Exhibit 10.31

LOAN AGREEMENT

BY AND BETWEEN

NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST

AND

MIDDLESEX WATER COMPANY

 

DATED AS OF NOVEMBER 1, 2006

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TABLE OF CONTENTS

 
Page
   
ARTICLE I
   
DEFINITIONS
     
SECTION 1.01. Definitions
2
   
ARTICLE II
   
REPRESENTATIONS AND COVENANTS OF BORROWER
     
SECTION 2.01. Representations of Borrower
7
SECTION 2.02. Particular Covenants of Borrower
11
   
ARTICLE III
   
LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS
   
SECTION 3.01. Loan; Loan Term
20
SECTION 3.02. Disbursement of Loan Proceeds
20
SECTION 3.03. Amounts Payable
21
SECTION 3.04. Unconditional Obligations
22
SECTION 3.05. Loan Agreement to Survive Bond Resolution and Trust Bonds
23
SECTION 3.06. Disclaimer of Warranties and Indemnification
23
SECTION 3.07. Option to Prepay Loan Repayments
24
SECTION 3.08. Priority of Loan and Fund Loan
25
SECTION 3.09. Approval of the New Jersey State Treasurer
25
   
ARTICLE IV
   
ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND
   
SECTION 4.01. Assignment and Transfer by Trust
27
SECTION 4.02. Assignment by Borrower
27
   
ARTICLE V
   
EVENTS OF DEFAULT AND REMEDIES
   
SECTION 5.01. Events of Default
28
SECTION 5.02. Notice of Default
29
SECTION 5.03. Remedies on Default
29
SECTION 5.04. Attorneys' Fees and Other Expenses
29

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SECTION 5.05. Application of Moneys
29
SECTION 5.06. No Remedy Exclusive; Waiver; Notice
30
SECTION 5.07. Retention of Trust's Rights
30
     
ARTICLE VI
     
MISCELLANEOUS
     
SECTION 6.01. Notices
31
SECTION 6.02. Binding Effect
31
SECTION 6.03. Severability
31
SECTION 6.04. Amendments, Supplements and Modifications
31
SECTION 6.05. Execution in Counterparts
32
SECTION 6.06. Applicable Law and Regulations
32
SECTION 6.07. Consents and Approvals
32
SECTION 6.08. Captions
32
SECTION 6.09. Benefit of Loan Agreement; Compliance with Bond Resolution
32
SECTION 6.10. Further Assurances
32
     

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NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST LOAN AGREEMENT

THIS LOAN AGREEMENT, made and entered into as of this November 1, 2006, by and
between the NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST, a public body
corporate and politic with corporate succession, and the Borrower (capitalized
terms used in this Loan Agreement shall have, unless the context otherwise
requires, the meanings set forth in said Section 1.01);

WITNESSETH THAT:

WHEREAS, the Trust, in accordance with the Act, the Bond Resolution and a
financial plan approved by the State Legislature in accordance with Sections 22
and 22.1 of the Act, will issue its Trust Bonds on or prior to the Loan Closing
for the purpose of making the Loan to the Borrower and the Loans to the
Borrowers from the proceeds of the Trust Bonds to finance a portion of the Costs
of Environmental Infrastructure Facilities;

WHEREAS, the Borrower has, in accordance with the Act and the Regulations, made
timely application to the Trust for a Loan to finance a portion of the Costs of
the Project;

WHEREAS, the State Legislature, in accordance with Sections 20 and 20.1 of the
Act, has in the form of an appropriations act approved a project priority list
that includes the Project and that authorizes an expenditure of proceeds of the
Trust Bonds to finance a portion of the Costs of the Project;

WHEREAS, the Trust has approved the Borrower's application for a Loan from
available proceeds of the Trust Bonds to finance a portion of the Costs of the
Project;

WHEREAS, in accordance with the applicable Bond Act (as defined in the Fund Loan
Agreement), and the Regulations, the Borrower has been awarded a Fund Loan for a
portion of the Costs of the Project; and

WHEREAS, the Borrower, in accordance with the Act, the Regulations, the Business
Corporation Law and all other applicable law, will issue a Borrower Bond to the
Trust evidencing said Loan at the Loan Closing.

NOW, THEREFORE, for and in consideration of the award of the Loan by the Trust,
the Borrower agrees to complete the Project and to perform under this Loan
Agreement in accordance with the conditions, covenants and procedures set forth
herein and attached hereto as part hereof, as follows:

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ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions. (a) The following terms as used in this Loan
Agreement shall, unless the context clearly requires otherwise, have the
following meanings:

"Act" means the "New Jersey Environmental Infrastructure Trust Act",
constituting Chapter 334 of the Pamphlet Laws of 1985 of the State (codified at
N.J.S.A. 58:11B-1 et seq.), as the same may from time to time be amended and
supplemented.

"Administrative Fee" means that portion of Interest on the Loan or Interest on
the Borrower Bond payable hereunder as an annual fee of up to four-tenths of one
percent (.40%) of the initial principal amount of the Loan or such lesser
amount, if any, as may be authorized by any act of the State Legislature and as
the Trust may approve from time to time.

"Authorized Officer" means, in the case of the Borrower, any person or persons
authorized pursuant to a resolution of the board of directors of the Borrower to
perform any act or execute any document relating to the Loan, the Borrower Bond
or this Loan Agreement.

"Bond Counsel" means a law firm appointed or approved by the Trust, as the case
may be, having a reputation in the field of municipal law whose opinions are
generally acceptable by purchasers of municipal bonds.

"Borrower" means the corporation that is a party to and is described in Schedule
A to this Loan Agreement, and its successors and assigns.

"Borrower Bond" means the general obligation bond, note, debenture or other
evidence of indebtedness authorized, executed, attested and delivered by the
Borrower to the Trust and, if applicable, authenticated on behalf of the
Borrower to evidence the Loan, a specimen of which is attached hereto as Exhibit
D and made a part hereof.

"Borrowers" means any other Local Government Unit or Private Entity (as such
terms are defined in the Regulations) authorized to construct, operate and
maintain Environmental Infrastructure Facilities that have entered into Loan
Agreements with the Trust pursuant to which the Trust will make Loans to such
recipients from moneys on deposit in the Project Fund, excluding the Project
Loan Account.

"Business Corporation Law" means the "New Jersey Business Corporation Act",
constituting Chapter 263 of the Pamphlet Laws of 1968 of the State (codified at
N.J.S.A. 14A:1-1 et seq.), as the same may from time to time be amended and
supplemented.

"Code" means the Internal Revenue Code of 1986, as the same may from time to
time be amended and supplemented, including any regulations promulgated
thereunder, any successor code thereto and any administrative or judicial
interpretations thereof.

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"Cost" means those costs that are eligible, reasonable, necessary, allocable to
the Project and permitted by generally accepted accounting principles, including
Allowances and Building Costs (as defined in the Regulations), as shall be
determined on a project-specific basis in accordance with the Regulations as set
forth in Exhibit B hereto, as the same may be amended by subsequent eligible
costs as evidenced by a certificate of an authorized officer of the Trust.

"Debt Service Reserve Fund" means the Debt Service Reserve Fund as defined in
the Bond Resolution.

“Department” means the New Jersey Department of Environmental Protection.

"Environmental Infrastructure Facilities" means Wastewater Treatment Facilities,
Stormwater Management Facilities or Water Supply Facilities (as such terms are
defined in the Regulations).

"Environmental Infrastructure System" means the Environmental Infrastructure
Facilities of the Borrower, including the Project, described in Exhibit A-1
attached hereto and made a part hereof for which the Borrower is borrowing the
Loan under this Loan Agreement.

"Event of Default" means any occurrence or event specified in Section 5.01
hereof.

“Excess Project Funds” shall have the meaning set forth in Section 3.03A hereof.

"Fund Loan" means the loan made to the Borrower by the State, acting by and
through the Department, pursuant to the Fund Loan Agreement dated as of November
1, 2006 by and between the Borrower and the State, acting by and through the
Department, to finance or refinance a portion of the Costs of the Project.

"Fund Loan Agreement" means the loan agreement dated as of November 1, 2006 by
and between the Borrower and the State, acting by and through the Department,
regarding the terms and conditions of the Fund Loan.

"Interest on the Loan" or "Interest on the Borrower Bond" means the sum of (i)
the Interest Portion, (ii) the Administrative Fee, and (iii) any late charges
incurred hereunder.

"Interest Portion" means that portion of Interest on the Loan or Interest on the
Borrower Bond payable hereunder that is necessary to pay the Borrower's
proportionate share of interest on the Trust Bonds (i) as set forth in Exhibit
A-2 hereof under the column heading entitled "Interest", or (ii) with respect to
any prepayment of Trust Bond Loan Repayments in accordance with Section 3.07 or
5.03 hereof, to accrue on any principal amount of Trust Bond Loan Repayments to
the date of the optional redemption or acceleration, as the case may be, of the
Trust Bonds allocable to such prepaid or accelerated Trust Bond Loan Repayment.

"Loan" means the loan made by the Trust to the Borrower to finance or refinance
a portion of the Costs of the Project pursuant to this Loan Agreement.

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"Loan Agreement" means this Loan Agreement, including the Exhibits attached
hereto, as it may be supplemented, modified or amended from time to time in
accordance with the terms hereof and of the Bond Resolution.

"Loan Agreements" means any other loan agreements entered into by and between
the Trust and one or more of the Borrowers pursuant to which the Trust will make
Loans to such Borrowers from moneys on deposit in the Project Fund, excluding
the Project Loan Account, financed with the proceeds of the Trust Bonds.

"Loan Closing" means the date upon which the Trust shall issue and deliver the
Trust Bonds and the Borrower shall deliver its Borrower Bond, as previously
authorized, executed, attested and, if applicable, authenticated, to the Trust.

"Loan Repayments" means the sum of (i) Trust Bond Loan Repayments, (ii) the
Administrative Fee, and (iii) any late charges incurred hereunder.

"Loan Term" means the term of this Loan Agreement provided in Sections 3.01 and
3.03 hereof and in Exhibit A-2 attached hereto and made a part hereof.

"Loans" means the loans made by the Trust to the Borrowers under the Loan
Agreements from moneys on deposit in the Project Fund, excluding the Project
Loan Account.

