there shall occur under any other lease, contract or
agreement between Lessee and Lessor or Sublessee and Lessor, an
Event of Default, as defined in such lease, contract or
agreement;

(viii) any of the Equipment shall be attached, levied upon,
encumbered, pledged, seized or taken under any judicial process
(except for any attachment, levy, encumbrance or pledge caused to
be placed on the Equipment by Lessor) and such proceedings shall
not be vacated, or fully stayed, within 30 days thereof;

(ix) at any time there shall occur under (A) any lease
between Lessee or Sublessee and a party her than Lessor as lessor
or (B) under any lease wholly or partially guaranteed by Lessee
or Sublessee, the exercise by the lessor of its possessory
remedies or commencement of legal proceedings by the lessor or
default under the lease; provided that the aggregate future
payments remaining to be made or guaranteed by Lessee or
Sublessee exceed $250,000, and that under a lease described in
(B) above within ten days of notice to Lessee or Sublessee of
such exercise of remedies and demand for payment by Lessee
Sublessee any such amount guaranteed by Lessee or Sublessee
remains unpaid;

(x) any obligation in excess of $250,000 of Lessee,
Sublessee or any Guarantor for the payment of borrowed money or
the acquisition of assets by purchase, conditional sale or other
arrangement is not paid or refinanced at maturity, whether by
acceleration or otherwise, or is declared due and payable prior
to the stated maturity thereof by reason of default or other
violation of the terms of any promissory note or agreement
evidencing or governing such obligation, and Lessor has given
Lessee, Sublessee or such Guarantor an opportunity to either cure
the purported Event of Default or supply information satisfactory
to Lessor that it does not, in fact, exist;

this Lease shall be declared in default, immediately and without
notice upon the occurrence of an Event of Default specified in
clause (v) above, and in the case of any other Event of Default,
upon Lessor at any time at its option subsequent to such Event of
Default giving notice to Lessee that this Lease is declared in
default. At any time after this Lease has been declared in
default, Lessor may exercise one or more of the following
remedies, to the extent not then prohibited by law, as Lessor in
its sole discretion may elect;

(I) to proceed by appropriate court action or actions at
law or in equity or in bankruptcy to enforce performance by
Lessee of the covenants and terms of this Lease and/or to recover
damages for the breach thereof;

(II) to terminate or cancel this Lease upon written notice
to Lessee whereupon all rights of Lessee to use the Equipment
shall immediately terminate, but Lessee shall not be relieved of
any obligations under this Lease;

(III) whether or not this Lease be so terminated or
cancelled, and without notice to Lessee, to repossess and/or to
render inoperable the Equipment wherever found, with or without
legal process, and for this purpose Lessor and/or its agents may
enter upon any premises of or under the control or jurisdiction
of Lessee or any agent of Lessee without liability for suit,
action or other proceeding by Lessee and remove the Equipment
therefrom; Lessee hereby expressly waives any claims for damages
occasioned by such repossession; LESSEE HEREBY EXPRESSLY WAIVES

ANY AND ALL RIGHTS TO A JUDICIAL HEARING WITH RESPECT TO
REPOSSESSION OF THE EQUIPMENT AFTER AN EVENT OF DEFAULT;

(IV) to hold or to use any Equipment returned to Lessor or
repossessed by Lessor for any purpose whatsoever, to sell any
Equipment at a private or public, cash or credit sale, to re-
lease any Equipment, in all the foregoing events free and clear
of any rights of Lessee;

(V) whether or not Lessor shall have exercised, or shall
hereafter at any time exercise, any of its other rights with
respect to an item of the Equipment, upon written notice to
Lessee, to demand that Lessee pay to Lessor, and Lessee shall pay
to Lessor on the date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of
the Basic Rent for such Equipment that prior to the Event of
Default was to have been paid on Payment Dates subsequent to the
date specified in such notice), an amount equal to the excess, if
any, of 125% of the Stipulated Loss Value for such item of
Equipment computed as of the Payment Date next preceding the date
specified in such notice, or if such date occurs on a Payment
Date, then computed as of such Payment Date, over whichever of
the following three amounts Lessor, in its sole discretion, shall
specify in such notice:

(A) the present value of the fair market rental value
(determined as hereafter provided in this Section) of such item
of the Equipment for the remainder of the Lease Term as of the
date specified in such notice, the present value to be computed
on the basis of a seven percent per annum rate of discount from
the respective dates upon which such rent would be paid;

(B) the fair market sales value (determined as hereafter
provided in this Section) of such item of Equipment as of the
date of such notice; or

(C) if Lessor shall have sold or re-leased any item of
Equipment pursuant to clause (IV) above, the net proceeds of such
sale or re-lease;

and

(VI) to forthwith recover from Lessee, and Lessee shall be
fully liable for, all Basic Rent that shall accrue until the date
that the Equipment is returned to or repossessed by Lessor and
any Additional Rent including collection fees whenever accrued.

In addition to the foregoing, Lessor may also recover from
Lessee all costs and expenses arising out of Lessee's default,
including, without limitation, expenses of repossession of the
Equipment and the storage, inspection, repair, reconditioning,
sale and re-leasing thereof, and reasonable attorneys' fees
incurred by Lessor in exercising any of its rights or remedies
hereunder. For the purposes of this Section only, "fair market
rental value" and "fair market sales value" shall be determined
by an appraisal of an independent appraiser chosen by Lessor, and
the cost of any such appraisal shall be borne by Lessee. No
remedy referred to in this Section is intended to be exclusive,
but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lessor at law or in
equity or in bankruptcy. The exercise by Lessor of any one or
more remedies shall not be deemed to preclude the simultaneous or
later exercise by Lessor of any or all such previously exercised
remedies and any and all other remedies.

19. Assignment and Transfer by Lessor. (a) Lessor may at
any time and from time to time assign to one or more security
assignees (all herein called the "Secured Party" and also called
an "Assignee") for the purpose of securing a loan to Lessor or
for any other purpose, and at its sole discretion, may also sell
or transfer to one or more Persons (herein called the
"Transferee" and also called an "Assignee"), in any case subject
to the rights of Lessee under this Lease but without notice to or
consent of Lessee, this Lease, any other Transactional Documents,
any or all of the Equipment, and all sums at any time due and to
become due or at any time owing or payable by Lessee to Lessor
under this Lease or pursuant to any or all of the Transaction
Documents. The Secured Party shall not be obligated to perform
any duty, covenant or condition required to be performed by
Lessor under this Lease or any other Transactional Documents.

