Exhibit 4(i)

         INDENTURE,  dated  as of  June 1,  1997,  between  ELIZABETHTOWN  WATER
COMPANY,  a corporation  duly  organized and existing under and by virtue of the
laws of the State of New Jersey  (hereinafter  sometimes  called the "Company"),
party  of the  first  part,  and  THE  BANK  OF NEW  YORK,  a New  York  banking
corporation  (hereinafter  sometimes called the "Trustee"),  party of the second
part.

         WHEREAS, the Company is empowered to issue debentures for any of the
objects and purposes of the Company;

         WHEREAS,  for its  lawful  corporate  purposes,  the  Company  has duly
authorized  an issue of  debentures  designated  1997  Series  B  Variable  Rate
Debentures  - due 2027  (hereinafter  referred  to as the  "Debentures"),  in an
aggregate  principal  amount of $25,000,000,  to be issued under and pursuant to
the provisions hereof; and

         WHEREAS, the Debentures and the Trustee's certificate of authentication
to be borne by the Debentures are to be  substantially  in the following  forms,
respectively:

                    [FORM OF DEBENTURE]

                          [FACE]

$___________________                No. _______________


                ELIZABETHTOWN WATER COMPANY

     1997 Series B Variable Rate Debenture - due 2027

         ELIZABETHTOWN WATER COMPANY, a corporation duly organized and

existing  under the laws of the State of New Jersey  (herein  referred to as the
"Company"),  for value  received,  hereby  promises  to pay to Summit  Bank,  or
registered  assigns,  on June 1, 2027 or upon the earlier  redemption  hereof as
hereinafter  provided,  the principal sum of Twenty-Five Million Dollars in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private  debts.  The 1997 Series B
Variable  Rate  Debentures  have been issued to the Bond Trustee to evidence the
obligations  of the  Company  under  the Loan  Agreement  pursuant  to which the
Company is obligated for the payment of the principal of,  premium,  if any, and
interest  due  on the  Bonds  issued  by  the  Authority  pursuant  to the  Bond
Indenture. This 1997 Series B Variable Rate Debenture bears interest at the same
rate,  and interest on this 1997 Series B Variable Rate  Debenture is payable on
the same  dates  and to the same  extent as  interest  is  payable  on the Bonds
pursuant to the terms thereof.  The interest rate on this Debenture  shall in no
event  exceed  10%.  Principal  and  interest  shall  be paid  at the  principal
corporate trust office of

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The Bank of New  York,  New  York,  New York or at the  office  of the  Company,
Westfield,  New Jersey,  or at the duly designated  office of any duly appointed
alternate or successor paying agent.

         The  obligation  of the Company to make  payments  with  respect to the
principal of, premium,  if any, and interest on the Debentures shall be fully or
partially,  as the case may be,  satisfied and discharged to the extent that the
principal of, premium,  if any and interest on the Bonds shall have been paid or
shall be deemed to have been paid in accordance with the Bond Indenture.

         Reference is hereby made to the further  provisions  of this  Debenture
set forth on the  reverse  hereof,  and such  further  provisions  shall for all
purposes have the same effect as though fully set forth at this place.

         This Debenture shall not be valid or become  obligatory for any purpose
until the  certificate  of  authentication  hereon shall have been signed by the
Trustee under the Indenture.

         IN WITNESS WHEREOF, ELIZABETHTOWN WATER COMPANY has

caused this Debenture to be signed in its corporate name by its President or one
of its Vice Presidents by his or her signature or a facsimile thereof and by its
Secretary  or one of its  Assistant  Secretaries  by his or her  signature  or a
facsimile  thereof,  and its  corporate  seal,  or a  facsimile  thereof,  to be
impressed or imprinted hereon.

                           ELIZABETHTOWN WATER COMPANY

                           By___________________________
                                  Title

(Seal)

By___________________________
      Title

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     [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]

Dated:  ________ __, 1997

        This  is  one  of  the  Debentures  described  in  the  within-mentioned
              Indenture.

                              THE BANK OF NEW YORK,
                                   as Trustee,

                              By___________________________

                              Authorized Signatory.

                         [REVERSE]

                ELIZABETHTOWN WATER COMPANY

     1997 Series B Variable Rate Debenture - due 2027

         This Debenture is one of a duly  authorized  issue of Debentures of the
Company  (herein  referred  to as the  "Debentures"),  limited to the  aggregate
principal amount of $25,000,000,  except as otherwise  provided in the Indenture
referred to below, all issued or to be issued under and pursuant to an indenture
dated as of June 1, 1997 (herein referred to as the "Indenture"),  duly executed
and delivered by the Company to The Bank of New York,  Trustee (herein  referred
to as the "Trustee"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a  description  of the rights of the holders of the
Debentures,  the rights, duties and immunities of the Trustee and the rights and
obligations of the Company  thereunder.  The Debentures will not be transferable
except to a successor Bond Trustee.

         In case an Event of Default,  as defined in the  Indenture,  shall have
occurred  and be  continuing,  the  principal  of all of the  Debentures  may be
declared,  and upon such  declaration  shall  become,  due and  payable,  in the
manner, with the effect and subject to the conditions provided in the Indenture.