"Master Program Trust Agreement" means that certain Master Program Trust
Agreement, dated as of November 1, 1995, by and among the Trust, the State,
United States Trust Company of New York, as Master Program Trustee thereunder,
The Bank of New York (NJ), in several capacities thereunder, and First Fidelity
Bank, N.A. (predecessor to Wachovia Bank, National Association), in several
capacities thereunder, as supplemented by that certain Agreement of Resignation
of Outgoing Master Program Trustee, Appointment of Successor Master Program
Trustee and Acceptance Agreement, dated as of November 1, 2001, by and among
United States Trust Company of New York, as Outgoing Master Program Trustee,
State Street Bank and Trust Company, N.A. (predecessor to U.S. Bank Trust
National Association), as Successor Master Program Trustee, and the Trust, as
the same may be amended and supplemented from time to time in accordance with
its terms.

"Official Statement" means the Official Statement relating to the issuance of
the Trust Bonds.

"Preliminary Official Statement" means the Preliminary Official Statement
relating to the issuance of the Trust Bonds.

"Prime Rate" means the prevailing commercial interest rate announced by the
Trustee from time to time in the State as its prime lending rate.

"Project" means the Environmental Infrastructure Facilities of the Borrower
described in Exhibit A-1 attached hereto and made a part hereof, which
constitutes a project for which the Trust is permitted to make a loan to the
Borrower pursuant to the Act, the Regulations and the

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Bond Resolution, all or a portion of the Costs of which is financed or
refinanced by the Trust through the making of the Loan under this Loan Agreement
and which may be identified under either the Drinking Water or Clean Water
Project Lists with the Project Number specified in Exhibit A-1 attached hereto.

"Project Fund" means the Project Fund as defined in the Bond Resolution.

"Project Loan Account" means the project loan account established on behalf of
the Borrower in the Project Fund in accordance with the Bond Resolution to
finance all or a portion of the Costs of the Project.

"Regulations" means the rules and regulations, as applicable, now or hereafter
promulgated under N.J.A.C. 7:22-3 et seq., 7:22-4 et seq., 7:22-5 et seq.,
7:22-6 et seq., 7:22-7 et seq., 7:22-8 et seq., 7:22-9 et seq. and 7:22-10 et
seq., as the same may from time to time be amended and supplemented.

"State" means the State of New Jersey.

"Trust" means the New Jersey Environmental Infrastructure Trust, a public body
corporate and politic with corporate succession duly created and validly
existing under and by virtue of the Act.

"Trust Bond Loan Repayments" means the repayments of the principal amount of the
Loan plus the payment of any premium associated with prepaying the principal
amount of the Loan in accordance with Section 3.07 hereof plus the Interest
Portion.

"Trust Bonds" means bonds authorized by Section 2.03 of the Bond Resolution,
together with any refunding bonds authenticated, if applicable, and delivered
pursuant to Section 2.04 of the Bond Resolution, in each case issued in order to
finance (i) the portion of the Loan deposited in the Project Loan Account, (ii)
the portion of the Loans deposited in the balance of the Project Fund, (iii) any
capitalized interest related to such bonds, (iv) a portion of the costs of
issuance related to such bonds, and (v) that portion of the Debt Service Reserve
Fund, if any, allocable to the Loan or Loans, as the case may be, a portion of
which includes the funding of reserve capacity, if applicable, for the
Environmental Infrastructure Facilities of the Borrower or Borrowers, as the
case may be, or to refinance any or all of the above.

"Trustee" means, initially, U.S. Bank National Association, the Trustee
appointed by the Trust and its successors as Trustee under the Bond Resolution,
as provided in Article X of the Bond Resolution.

(b) In addition to the capitalized terms defined in subsection (a) of this
Section 1.01, certain additional capitalized terms used in this Loan Agreement
shall, unless the context clearly requires otherwise, have the meanings ascribed
to such additional capitalized terms in Schedule A attached hereto and made a
part hereof.

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(c) Except as otherwise defined herein or where the context otherwise requires,
words importing the singular number shall include the plural number and vice
versa, and words importing persons shall include firms, associations,
corporations, agencies and districts. Words importing one gender shall include
the other gender.

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ARTICLE II

REPRESENTATIONS AND COVENANTS OF BORROWER

SECTION 2.01. Representations of Borrower. The Borrower represents for the
benefit of the Trust, the Trustee and the holders of the Trust Bonds as follows:

(a) Organization and Authority.

(i) The Borrower is a corporation duly created and validly existing under and
pursuant to the Constitution and statutes of the State, including the Business
Corporation Law.

(ii) The acting officers of the Borrower who are contemporaneously herewith
performing or have previously performed any action contemplated in this Loan
Agreement either are or, at the time any such action was performed, were the
duly appointed or elected officers of such Borrower empowered by applicable
State law and, if applicable, authorized by resolution of the Borrower to
perform such actions. To the extent any such action was performed by an officer
no longer the duly acting officer of such Borrower, all such actions previously
taken by such officer are still in full force and effect.

(iii) The Borrower has full legal right and authority and all necessary licenses
and permits required as of the date hereof to own, operate and maintain its
Environmental Infrastructure System, to carry on its activities relating
thereto, to execute, attest and deliver this Loan Agreement and the Borrower
Bond, to authorize the authentication of the Borrower Bond, to sell the Borrower
Bond to the Trust, to undertake and complete the Project and to carry out and
consummate all transactions contemplated by this Loan Agreement.

(iv) The proceedings of the Borrower's board of directors approving this Loan
Agreement and the Borrower Bond, authorizing the execution, attestation and
delivery of this Loan Agreement and the Borrower Bond, authorizing the sale of
the Borrower Bond to the Trust, authorizing the authentication of the Borrower
Bond on behalf of the Borrower and authorizing the Borrower to undertake and
complete the Project, including, without limitation, the Borrower Bond
Resolution (collectively, the "Proceedings"), have been duly and lawfully
adopted in accordance with the Business Corporation Law and other applicable
State law at a meeting or meetings that were duly called and held in accordance
with the Borrower By-Laws and at which quorums were present and acting
throughout.

(v) By official action of the Borrower taken prior to or concurrent with the
execution and delivery hereof, including, without limitation, the Proceedings,
the Borrower has duly authorized, approved and consented to all necessary action
to be taken by the Borrower for: (A) the execution, attestation, delivery and
performance of this Loan Agreement and the transactions contemplated hereby; (B)
the issuance of the

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Borrower Bond and the sale thereof to the Trust upon the terms set forth herein;
(C) the approval of the inclusion, if such inclusion is deemed necessary in the
sole discretion of the Trust, in the Preliminary Official Statement and the
Official Statement of all statements and information relating to the Borrower
set forth in "APPENDIX B" thereto (the "Borrower Appendices") and any amendment
thereof or supplement thereto; and (D) the execution, delivery and due
performance of any and all other certificates, agreements and instruments that
may be required to be executed, delivered and performed by the Borrower in order
to carry out, give effect to and consummate the transactions contemplated by
this Loan Agreement, including, without limitation, the designation of the
Borrower Appendices portion of the Preliminary Official Statement, if any, as
"deemed final" for the purposes and within the meaning of Rule 15c2-12 ("Rule
15c2-12") of the Securities and Exchange Commission ("SEC") promulgated under
the Securities Exchange Act of 1934, as amended or supplemented, including any
successor regulation or statute thereto.

(vi) This Loan Agreement and the Borrower Bond have each been duly authorized by
the Borrower and duly executed, attested and delivered by Authorized Officers of
the Borrower, and the Borrower Bond has been duly sold by the Borrower to the
Trust, duly authenticated by the trustee or paying agent, if applicable, under
the Borrower Bond Resolution and duly issued by the Borrower in accordance with
the terms of the Borrower Bond Resolution; and assuming that the Trust has all
the requisite power and authority to authorize, execute, attest and deliver, and
has duly authorized, executed, attested and delivered, this Loan Agreement, and
assuming further that this Loan Agreement is the legal, valid and binding
obligation of the Trust, enforceable against the Trust in accordance with its
terms, each of this Loan Agreement and the Borrower Bond constitutes a legal,
valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its respective terms, except as the enforcement thereof may
be affected by bankruptcy, insolvency or other laws or the application by a
court of legal or equitable principles affecting creditors' rights; and the
information contained under "Description of Loan" in Exhibit A-2 attached hereto
and made a part hereof is true and accurate in all respects.

(b) Full Disclosure. There is no fact that the Borrower has not disclosed to the
Trust in writing on the Borrower's application for the Loan or otherwise that
materially adversely affects or (so far as the Borrower can now foresee) that
will materially adversely affect the properties, activities, prospects or
condition (financial or otherwise) of the Borrower or its Environmental
Infrastructure System, or the ability of the Borrower to make all Loan
Repayments and any other payments required under this Loan Agreement or
otherwise to observe and perform its duties, covenants, obligations and
agreements under this Loan Agreement and the Borrower Bond.

(c) Pending Litigation. There are no proceedings pending or, to the knowledge of
the Borrower, threatened against or affecting the Borrower in any court or
before any governmental authority or arbitration board or tribunal that, if
adversely determined, would materially adversely affect (i) the undertaking or
completion of the Project, (ii) the properties, activities, prospects or
condition (financial or otherwise) of the Borrower or its Environmental

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Infrastructure System, (iii) the ability of the Borrower to make all Loan
Repayments or any other payments required under this Loan Agreement, (iv) the
authorization, execution, attestation or delivery of this Loan Agreement or the
Borrower Bond, (v) the issuance of the Borrower Bond and the sale thereof to the
Trust, (vi) the adoption of the Borrower Bond Resolution, or (vii) the
Borrower's ability otherwise to observe and perform its duties, covenants,
obligations and agreements under this Loan Agreement and the Borrower Bond,
which proceedings have not been previously disclosed in writing to the Trust
either in the Borrower's application for the Loan or otherwise.