(b) Lessee agrees that notwithstanding any assignment to a
Secured Party, each and every covenant, agreement, representation
and warranty of Lessor under this Lease shall be and remain the
sole liability of Lessor and of every successor in interest of
Lessor (excluding any Secured party) or, in the case of
assignment to a Transferee, shall become and remain the sole
liability of the Transferee if so agreed to by the Transferee and
if not so agreed to shall be and remain the sole liability of
Lessor. Lessee further agrees and acknowledges that any
assignment, sale or transfer by Lessor could not and shall not
materially change any duty or obligation of Lessee or materially
increase any burden or risk of Lessee.

(c) Lessee further acknowledges and agrees that from and
after the receipt by Lessee of written notice of an assignment
from Lessor, Lessee shall comply with the directions or demands
given in writing by the Secured Party or (to the extent not
inconsistent with the directions or demands of the Secured Party)
by the Transferee, and the Secured Party or Transferee shall have
the right to exercise (either in its own name or in the name of
Lessor) all rights, privileges, and remedies of Lessor provided
for herein. Lessee agrees that any obligation to a Secured Party
as a result of the assignment of this Lease to a Secured Party as
aforesaid shall not be reduced or minimized by reason of any
claim, defense, counterclaim, set-off, abatement, reduction or
recoupment or other right that Lessee might otherwise have been
able to assert against Lessor, any prior Assignee or any
Transferee. After any assignment to a Secured Party and unless
and until Lessee is otherwise notified by the Secured Party, this
Lease may not be amended or modified, and no consent or waiver
hereunder shall be effective, without the prior written consent
of the Secured Party. Lessee agrees to execute and Lessor or any
Transferee or Secured Party may record any instruments and
documents relating to such assignment, mortgage or security
interest desired by Lessor or any Transferee or Secured Party.
Lessee shall promptly provide any such instruments and documents
that are requested by Lessor or any Assignee including
certificates indicating any claim, defense, counterclaim, set-
off, abatement, reduction, recoupment or other right that Lessee
may have against Lessor or any Assignee, the date to which Basic
Rent has been paid under each Rental Schedule hereunder and that
this Lease is in effect without default or amendment, or the
extent of such default or amendment, as the case may be.

20. Recording and Filing; Expenses. Lessee will, upon
demand of Lessor, at Lessee's cost and expense, do and perform
any other act and will execute, acknowledge, deliver, file,
register, record and deposit (and will re-file, re-register, re-
record or re-deposit whenever required) any and all instruments
required by law or requested by Lessor (or any Assignee)
including, without limitation, financing statements under the
Uniform Commercial Code (which Lessor shall have the right to
file wherever and whenever Lessor requires), for the purpose of
providing proper protection to the satisfaction of Lessor (and/or
any Assignee) of Lessor's title to any Equipment (and/or of any

Assignee's security interest in the Equipment) or for the purpose
of carrying out the intention of this Lease. Lessee will also
pay, or will upon demand reimburse Lessor for, all reasonable
costs and expenses incurred by Lessor in connection with this
Lease, any other Transactional Documents, and any related
transactions, closing, assignments, sales and transfers to any
Secured Party or Transferee, enforcement of Lessor's rights under
this Lease and the other Transactional Documents, filings, the
documentation of this and any related transactions, and fees and
costs of attorneys for Lessor in connection therewith.

21. Quiet Enjoyment. So long as no Event of Default has
occurred and is continuing hereunder, Lessee shall have peaceful
and quiet use and enjoyment of the Equipment during the Lease
Term as against acts of Lessor or anyone claiming solely by,
through or under Lessor including any Secured Party or
Transferee.

22. Failure or Indulgence not Waiver; Additional Rights of
Lessor. (a) No failure to exercise, and no delay in exercising,
any right, power or remedy hereunder on the part of Lessor shall
operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, to be effective, must be in
writing. A waiver of any covenant, term or condition contained
herein shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. Receipt by
Lessor of any Basic Rent or Additional Rent with knowledge of the
breach of any provision hereof shall not constitute a waiver of
such breach.

(b) Lessor shall be entitled to injunctive relief in case
of the violation or attempted or threatened violation of any of
the provisions hereof, to a decree compelling performance of any
of the provisions hereof, and to any other remedy allowed in law
or in equity.

23. Sublease. Lessee shall not sublease the Equipment
except pursuant to the Sublease, relinquish possession of the
Equipment other than to Sublessee, or assign, pledge or
hypothecate this Lease or any of Lessee's rights or obligations
hereunder, in whole or in part, without the prior written consent
of Lessor, which consent Lessor shall not be obligated to grant.
Nevertheless, any such sublease and the rents, profits and
proceeds therefrom shall be the property of Lessor and, unless
Lessor has consented to such sublease, Lessor within 30 days
after receiving notice thereof in accordance with the provisions
of this Master Lease on notices shall have the right to declare
the sublease void from its purported commencement, to terminate
the sublease or to accept the sublease. Any such attempted
relinquishment of possession, assignment, pledge or hypothecation
by Lessee without such consent shall be null and void.

24. Purchase Option. (a) If (i) no Event of Default, and
no event which with the giving of notice or lapse of time, or
both, would constitute an Event of Default, has occurred and then
remains unremedied to Lessor's satisfaction, and (ii) this Lease
shall not have been earlier terminated, Lessee shall be entitled,
at its option, upon written notice to Lessor, as hereinafter
provided, to purchase all, but not less than all, items of the
Equipment then subject to a Rental Schedule, at the expiration of
the Primary Term for such items of the Equipment, for one dollar
($1), plus any applicable sales, excise or other taxes imposed as
a result of such sale (other than net income taxes attributable
to such sale). Lessor's sale of any item of the Equipment shall
be on an "as-is", "where-is" basis, without any representation or
warranty by or recourse to Lessor, as provided by the provisions
of this Master Lease on disclaimer of warranties, and shall be

subject to such additional terms and conditions as may be
specified in the Rental Schedule. If Lessee intends to exercise
said purchase option, Lessee shall give written notice to Lessor
to such effect at least 90 days prior to the earliest expiration
of the Primary Term of the item(s) of the Equipment subject to
the particular Rental Schedule with respect to which Lessee
intends to exercise its purchase option. If Lessee fails to give
such written notice to Lessor as aforesaid, it shall be
conclusively presumed that Lessee has elected not to exercise
such purchase option. If Lessee gives such written notice,
Lessee shall be obligated to buy, and Lessor shall be obligated
to sell, such Equipment on the terms herein provided.

(b) Notwithstanding any election by Lessee to purchase, the
provisions of this Lease shall continue in full force and effect
until the transfer of ownership of such Equipment upon the date
of purchase by the delivery of a Bill of Sale by Lessor.

25. Notices. Any notice or other communication required or
permitted to be given by either party hereto to the other party
shall be deemed to have been given upon its receipt, in writing,
by the receiving party at its address set forth below, or at such
other address as the receiving party shall have furnished to the
other party by notice pursuant to this Section.