         The  Indenture  contains  provisions  permitting  the  Company  and the
Trustee,  with the  consent  of the  holders  of more than 50% in the  aggregate
principal amount of the Debentures at the time outstanding,  evidenced as in the
Indenture provided, to execute supplemental  indentures adding any provisions to
or changing in any manner or eliminating  any of the provisions of the Indenture
or of any indenture  supplemental  thereto or modifying in any manner the rights
and  obligations of the holders of the Debentures and of the Company;  provided,
however, that no such supplemental indenture shall (i) extend the fixed

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maturity of any Debenture, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest  thereon,  without the consent of
the  holder  of each  Debenture  so  affected,  or  (ii)  reduce  the  aforesaid
percentage  of  Debentures,  the holders of which are required to consent to any
such  supplemental  indenture,  without  the  consent  of  the  holders  of  all
Debentures then outstanding.  It is also provided in the Indenture that prior to
any  declaration  of the maturity of the Debentures the holders of a majority in
the aggregate  principal amount of the Debentures at the time outstanding may on
behalf of the holders of all of the Debentures  waive any past default under the
Indenture and its  consequences,  except a default in the payment of interest on
or the  principal  of any of the  Debentures.  Any such consent or waiver by the
registered  holder of this  Debenture  shall be conclusive and binding upon such
holder  and upon all future  holders  and  owners of this  Debenture  and of any
Debenture issued in exchange herefor or in place hereof, irrespective of whether
or not any notation of such consent or waiver is made upon this Debenture.

         No reference herein to the Indenture and no provision of this Debenture
or of the Indenture  shall alter or impair the obligation of the Company,  which
is absolute  and  unconditional,  to pay the  principal  of and interest on this
Debenture  at the time  and  place  and at the rate and in the coin or  currency
herein prescribed.

         The Debentures are issuable as registered  Debentures  without coupons,
in  denominations  of  $5,000  and  any  multiple  thereof.  This  Debenture  is
transferable  in the manner  authorized  by law.  Upon due  presentment  of this
Debenture for  registration of transfer at the office or agency to be maintained
by the Company in the Borough of  Manhattan,  City and State of New York,  a new
Debenture or  Debentures,  of  authorized  denominations,  for a like  aggregate
principal amount,  will be issued to the transferee as provided,  and subject to
the limitations,  in the Indenture.  No service charge will be made for any such
registration  of  transfer,  but  the  Company  may  require  payment  of a  sum
sufficient to reimburse it for any tax or other governmental  charge that may be
imposed in relation  thereto.  This  Debenture  may in like manner be  exchanged
without  service  charge  for one or more new  Debentures  of  other  authorized
denominations  but of the same aggregate  principal  amount,  all subject to the
terms and conditions set forth in the Indenture.

         The Debentures are subject to optional and mandatory  redemption by the
Company,  at the times,  and to the extent  that,  certain  New Jersey  Economic
Development  Authority  Water  Facilities  Bonds  (Elizabethtown  Water  Company
Project  -- 1997  Series B) are called for  redemption  at a price  equal to the
principal  amount  to be  redeemed,  accrued  interest  to the  date  fixed  for
redemption and any premium due in respect of such Bonds.  As more fully provided
in the Indenture,  the Debentures are also redeemable as a whole or in part with
the proceeds of Released Property,  at the principal amount thereof plus accrued
interest to the date fixed for redemption.

         The Indenture  provides that under the circumstances  specified therein
funds or certain  securities may be deposited with the Trustee in advance of the
maturity or redemption date of any of the  Debentures,  in trust for the payment
or redemption of such Debentures, and the interest due or to become due thereon,
and that thereupon all  obligations of the Company in respect of such Debentures
shall cease and be discharged and the holders thereof

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shall  thereafter be restricted  exclusively to such funds or securities for any
and all other  claims on their part under the  Indenture or with respect to such
Debentures.

         The Company,  the Trustee, any paying agent and any Debenture registrar
may deem and treat the  registered  holder  hereof as the absolute  owner hereof
(whether or not this Debenture shall be overdue and  notwithstanding  any notice
of  ownership or writing  hereon) for the purpose of receiving  payment of or on
account  of the  principal  hereof  and  interest  due  hereon and for all other
purposes,  and neither the Company nor the Trustee nor any paying  agent nor any
Debenture registrar shall be affected by any notice to the contrary.  So long as
the Bond Trustee (as defined in the Indenture) is the sole registered  holder of
this Debenture, and has specified an account for such payments in writing to the
Company,  the Trustee and any paying  agent,  all payments of interest  required
hereunder shall be made by wire transfer.

         No  recourse  shall be had for the payment of the  principal  of or the
interest on this  Debenture,  or for any claim based  hereon,  or  otherwise  in
respect  hereof,  or based on or in respect of the  Indenture  or any  indenture
supplemental thereto, against any incorporator, stockholder, officer, trustee or
director, past, present or future, as such, of the Company or of any predecessor
or successor corporation, whether by virtue of any constitution, statute or rule
of law or  equity,  or by  the  enforcement  of any  assessment  or  penalty  or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration  for the issue  hereof,  expressly  waived and  released  by every
holder hereof, as more fully provided in the Indenture.

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


         AND WHEREAS, all acts and things necessary to make the Debentures, when
executed by the Company and  authenticated  and  delivered  by the Trustee as in
this  Indenture  provided,  the  valid,  binding  and legal  obligations  of the
Company, and to constitute these presents a valid indenture and agreement,  have
been done and  performed,  and the  execution  of this  Indenture  and the issue
hereunder of the Debentures have in all respects been duly  authorized,  and the
Company,  in the  exercise of the legal  right and power in it vested,  executes
this Indenture and proposes to make, execute, issue and deliver the Debentures;

         NOW, THEREFORE, THIS INDENTURE WITNESSETH:

         That in order to  declare  the  terms  and  conditions  upon  which the
Debentures  are  and  are to be  authenticated,  issued  and  delivered,  and in
consideration of the premises,  of the purchase and acceptance of the Debentures
by the  holders  thereof  and of the sum of one  dollar  to it duly  paid by the
Trustee  at the  execution  of these  presents,  the  receipt  whereof is hereby
acknowledged,  the Company  covenants  and agrees with the Trustee for the equal
and  proportionate  benefit of the  respective  holders from time to time of the
Debentures, as follows:

                       ARTICLE ONE.