(d) Compliance with Existing Laws and Agreements. (i) The authorization,
execution, attestation and delivery of this Loan Agreement and the Borrower Bond
by the Borrower, (ii) the authentication of the Borrower Bond by the trustee or
paying agent under the Borrower Bond Resolution, as the case may be, and the
sale of the Borrower Bond to the Trust, (iii) the adoption of the Borrower Bond
Resolution, (iv) the observation and performance by the Borrower of its duties,
covenants, obligations and agreements hereunder and thereunder, (v) the
consummation of the transactions provided for in this Loan Agreement, the
Borrower Bond Resolution and the Borrower Bond, and (vi) the undertaking and
completion of the Project will not (A) other than the lien, charge or
encumbrance created hereby, by the Borrower Bond, by the Borrower Bond
Resolution and by any other outstanding debt obligations of the Borrower that
are at parity with the Borrower Bond as to lien on, and source and security for
payment thereon from, the revenues of the Borrower's Environmental
Infrastructure System, result in the creation or imposition of any lien, charge
or encumbrance upon any properties or assets of the Borrower pursuant to, (B)
result in any breach of any of the terms, conditions or provisions of, or (C)
constitute a default under, any existing resolution, outstanding debt or lease
obligation, trust agreement, indenture, mortgage, deed of trust, loan agreement
or other instrument to which the Borrower is a party or by which the Borrower,
its Environmental Infrastructure System or any of its properties or assets may
be bound, nor will such action result in any violation of the provisions of the
charter or other document pursuant to which the Borrower was established or any
laws, ordinances, injunctions, judgments, decrees, rules, regulations or
existing orders of any court or governmental or administrative agency, authority
or person to which the Borrower, its Environmental Infrastructure System or its
properties or operations is subject.

(e) No Defaults. No event has occurred and no condition exists that, upon the
authorization, execution, attestation and delivery of this Loan Agreement and
the Borrower Bond, the issuance of the Borrower Bond and the sale thereof to the
Trust, the adoption of the Borrower Bond Resolution or the receipt of the amount
of the Loan, would constitute an Event of Default hereunder. The Borrower is not
in violation of, and has not received notice of any claimed violation of, any
term of any agreement or other instrument to which it is a party or by which it,
its Environmental Infrastructure System or its properties may be bound, which
violation would materially adversely affect the properties, activities,
prospects or condition (financial or otherwise) of the Borrower or its
Environmental Infrastructure System or the ability of the Borrower to make all
Loan Repayments, to pay all other amounts due hereunder or otherwise to observe
and perform its duties, covenants, obligations and agreements under this Loan
Agreement and the Borrower Bond.

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(f) Governmental Consent. The Borrower has obtained all permits and approvals
required to date by any governmental body or officer for the authorization,
execution, attestation and delivery of this Loan Agreement and the Borrower
Bond, for the issuance of the Borrower Bond and the sale thereof to the Trust,
for the adoption of the Borrower Bond Resolution, for the making, observance and
performance by the Borrower of its duties, covenants, obligations and agreements
under this Loan Agreement and the Borrower Bond and for the undertaking or
completion of the Project and the financing or refinancing thereof, including,
but not limited to, if required, the approval by the New Jersey Board of Public
Utilities (the "BPU") of the issuance by the Borrower of the Borrower Bond to
the Trust, as required by Section 9a of the Act, and any other approvals
required therefor by the BPU; and the Borrower has complied with all applicable
provisions of law requiring any notification, declaration, filing or
registration with any governmental body or officer in connection with the
making, observance and performance by the Borrower of its duties, covenants,
obligations and agreements under this Loan Agreement and the Borrower Bond or
with the undertaking or completion of the Project and the financing or
refinancing thereof. No consent, approval or authorization of, or filing,
registration or qualification with, any governmental body or officer that has
not been obtained is required on the part of the Borrower as a condition to the
authorization, execution, attestation and delivery of this Loan Agreement and
the Borrower Bond, the issuance of the Borrower Bond and the sale thereof to the
Trust, the undertaking or completion of the Project or the consummation of any
transaction herein contemplated.

(g) Compliance with Law. The Borrower:

(i) is in compliance with all laws, ordinances, governmental rules and
regulations to which it is subject, the failure to comply with which would
materially adversely affect (A) the ability of the Borrower to conduct its
activities or to undertake or complete the Project, (B) the ability of the
Borrower to make the Loan Repayments and to pay all other amounts due hereunder,
or (C) the condition (financial or otherwise) of the Borrower or its
Environmental Infrastructure System; and

(ii) has obtained all licenses, permits, franchises or other governmental
authorizations presently necessary for the ownership of its properties or for
the conduct of its activities that, if not obtained, would materially adversely
affect (A) the ability of the Borrower to conduct its activities or to undertake
or complete the Project, (B) the ability of the Borrower to make the Loan
Repayments and to pay all other amounts due hereunder, or (C) the condition
(financial or otherwise) of the Borrower or its Environmental Infrastructure
System.

(h) Use of Proceeds. The Borrower will apply the proceeds of the Loan from the
Trust as described in Exhibit B attached hereto and made a part hereof (i) to
finance or refinance a portion of the Costs of the Borrower's Project; and (ii)
where applicable, to reimburse the Borrower for a portion of the Costs of the
Borrower's Project, which portion was paid or incurred in anticipation of
reimbursement by the Trust and is eligible for such reimbursement under and
pursuant to the Regulations, the Code and any other applicable law. All of such
costs constitute Costs for which the Trust is authorized to make Loans to the
Borrower pursuant to the Act and the Regulations.

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(i) Official Statement. The descriptions and information set forth in the
Borrower Appendices, if any, contained in the Official Statement relating to the
Borrower, its operations and the transactions contemplated hereby, as of the
date of the Official Statement, were and, as of the date of delivery hereof, are
true and correct in all material respects, and did not and do not contain any
untrue statement of a material fact or omit to state a material fact that is
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.

(j) Preliminary Official Statement. As of the date of the Preliminary Official
Statement, the descriptions and information set forth in the Borrower
Appendices, if any, contained in the Preliminary Official Statement relating to
the Borrower, its operations and the transactions contemplated hereby (i) were
"deemed final" by the Borrower for the purposes and within the meaning of Rule
15c2-12 and (ii) were true and correct in all material respects, and did not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.

SECTION 2.02. Particular Covenants of Borrower.

(a) Promise to Pay. The Borrower unconditionally and irrevocably promises, in
accordance with the terms of and to the extent provided in the Borrower Bond
Resolution, to make punctual payment of the principal and redemption premium, if
any, of the Loan and the Borrower Bond, the Interest on the Loan, the Interest
on the Borrower Bond and all other amounts due under this Loan Agreement and the
Borrower Bond according to their respective terms.

(b) Performance Under Loan Agreement; Rates. The Borrower covenants and agrees
(i) to comply with all applicable State and federal laws, rules and regulations
in the performance of this Loan Agreement; (ii) to maintain its Environmental
Infrastructure System in good repair and operating condition; (iii) to cooperate
with the Trust in the observance and performance of the respective duties,
covenants, obligations and agreements of the Borrower and the Trust under this
Loan Agreement; and (iv) to establish, levy and collect rents, rates and other
charges for the products and services provided by its Environmental
Infrastructure System, which rents, rates and other charges shall be at least
sufficient to comply with all covenants pertaining thereto contained in, and all
other provisions of, any bond resolution, trust indenture or other security
agreement, if any, relating to any bonds, notes or other evidences of
indebtedness issued or to be issued by the Borrower, including without
limitation rents, rates and other charges, together with other available moneys,
sufficient to pay the principal of and Interest on the Borrower Bond, plus all
other amounts due hereunder.

(c) Borrower Bond; No Prior Liens. Except for (i) the Borrower Bond, (ii) any
bonds or notes at parity with the Borrower Bond and currently outstanding or
issued on the date hereof, (iii) any future bonds or notes of the Borrower
issued under the Borrower Bond Resolution at parity with the Borrower Bond, and
(iv) any Permitted Encumbrances (as defined in the Borrower Bond Resolution),
the assets of the Borrower that are subject to the Borrower Bond

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Resolution are and will be free and clear of any pledge, lien, charge or
encumbrance thereon or with respect thereto prior to, or of equal rank with, the
Borrower Bond, and all corporate or other action on the part of the Borrower to
that end has been and will be duly and validly taken.

(d) Completion of Project and Provision of Moneys Therefor. The Borrower
covenants and agrees (i) to exercise its best efforts in accordance with prudent
environmental infrastructure utility practice to complete the Project and to
accomplish such completion on or before the estimated Project completion date
set forth in Exhibit G hereto and made a part hereof; (ii) to comply with the
terms and provisions contained in Exhibit G hereto; and (iii) to provide from
its own fiscal resources all moneys, in excess of the total amount of loan
proceeds it receives under the Loan and Fund Loan, required to complete the
Project.

(e) See Section 2.02(e) as set forth in Schedule A attached hereto, made a part
hereof and incorporated in this Section 2.02(e) by reference as if set forth in
full herein.

(f) Exclusion of Interest from Federal Gross Income and Compliance with Code.

(i) The Borrower covenants and agrees that it shall not take any action or omit
to take any action that would result in the loss of the exclusion of the
interest on any Trust Bonds now or hereafter issued from gross income for
purposes of federal income taxation as that status is governed by Section 103(a)
of the Code.

(ii) The Borrower shall not directly or indirectly use or permit the use of any
proceeds of the Trust Bonds (or amounts replaced with such proceeds) or any
other funds or take any action or omit to take any action that would cause the
Trust Bonds (assuming solely for this purpose that the proceeds of the Trust
Bonds loaned to the Borrower represent all of the proceeds of the Trust Bonds)
to be "arbitrage bonds" within the meaning of Section 148(a) of the Code.

(iii) The Borrower shall not directly or indirectly use or permit the use of any
proceeds of the Trust Bonds to pay the principal of or the interest or
redemption premium on or any other amount in connection with the retirement or
redemption of any issue of state or local governmental obligations ("refinancing
of indebtedness"), unless the Borrower shall (A) establish to the satisfaction
of the Trust, prior to the issuance of the Trust Bonds, that such refinancing of
indebtedness will not adversely affect the exclusion from gross income for
federal income tax purposes of the interest on the Trust Bonds, and (B) provide
to the Trust an opinion of Bond Counsel to that effect in form and substance
satisfactory to the Trust.

(iv) The Borrower shall not directly or indirectly use or permit the use of any
proceeds of the Trust Bonds to reimburse the Borrower for an expenditure with
respect to Costs of the Borrower's Project paid by the Borrower prior to the
issuance of the Trust Bonds, unless (A) the allocation by the Borrower of the
proceeds of the Trust Bonds to reimburse such expenditure complies with the
requirements of Treasury Regulations §1.150-2 necessary to enable the
reimbursement allocation to be treated as an expenditure of the proceeds of the
Trust Bonds for purposes of applying Sections 103 and 141-150,

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inclusive, of the Code, or (B) such proceeds of the Trust Bonds will be used for
refinancing of indebtedness that was used to pay Costs of the Borrower's Project
or to reimburse the Borrower for expenditures with respect to Costs of the
Borrower's Project paid by the Borrower prior to the issuance of such
indebtedness in accordance with a reimbursement allocation for such expenditures
that complies with the requirements of Treasury Regulations §1.150-2.