If to Lessee: O'Brien Energy Services Company
900 Church Street
Wilmington, DE 19801

If to Lessor: Financing for Science and Industry, Inc.
10 Waterside Drive
Farmington, CT 06032-3065

26. Entire Agreement; Severability; Amendment or
Cancellation of Lease. This Lease constitutes the complete and
exclusive statement of the terms of the agreement between the
parties with respect to the leasing of the Equipment and any sale
of the Equipment by Lessor to Lessee. Any provision of this
Lease which is prohibited or unenforceable in any jurisdiction
shall be, as to such jurisdiction, ineffective to the extent of
such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction
LESSEE ACKNOWLEDGES RECEIPT OF A COPY OF THIS MASTER LEASE.
Lessor and Lessee agree that neither this Lease nor Lessee's
acceptance or deemed acceptance of any or all of the Equipment
may be cancelled, waived, altered, amended, repudiated,
terminated, rescinded, revoked or modified, except by a writing
signed by Lessee and a duly authorized representative of Lessor.

O'BRIEN ENERGY SERVICES COMPANY

By:/s/
-------------------------------
Signature of Lessee

27. Waiver of Jury. Lessor and Lessee waive any right and
all right to trial by jury in any action or proceeding relating
in any way to this Lease.

28. Restriction of Limitation Periods and Damages. Lessee
shall not make any claim in respect of or relating to the
Equipment or this Lease against Lessor or any Assignee for
special consequential or punitive damages.

29. Governing Law; Consent to Jurisdiction and Service.
This Lease shall be governed by and construed in accordance with
the laws of the State of Connecticut (other than the conflicts of
laws provisions). Lessee agrees that any legal action or
proceeding against Lessee in respect of or relating to this Lease
or the Equipment may be brought in any state or federal court
sitting in the City of Hartford in the State of Connecticut.
Lessee hereby irrevocably consents and submits to the
nonexclusive personal jurisdiction of said courts and irrevocably
agrees that all claims in any such action or proceeding may be
heard and determined in and enforced by any such court. Lessee
irrevocably consents to the service of summons, notice, or other
process relating to any such action or proceeding by delivery
thereof to it by hand or by mail in the manner set forth in the
provisions of this Master Lease on notices.

30. Lessor's Right to Perform for Lessee. If Lessee fails
to duly and promptly perform any of its obligations under this
Lease or fails to comply with any of the covenants or agreements
contained herein, Lessor may itself perform such obligations or
comply with such covenants or agreement, for the account of
Lessee, without thereby waiving any default, and any amount paid
or expense (including, without limitation, attorney's fees)
reasonably incurred by Lessor in connection with such performance
or compliance shall, together with interest thereon at the
Default Interest Rate, be payable by Lessee to Lessor on demand.

31. Binding Effect. This Lease shall inure to the benefit
of and be binding upon the parties hereto and their respective
permitted successors and assigns.

32. General. The captions in this Master Lease and each
Rental Schedule are for convenience of reference only. There
shall be only one original executed copy of this Master Lease and
of each Rental Schedule. This Master Lease is and each Rental
Schedule shall be executed in the State of Connecticut by
Lessor's having countersigned the same in the State of
Connecticut, and are to be and shall be performed in the State of
Connecticut by reason of the requirements therein for payment by
Lessee to Lessor to be made in the State of Connecticut.

33. Definitions. The following terms, not elsewhere
defined, shall have the following meanings for all purposes
hereof:

"Acquisition Cost" of any item of the Equipment shall mean
an amount equal to the sum of (i) the purchase price of such item
of the Equipment paid by Lessor pursuant to the purchase order
for such item of the Equipment assigned to or given by Lessor,
plus (ii) any excise, sales or use tax, freight, installation,
set-up and other costs that are paid by Lessor on or with respect
to such item of the Equipment on or about the time of Lessor's
purchase of the Equipment or the Lease Commencement Date and that
Lessor does not request Lessee to directly reimburse to Lessor.

"Certificate of Inspection and Acceptance" shall mean a
certificate in the form designated by Lessor whereby Lessee
evidences its acceptance of one or more items of the Equipment
for lease hereunder.

"Guarantor" shall mean a guarantor of any or all of the
obligations of Lessee pursuant to this Lease.

"Guaranty" shall mean a writing containing a guaranty of any
or all of the obligations of Lessee pursuant to this Lease.

"Lease Commencement Date" with respect to an item of
Equipment shall mean the date of commencement of the Lease Term
of the item as provided by the applicable Rental Schedule.

"Lease Term" with respect to an item of the Equipment shall
mean the Primary Term plus any and all Renewal Terms plus any
period during which Lessee retains the Equipment on a month-to-
month basis pursuant to provisions of this Master Lease governing
the return of the Equipment. The Lease Term shall include the
Lease Commencement Date and the date on which the Lease Term
ends.

"Manufacturer" shall mean the Person that manufactures the
item of the Equipment in question.

"Master Lease" shall mean this Master Equipment Lease
Agreement.

"Person" shall mean an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
estate, any incorporated organization or similar association, a
government or political subdivision, or any other entity.

"PMA Contract" shall mean the Energy Service Agreement
between the Philadelphia Municipal Authority and Sublessee made
June 30, 1992.

"Rental Schedule" shall mean each schedule, executed by
Lessor and Lessee pursuant to this Master Lease, providing for a
description of some or all of the Equipment to be leased
hereunder, the place or places where such Equipment shall be
located, its Acquisition Cost, the Basic Rent payable by Lessee
with respect thereto, the Primary Term thereof, the Lease
Commencement Date with respect thereto, and such other matters as
Lessor and Lessee may agree upon.

"Stipulated Loss Value" shall mean the amounts specified in
the Table of Stipulated Loss Values applicable to the items of
the Equipment subject to a Rental Schedule, as provided by the
Schedule B attached to the Rental Schedule. Except as otherwise
provided in a writing signed by Lessor and Lessee, the Stipulated
Loss Value immediately prior to the end of the Primary Term for
any items of the Equipment shall be the Stipulated Loss Value
throughout any Renewal Term(s) for such items, and thereafter
until such items are returned to Lessor pursuant to the
provisions of this Lease or purchased by Lessee pursuant to any
then applicable purchase option provisions of this Lease.

"Sublease" shall mean the agreement providing for the lease
of the Equipment by Lessee as a sublessor to Sublessee.

"Sublessee" shall mean O'Brien (Philadelphia) Cogeneration,
Inc., a Delaware corporation.

IN WITNESS WHEREOF, the duly authorized representatives of
Lessor and Lessee have executed this Master Lease as of the date
first above written.