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                       Definitions.

         Section  1.01.  The terms  defined in this  Section  (except as in this
Indenture otherwise expressly provided or unless the context otherwise requires)
for all purposes of this  Indenture  and of any  indenture  supplemental  hereto
shall have the respective  meanings  specified in this Section.  All other terms
used in this Indenture  which are defined in the Trust  Indenture Act of 1939 or
which are by reference  in such act defined in the  Securities  Act of 1933,  as
amended  (except as herein  otherwise  expressly  provided or unless the context
otherwise  requires),  shall have the  meanings  assigned  to such terms in said
Trust  Indenture Act and in said  Securities  Act as in force at the date of the
execution of this Indenture.

         "Authority" shall mean the New Jersey Economic Development Authority.

         "Board of  Directors"  shall mean the Board of Directors of the Company
or any  committee  thereof  duly  authorized  by the Board of  Directors  to act
hereunder.

         "Board Resolution" or "Resolution of the Board of Directors" shall mean
a copy of a resolution  certified by the Secretary or an Assistant  Secretary of
the  Company to have been duly  adopted by the Board of  Directors  and to be in
full force and effect on the date of such certification.

         "Company" shall mean Elizabethtown  Water Company,  and, subject to the
provisions of Article Twelve, shall also include its successors and assigns.

         "Debenture" or "Debentures" shall mean any Debenture or Debentures,  as
the case may be, authenticated and delivered under this Indenture.

         The term "outstanding",  when used with reference to Debentures, shall,
subject to the provisions of Section 9.04 and Article Thirteen,  mean, as of any
particular time, all Debentures authenticated and delivered by the Trustee under
this Indenture, except

         (a)  Debentures theretofore canceled by the Trustee or delivered to the
     Trustee for cancellation;

         (b)  Debentures  or portions  thereof for the payment or  redemption of
     which moneys in the  necessary  amount  shall have been  deposited in trust
     with the Trustee,  provided  that if such  Debentures or portions are to be
     redeemed prior to the maturity  thereof,  notice of such  redemption  shall
     have been given as in Article Four provided,  or provision  satisfactory to
     the Trustee shall have been made for giving such notice; and

         (c) Debentures in lieu of or in substitution for which other Debentures
     shall  have  been  authenticated  and  delivered  pursuant  to the terms of
     Section 2.06,  unless proof  satisfactory  to the Trustee is presented that
     any such  Debentures  are held by holders for value  without  notice of any
     defense.

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         "Debentureholder",  "holder of Debentures",  "holder", or other similar
terms,  shall mean the registered holder of any Debenture.  The term "registered
holder"  shall mean the  person or  persons in whose name or names a  particular
Debenture  shall  be  registered  on the  register  kept  for  that  purpose  in
accordance with the terms of this Indenture.

         "Event of  Default"  shall mean any event  specified  in  Section  7.01
continued for the period of time, if any, therein designated.

         "Indenture" shall mean this instrument as originally  executed,  or, if
amended or supplemented, as so amended or supplemented.

         "Loan Agreement" shall mean the Loan Agreement dated as of June 1, 1997
between the Company and the  Authority  relating  to,  among other  things,  the
issuance   of   $25,000,000   principal   amount  of  Water   Facilities   Bonds
(Elizabethtown Water Company Project -- 1997 Series B), or if further amended or
supplemented, as so further amended or supplemented.

         "Officers'   Certificate"  shall  mean  a  certificate  signed  by  the
President or a Vice President and by the Treasurer or an Assistant  Treasurer or
the Secretary or an Assistant  Secretary of the Company.  Each such  certificate
shall include the statements provided for in Section 15.06, if and to the extent
required by the provisions thereof.

         "Opinion of Counsel"  shall mean an opinion in writing  signed by legal
counsel who shall be satisfactory to the Trustee,  and who may be an employee of
or counsel to the  Company.  Each such  opinion  shall  include  the  statements
provided for in Section 15.06,  if and to the extent  required by the provisions
thereof.

         "Person"   shall   mean  an   individual,   partnership,   corporation,
association,  joint  venture,  trust or  unincorporated  association  and  shall
include a  government  or  political  subdivision  thereof and any  governmental
agency or public benefit corporation.

         "Principal  Corporate  Trust Office" means the office of the Trustee in
New York,  New York at which any  particular  time its corporate  trust business
shall be principally administered, which office at the date hereof is located at
101 Barclay Street, 21st Floor, New York, New York 10286,  Attention:  Corporate
Trust  Trustee  Administration,  except that,  with respect to  presentation  of
Securities  for payment or  registration  of  transfers  and  exchanges  and the
location of the Security Registrar,  such term means the office or agency of the
Trustee  in said  city at which at any  particular  time  its  corporate  agency
business shall be conducted,  which at the date hereof is located at 101 Barclay
Street, New York, New York 10286, Attention: Corporate Trust Services Window.

         "Project" shall mean those certain  facilities of the Company  financed
pursuant to the Loan Agreement and described therein.

         "Responsible  Officer" when used with respect to the Trustee shall mean
the  chairman or vice  chairman of the board of  directors,  the chairman of the
executive  committee,  the president,  any vice  president,  the secretary,  the
treasurer, any senior trust

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officer,  any  trust  officer,  any  second or  assistant  vice  president,  any
assistant  secretary,  any assistant  treasurer,  any assistant cashier,  or any
other  officer  or  assistant  officer  of the  Trustee  customarily  performing
functions  similar to those  performed  by the  persons who at the time shall be
such officers,  respectively,  or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular subject.