(v) The Borrower shall not directly or indirectly use or permit the use of any
proceeds of the Trust Bonds to pay any Costs of the Borrower's Project that does
not constitute a "capital expenditure" within the meaning of Treasury
Regulations §1.150-1.

(vi) The Borrower shall not use the proceeds of the Trust Bonds (assuming solely
for this purpose that the proceeds of the Trust Bonds loaned to the Borrower
represent all of the proceeds of the Trust Bonds) in any manner that would cause
the Trust Bonds to be considered "federally guaranteed" within the meaning of
Section 149(b) of the Code or "hedge bonds" within the meaning of Section 149(g)
of the Code.

(vii) The Borrower shall not issue any debt obligations that (A) are sold at
substantially the same time as the Trust Bonds and finance or refinance the Loan
made to the Borrower, (B) are sold pursuant to the same plan of financing as the
Trust Bonds and finance or refinance the Loan made to the Borrower, and (C) are
reasonably expected to be paid out of substantially the same source of funds as
the Trust Bonds and finance or refinance the Loan made to the Borrower.

(viii) Neither the Borrower nor any "related party" (within the meaning of
Treasury Regulations §1.150-1) shall purchase Trust Bonds in an amount related
to the amount of the Loan.

(ix) The Borrower will not issue or permit to be issued obligations that will
constitute an "advance refunding" of the Borrower Bond within the meaning of
Section 149(d)(5) of the Code without the express written consent of the Trust,
which consent may only be delivered by the Trust after the Trust has received
notice from the Borrower of such contemplated action no later than sixty (60)
days prior to any such contemplated action, and which consent is in the sole
discretion of the Trust.

(x) See Section 2.02(f)(x) as set forth in Schedule A attached hereto, made a
part hereof and incorporated in this Section 2.02(f)(x) by reference as if set
forth in full herein.

(xi) No "gross proceeds" of the Trust Bonds held by the Borrower (other than
amounts in a "bona fide debt service fund") will be held in a "commingled fund"
(as such terms are defined in Treasury Regulations §1.148-1(b)).

(xii) Based upon all of the objective facts and circumstances in existence on
the date of issuance of the Trust Bonds used to finance the Project, (A) within
six months of the date of issuance of the Trust Bonds used to finance the
Project, the Borrower will

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incur a substantial binding obligation to a third party to expend on the Project
at least five percent (5%) of the "net sale proceeds" (within the meaning of
Treasury Regulations §1.148-1) of the Loan used to finance the Project (treating
an obligation as not being binding if it is subject to contingencies within the
control of the Borrower, the Trust or a "related party" (within the meaning of
Treasury Regulations §1.150-1)), (B) completion of the Project and the
allocation to expenditures of the "net sale proceeds" of the Loan used to
finance the Project will proceed with due diligence, and (C) all of the proceeds
of the Loan used to finance the Project (other than amounts deposited into the
Debt Service Reserve Fund allocable to that portion of the Loan used to finance
reserve capacity, if any) and investment earnings thereon will be spent prior to
the period ending three (3) years subsequent to the date of issuance of the
Trust Bonds used to finance the Project. Accordingly, the proceeds of the Loan
deposited in the Project Loan Account used to finance the Project will be
eligible for the 3-year arbitrage temporary period since the expenditure test,
time test and due diligence test, as set forth in Treasury Regulations
§1.148-2(e)(2), will be satisfied.

(xiii) The weighted average maturity of the Loan does not exceed 120% of the
average reasonably expected economic life of the Project financed or refinanced
with the Loan, determined in the same manner as under Section 147(b) of the
Code. Accordingly, the term of the Loan will not be longer than is reasonably
necessary for the governmental purposes of the Loan within the meaning of
Treasury Regulations §1.148-1(c)(4).

For purposes of this subsection and subsection (h) of this Section 2.02, quoted
terms shall have the meanings given thereto by Section 148 of the Code,
including, particularly, Treasury Regulations §§1.148-1 through 1.148-11,
inclusive, as supplemented or amended, to the extent applicable to the Trust
Bonds, and any successor Treasury Regulations applicable to the Trust Bonds.

(g) Operation and Maintenance of Environmental Infrastructure System. The
Borrower covenants and agrees that it shall, in accordance with prudent
environmental infrastructure utility practice, (i) at all times operate the
properties of its Environmental Infrastructure System and any business in
connection therewith in an efficient manner, (ii) maintain its Environmental
Infrastructure System in good repair, working order and operating condition, and
(iii) from time to time make all necessary and proper repairs, renewals,
replacements, additions, betterments and improvements with respect to its
Environmental Infrastructure System so that at all times the business carried on
in connection therewith shall be properly and advantageously conducted.

(h) Records and Accounts.

(i) The Borrower shall keep accurate records and accounts for its Environmental
Infrastructure System (the "System Records") separate and distinct from its
other records and accounts (the "General Records"). Such System Records shall be
audited annually by an independent certified public accountant, which may be
part of the annual audit of the General Records of the Borrower. Such System
Records and General Records shall be made available for inspection by the Trust
at any reasonable time upon

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prior written notice, and a copy of such annual audit(s) therefor, including all
written comments and recommendations of such accountant, shall be furnished to
the Trust within 150 days of the close of the fiscal year being so audited or,
with the consent of the Trust, such additional period as may be provided by law.

(ii) Unless otherwise advised in writing by the Trust, in furtherance of the
covenant of the Borrower contained in subsection (f) of this Section 2.02 not to
cause the Trust Bonds to be arbitrage bonds, the Borrower shall keep, or cause
to be kept, accurate records of each investment it makes in any "nonpurpose
investment" acquired with, or otherwise allocated to, "gross proceeds" of the
Trust Bonds not held by the Trustee and each "expenditure" it makes allocated to
"gross proceeds" of the Trust Bonds. Such records shall include the purchase
price, including any constructive "payments" (or in the case of a "payment"
constituting a deemed acquisition of a "nonpurpose investment" (e.g., a
"nonpurpose investment" first allocated to "gross proceeds" of the Trust Bonds
after it is actually acquired because it is deposited in a sinking fund for the
Trust Bonds)), the "fair market value" of the "nonpurpose investment" on the
date first allocated to the "gross proceeds" of the Trust Bonds, nominal
interest rate, dated date, maturity date, type of property, frequency of
periodic payments, period of compounding, yield to maturity, amount actually or
constructively received on disposition (or in the case of a "receipt"
constituting a deemed disposition of a "nonpurpose investment" (e.g., a
"nonpurpose investment" that ceases to be allocated to the "gross proceeds" of
the Trust Bonds because it is removed from a sinking fund for the Trust Bonds)),
the "fair market value" of the "nonpurpose investment" on the date it ceases to
be allocated to the "gross proceeds" of the Trust Bonds, the purchase date and
disposition date of the "nonpurpose investment" and evidence of the "fair market
value" of such property on the purchase date and disposition date (or deemed
purchase or disposition date) for each such "nonpurpose investment". The
purchase date, disposition date and the date of determination of "fair market
value" shall be the date on which a contract to purchase or sell the "nonpurpose
investment" becomes binding, i.e., the trade date rather than the settlement
date. For purposes of the calculation of purchase price and disposition price,
brokerage or selling commissions, administrative expenses or similar expenses
shall not increase the purchase price of an item and shall not reduce the amount
actually or constructively received upon disposition of an item, except to the
extent such costs constitute "qualified administrative costs".

(iii) Within thirty (30) days of the last day of the fifth and each succeeding
fifth "bond year" (which, unless otherwise advised by the Trust, shall be the
five-year period ending on the date five years subsequent to the date
immediately preceding the date of issuance of the Trust Bonds and each
succeeding fifth "bond year") and within thirty (30) days of the date the last
bond that is part of the Trust Bonds is discharged (or on any other periodic
basis requested in writing by the Trust), the Borrower shall (A) calculate, or
cause to be calculated, the "rebate amount" as of the "computation date" or
"final computation date" attributable to any "nonpurpose investment" made by the
Borrower and (B) remit the following to the Trust: (1) an amount of money that
when added to the "future value" as of the "computation date" of any previous
payments made to the Trust on account of rebate equals the "rebate amount", (2)
the calculations

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supporting the "rebate amount" attributable to any "nonpurpose investment" made
by the Borrower allocated to "gross proceeds" of the Trust Bonds, and (3) any
other information requested by the Trust relating to compliance with Section 148
of the Code (e.g., information related to any "nonpurpose investment" of the
Borrower for purposes of application of the "universal cap").

(iv) The Borrower covenants and agrees that it will account for "gross proceeds"
of the Trust Bonds, investments allocable to the Trust Bonds and expenditures of
"gross proceeds" of the Trust Bonds in accordance with Treasury Regulations
§1.148-6. All allocations of "gross proceeds" of the Trust Bonds to expenditures
will be recorded on the books of the Borrower kept in connection with the Trust
Bonds no later than 18 months after the later of the date the particular Costs
of the Borrower's Project is paid or the date the portion of the project
financed by the Trust Bonds is placed in service. All allocations of proceeds of
the Trust Bonds to expenditures will be made no later than the date that is 60
days after the fifth anniversary of the date the Trust Bonds are issued or the
date 60 days after the retirement of the Trust Bonds, if earlier. Such records
and accounts will include the particular Cost paid, the date of the payment and
the party to whom the payment was made.

(i) Inspections; Information. The Borrower shall permit the Trust and the
Trustee and any party designated by any of such parties, at any and all
reasonable times during construction of the Project and thereafter upon prior
written notice, to examine, visit and inspect the property, if any, constituting
the Project and to inspect and make copies of any accounts, books and records,
including (without limitation) its records regarding receipts, disbursements,
contracts, investments and any other matters relating thereto and to its
financial standing, and shall supply such reports and information as the Trust
and the Trustee may reasonably require in connection therewith.