LESSOR: LESSEE:
FINANCING FOR SCIENCE O'BRIEN ENERGY SERVICES
AND INDUSTRY, INC. COMPANY

By: By:
- - --------------------- -------------------------

Title: Title:
-------------------------

ATTEST: ATTEST:

By: By:
- - ---------------------- -------------------------

Title: Title:
- - ---------------------- -------------------------

<PAGE>

TABLE OF CONTENTS

SECTION PAGE

1. Agreement for Lease of Agreement. . . . . . . . . . . . . .1

2. Delivery and Acceptance of Equipment. . . . . . . . . . . .1

3. Disclaimer of Warranties. . . . . . . . . . . . . . . . . .2

4. Primary Term. . . . . . . . . . . . . . . . . . . . . . . .3

6. Lessee's Representations and Warranties . . . . . . . . . .4

7. Identification Marks. . . . . . . . . . . . . . . . . . . .5

8. Fees and Taxes. . . . . . . . . . . . . . . . . . . . . . .6

9. General Indemnity . . . . . . . . . . . . . . . . . . . . .6

10. Use of Equipment; Location; Liens . . . . . . . . . . . . .7

11. Maintenance and Repairs; Additions to Equipment . . . . . .8

12. Loss, Damage or Destruction of Equipment. . . . . . . . . .8

13. Reports; Inspections. . . . . . . . . . . . . . . . . . . 10

14. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 10

15. Return of Equipment . . . . . . . . . . . . . . . . . . . 11

16. Lessor's Ownership; Equipment To Be and Remain Personal
Property. . . . . . . . . . . . . . . . . . . . . . . . . 12

17. Other Covenants . . . . . . . . . . . . . . . . . . . . . 13

18. Events of Default . . . . . . . . . . . . . . . . . . . . 14

19. Assignment and Transfer by Lessor . . . . . . . . . . . . 17

20. Recording and Filing; Expenses. . . . . . . . . . . . . . 18

21. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . 19

22. Failure or Indulgence not Waiver; Additional Rights of
Lessor. . . . . . . . . . . . . . . . . . . . . . . . . . 19

23. Sublease. . . . . . . . . . . . . . . . . . . . . . . . . 19

<PAGE>

24. Purchase Option . . . . . . . . . . . . . . . . . . . . . 19

25. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 20

26. Entire Agreement; Severability; Amendment or
Cancellation of Lease . . . . . . . . . . . . . . . . . . 20

27. Waiver of Jury. . . . . . . . . . . . . . . . . . . . . . 20

28. Restriction of Limitation Periods and Damages . . . . . . 20

29. Governing Law; Consent to Jurisdiction and Service. . . . 21

30. Lessor's Right to Perform for Lessee. . . . . . . . . . . 21

31. Binding Effect. . . . . . . . . . . . . . . . . . . . . . 21

32. General . . . . . . . . . . . . . . . . . . . . . . . . . 21

33. Definitions . . . . . . . . . . . . . . . . . . . . . . . 21

<PAGE>
MASTER EQUIPMENT LEASE AGREEMENT

Dated as of

November 19, 1992

between

FINANCING FOR SCIENCE AND INDUSTRY, INC.
(LESSOR)

AND

O'BRIEN ENERGY SERVICES COMPANY
(LESSEE)

<PAGE>

BLT LEASING CORP.

[original illegible] Third Avenue
New York, New York 10158 Equipment Lease
(212) 236-0860 No. 1333

LESSEE: O'Brien Environmental Energy, Inc.
225 South Eighth Street
Philadelphia, PA 19106
LOCATION OF EQUIPMENT
SELLER: (If other than Lessee's Address):

QUANTITY DESCRIPTION OF LEASED EQUIPMENT: MODEL NO., CATALOG NO. PRICE
OR OTHER IDENTIFICATION

See Equipment Schedule attached hereto and made part hereof.

TOTAL = $ 380,000.00

TERMS AND CONDITIONS OF LEASE

A. MONTHLY RENT PAYMENT B. TERM OF LEASE C. COMMENCEMENT DATE
$ 8,740.00 60 MONTHS
-------------------- ------------- -----------------

D. ADVANCE RENTALS E. RENTAL INSTALLMENT(S) TO WHICH ADVANCE
$ 8,740.00 RENTALS SHALL BE APPLIED 1st MONTHS
-------------------- --------------------------------------
ADDITIONAL PROVISIONS (IF ANY)

1. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor the personal property described above and in
any Schedule signed by the parties and made a part hereof (herein
called "Equipment").

2. The term of this lease ("Entire Term") shall be the
number of months stated in B (plus any partial month if the
commencement date is other than the first day of a month),
commencing on the date stated in C. Lessee authorizes Lessor to
insert said commencement date, provided such date shall not be
earlier than the date of delivery to Lessee of the Equipment or a
substantial part thereof.

3. The total rent for the Entire Term of this lease is
equal to the monthly rent payment stated in A multiplied by the
number of months stated in B (plus a pro-rata portion of one
month's rent if the commencement date is other than the first day
of a month). Lessee agrees to pay the total rent in monthly
installments, in advance, each in the amount stated in A (except,
in the event the commencement date is other than the first day of
a month, the first installment, which shall be a pro-rata portion
of said amount), commencing on the date stated in C and
continuing on the first day of each month thereafter. The
Advance Rentals stated in D shall be paid by Lessee prior to
Lessor's acceptance of this Lease and shall be applied to the

rental installments stated in E. Payment of all rentals shall be
made to Lessor at its above-stated address, or as it shall
otherwise designate in writing.

4. Lessor make NO WARRANTIES as to the Equipment and none
shall be implied, including without limitation, its condition,
merchantability or fitness for a particular purpose or compliance
with any applicable governmental requirements or regulation.
Lessee agrees to look solely to the manufacturer, seller or
carrier of the Equipment for any claim arising from any defect,
breach of warranty, failure or delay in delivery, misdelivery or
inability to use the Equipment for any reason whatsoever and
Lessee's obligations to Lessor hereunder shall not in any manner
be affected thereby. Lessor shall not be liable for any loss,
damage or expense caused directly or indirectly by any item of
Equipment, the use, maintenance, repair or servicing thereof, by
any delay or failure to provide same, by any interruption of
service or loss of service or loss of use, or for any loss of
business or other consequential damages however caused.

5. Lessee has selected and requested Lessor to order the
Equipment from the above named Seller. Lessor agrees to order
same from Seller but shall not be liable for specific performance
or damages if for any reason Seller delays or fails to fill the
order. Lessor has no obligation to install the Equipment and
Lessee shall look solely to Seller for any manuals or other
literature relating to the Equipment.