         "Bonds"  shall mean the  Authority's  $25,000,000  principal  amount of
Water Facilities Bonds (Elizabethtown Water Company Project -- 1997 Series B).

         "Bond Indenture" shall mean the Trust Indenture (Series B), dated as of
June 1, 1997 between the Authority  and the Bond Trustee,  pursuant to which the
Bonds are issued,  or if further amended or supplemented,  as so further amended
or supplemented.

         "Bond  Trustee" shall mean the trustee under the Bond Indenture for the
time being, whether original or successor.

         "Trustee"  shall mean the  Trustee  under this  Indenture  for the time
being, whether original or successor.

         "Trust  Indenture Act of 1939",  subject to the  provisions of Sections
11.01 and 11.02,  shall mean the Trust  Indenture Act of 1939 as in force at the
date of execution of this Indenture.

         Certain other terms are defined in Articles Two, Five, Seven and Eight.

                       ARTICLE TWO.

    Description, Execution and Exchange of Debentures.

         Section 2.01. The Debentures shall mature on June 1, 2027.

         Section  2.02.  The   Debentures  and  the  Trustee's   certificate  of
authentication to be borne by the Debentures shall be substantially of the tenor
and  purport as in this  Indenture  above  recited,  and may have such  letters,
numbers  or other  marks of  identification  and such  legends  or  endorsements
printed,  lithographed or engraved  thereon as the Company may deem  appropriate
and as are not inconsistent with the provisions of this Indenture,  or as may be
required to comply  with any law or with any rule or  regulation  made  pursuant
thereto  or with any law or  regulation  of any  stock  exchange  on  which  the
Debentures may be listed, or to conform to usage.

         Section 2.03. The Debentures shall be issuable as registered Debentures
without coupons in denominations of $5,000 and multiples thereof.

         Each  Debenture  shall be dated  the date of its  authentication.  Each
Debenture  shall bear  interest at the same rate,  and interest and premium,  if
any, on each Debenture

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shall be payable on the same  dates,  and to the same  extent  that  interest is
payable on the Bonds pursuant to the terms thereof.

         The  obligation  of the Company to make  payments  with  respect to the
principal of, premium,  if any, and interest on the Debentures shall be fully or
partially,  as the case may be,  satisfied and discharged to the extent that the
principal of, premium, if any, and interest on the Bonds shall have been paid or
shall be deemed to have been paid in accordance with the Bond Indenture.

         Section 2.04. The  Debentures  shall be signed on behalf of the Company
by its  President  or a Vice  President,  and by its  Secretary  or an Assistant
Secretary,  and its  corporate  seal, or a facsimile  thereof,  shall be thereon
impressed or imprinted.  The signature of any such  President,  Vice  President,
Secretary  or  Assistant  Secretary  may be  facsimile.  The Company may use the
signature or facsimile  signature or any person who shall be any such officer of
the Company at the time of the execution of Debentures, irrespective of the date
as of which the same  shall be  authenticated,  or of any  person who shall have
been any such officer of the Company,  notwithstanding the fact that at the time
the  Debentures  shall be  authenticated  and delivered or disposed of, he shall
have ceased to be such officer of the Company.

         The  Company  may  deliver  Debentures  executed  by the Company to the
Trustee for  authentication.  The Trustee shall thereupon  authenticate and make
available  for delivery  said  Debentures  to or upon the written  orders of the
Company.   Only  such   Debentures  as  shall  bear  thereon  a  certificate  of
authentication  substantially in the form herein before recited, executed by the
Trustee,  shall be entitled to the  benefits  of this  Indenture  or be valid or
obligatory for any purpose.  Such  certificate by the Trustee upon any Debenture
executed by the Company  shall be  conclusive  evidence  that the  Debenture  so
authenticated has been duly  authenticated and delivered  hereunder and that the
holder is entitled to the benefits of this Indenture.

         Section  2.05.  The  Company  shall  keep at the office or agency to be
maintained by the Company as provided in Section 5.02 a register or registers in
which,  subject to such  reasonable  regulations  as it may  prescribe,  it will
register all Debentures,  and upon due presentment for  registration or transfer
of any  Debenture  at such  office or agency,  the  Company  shall  execute  and
register  and the  Trustee  shall  authenticate  and  deliver in the name of the
transferee or  transferees a new  Debenture or Debentures  for a like  aggregate
principal amount of Debentures of any authorized denominations,  bearing numbers
not contemporaneously outstanding.

         The  several   authorized   denominations   of   Debentures   shall  be
interchangeable in equal aggregate principal amounts. Debentures to be exchanged
shall be surrendered at the office or agency to be maintained by the Company for
the  purpose as  provided  in Section  5.02 and the  Company  shall  execute and
register and the Trustee shall authenticate and deliver in exchange therefor the
Debenture or Debentures  which the Debenture holder making the exchange shall be
entitled to receive, bearing numbers not contemporaneously outstanding.

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         All Debentures  presented or surrendered for  registration of transfer,
exchange,  redemption  or payment  shall (if so  required  by the Company or the
Trustee) be duly  endorsed  by, or be  accompanied  by a written  instrument  or
instruments of transfer in form satisfactory to the Company and the Trustee duly
executed by, the registered holder or his attorney duly authorized in writing.

         For any  exchange  or  registration  of  transfer  of  Debentures,  the
Company, at its option, may require the payment of a sum sufficient to reimburse
it for any tax or other  governmental  charge  that may be imposed  in  relation
thereto. No service charge shall be made for any such transaction.