(j) Insurance. The Borrower shall maintain or cause to be maintained, in force,
insurance policies with responsible insurers or self-insurance programs
providing against risk of direct physical loss, damage or destruction of its
Environmental Infrastructure System at least to the extent that similar
insurance is usually carried by utilities constructing, operating and
maintaining Environmental Infrastructure Facilities of the nature of the
Borrower's Environmental Infrastructure System, including liability coverage,
all to the extent available at reasonable cost but in no case less than will
satisfy all applicable regulatory requirements.

(k) Costs of Project. The Borrower certifies that the building cost of the
Project, as listed in Exhibit B hereto and made a part hereof, is a reasonable
and accurate estimation thereof, and it will supply to the Trust a certificate
from a licensed professional engineer authorized to practice in the State
stating that such building cost is a reasonable and accurate estimation and that
the useful life of the Project exceeds the maturity date of the Borrower Bond.

(l) Delivery of Documents. Concurrently with the delivery of this Loan Agreement
(as previously authorized, executed and attested) at the Loan Closing, the
Borrower will cause to be delivered to the Trust and the Trustee each of the
following items:

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(i) an opinion of the Borrower's bond counsel substantially in the form of
Exhibit E hereto; provided, however, that the Trust may permit portions of such
opinion to be rendered by general counsel to the Borrower and may permit
variances in such opinion from the form set forth in Exhibit E if, in the
opinion of the Trust, such variances are not to the material detriment of the
interests of the holders of the Trust Bonds;

(ii) counterparts of this Loan Agreement as previously executed and attested by
the parties hereto;

(iii) copies of those resolutions finally adopted by the board of directors of
the Borrower and requested by the Trust, including, without limitation, (A) the
resolution of the Borrower authorizing the execution, attestation and delivery
of this Loan Agreement, (B) the Borrower Bond Resolution, as amended and
supplemented as of the date of the Loan Closing, authorizing the execution,
attestation, authentication, sale and delivery of the Borrower Bond to the
Trust, (C) the resolution of the Borrower, if any, confirming the details of the
sale of the Borrower Bond to the Trust, (D) the resolution of the Borrower, if
any, declaring its official intent to reimburse expenditures for the Costs of
the Project from the proceeds of the Trust Bonds, each of said resolutions of
the Borrower being certified by an Authorized Officer of the Borrower as of the
date of the Loan Closing, (E) the resolution of the BPU approving the issuance
by the Borrower of the Borrower Bond to the Trust and setting forth any other
approvals required therefor by the BPU, if applicable, and (F) any other
Proceedings;

(iv) if the Loan is being made to reimburse the Borrower for all or a portion of
the Costs of the Borrower's Project or to refinance indebtedness or reimburse
the Borrower for the repayment of indebtedness previously incurred by the
Borrower to finance all or a portion of the Costs of the Borrower's Project, an
opinion of Bond Counsel, in form and substance satisfactory to the Trust, to the
effect that such reimbursement or refinancing will not adversely affect the
exclusion from gross income for federal income tax purposes of the interest on
the Trust Bonds; and

(v) the certificates of insurance coverage as required pursuant to the terms of
Section 3.06(d) hereof and such other certificates, documents, opinions and
information as the Trust may require in Exhibit F hereto, if any.

(m) Execution and Delivery of Borrower Bond. Concurrently with the delivery of
this Loan Agreement at the Loan Closing, the Borrower shall also deliver to the
Trust the Borrower Bond, as previously executed, attested and, if applicable,
authenticated, upon the receipt of a written certification of the Trust that a
portion of the net proceeds of the Trust Bonds shall be deposited in the Project
Loan Account simultaneously with the delivery of the Borrower Bond.

(n) Notice of Material Adverse Change. The Borrower shall promptly notify the
Trust of any material adverse change in the properties, activities, prospects or
condition (financial or otherwise) of the Borrower or its Environmental
Infrastructure System, or in the ability of the Borrower to make all Loan
Repayments and otherwise to observe and perform its

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duties, covenants, obligations and agreements under this Loan Agreement and the
Borrower Bond.

(o) Continuing Representations. The representations of the Borrower contained
herein shall be true at the time of the execution of this Loan Agreement and at
all times during the term of this Loan Agreement.

(p) Continuing Disclosure Covenant. To the extent that the Trust, in its sole
discretion, determines, at any time prior to the termination of the Loan Term,
that the Borrower is a material "obligated person", as the term "obligated
person" is defined in Rule 15c2-12, with materiality being determined by the
Trust pursuant to criteria established, from time to time, by the Trust in its
sole discretion and set forth in a bond resolution or official statement of the
Trust, the Borrower hereby covenants that it will authorize and provide to the
Trust, for inclusion in any preliminary official statement or official statement
of the Trust, all statements and information relating to the Borrower deemed
material by the Trust for the purpose of satisfying Rule 15c2-12 as well as Rule
10b-5 promulgated pursuant to the Securities Exchange Act of 1934, as amended or
supplemented, including any successor regulation or statute thereto ("Rule
10b-5"), including certificates and written representations of the Borrower
evidencing its compliance with Rule 15c2-12 and Rule 10b-5; and the Borrower
hereby further covenants that the Borrower shall execute and deliver the
Continuing Disclosure Agreement, in substantially the form attached hereto as
Exhibit H, with such revisions thereto prior to execution and delivery thereof
as the Trust shall determine to be necessary, desirable or convenient, in its
sole discretion, for the purpose of satisfying Rule 15c2-12 and the purposes and
intent thereof, as Rule 15c2-12, its purposes and intent may hereafter be
interpreted from time to time by the SEC or any court of competent jurisdiction;
and pursuant to the terms and provisions of the Continuing Disclosure Agreement,
the Borrower shall thereafter provide on-going disclosure with respect to all
statements and information relating to the Borrower in satisfaction of the
requirements set forth in Rule 15c2-12 and Rule 10b-5, including, without
limitation, the provision of certificates and written representations of the
Borrower evidencing its compliance with Rule 15c2-12 and Rule 10b-5.

(q) Additional Covenants and Requirements. (i) No later than the Loan Closing
and, if necessary, in connection with the Trust's issuance of the Trust Bonds or
the making of the Loan, additional covenants and requirements have been included
in Exhibit F hereto and made a part hereof. Such covenants and requirements may
include, but need not be limited to, the maintenance of specified levels of
Environmental Infrastructure System rates, the issuance of additional debt of
the Borrower, the use by or on behalf of the Borrower of certain proceeds of the
Trust Bonds as such use relates to the exclusion from gross income for federal
income tax purposes of the interest on any Trust Bonds, the transfer of revenues
and receipts from the Borrower's Environmental Infrastructure System, compliance
with Rule 15c2-12, Rule 10b-5 and any other applicable federal or State
securities laws, and matters in connection with the appointment of the Trustee
under the Bond Resolution and any successors thereto. The Borrower hereby agrees
to observe and comply with each such additional covenant and requirement, if
any, included in Exhibit F hereto. (ii) Additional defined terms, covenants,
representations and requirements have been included in Schedule A attached
hereto and made a part hereof. Such additional defined terms, covenants,
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incorporated in this Loan Agreement by reference thereto as if set forth in full
herein and the Borrower hereby agrees to observe and comply with each such
additional term, covenant, representation and requirement included in Schedule A
as if the same were set forth in its entirety where reference thereto is made in
this Loan Agreement.

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ARTICLE III

LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

SECTION 3.01. Loan; Loan Term. The Trust hereby agrees to make the Loan as
described in Exhibit A-2 hereof and to disburse proceeds of the Loan to the
Borrower in accordance with Section 3.02 and Exhibit C hereof, and the Borrower
hereby agrees to borrow and accept the Loan from the Trust upon the terms set
forth in Exhibit A-2 attached hereto and made a part hereof; provided, however,
that the Trust shall be under no obligation to make the Loan if (a) at the Loan
Closing, the Borrower does not deliver to the Trust a Borrower Bond and such
other documents required under Section 2.02(l) hereof, or (b) an Event of
Default has occurred and is continuing under the Bond Resolution or this Loan
Agreement. Although the Trust intends to disburse proceeds of the Loan to the
Borrower at the times and up to the amounts set forth in Exhibit C to pay a
portion of the Costs of the Project, due to unforeseen circumstances there may
not be a sufficient amount on deposit in the Project Fund on any date to make
the disbursement in such amount. Nevertheless, the Borrower agrees that the
amount actually deposited in the Project Loan Account at the Loan Closing plus
the Borrower's allocable share of (i) certain costs of issuance and
underwriter's discount for all Trust Bonds issued to finance the Loan; (ii)
capitalized interest during the Project construction period, if applicable; and
(iii) that portion of the Debt Service Reserve Fund attributable to the cost of
funding reserve capacity for the Project, if applicable, shall constitute the
initial principal amount of the Loan (as the same may be adjusted downward in
accordance with the definition thereof), and neither the Trust nor the Trustee
shall have any obligation thereafter to loan any additional amounts to the
Borrower.

The Borrower shall use the proceeds of the Loan strictly in accordance with
Section 2.01(h) hereof.

The payment obligations created under this Loan Agreement and the obligations to
pay the principal of the Borrower Bond, Interest on the Borrower Bond and other
amounts due under the Borrower Bond are each direct, general, irrevocable and
unconditional obligations of the Borrower payable from any source legally
available to the Borrower in accordance with the terms of and to the extent
provided in the Borrower Bond Resolution.

SECTION 3.02. Disbursement of Loan Proceeds. (a) The Trustee, as the agent of
the Trust, shall disburse the amounts on deposit in the Project Loan Account to
the Borrower upon receipt of a requisition executed by an Authorized Officer of
the Borrower, and approved by the Trust, in a form meeting the requirements of
Section 5.02(3) of the Bond Resolution.

(b) The Trust and Trustee shall not be required to disburse any Loan proceeds to
the Borrower under this Loan Agreement, unless:

(i) the proceeds of the Trust Bonds shall be available for disbursement, as
determined solely by the Trust;

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(ii) in accordance with the Bond Act, and the Regulations, the Borrower shall
have timely applied for, shall have been awarded and, prior to or simultaneously
with the Loan Closing, shall have closed a Fund Loan for a portion of the
Allowable Costs (as defined in such Regulations) of the Project in an amount not
in excess of the amount of Allowable Costs of the Project financed by the Loan
from the Trust;

(iii) the Borrower shall have on hand moneys to pay for the greater of (A) that
portion of the total Costs of the Project that is not eligible to be funded from
the Fund Loan or the Loan, or (B) that portion of the total Costs of the Project
that exceeds the actual amounts of the loan commitments made by the State and
the Trust, respectively, for the Fund Loan and the Loan; and

(iv) no Event of Default nor any event that, with the passage of time or service
of notice or both, would constitute an Event of Default shall have occurred and
be continuing hereunder.