6. Lessee shall accept the Equipment upon its delivery and
authorizes Lessor to insert herein the serial numbers and any
additional description of the items of Equipment so delivered.
Unless Lessee gives Lessor and Seller written notice of each
defect or other proper objection to any item of Equipment within
five (5) business days after delivery thereof, it shall be
conclusively presumed that the Equipment was duly delivered and
unconditionally accepted by Lessee. If Lessee refuses delivery
of any item of Equipment for any reason whatsoever, then and in
that event, Lessee agrees to pay the price invoiced to Lessor by
Seller, or if such payment is not made, Lessee does indemnify and
hold Lessor harmless from and agrees to protect and defend Lessor
at Lessee's expense against any claim of liability and damage by
Seller with reference to such item. Upon such payment, this
lease shall terminate as to said item of Equipment only, and the
rental hereunder shall be proportionately adjusted. The purchase
order, if any, may, at Lessor's option, provide in substance that
if Lessee shall refuse to accept delivery of any item ordered,
Lessor shall be deemed relieved of any liability under such
purchase order and that all obligations thereunder shall, upon
such refusal, be deemed solely those of Lessee, with the same
force and effect as if Lessee, instead of Lessor, had placed such
order; and Lessee hereby agrees in such event, to be bound by

such provision. Lessor shall not be responsible for the failure
of the purchase order to contain any description, specification,
term or condition with respect to any item leased hereunder, or
its delivery, assembly or installation, not set forth herein.

7. Lessee shall keep the Equipment within the United
States at the above-stated Location of Equipment or, if none is
specified, at Lessee's above-stated address within the United
States and Lessee shall not remove any of the same therefrom
without Lessor's prior written consent not unreasonably withheld
(except, in the event the Equipment is installed in a motor
vehicle, such motor vehicle shall be principally garaged at the
above-stated Location of Equipment and may be temporarily removed
therefrom in connection with the ordinary use of such motor
vehicle).

8. Lessee shall use the Equipment in a careful manner and
shall, at its expense, keep the Equipment in good repair and
comply with all laws, ordinances, regulations or requirements of
any governmental authority, official, board or department
relating to its installation, possession, use or maintenance.

9. The Equipment is, and shall at all times remain, the
property of Lessor and Lessee shall have no right, title or
interest therein or thereto except as set forth herein. Upon
Lessor's request, Lessee shall affix and keep in a prominent
place on each item of Equipment labels, plates or other markings
indicating that the Equipment is owned by Lessor.

10. Lessee shall not make any modifications, alterations,
additions or improvements to the Equipment outside of industry
standards without Lessor's prior written consent. All such
additions and improvements shall belong to Lessor. The Equipment
shall remain personal property regardless of its affiliation to
any realty. Lessor shall have the right to enter Lessee's
premises during business hours to inspect the Equipment and
observe its use. Lessee represents, warrants and covenants that,
unless Lessee owns the premises in which the Equipment is to be
located and said premises are not subject to any mortgage or
lease, Lessee shall provide Lessor, within 30 days following the
execution by Lessee of this lease, with a waiver from each lessor
or mortgagor of the premises in which the Equipment is to be
located of any rights which such lessor or mortgagor may have in
respect of the Equipment (including, but not limited to, claims
against the Equipment by reason of accession, distraint or that
the Equipment constitutes a fixture affixed to real property) and
to procure for Lessor, in form acceptable to Lessor, such
documents with respect to such waiver as Lessor may reasonably
request.

11. Lessee shall bear the entire risk of loss, theft,
destruction of or damage to the Equipment or any part thereof
from any cause whatsoever and shall not be relieved of the
obligation to pay the total rent or any other obligation
hereunder because of any such occurrence. In the event of damage
to any item of Equipment, Lessee, at its sole expense and at the
option of Lessor, shall immediately place the same in good
repair. If Lessor determines that any item of Equipment is lost,
stolen, destroyed or damaged beyond repair, Lessee, at its sole
expense and at the option of Lessor, shall (a) replace the same
with like equipment in good repair, or (b) acquire Lessor's
interest in such item of Equipment by paying Lessor in cash in
addition to any other amount due hereunder, the unpaid balance of
the total rent for the unexpired term hereof attributable to said
item. Upon Lessor's receipt of such payment, Lessee shall be
entitled to Lessor's interest in said item and to possession of
same at its then location, as is, and without recourse to Lessor.

12. Lessee shall, at its expense, keep the Equipment fully
insured favor of Lessor against loss, fire, theft, damage or
destruction from any cause whatsoever in an amount not less than
the total rent hereunder, and such additional insurance against
injury, loss or damage to persons or property arising out of the
use or operation of the Equipment as is customarily maintained by
the owners of like property, with companies satisfactory to
Lessor under policies providing for 30 days' notice to Lessor of
modification or cancellation by the insurer or Lessee. Each
policy shall provide that, as to the interest or coverage of
Lessor or Lessor's assignee, the insurance afforded thereby shall
not be suspended, forfeited, or in any manner prejudiced by any
default or by any breach of warranty, condition, or covenant on
the part of Lessee. Lessor, at its option, may apply any
proceeds of said insurance to replace or repair the Equipment
and/or to Lessee's obligations hereunder. If Lessee shall fail
to provide said insurance or, within ten (10) days after Lessor's
request therefor, shall fail to deliver the policies or
certificates thereof to Lessor, then Lessor, at its option, shall
have the right to procure such insurance and to add the cost
thereof to the rent payment next becoming due which Lessee agrees
to pay as additional rent.

13. Lessee covenants and agrees to keep the Equipment free
and clear of all levies, liens, and encumbrances and to pay all
charges, taxes and fees which may now or hereafter be imposed
upon the ownership, leasing, rental, sale, purchase, possession
or use of the Equipment except taxes on or measured by Lessor's
income. If any of same shall remain unpaid when due, Lessor may
pay same and add such payment to the rent payment next becoming
due, as additional rent.

<Page 5>
14. Lessee agrees to indemnify and save Lessor harmless
from any and all claims, actions, proceedings, expenses, damages
and liabilities, including reasonable attorneys' fees, arising
out of or in any manner pertaining to the Equipment or this lease
including, without limitation, the ownership, selection,
possession, purchase, delivery, installation, leasing, operation,
use, control, maintenance and return of the Equipment, any claims
of trademark, patent or copyright infringement with respect to
the Equipment and the recovery of claims under insurance policies
thereon. Lessee's obligation to indemnify Lessor pursuant to
this paragraph shall survive any termination of this lease.