         The Company shall not be required to make  registration of transfers or
exchanges  of  Debentures  for a period  of  fifteen  days  next  preceding  any
selection  of  Debentures  to be  redeemed,  nor  shall it be  required  to make
registration  of transfers  or exchange of any  Debentures  or portions  thereof
called or being called for redemption,  except,  in the case of any Debenture to
be redeemed in part only, the portion thereof not being redeemed.

         Section  2.06.  In case any  Debenture  shall  become  mutilated  or be
destroyed,  lost or  stolen,  the  Company  in its  discretion  may  issue a new
Debenture of like tenor bearing a number not contemporaneously  outstanding,  in
exchange  and  substitution  for  the  mutilated  Debenture  or in  lieu  of and
substitution for the Debenture so destroyed,  lost or stolen.  In every case the
applicant  for a substituted  Debenture  shall furnish to the Company and to the
Trustee  such  security or  indemnity as may be required by them to save each of
them,  and, if  requested,  any paying  agents and  Debenture  registrars of the
Company,  harmless from all risk,  however remote,  and the applicant shall also
furnish to the Company and to the Trustee evidence to their  satisfaction of the
mutilation,  destruction,  loss or theft of the applicant's Debenture and of the
ownership thereof. The Trustee shall authenticate any such substituted Debenture
and deliver the same upon the written request or authorization of any officer of
the  Company.  Upon the issue of any  substituted  Debenture,  the  Company  may
require  the  payment  of a sum  sufficient  to  cover  any  stamp  tax or other
governmental charge that may be imposed incident thereto and any other expenses,
including counsel fees and expenses,  of the Company, the Trustee and any paying
agent or Debenture registrar,  connected therewith.  In case any Debenture which
has matured or is about to mature shall become  mutilated or be destroyed,  lost
or stolen,  the Company may, instead of issuing a substitute  Debenture,  pay or
authorize the payment of the same (without  surrender thereof except in the case
of a mutilated Debenture) if the applicant for such payment shall furnish to the
Company and to the Trustee such security or indemnity as may be required by them
to save each of them harmless,  and evidence to the  satisfaction of the Company
and the Trustee of the mutilation,  destruction, loss or theft of such Debenture
and of the ownership thereof.

         Every  Debenture  issued  pursuant to the provisions of this Section in
substitution  for  any  Debenture  which  is  destroyed,  lost or  stolen  shall
constitute an additional contractual  obligation of the Company,  whether or not
the  destroyed,  lost or  stolen  Debenture  shall be found at any  time,  or be
enforceable  by  anyone,  and  shall be  entitled  to all the  benefits  of this
Indenture  equally and  proportionately  with any and all other  Debentures duly
issued hereunder. All Debentures shall be held and owned upon the express

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condition  that the  foregoing  provisions  are  exclusive  with  respect to the
replacement or payment of mutilated,  destroyed,  lost or stolen  Debentures and
shall preclude any and all other rights or remedies,  notwithstanding any law or
statute  existing or  hereinafter  enacted to the  contrary  with respect to the
replacement  or payment of negotiable  instruments or other  securities  without
their surrender.

         Section 2.07.  All Debentures  surrendered  for the purpose of payment,
redemption,  exchange or  registration  of transfer  shall be  delivered  to the
Trustee  and  canceled by it, and no  Debentures  shall be issued in lieu of any
thereof  except as expressly  required or permitted by any of the  provisions of
this Indenture.  With the consent of the Company, the Trustee may, but shall not
be required to, destroy canceled Debentures and deliver a certificate thereof to
the Company. If the Company shall acquire any of the Debentures,  however,  such
acquisition   shall  not  operate  as  a  redemption  or   satisfaction  of  the
indebtedness  represented  by such  Debentures  unless  and  until  the same are
delivered to the Trustee, or surrendered to the Trustee, for cancellation.

         Section 2.08. Nothing in this Indenture or in the Debentures, expressed
or  implied,  shall  give  or be  construed  to  give  to any  person,  firm  or
corporation,  other than the parties  hereto and the holders of the  Debentures,
any legal or  equitable  right,  remedy  or claim  under or in  respect  of this
Indenture, or under any covenant,  condition or provision herein contained,  all
of the covenants, conditions and provisions herein being for the sole benefit of
the parties hereto and of the holders of the Debentures.

         Section  2.09.  The Company in issuing the  Debentures  may use "CUSIP"
numbers (if then  generally in use),  and, if so, the Trustee  shall use "CUSIP"
numbers in notices of  redemption  as a  convenience  to holders of  Debentures;
provided that any such notice may state that no representation is made as to the
correctness  of such numbers either as printed on the Debentures or as contained
in any notice of a redemption  and that reliance may be placed only on the other
identification numbers printed on the Debentures,  and any such redemption shall
not be affected by any defect in or omission of such numbers.

                      ARTICLE THREE.

                   Issue of Debentures.

         Section 3.01.  Debentures not to exceed the aggregate  principal amount
of  $25,000,000,  except as provided in Section 2.06, may, upon the execution of
this Indenture or from time to time  thereafter,  be executed by the Company and
delivered to the Trustee for  authentication,  and the Trustee  shall  thereupon
authenticate  and deliver said  Debentures  to or upon the written  order of the
Company  signed by its President or a Vice  President and by its Treasurer or an
Assistant Treasurer or its Secretary or an Assistant Secretary,  without further
action by the Company.  As a general  matter,  the Debentures  issued under this
Indenture   evidence   indebtedness   under  the  Loan  Agreement  and  are  not
transferable except to a successor Bond Trustee.

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                       ARTICLE FOUR.

                 Redemption of Debentures.