SECTION 3.03. Amounts Payable. (a) The Borrower shall repay the Loan in
installments payable to the Trustee as follows:

(i) the principal of the Loan shall be repaid annually on the Principal Payment
Dates, in accordance with the schedule set forth in Exhibit A-2 attached hereto
and made a part hereof, as the same may be amended or modified by any credits
applicable to the Borrower as set forth in the Bond Resolution;

(ii) the Interest Portion described in clause (i) of the definition thereof
shall be paid semiannually on the Interest Payment Dates, in accordance with the
schedule set forth in Exhibit A-2 attached hereto and made a part hereof, as the
same may be amended or modified by any credits applicable to the Borrower as set
forth in the Bond Resolution; and

(iii) the Interest Portion described in clause (ii) of the definition thereof
shall be paid upon the date of optional redemption or acceleration, as the case
may be, of the Trust Bonds allocable to any prepaid or accelerated Trust Bond
Loan Repayment.

The obligations of the Borrower under the Borrower Bond shall be deemed to be
amounts payable under this Section 3.03. Each Loan Repayment, whether satisfied
through a direct payment by the Borrower to the Trustee or (with respect to the
Interest Portion) through the use of Trust Bond proceeds and income thereon on
deposit in the Interest Account (as defined in the Bond Resolution) to pay
interest on the Trust Bonds, shall be deemed to be a credit against the
corresponding obligation of the Borrower under this Section 3.03 and shall
fulfill the Borrower's obligation to pay such amount hereunder and under the
Borrower Bond. Each payment made to the Trustee pursuant to this Section 3.03
shall be applied first to the Interest Portion then due and payable, second to
the principal of the Loan then due and payable, third to the payment of the
Administrative Fee, and finally to the payment of any late charges hereunder.

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(b) The Interest on the Loan described in clause (iii) of the definition thereof
shall (i) consist of a late charge for any Trust Bond Loan Repayment that is
received by the Trustee later than the tenth (10th) day following its due date
and (ii) be payable immediately thereafter in an amount equal to the greater of
twelve percent (12%) per annum or the Prime Rate plus one half of one percent
per annum on such late payment from its due date to the date it is actually
paid; provided, however, that the rate of Interest on the Loan, including,
without limitation, any late payment charges incurred hereunder, shall not
exceed the maximum interest rate permitted by law.

(c) The Borrower shall receive, as a credit against its semiannual payment
obligations of the Interest Portion, the amounts certified by the Trust pursuant
to Section 5.10 of the Bond Resolution. Such amounts shall represent the
Borrower's allocable share of the interest earnings on certain funds and
accounts established under the Bond Resolution, calculated in accordance with
Section 5.10 of the Bond Resolution.

(d) In accordance with the provisions of the Bond Resolution, the Borrower shall
receive, as a credit against its Trust Bond Loan Repayments, the amounts set
forth in the certificate of the Trust filed with the Trustee pursuant to Section
5.02(4) of the Bond Resolution.

(e) The Interest on the Loan described in clause (ii) of the definition thereof
shall be paid by the Borrower in the amount of one-half of the Administrative
Fee, if any, to the Trustee on each Interest Payment Date, commencing with the
first Interest Payment Date subsequent to the Loan Closing.

(f) The Borrower hereby agrees to pay to the Trust at the Loan Closing a
“Security Review Fee” in the amount necessary to reimburse the Trust for all of
its costs and expenses incurred in connection with reviewing the additional
security securing the Trust Loan as set forth in Exhibit F hereto, if any,
including without limitation the fees and expenses of any professional advisers
hired by the Trust in connection therewith.

SECTION 3.03A. Amounts on Deposit in Project Loan Account after Completion of
Draw Schedule. (a) If, on the date which is one hundred eighty (180) days
following the final date for which a disbursement of Loan proceeds is scheduled
to be made pursuant to Exhibit C hereto, any amounts remain on deposit in the
Borrower’s Project Loan Account, the Borrower must provide to the Trust and the
Department a certificate of an Authorized Officer of the Borrower (i) stating
that the Borrower has not yet completed the Project, (ii) stating that the
Borrower intends to complete the Project, (iii) setting forth the amount of
remaining Loan Proceeds required to complete the Project, and (iv) providing a
revised draw schedule, in a form similar to Exhibit C hereto and approved by the
Department.

(b) If, on the date which is one hundred eighty (180) days following the final
date for which a disbursement of Loan proceeds is scheduled to be made pursuant
to a revised draw schedule certified to the Trust and the Department in
accordance with Section 3.03A(a) hereof, any amounts remain on deposit in the
Borrower’s Project Loan Account, the Borrower must provide to the Trust and the
Department a certificate of an Authorized Officer of the Borrower (i) stating
that the Borrower has not yet completed the Project, (ii) stating that the
Borrower intends

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to complete the Project, (iii) setting forth the amount of remaining Loan
Proceeds required to complete the Project, and (iv) providing a revised draw
schedule, in a form similar to Exhibit C hereto and approved by the Department.

(c) If the Borrower fails to provide the certificate described in paragraphs (a)
or (b) of this Section 3.03A, when due, or if such certificate states that the
Borrower does not require all or any portion of the amount on deposit in the
Project Loan Account to complete the Project, such amounts on deposit in the
Project Loan Account which are not certified by an Authorized Officer of the
Borrower as being required to complete the Project (“Excess Project Funds”)
shall be applied as follows:

(i) If the Excess Project Funds are less than or equal to the greater of (A)
$250,000 or (B) the amount of Loan Repayments due from the Borrower to the Trust
in the next succeeding calendar year, the Excess Project Funds shall be applied
by the Trust toward the Borrower’s obligation to make the Loan Repayments next
coming due; or

(ii) If the Excess Project Funds are greater than the greater of (A) $250,000 or
(B) the amount of Loan Repayments due from the Borrower to the Trust in the next
succeeding calendar year, the Excess Project Funds shall be applied by the Trust
as a prepayment of the Borrower’s Loan Repayments, and shall be applied to the
principal payments (including premium, if any) on the Loan in inverse order of
their maturity.

SECTION 3.04. Unconditional Obligations. The obligation of the Borrower to make
the Loan Repayments and all other payments required hereunder and the obligation
to perform and observe the other duties, covenants, obligations and agreements
on its part contained herein shall be absolute and unconditional, and shall not
be abated, rebated, set-off, reduced, abrogated, terminated, waived, diminished,
postponed or otherwise modified in any manner or to any extent whatsoever while
any Trust Bonds remain outstanding or any Loan Repayments remain unpaid, for any
reason, regardless of any contingency, act of God, event or cause whatsoever,
including (without limitation) any acts or circumstances that may constitute
failure of consideration, eviction or constructive eviction, the taking by
eminent domain or destruction of or damage to the Project or Environmental
Infrastructure System, commercial frustration of the purpose, any change in the
laws of the United States of America or of the State or any political
subdivision of either or in the rules or regulations of any governmental
authority, any failure of the Trust or the Trustee to perform and observe any
agreement, whether express or implied, or any duty, liability or obligation
arising out of or connected with the Project, this Loan Agreement or the Bond
Resolution, or any rights of set-off, recoupment, abatement or counterclaim that
the Borrower might otherwise have against the Trust, the Trustee or any other
party or parties; provided, however, that payments hereunder shall not
constitute a waiver of any such rights. The Borrower shall not be obligated to
make any payments required to be made by any other Borrowers under separate Loan
Agreements or the Bond Resolution.

The Borrower acknowledges that payment of the Trust Bonds by the Trust,
including payment from moneys drawn by the Trustee from the Debt Service Reserve
Fund, does not constitute payment of the amounts due under this Loan Agreement
and the Borrower Bond. If at any time the amount in the Debt Service Reserve
Fund shall be less than the Debt Service

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Reserve Requirement as the result of any transfer of moneys from the Debt
Service Reserve Fund to the Debt Service Fund (as all such terms are defined in
the Bond Resolution) as the result of a failure by the Borrower to make any
Trust Bond Loan Repayments required hereunder, the Borrower agrees to replenish
(i) such moneys so transferred and (ii) any deficiency arising from losses
incurred in making such transfer as the result of the liquidation by the Trust
of Investment Securities (as defined in the Bond Resolution) acquired as an
investment of moneys in the Debt Service Reserve Fund, by making payments to the
Trust in equal monthly installments for the lesser of six (6) months or the
remaining term of the Loan at an interest rate to be determined by the Trust
necessary to make up any loss caused by such deficiency.

The Borrower acknowledges that payment of the Trust Bonds from moneys that were
originally received by the Trustee from repayments by the Borrowers of loans
made to the Borrowers by the State, acting by and through the Department,
pursuant to loan agreements dated as of November 1, 2006 by and between the
Borrowers and the State, acting by and through the Department, to finance or
refinance a portion of the Costs of the Environmental Infrastructure Facilities
of the Borrowers, and which moneys were upon such receipt by the Trustee
deposited in the Trust Bonds Security Account (as defined in the Bond
Resolution), does not constitute payment of the amounts due under this Loan
Agreement and the Borrower Bond.

SECTION 3.05. Loan Agreement to Survive Bond Resolution and Trust Bonds. The
Borrower acknowledges that its duties, covenants, obligations and agreements
hereunder shall survive the discharge of the Bond Resolution applicable to the
Trust Bonds and shall survive the payment of the principal and redemption
premium, if any, of and the interest on the Trust Bonds until the Borrower can
take no action or fail to take any action that could adversely affect the
exclusion from gross income of the interest on the Trust Bonds for purposes of
federal income taxation, at which time such duties, covenants, obligations and
agreements hereunder shall, except for those set forth in Sections 3.06(a) and
(b) hereof, terminate.