15. Lessee shall not assign, pledge, mortgage or otherwise
transfer or encumber any of its rights under this lease or in the
Equipment or any part thereof, nor sublet any part thereof, nor
permit its use by anyone other than Lessee and its regular
employees, without Lessor's prior written consent. Any such
purported transfer, assignment or other action without Lessor's
written consent shall be void. Lessor may, without notice,
transfer or assign this lease or any interest herein and may
mortgage, encumber or transfer any of its right or interest in
and to the Equipment or any part thereof and, without limitation,
each assignee, transferee and mortgagee shall have the right to
transfer or assign its interest. Each such assignee, transferee
and mortgagee shall have all of the rights but none of the
obligations of Lessor under this lease and Lessee shall not
assert against any of them any defense, claim, counterclaim or
set-off that Lessee may have against Lessor.

16. As used in this lease, the term "Event of Default"
shall mean any of the following: (a) the failure by Lessee to
make any payment when due hereunder or the failure by any Obligor
(as hereinafter defined) to pay when due any of the Liabilities
(as hereinafter defined); (b) the failure by an Obligor to
observe or perform (i) any other agreement or obligation to be
observed or performed hereunder or under any agreement, document
or instrument delivered to Lessor by or on behalf of an Obligor
or otherwise relating to any of the Liabilities (collectively,
the "Other Documents"), or (ii) any other obligation of an
Obligor to Lessor or to Bank Leumi Trust Company of New York
("Bank"); (c) any representation made by or on behalf of any
Obligor in this lease or in any of the Other Documents shall at
any time prove to have been incorrect or untrue when made; (d)
the making by an Obligor of any misrepresentation to Lessor or
the failure on the part of an Obligor to disclose to Lessor any
material fact in connection with this lease or otherwise, either
contemporaneously herewith or at any time prior or subsequent to
the execution hereof; (e) the material breach by an Obligor of
any warranty contained herein or in any of the Other Documents;
(f) a default in the payment of any indebtedness owed to any
individual in excess of 1/2 million or entity other than Lessor

or Bank, or a default in the performance or observance of the
terms of any agreement, document or instrument pursuant to which
such indebtedness was created, secured or guaranteed, the effect
of which default is to cause or permit the holder of any such
indebtedness to cause the same to be due prior to its stated
maturity (whether or not such default is waived by the holder
thereof); (g) the failure of an Obligor to pay, withhold, collect
or remit when asserted or due any tax, assessment or other sum
payable with respect to the Equipment or any security for any of
the Liabilities (including without limitation any premium on any
insurance policy with respect (to any of the Equipment or any
security for any of the Liabilities, or any insurance policy
assigned to Lessor as security for any of the Liabilities), or
the making of any material tax assessment against any Obligor by
the United States or any state or local government not contested
in good faith; (h) the entry of a judgment against an Obligor or
any attachment, levy or execution against any property of an
Obligor, or the condemnation or seizure of any part of any
property of an Obligor by any governmental authority or court at
the instance of such governmental authority; (i) the death of an
Obligor, if an individual, or the death of any individual member
of an Obligor, if a partnership or joint venture; (j) the
suspension of the usual business of an Obligor, or the
dissolution, liquidation or other termination of existence of an
Obligor, or the adoption of any resolution for the dissolution,
liquidation or other termination of existence of an Obligor;
(k) the failure of an Obligor (or any admission in writing by an
Obligor of its inability) to generally pay its debts as they
become due or the insolvency or business failure of an Obligor;
(l) the filing of an application for appointment of a trustee,
custodian or receiver for an Obligor or of any part of an
Obligor's property, or an assignment for the benefit of creditors
by an Obligor, or the making or sending of notice of any intended
bulk transfer by an Obligor; (m) the filing of a petition in
bankruptcy by or against an Obligor, or the commencement by or
against an Obligor of any proceeding under any bankruptcy or
insolvency law or statute, or any law or statute relating to the
relief of debtors or arrangement of debt, readjustment of
indebtedness, reorganization, receivership or composition, or the
extension of indebtedness; or (n) such a change in the condition
or affairs (financial or otherwise) of an Obligor as shall, in
the sole opinion of Lessor, increase Lessor's risk with respect
to this lease, the Equipment or any of the Liabilities or any
security therefor. [original illegible] Upon the occurrence of
an Event of Default, then, at Lessor's option, the entire unpaid
total rent for the balance of the Entire Term hereof shall be at
once due and payable and Lessor may, without demand or legal
process, terminate this lease and enter upon the premises where
the Equipment is located, take possession of and remove same, and
exercise any one or more of the following rights and remedies,
without liability to Lessee therefor and without affecting

Lessee's obligations hereunder: (i) sell, lease or otherwise
dispose of the Equipment or any part thereof at one or more
public or private sales, leases or other dispositions, at
wholesale or retail, for such consideration, on such terms, for
cash or on credit, as Lessor may deem advisable, on at least ten
(10) days' notice to Lessee of any public sale or of the time
after which a private sale, lease or other disposition may be
made (which notice Lessee acknowledges is reasonable); or
(ii) retain the Equipment or any part thereof, crediting Lessee
with the then reasonable rental value thereof for the balance of
the Entire Term of this lease; or (iii) pursue any other remedy
granted by any existing or future document executed by Lessee or
by law. Lessee agrees to pay all Lessor's expenses, including
but not limited to the costs of repossessing, storing, repairing
and preparing Equipment for sale or lease, commissions payable in
connection with any such sale or lease, and reasonable attorney's
fees if an attorney shall be consulted. The net proceeds
realized from any such sale, lease or other disposition or the
exercise of any other remedy, after deducting therefrom an amount
equal to 20% of the invoice cost of the Equipment and all
expenses (which amount shall be retained by Lessor), shall be
applied toward payment of the unpaid rentals hereunder through
the end of the Entire Term of this lease. Lessee to remain
liable for any deficiency. Any amount due Lessor under this
paragraph shall be deemed liquidated damages for the breach
hereof and not a penalty. All rights and remedies of Lessor
shall be cumulative and not alternative. Lessor's failure to
exercise or delay in exercising any right or remedy shall not be
construed as a waiver thereof, nor shall a waiver on one occasion
be construed to bar the exercise of any right or remedy on a
future occasion.

For purposes of this lease, (a) the term "Obligor" shall
mean Lessee and any guarantor or hypothecator or any other party
liable for any of the Liabilities of Lessee in addition to
Lessee, and (b) the term "Liabilities" shall mean all liabilities
and obligations of any kind of all Obligors (or any partnership,
joint venture or other group of which an Obligor is a member) to
Lessee or Bank whether (i) for the account of Lessor or Bank, or
as agent for others, (ii) acquired directly or indirectly by
Lessor or Bank from Lessee or others, (iii) absolute or
contingent, joint or several, secured or unsecured, liquidated or
unliquidated, due or not due, contractual or tortious, or now
existing or hereinafter arising, or (iv) incurred by an Obligor
as principal, surety, endorser, guarantor or otherwise, and
including without limitation all expenses, including attorneys'
fees, incurred by Lessor or Bank in connection with any such
liabilities or obligations or any security therefor.