         Section 4.01.  The  Debentures  are  redeemable  prior to maturity,  in
accordance  with the  provisions of this Article  Four, at the principal  amount
thereof and accrued  interest to the date fixed for redemption  (but if the date
fixed for  redemption  is a  semi-annual  interest  payment  date,  the interest
installment  payable  on such date  shall be paid to the  holder at the close of
business  on the record  date for such  interest  payment  date),  together,  in
certain  cases,  with a  premium,  all as set  forth  in the  form of  Debenture
provided for herein. The Trustee,  upon the request of the Company (evidenced by
a copy of a Board Resolution, delivered to the Trustee at least 60 days prior to
the  redemption  date) and  notification  by the Bond Trustee,  signed by a Vice
President or Trust  Officer  (delivered to the Trustee at least 35 days prior to
the redemption date), that an equal principal amount of Bonds are to be redeemed
and specifying the premium,  if any, to be paid on such  redemption,  shall, for
and on  behalf of and in the name of the  Company,  mail or cause to be mailed a
notice  of  redemption  with  respect  to the  principal  amount  of  Debentures
specified in such request.

         Section 4.02. In case of a redemption of a part only of the Debentures,
the Trustee shall select the particular Debentures or parts thereof, which shall
be $5,000 or multiples  thereof,  so to be redeemed  according to such method as
the Trustee shall deem proper in its discretion.

         Notice of  redemption  to the  holder of any  Debenture  which is to be
redeemed in whole or in part shall be mailed by or on behalf of the Company, not
less than thirty days prior to the date fixed for redemption, to him at his last
address appearing upon the registry books.

         Failure  duly to give  such  notice  by  mailing  to the  holder of any
Debenture  designated  for  redemption  in whole or in part shall not affect the
validity of the proceedings for the redemption of any other Debenture.

         The notice of  redemption  to each holder of  Debentures to be redeemed
shall  specify  the  Debentures  or  parts  thereof  held by such  holder  to be
redeemed,  which  shall be  $5,000  or  multiples  thereof,  the date  fixed for
redemption,  the CUSIP numbers (if any) of such Debentures, the redemption price
at which  Debentures  are to be  redeemed  and the place  where  payment  of the
redemption price is to be made upon surrender of the Debentures, and shall state
that  interest  accrued  to the date  fixed for  redemption  will be paid in the
manner specified in said notice, that from said date interest thereon will cease
to accrue,  and,  in the case of any  Debenture  which is to be redeemed in part
only, that on and after the redemption date, upon surrender of such Debenture, a
new Debenture or Debentures of authorized  denominations in aggregate  principal
amount equal to the unremedied  portion of such  Debenture will be issued.  Such
notice  shall also state  that it is  subject to the  receipt of the  redemption
moneys by the  Trustee  prior to the date  fixed for  redemption,  and that such
notice,  and the Company's request to the Trustee to mail such notice,  shall be
of no effect unless such moneys are received prior to such date.

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         Section 4.03. Notice of redemption having been mailed,  and the Trustee
having  prior to the date  fixed  for  redemption  specified  in the  notice  of
redemption  received for the purpose an amount in cash  sufficient to redeem all
of the Debentures  called for redemption,  the Debentures  called for redemption
shall become due and payable on such date fixed for redemption.

         Section 4.04. On and after the date fixed for redemption, if the moneys
for the  redemption of the Debentures to be redeemed shall have been received by
the Trustee, such Debentures shall cease to bear interest. All moneys on deposit
with  the  Trustee  for the  redemption  of  Debentures  shall,  subject  to the
provisions of Section 13.04 hereof,  be held in trust for account of the holders
of the  Debentures so to be redeemed,  and shall be paid to them,  respectively,
upon presentation and surrender of said Debentures.

         If any Debenture of a  denomination  larger than $5,000 shall be called
for redemption in part only,  upon  presentation of any such Debenture so called
for  redemption,  the payment with respect to said  Debenture  shall be made and
Debentures  for the unpaid  balance of the principal  amount of the Debenture so
presented  shall be  authenticated  and delivered by the Trustee  without charge
therefor to the holder thereof. On and after the date fixed for such redemption,
interest  shall be payable only on the portion of such  Debenture  not so called
for redemption and only such portion shall be deemed outstanding and continue to
be entitled to the benefits of this Indenture.

         Anything in this Indenture  contained to the contrary  notwithstanding,
if the giving of the notice of redemption  shall have been completed as provided
in Section 4.02, or if provision  satisfactory  to the Trustee for the giving of
such notice  shall have been made,  and if the Company  shall have  deposited in
trust with the  Trustee  funds  sufficient  to redeem the  Debentures  (or parts
thereof) to be redeemed on the date fixed for redemption, together with interest
accrued to the date fixed for redemption, then all obligations of the Company in
respect of such  Debentures (or parts thereof) shall cease and be discharged and
the holders of such Debentures or parts thereof) shall  thereafter be restricted
exclusively  to such funds for any and all claims of whatsoever  nature on their
part under this Indenture or in respect to such Debentures (or parts thereof).

                       ARTICLE FIVE.

           Particular Covenants of the Company.

         The Company covenants as follows:

         Section 5.01.  The Company will duly and  punctually pay or cause to be
paid the principal of,  premium,  if any, and interest on each of the Debentures
at the time and place and in the manner provided herein and in the Debentures.

         Section 5.02. As long as any of the Debentures remain outstanding, the
Company will maintain an office or agency or offices or agencies in the
Borough of

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Manhattan, City and State of New York, where the Debentures may be presented for
registration of transfer and exchange as in this Indenture  provided,  and where
notices and demands to or upon the  Company in respect of the  Debentures  or of
this  Indenture  may be served,  and where the  Debentures  may be presented for
payment.  Until otherwise  designated by the Company in a notice to the Trustee,
such  office or  agency  for all of the above  purposes  shall be the  principal
corporate  trust  office of the  Trustee in the Borough of  Manhattan,  City and
State of New York.