SECTION 3.06. Disclaimer of Warranties and Indemnification. (a) The Borrower
acknowledges and agrees that (i) neither the Trust nor the Trustee makes any
warranty or representation, either express or implied, as to the value, design,
condition, merchantability or fitness for particular purpose or fitness for any
use of the Environmental Infrastructure System or the Project or any portions
thereof or any other warranty or representation with respect thereto; (ii) in no
event shall the Trust or the Trustee or their respective agents be liable or
responsible for any incidental, indirect, special or consequential damages in
connection with or arising out of this Loan Agreement or the Project or the
existence, furnishing, functioning or use of the Environmental Infrastructure
System or the Project or any item or products or services provided for in this
Loan Agreement; and (iii) to the fullest extent permitted by law, the Borrower
shall indemnify and hold the Trust and the Trustee harmless against, and the
Borrower shall pay any and all, liability, loss, cost, damage, claim, judgment
or expense of any and all kinds or nature and however arising and imposed by
law, which the Trust and the Trustee may sustain, be subject to or be caused to
incur by reason of any claim, suit or action based upon personal injury, death
or damage to property, whether real, personal or mixed, or upon or arising out
of contracts entered into by the Borrower, the Borrower's ownership of the
Environmental Infrastructure System or the Project, or the acquisition,
construction or installation of the Project.

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(b) It is mutually agreed by the Borrower, the Trust and the Trustee that the
Trust and its officers, agents, servants or employees shall not be liable for,
and shall be indemnified and saved harmless by the Borrower in any event from,
any action performed under this Loan Agreement and any claim or suit of
whatsoever nature, except in the event of loss or damage resulting from their
own negligence or willful misconduct. It is further agreed that the Trustee and
its directors, officers, agents, servants or employees shall not be liable for,
and shall be indemnified and saved harmless by the Borrower in any event from,
any action performed pursuant to this Loan Agreement, except in the event of
loss or damage resulting from their own negligence or willful misconduct.

(c) The Borrower and the Trust agree that all claims shall be subject to and
governed by the provisions of the New Jersey Contractual Liability Act, N.J.S.A.
59:13-1 et seq. (except for N.J.S.A. 59:13-9 thereof), although such Act by its
express terms does not apply to claims arising under contract with the Trust.

(d) In connection with its obligation to provide the insurance required under
Section 2.02(j) hereof: (i) the Borrower shall include, or cause to be included,
the Trust and its directors, employees and officers as additional "named
insureds" on (A) any certificate of liability insurance procured by the Borrower
(or other similar document evidencing the liability insurance coverage procured
by the Borrower) and (B) any certificate of liability insurance procured by any
contractor or subcontractor for the Project, and from the later of the date of
the Loan Closing or the date of the initiation of construction of the Project
until the date the Borrower receives the written certificate of Project
completion from the Trust, the Borrower shall maintain said liability insurance
covering the Trust and said directors, employees and officers in good standing;
and (ii) the Borrower shall include the Trust as an additional "named insured"
on any certificate of insurance providing against risk of direct physical loss,
damage or destruction of the Environmental Infrastructure System, and during the
Loan Term the Borrower shall maintain said insurance covering the Trust in good
standing.

The Borrower shall provide the Trust with a copy of each of any such original,
supplemental, amendatory or reissued certificates of insurance (or other similar
documents evidencing the insurance coverage) required pursuant to this Section
3.06(d).

SECTION 3.07. Option to Prepay Loan Repayments. The Borrower may prepay the
Trust Bond Loan Repayments, in whole or in part (but if in part, in the amount
of $100,000 or any integral multiple thereof), upon prior written notice to the
Trust and the Trustee not less than ninety (90) days in addition to the number
of days' advance notice to the Trustee required for any optional redemption of
the Trust Bonds, and upon payment by the Borrower to the Trustee of amounts
that, together with investment earnings thereon, will be sufficient to pay the
principal amount of the Trust Bond Loan Repayments to be prepaid plus the
Interest Portion described in clause (ii) of the definition thereof on any such
date of redemption; provided, however, that, with respect to any prepayment
other than those required by Section 3.03A hereof, any such full or partial
prepayment may only be made (i) if the Borrower is not then in arrears on its
Fund Loan, (ii) if the Borrower is contemporaneously making a full or partial
prepayment of the Fund Loan such that, after the prepayment of the Loan and the
Fund Loan, the Trust, in its sole discretion, determines that the interests of
the owners of the Trust Bonds are not adversely affected by such

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prepayments, and (iii) upon the prior written approval of the Trust. In
addition, if at the time of such prepayment the Trust Bonds may only be redeemed
at the option of the Trust upon payment of a premium, the Borrower shall add to
its prepayment of Trust Bond Loan Repayments an amount, as determined by the
Trust, equal to such premium allocable to the Trust Bonds to be redeemed as a
result of the Borrower's prepayment. Prepayments shall be applied first to the
Interest Portion that accrues on the portion of the Loan to be prepaid until
such prepayment date as described in clause (ii) of the definition thereof and
then to principal payments (including premium, if any) on the Loan in inverse
order of their maturity.

SECTION 3.08. Priority of Loan and Fund Loan. (a) The Borrower hereby agrees
that, to the extent allowed by law or the Borrower Bond Resolution, any Loan
Repayments then due and payable on the Loan shall be satisfied by the Borrower
before any loan repayments on the Borrower's Fund Loan shall be satisfied by the
Borrower.

(b) The Borrower hereby acknowledges that in the event the Borrower fails or is
unable to pay promptly to the Trust in full any Trust Bond Loan Repayments under
this Loan Agreement when due, then any (i) Administrative Fee paid hereunder,
(ii) late charges paid hereunder, and (iii) loan repayments paid by the Borrower
on its Fund Loan under the related loan agreement therefor, any of which
payments shall be received by the Trustee during the time of any such Trust Bond
Loan Repayment deficiency, shall be applied by the Trustee first to satisfy such
Trust Bond Loan Repayment deficiency as a credit against the obligations of the
Borrower to make payments of the Interest Portion under the Loan and the
Borrower Bond, second, to the extent available, to make Trust Bond Loan
Repayments of principal hereunder and payments of principal under the Borrower
Bond, third, to the extent available, to pay the Administrative Fee, fourth, to
the extent available, to pay any late charges hereunder, fifth, to the extent
available, to satisfy the repayment of the Borrower's Fund Loan under its
related loan agreement therefor, and finally, to the extent available, to
satisfy the repayment of the administrative fee under any such related loan
agreement.

(c) The Borrower hereby further acknowledges that any loan repayments paid by
the Borrower on its Fund Loan under the related loan agreement therefor shall be
applied according to the provisions of the Master Program Trust Agreement.

SECTION 3.09. Approval of the New Jersey State Treasurer. The Borrower and the
Trust hereby acknowledge that prior to or simultaneously with the Loan Closing
the New Jersey State Treasurer, in satisfaction of the requirements of Section
9a of the Act, issued the “Certificate of the New Jersey State Treasurer
Regarding the Approval of the Trust Loan and the Fund Loan” (the “Treasurer’s
Certificate”). Pursuant to the terms of the Treasurer’s Certificate, the New
Jersey State Treasurer approved the Loan and the terms and conditions thereof as
established by the provisions of this Loan Agreement.

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ARTICLE IV

ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

SECTION 4.01. Assignment and Transfer by Trust. (a) The Borrower hereby
expressly acknowledges that, other than the provisions of Section 2.02(d)(ii)
hereof, the Trust's right, title and interest in, to and under this Loan
Agreement and the Borrower Bond have been assigned to the Trustee as security
for the Trust Bonds as provided in the Bond Resolution, and that if any Event of
Default shall occur, the Trustee or any Bond Insurer (as such term may be
defined in the Bond Resolution), if applicable, pursuant to the Bond Resolution,
shall be entitled to act hereunder in the place and stead of the Trust. The
Borrower hereby acknowledges the requirements of the Bond Resolution applicable
to the Trust Bonds and consents to such assignment and appointment. This Loan
Agreement and the Borrower Bond, including, without limitation, the right to
receive payments required to be made by the Borrower hereunder and to compel or
otherwise enforce observance and performance by the Borrower of its other
duties, covenants, obligations and agreements hereunder, may be further
transferred, assigned and reassigned in whole or in part to one or more
assignees or subassignees by the Trustee at any time subsequent to their
execution without the necessity of obtaining the consent of, but after giving
prior written notice to, the Borrower.

The Trust shall retain the right to compel or otherwise enforce observance and
performance by the Borrower of its duties, covenants, obligations and agreements
under Section 2.02(d)(ii) hereof; provided, however, that in no event shall the
Trust have the right to accelerate the Borrower Bond in connection with the
enforcement of Section 2.02(d)(ii) hereof.

(b) The Borrower hereby approves and consents to any assignment or transfer of
this Loan Agreement and the Borrower Bond that the Trust deems to be necessary
in connection with any refunding of the Trust Bonds or the issuance of
additional bonds under the Bond Resolution or otherwise, all in connection with
the pooled loan program of the Trust.

SECTION 4.02. Assignment by Borrower. Neither this Loan Agreement nor the
Borrower Bond may be assigned by the Borrower for any reason, unless the
following conditions shall be satisfied: (i) the Trust and the Trustee shall
have approved said assignment in writing; (ii) the assignee shall have expressly
assumed in writing the full and faithful observance and performance of the
Borrower's duties, covenants, obligations and agreements under this Loan
Agreement and, to the extent permitted under applicable law, the Borrower Bond;
(iii) immediately after such assignment, the assignee shall not be in default in
the observance or performance of any duties, covenants, obligations or
agreements of the Borrower under this Loan Agreement or the Borrower Bond; and
(iv) the Trust shall have received an opinion of Bond Counsel to the effect that
such assignment will not adversely affect the security of the holders of the
Trust Bonds or the exclusion of the interest on the Trust Bonds from gross
income for purposes of federal income taxation under Section 103(a) of the Code.