17. Lessee agrees to pay a later charge of 5 cents per dollar on
any rent installment in default ten (10) days or more not
theretofore accelerated.

18. Lessee agrees that this lease is irrevocable for the
Entire Term, that Lessee's obligations under this lease are
absolute and shall continue without abatement and regardless of
any disability of Lessee to use the Equipment or any part thereof
because of any reason including, but not limited to war, act of
God, governmental regulations, strike, loss, damage, destruction,
obsolescence, failure of or delay in delivery, failure of the
Equipment to operate properly, termination by operation of law or
any other cause. Lessee warrants that the application,
statements and credit or financial information submitted by it to
Lessor are true and correct and made to induce Lessor to enter
into this lease and to order the Equipment from Seller. Lessee
will provide to Lessor audited annual financial statements and
such other interim financial statements as Lessor may request,
such financial statements to be furnished within 120 days after
the end of each fiscal year or appropriate interim period of
Lessee during the Entire Term of this lease.

19. Lessor warrants, covenants and agrees that upon
expiration or termination of this lease and any renewal hereof,
with respect to any item of Equipment, Lessee shall, at its
expense, return such Equipment in the same condition as received,
reasonable wear and tear excepted, by delivering same to Lessor
or to a place designated by Lessor, unless Lessor shall elect to
abandon all or part of such Equipment.

20. Lessee further agrees that upon expiration of this
lease it shall pay promptly all costs, expenses and obligations
of every kind and nature relating to the Equipment which may
arise or become due during the term of this lease, whether or not
specifically mentioned herein. No rental or other sums payable
by Lessee pursuant to this lease shall be subject to set-off,
deduction, counterclaim or abatement, nor shall this lease
terminate, nor shall Lessee be entitled to any credit against
such rental or other sums for any reason whatsoever, including,
but not in any way limited to any damage to or destruction of the
Equipment or any item thereof, any limitation, restriction,
deprivation or prevention of, or any interference with Lessee's
use of the Equipment or any item thereof, whether the same shall
be lawful or unlawful, any dispossession of Lessee from the
Equipment or any item thereof by title paramount or otherwise;
the requisition or taking by statute or by exercise of the power
of eminent domain or other governmental authority or otherwise,
or by injunction or by any private person, of the Equipment or
any item thereof, the prohibition of Lessee's business, in whole
or in part, whether pursuant to law or otherwise, or any reason
whether similar or dissimilar to the foregoing.

21. Lessee hereby agrees that all actions or proceedings
arising directly or indirectly from or in connection with this
lease shall be litigated only in the Supreme Court of the State
of New York or the United States District Court for the Southern
District of New York. Lessee consents to the jurisdiction of the
foregoing courts and consents that any process or notice of
motion or other application to either of said courts or a judge
thereof may be served inside or outside the State of New York or
the Southern District of New York by registered or certified
mail, return receipt requested, directed to Lessee at its address
set forth in this lease (and service so made shall be deemed
complete five (5) days after the same has been posted as
aforesaid) or by personal service, or in such other manner as may
be permissible under the rules of said courts. Lessee appoints
any officer of Lessor as agent for the purpose of accepting
service of any process within the State of New York, subject only
to the condition that the officer promptly mail a copy of that
process to Lessee at its address for notices hereunder.

22. Any notice to a party hereunder shall be deemed given
when mailed to said party by certified mail, return receipt
requested, at its address set forth herein or such other address
as either may designate for itself in such notice to the other.

23. Whenever the sense of this agreement requires, words in
the singular shall be deemed to include the plural and words in
the plural shall be deemed to include the singular. If more than
one Lessee is named herein, the liability of each shall be joint
and several.

24. This Agreement constitutes the entire mutual
understanding of the parties regarding the within subject matter
and may not be modified except in writing, signed by the party
against whom such modification is asserted. Lessee shall have no
option to purchase or otherwise acquire title to or ownership of
any of the Equipment unless such option is set forth in writing
signed by a duly authorized officer of Lessor.

25. Notwithstanding Lessee's acknowledgment, if any, that
this is a "true" lease, Lessee hereby authorizes Lessor, at its
option and as contemplated by Section 9-408 of the New York
Uniform Commercial Code, to file financing statements covering
the Equipment signed only by Lessor, and agrees to pay Lessor the
actual fee for such filings.

26. This lease shall be construed under the laws of the
State of New York and shall not become effective until accepted
by Lessor at its above office and upon such acceptance shall,
subject to Paragraph 15 hereof, inure to and bind the parties,
their successors, legal representatives and assigns. No
provision hereof which may be construed as unenforceable shall in

any way invalidate any other provision hereof, all of which shall
remain in full force and effect. All representations,
warranties, indemnities and agreements of Lessee contained in
this lease shall survive and continue in full force and effect
notwithstanding termination or expiration of this lease.

No agent or employee of Seller is authorized to bind Lessor
to this Lease, to alter or waive any term or condition hereof, or
to add any provision hereto, notwithstanding any compensation or
benefit that may be given by Lessor to Seller or any agent or
employee of Seller.

The undersigned agree to all Terms and Conditions set forth
above and on the REVERSE SIDE HEREOF, and in witness thereof
hereby execute this lease.

ACCEPTED: NEW YORK, N.Y.

DATE: July 28, 1993 LESSEE: O'Brien Environmental
Energy, Inc.
Full Name of Individual,
Partnership or Corporation

LESSOR: BLT LEASING CORP.

By:/s/ By:/s/
- - -------------------------- ------------------------------
Person Authorized to
Sign Title

FAIRBANKS PURCHASE AGREEMENT

This Agreement ("Agreement") is entered into on this 30th
day of June, 1994 between O'Brien Environmental Energy, Inc., a
Delaware Corporation, with its principal offices at 225 S. Eighth
Street, Philadelphia, Pennsylvania (hereinafter "Purchaser") and
SmithKline Beecham Corporation, a Pennsylvania corporation, with
offices 709 Swedeland Road, King of Prussia, PA 19406-0930
(hereinafter "Seller").

BACKGROUND

WHEREAS, the Purchaser wishes to purchase, subject to the
terms and conditions set out below, two (2) diesel powered
electric generator sets manufactured by Fairbanks Morse with a
combine net electric output rating of approximately four (4)
megawatts and related equipment and further described in Exhibit
A (the "Gensets"); and

WHEREAS, the Seller is the owner of said Gensets and is
willing to sell to the Purchaser said Gensets on the terms and
conditions set out below;

NOW THEREFORE, in consideration of the mutual covenants
contained herein, the sufficiency of which is acknowledged by
both parties, the parties do hereby agree as follows:

1. Purchase of Gensets: Purchaser hereby agrees to
purchase, and Seller agrees to sell, subject to the terms and
conditions set out below, the Gensets plus all auxiliary
equipment, as more fully described in the specifications set out
in Exhibit A to this Agreement (hereinafter the "Equipment").