         Section  5.03.  The  Company,  whenever  necessary  to  avoid or fill a
vacancy in the office of  Trustee,  will  appoint,  in the  manner  provided  in
Section  8.10,  a  Trustee,  so that  there  shall  at all  times  be a  Trustee
hereunder.

         Section  5.04.  (a) If the Company  shall  appoint a paying agent other
than the Trustee,  it will cause such paying agent to execute and deliver to the
Trustee an instrument in which such agent shall agree with the Trustee,  subject
to the provisions of this Section,

         (1) that it will hold all sums held by it as such agent for the payment
     of the  principal  of,  premium,  if any,  or  interest  on the  Debentures
     (whether  such sums have  been  paid to it by the  Company  or by any other
     obligor on the  Debentures)  in trust for the benefit of the holders of the
     Debentures, or of the Trustee, as the case may be,

         (2) that it will give the Trustee  notice of any failure by the Company
     (or by any other  obligor  on the  Debentures)  to make any  payment of the
     principal of or interest on the  Debentures  when the same shall be due and
     payable, and

         (3) that at any time  during  the  continuance  of any Event of Default
     upon the  written  request of the  Trustee,  it will  forthwith  pay to the
     Trustee all sums so held by such paying agent.

         (b) If the Company  shall act as its own paying  agent,  it will, on or
before each due date of the principal of,  premium,  if any, or interest on, the
Debentures,  set  aside,  segregate  and hold in trust  for the  benefit  of the
holders of the Debentures,  a sum sufficient to pay such principal,  premium, if
any, or interest so becoming  due and payable and will notify the Trustee of any
failure (by it or any other obligor on the Debentures) to take such action.

         (c) Whenever the Company shall have one or more paying agents, it will,
prior to each due date of the principal of, premium, if any, or interest on, the
Debentures,  deposit with a paying agent a sum  sufficient to pay the principal,
premium, if any, or interest,  so becoming due, such sum to be held in trust for
the  benefit of the  persons  entitled to such  principal,  premium,  if any, or
interest,  and  (unless  such paying  agent is the  Trustee)  the  Company  will
promptly notify the Trustee of its action or failure so to act.

         (d)  Anything  in this  Section to the  contrary  notwithstanding,  the
Company  may, at any time,  for the  purpose of  obtaining  a  satisfaction  and
discharge of this Indenture,

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or for any other reason, pay or cause to be paid to the Trustee all sums held in
trust by it, or any paying agent  hereunder,  as required by this Section,  such
sums to be held by the Trustee upon the trusts herein contained.

         (e)  Anything  in this  Section to the  contrary  notwithstanding,  the
agreement  to hold sums in trust as provided  in this  Section is subject to the
provisions of Section 13.04 hereof.

         Section 5.05.  The Company  covenants  that, so long as any  Debentures
shall be outstanding under this Indenture,  it will not create, assume or incur,
or in any other manner become  directly or indirectly  liable in respect of, any
indebtedness,  in  addition  to  its  7.20%  Debentures  due  2019,  its 7  1/2%
Debentures  due 2020, its 6.60%  Debentures  due 2021, its 6.70%  Debentures due
2021,  its 8 3/4%  Debentures  due 2021,  its 8% Debentures due 2022, its 7 1/4%
Debentures due 2028,  its 5.60%  Debentures due 2025, its 1997 Series A Variable
Rate Debentures and the Debentures, except the following:

         (a) current  operating  liabilities  and  current or other  obligations
     (other  than  for  borrowed  money)  incurred  in the  ordinary  course  of
     business;

     (b)  Current Indebtedness;

     (c) indebtedness (in addition to that referred to in subdivisions (a) and
     (b) above and (d) below) in an aggregate amount not in excess of
         $10,000,000 at any one time outstanding; and

     (d) indebtedness (in addition to that referred to in subdivisions  (a),
     (b) and (c)  above)  in an  aggregate  amount  not in  excess of the sum of
     $20,000,000  plus 65% of the Amount of Net  Property  Additions at the time
     the Company first becomes liable in respect of any such indebtedness.

         The  Company  covenants  that,  so  long  as any  Debentures  shall  be
outstanding under this Indenture, it will not create, assume or incur, or in any
manner become directly or indirectly  liable in respect of, any indebtedness (in
addition to (as hereinafter  defined) its 7.20%  Debentures due 2019, its 7 1/2%
Debentures  due 2020, its 6.60%  Debentures  due 2021, its 6.70%  Debentures due
2021,  its 8 3/4%  Debentures  due 2021,  its 8% Debentures due 2022, its 7 1/4%
Debentures due 2028,  its 5.60%  Debentures due 2025, its 1997 Series A Variable
Rate  Debentures,  the Debentures and that referred to in subdivisions  (a), (b)
and (c)  above),  unless  the Gross  Income of the  Company,  for a period of 12
consecutive calendar months within the 15 calendar months immediately  preceding
the  incurring  by the  Company of such  indebtedness,  shall have been at least
equal to twice the Annual Interest Charges.

         The term "Current  Indebtedness" as used herein shall mean indebtedness
in an aggregate amount not in excess of 20% of the total  capitalization  of the
Company at the time and which is  expressed to be payable on demand or to mature
less than one year after the date of  creation or  issuance  thereof.  The total
capitalization  of the Company  shall be deemed to consist of the sum of (i) the
principal amount of all outstanding  indebtedness of the Company  represented by
bonds, debentures, notes or other evidences of indebtedness (other

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than  Current  Indebtedness),  (ii) the  aggregate  of the par or  stated  value
represented  by all issued and  outstanding  capital stock of all classes of the
Company,  including  premiums  received on the issue of such capital stock,  and
(iii) the surplus of the Company,  including earned, capital,  paid-in and other
surplus.