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ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

SECTION 5.01. Events of Default. If any of the following events occur, it is
hereby defined as and declared to be and to constitute an "Event of Default":

(a) failure by the Borrower to pay, or cause to be paid, any Trust Bond Loan
Repayment required to be paid hereunder when due, which failure shall continue
for a period of fifteen (15) days;

(b) failure by the Borrower to make, or cause to be made, any required payments
of principal, redemption premium, if any, and interest on any bonds, notes or
other obligations of the Borrower issued under the Borrower Bond Resolution
(other than the Loan and the Borrower Bond) or otherwise secured by all or a
portion of the property pledged under the Borrower Bond Resolution, after giving
effect to the applicable grace period;

(c) failure by the Borrower to pay, or cause to be paid, the Administrative Fee
or any late charges incurred hereunder or any portion thereof when due or to
observe and perform any duty, covenant, obligation or agreement on its part to
be observed or performed under this Loan Agreement, other than as referred to in
subsection (a) of this Section 5.01 or other than the obligations of the
Borrower contained in Section 2.02(d)(ii) hereof and in Exhibit F hereto, which
failure shall continue for a period of thirty (30) days after written notice,
specifying such failure and requesting that it be remedied, is given to the
Borrower by the Trustee, unless the Trustee shall agree in writing to an
extension of such time prior to its expiration; provided, however, that if the
failure stated in such notice is correctable but cannot be corrected within the
applicable period, the Trustee may not unreasonably withhold its consent to an
extension of such time up to 120 days from the delivery of the written notice
referred to above if corrective action is instituted by the Borrower within the
applicable period and diligently pursued until the Event of Default is
corrected;

(d) any representation made by or on behalf of the Borrower contained in this
Loan Agreement, or in any instrument furnished in compliance with or with
reference to this Loan Agreement or the Loan, is false or misleading in any
material respect;

(e) a petition is filed by or against the Borrower under any federal or state
bankruptcy or insolvency law or other similar law in effect on the date of this
Loan Agreement or thereafter enacted, unless in the case of any such petition
filed against the Borrower such petition shall be dismissed within thirty (30)
days after such filing and such dismissal shall be final and not subject to
appeal; or the Borrower shall become insolvent or bankrupt or shall make an
assignment for the benefit of its creditors; or a custodian (including, without
limitation, a receiver, liquidator or trustee) of the Borrower or any of its
property shall be appointed by court order or take possession of the Borrower or
its property or assets if such order remains in effect or such possession
continues for more than thirty (30) days;

(f) the Borrower shall generally fail to pay its debts as such debts become due;
and

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(g) failure of the Borrower to observe or perform such additional duties,
covenants, obligations, agreements or conditions as are required by the Trust
and specified in Exhibit F attached hereto and made a part hereof.

SECTION 5.02. Notice of Default. The Borrower shall give the Trustee and the
Trust prompt telephonic notice of the occurrence of any Event of Default
referred to in Section 5.01(d) or (e) hereof and of the occurrence of any other
event or condition that constitutes an Event of Default at such time as any
senior administrative or financial officer of the Borrower becomes aware of the
existence thereof.

SECTION 5.03. Remedies on Default. Whenever an Event of Default referred to in
Section 5.01 hereof shall have occurred and be continuing, the Borrower
acknowledges the rights of the Trustee and of any Bond Insurer to direct any and
all remedies in accordance with the terms of the Bond Resolution, and the
Borrower also acknowledges that the Trust shall have the right to take, or to
direct the Trustee to take, any action permitted or required pursuant to the
Bond Resolution and to take whatever other action at law or in equity may appear
necessary or desirable to collect the amounts then due and thereafter to become
due hereunder or to enforce the observance and performance of any duty,
covenant, obligation or agreement of the Borrower hereunder.

In addition, if an Event of Default referred to in Section 5.01(a) hereof shall
have occurred and be continuing, the Trust shall, to the extent allowed by
applicable law and to the extent and in the manner set forth in the Bond
Resolution, have the right to declare, or to direct the Trustee to declare, all
Loan Repayments and all other amounts due hereunder (including, without
limitation, payments under the Borrower Bond) together with the prepayment
premium, if any, calculated pursuant to Section 3.07 hereof to be immediately
due and payable, and upon notice to the Borrower the same shall become due and
payable without further notice or demand.

SECTION 5.04. Attorneys' Fees and Other Expenses. The Borrower shall on demand
pay to the Trust or the Trustee the reasonable fees and expenses of attorneys
and other reasonable expenses (including, without limitation, the reasonably
allocated costs of in-house counsel and legal staff) incurred by either of them
in the collection of Trust Bond Loan Repayments or any other sum due hereunder
or in the enforcement of the observation or performance of any other duties,
covenants, obligations or agreements of the Borrower upon an Event of Default.

SECTION 5.05. Application of Moneys. Any moneys collected by the Trust or the
Trustee pursuant to Section 5.03 hereof shall be applied (a) first to pay any
attorneys' fees or other fees and expenses owed by the Borrower pursuant to
Section 5.04 hereof, (b) second, to the extent available, to pay the Interest
Portion then due and payable, (c) third, to the extent available, to pay the
principal due and payable on the Loan, (d) fourth, to the extent available, to
pay the Administrative Fee, any late charges incurred hereunder or any other
amounts due and payable under this Loan Agreement, and (e) fifth, to the extent
available, to pay the Interest Portion and the principal on the Loan and other
amounts payable hereunder as such amounts become due and payable.

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SECTION 5.06. No Remedy Exclusive; Waiver; Notice. No remedy herein conferred
upon or reserved to the Trust or the Trustee is intended to be exclusive, and
every such remedy shall be cumulative and shall be in addition to every other
remedy given under this Loan Agreement or now or hereafter existing at law or in
equity. No delay or omission to exercise any right, remedy or power accruing
upon any Event of Default shall impair any such right, remedy or power or shall
be construed to be a waiver thereof, but any such right, remedy or power may be
exercised from time to time and as often as may be deemed expedient. In order to
entitle the Trust or the Trustee to exercise any remedy reserved to it in this
Article V, it shall not be necessary to give any notice other than such notice
as may be required in this Article V.

SECTION 5.07. Retention of Trust's Rights. Notwithstanding any assignment or
transfer of this Loan Agreement pursuant to the provisions hereof or of the Bond
Resolution, or anything else to the contrary contained herein, the Trust shall
have the right upon the occurrence of an Event of Default to take any action,
including (without limitation) bringing an action against the Borrower at law or
in equity, as the Trust may, in its discretion, deem necessary to enforce the
obligations of the Borrower to the Trust pursuant to Section 5.03 hereof.

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ARTICLE VI

MISCELLANEOUS

SECTION 6.01. Notices. All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed given when hand
delivered or mailed by registered or certified mail, postage prepaid, to the
Borrower at the address specified in Exhibit A-1 attached hereto and made a part
hereof and to the Trust and the Trustee at the following addresses:

 
(a)
Trust:

New Jersey Environmental Infrastructure Trust
P.O. Box 440
Trenton, New Jersey 08625
Attention: Executive Director

 
(b)
Trustee:

U.S. Bank National Association
21 South Street, 3rd Floor
Morristown, New Jersey 07960
Attention: Corporate Trust Department

Any of the foregoing parties may designate any further or different addresses to
which subsequent notices, certificates or other communications shall be sent by
notice in writing given to the others.

SECTION 6.02. Binding Effect. This Loan Agreement shall inure to the benefit of
and shall be binding upon the Trust and the Borrower and their respective
successors and assigns.

SECTION 6.03. Severability. In the event any provision of this Loan Agreement
shall be held illegal, invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate, render unenforceable or
otherwise affect any other provision hereof.

SECTION 6.04. Amendments, Supplements and Modifications. Except as otherwise
provided in this Section 6.04, this Loan Agreement may not be amended,
supplemented or modified without the prior written consent of the Trust and the
Borrower and without the satisfaction of all conditions set forth in Section
11.12 of the Bond Resolution. Notwithstanding the conditions set forth in
Section 11.12 of the Bond Resolution, (i) Section 2.02(p) hereof may be amended,
supplemented or modified upon the written consent of the Trust and the Borrower
and without the consent of the Trustee, any Bond Insurer or any holders of the
Trust Bonds, and (ii) Exhibit H hereto may be amended, supplemented or modified
prior to the execution and delivery thereof as the Trust, in its sole
discretion, shall determine to be necessary, desirable or convenient for the
purpose of satisfying Rule 15c2-12 and the purpose and intent thereof as Rule
15c2-12, its purpose and intent may hereafter be interpreted from time to time
by the SEC or any

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court of competent jurisdiction, and such amendment, supplement or modification
shall not require the consent of the Borrower, the Trustee, any Bond Insurer or
any holders of the Trust Bonds.

SECTION 6.05. Execution in Counterparts. This Loan Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.

SECTION 6.06. Applicable Law and Regulations. This Loan Agreement shall be
governed by and construed in accordance with the laws of the State, including
the Act and the Regulations, which Regulations are, by this reference thereto,
incorporated herein as part of this Loan Agreement.

SECTION 6.07. Consents and Approvals. Whenever the written consent or approval
of the Trust shall be required under the provisions of this Loan Agreement, such
consent or approval may only be given by the Trust unless otherwise provided by
law or by rules, regulations or resolutions of the Trust or unless expressly
delegated to the Trustee and except as otherwise provided in Section 6.09
hereof.

SECTION 6.08. Captions. The captions or headings in this Loan Agreement are for
convenience only and shall not in any way define, limit or describe the scope or
intent of any provisions or sections of this Loan Agreement.

SECTION 6.09. Benefit of Loan Agreement; Compliance with Bond Resolution. This
Loan Agreement is executed, among other reasons, to induce the purchase of the
Trust Bonds. Accordingly, all duties, covenants, obligations and agreements of
the Borrower herein contained are hereby declared to be for the benefit of and
are enforceable by the Trust, the holders of the Trust Bonds and the Trustee.
The Borrower covenants and agrees to observe and comply with, and to enable the
Trust to observe and comply with, all duties, covenants, obligations and
agreements contained in the Bond Resolution.

SECTION 6.10. Further Assurances. The Borrower shall, at the request of the
Trust, authorize, execute, attest, acknowledge and deliver such further
resolutions, conveyances, transfers, assurances, financing statements and other
instruments as may be necessary or desirable for better assuring, conveying,
granting, assigning and confirming the rights, security interests and agreements
granted or intended to be granted by this Loan Agreement and the Borrower Bond.

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IN WITNESS WHEREOF, the Trust and the Borrower have caused this Loan Agreement
to be executed, sealed and delivered as of the date first above written.

 
NEW JERSEY ENVIRONMENTAL
 
INFRASTRUCTURE TRUST
     
[SEAL]
           
/s/
Robert A. Briant, Sr.
ATTEST:
 
Robert A. Briant, Sr.
   
Chairman

/s/ Eileen Swan
Eileen Swan
Secretary

 
MIDDLESEX WATER COMPANY
[SEAL]
                 
/s/
Dennis W. Doll
ATTEST:
 
Authorized Officer

/s/ Kenneth J. Quinn
Authorized Officer

H-1