2. Price: The purchase price for the Equipment shall be
$250,000. Such price is firm, and is not subject to escalation.

3. Shipping and Delivery Terms: Purchaser shall be
responsible for the cost of removing and shipping the Equipment
from its present location at the power house facility located on
Seller's property in King of Prussia, PA. Purchaser agrees that
it will not remove the Equipment until 4.8 megawatts of the
Emergency Generators have been installed and are operating in
accordance with and the Seller has acknowledged in writing that
the Purchaser has complied with the terms of the Energy Service
Agreement dated February 28, 1994 between the Seller and O'Brien
Standby Power Energy, Inc., as amended by an Amendment to Energy
Service Agreement dated June 30, 1994 (the "Amended Energy
Agreement"). Seller agrees to allow Purchaser to store the
Equipment at such facility at no cost to Purchaser from the date
of this Agreement until the Removal Date.

4. Acceptance of Purchase Order: Purchaser expressly
limits Seller's acceptance of this Agreement to the terms and
conditions of purchase stated herein, except as may be modified
by Seller and accepted by Purchaser in writing.

5. Payment Schedule: Payment for the Equipment shall be
due as follows: (a) $25,000 within six (6) months of the
execution of this Agreement and (b) $25,000 every twelve (12)
months thereafter until the sum of $250,000 is fully paid.

6. Passage of Title: Title to all Equipment shall pass to
Purchaser upon the execution of this Agreement. Purchaser
warrants that title shall be free of all encumbrances and liens,
and Seller shall indemnify Purchaser against any expenses
incurred in removing any such encumbrances or liens, including
reasonable legal fees.

7. Condition of Equipment: Seller represents that the
Equipment is used and is being sold in its "as is, where is"
condition. Seller shall provide to Purchaser all drawings,
operation and maintenance manuals, and technical specifications
which it has available.

8. Responsibility for Taxes and Duties: Seller represents
that all duties or other taxes which may be owing on the
Equipment have been paid in full.

9. Dispute Resolution: In the event a dispute arises
between Seller and Purchaser regarding the application or
interpretation of any provision of this Agreement, the aggrieved
party shall promptly notify the other party to this Agreement of
the dispute within ten (10) business days after such dispute
arises. If the parties shall have failed to resolve the dispute
within ten (10) business days after delivery of such notice, each
party shall, within five (5) business days thereafter, nominate a
senior officer of its management to meet at a mutually agreeable
location to resolve the dispute. Should the parties be unable to
resolve the dispute to their mutual satisfaction within ten (10)
business days after such nomination, each Party shall have the
right to pursue any and all remedies available at law or in
equity. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, and any such action brought to
enforce this Agreement shall be limited to the courts of
Pennsylvania. Seller agrees to submit to the jurisdiction of
such courts, and agrees that any judgment shall be binding and
enforceable as to Seller.

10. No Waiver: Any failure of any party to enforce any of
the provisions of this Agreement or to require compliance with
any of its terms at any time during the pendency of this
Agreement shall in no way affect the validity of this Agreement,
or any part thereof, and shall not be deemed a waiver of the
right of such party thereafter to enforce any and each such
provisions.

11. Complete Agreement: This Agreement with the terms and
conditions of purchase stated herein and its attached
specifications, drawings, Exhibits, special instructions, if
applicable, which by this reference are made a part hereof, sets
forth the entire Agreement between the parties, and all prior and
contemporaneous negotiations and writings are superseded and
replaced hereby. No other terms or conditions, including those
contained in any quotation or acknowledgement issued by Seller,
shall be binding upon Purchase unless accepted in writing by
Purchaser.

12. Counterparts; Facsimile Signature: This Agreement may
be executed in two or more counterparts, all of which when taken
together shall constitute one and the same agreement. Any
Facsimile signature of either party hereto shall constitute a
legal, valid and binding execution hereof by such party.

13. Set-off Regarding Payment: In the event that the
Purchaser or the Seller is not paid in full for any undisputed
amount then due and owing pursuant to this Agreement or the
Amended Energy Agreement, the affected party shall have the
right, notwithstanding any other rights such party may have
against any other person, firm or corporation, to set-off such
unpaid amount against any amounts owned by it or to it pursuant
to this Agreement or to the Amended Energy Agreement.

IN WITNESS WHEREOF, the Purchaser and the Seller have
executed this Agreement on the date first above stated.

SMITHKLINE BEECHAM O'BRIEN ENVIRONMENTAL
CORPORATION ENERGY, INC.

By: By:
- - ----------------------- ---------------------
Title: Title:
- - ----------------------- ---------------------

INDEPENDENT ACCOUNTANTS CONSENT

We consent to the incorporation by reference in the
registration statements of O'Brien Environmental Energy, Inc. on
Form S-8's (File No. 33-15786, 33-50784, and 33-25316) of our report
(which includes explanatory paragraphs regarding : 1) litigation
for which the ultimate outcome cannot presently be determined;
and 2) the Company's ability to continue as a going concern),
dated October 7, 1994 on our audits of the consolidated financial
statements and financial statement schedules of O'Brien
Environmental Energy, Inc. as of June 30, 1994 and 1993, and for
the years ended June 30, 1994, 1993 and 1992, which report is
included in this Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania

October 7, 1994

<ARTICLE> 5
<LEGEND>
Schedule of summary financial information O'Brien Environmental Energy, Inc.
(Dollars in thousands)
</LEGEND>

<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 10,275
<SECURITIES> 0
<RECEIVABLES> 12,100
<ALLOWANCES> 0
<INVENTORY> 3,241
<CURRENT-ASSETS> 30,196
<PP&E> 209,144
<DEPRECIATION> 32,630
<TOTAL-ASSETS> 237,816
<CURRENT-LIABILITIES> 155,879
<BONDS> 60,310
<COMMON> 169
0
0
<OTHER-SE> (651)
<TOTAL-LIABILITY-AND-EQUITY> 237,816
<SALES> 106,589
<TOTAL-REVENUES> 106,589
<CGS> 84,174
<TOTAL-COSTS> 84,174
<OTHER-EXPENSES> 12,740
<LOSS-PROVISION> 6,250
<INTEREST-EXPENSE> 18,013
<INCOME-PRETAX> (14,588)
<INCOME-TAX> 1,913
<INCOME-CONTINUING> (16,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,501)
<EPS-PRIMARY> (0.98)
<EPS-DILUTED> (0.98)

</TABLE>