         The term "Amount of Net Property  Additions"  as used herein shall mean
the balance,  if any,  remaining after deducting the Retirements from the Amount
of Property Additions, as of any particular time.

         The term "Amount of Property  Additions"  as used herein shall mean the
Cost or,  if less,  the fair  value  to the  Company  at the time of the  actual
acquisition by the Company, of Property Additions.

         The term  "Property  Additions"  as used herein shall mean all tangible
property owned by the Company and made,  constructed or otherwise acquired by it
subsequent to December 31, 1975, which the Company is authorized to acquire, own
and operate and which is used or useful in the business of impounding,  storing,
transmitting, producing, manufacturing,  transporting, distribution or supplying
water for any and all purposes. Permanent improvements, extensions, additions or
replacements in the process or  construction  or erection,  shall be included as
Property Additions as of any particular time, insofar as actually constructed or
erected after December 31, 1975, and before such  particular  time.  There shall
not be included as Property Additions (a) Excepted Property,  (b) going value or
good will, as such, (c) any item of property retired the retirement of which has
not been credited to utility plant account, (d) any item of property acquired to
replace a similar item of property  whose  retirement  has not been  credited to
utility plant account, or any item of property whose cost has been charged or is
properly  chargeable to repairs,  maintenance or other operating expense account
or whose cost has been charged or is not properly  chargeable  to utility  plant
account,  or (e) any  property  not  located  in the State of New Jersey or in a
State contiguous thereto.

         The term  "Retirements"  as used herein shall mean the Cost of Fundable
Property which,  subsequent to December 31, 1975,  shall have become worn out or
permanently unserviceable,  or shall have been lost, sold, destroyed, abandoned,
surrendered  on lapse  of  title,  taken by  eminent  domain,  purchased  by any
governmental  or public body pursuant to any right  reserved to or vested in it,
or otherwise  disposed of by the Company or retired from service for any reason,
or shall have  permanently  ceased to be used or useful in the  business  of the
Company. Accounting adjustments of utility plant accounts or reclassification of
utility plant accounts or  amortization  of any plant account to comply with any
order of any regulatory body and which do not represent or reflect the permanent
retirement from a plant account  subsequent to December 31, 1975 of any Fundable
Property shall not be included in Retirements.

         The term "Fundable Property" as used herein shall mean (a) all property
owned by the Company on December 31, 1975 (except such  property as would not be
included in Property Additions if acquired  subsequent to December 31, 1975) and
(b) Property Additions.

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<PAGE>



         The  term  "Cost"  as  used  herein,  when  used  with  respect  to any
particular  property,  shall mean the cost (or,  if not known,  estimated  cost)
thereof to the person first  devoting it to public  service,  without  deducting
therefrom   applicable  reserves  for  depreciation  and/or  retirements  and/or
depletion and/or  obsolescence.  In determining Cost in cases in which property,
part of which  constitutes  Fundable  Property and part does not, is or has been
acquired for a consideration  not divided between such parts, or, in cases where
the  consideration  given for property is not  allocated to the various items of
property  acquired,  the consideration may be allocated to the various parts and
items of property  acquired in any reasonable manner which is in accordance with
the  requirements  of any  systems  of  accounting  with  which the  Company  is
compelled  to  comply  by  any  provision  of  law,  or,  if  there  be no  such
requirements, in accordance with good accounting practice.

         The term  "Gross  Income" as used  herein  shall  mean gross  operating
revenues  from all sources  (whether or not subject to refund)  after  deducting
therefrom operating expenses. In computing gross operating revenues, there shall
be  included  net  non-operating   revenues,   if  any  (including  income  from
securities,  whether of  subsidiaries or not), in an amount not more than 20% of
Gross Income after deducting therefrom net non-operating  revenues. In computing
operating expenses,  there shall be included all operating  expenses,  including
accruals for taxes  (except  that taxes on  undistributed  earnings,  income and
excess  profits and any like taxes measured by income and charges in lieu of any
thereof  made  because  of the  deferment  in  payment  of any such tax shall be
excluded from operating expenses,  and any credit to income subsequently made on
account  of any  such  prior  charge  shall be  excluded  from  gross  operating
revenues),   rentals,   insurance,   actual  charges  for  current  repairs  and
maintenance  and  charges  to expense  or income to  provide  for  depreciation,
renewals,  replacements,  depletion or  retirement  of property and for property
loss (but excluding  interest,  charges deducted in computing net  non-operating
revenues  and charges to income for the  amortization  (i) of debt  discount and
expense and (ii) of utility plant account or amounts transferred therefrom).  If
any of the property  owned by the Company at the time any  computation  of Gross
Income is made  shall  have been  acquired  during or after any period for which
Gross Income is to be computed,  the Gross Income of such property  (computed in
the manner in this Section  provided for the  computation of the Gross Income of
the  Company)  during  such  period  or such part of such  period as shall  have
preceded the acquisition thereof, to the extent that the same have not otherwise
been  included and can be  determined,  shall be included in the Gross Income of
the Company for all purposes of this  Indenture,  and the Gross Income which can
be  determined of any property  disposed of by the Company  during or after such
period shall not be treated as Gross Income of the Company.

         The term  "Annual  Interest  Charges"  as used  herein  shall  mean the
interest  requirements  for twelve months upon all  indebtedness  of the Company
(including any  indebtedness,  whether or not created or assumed by the Company,
on which the Company  customarily pays interest charges or which is secured by a
lien on any property of the Company, but excluding (a) indebtedness  represented
by customers' deposits,  (b) current operating  liabilities and current or other
obligations  (other than for borrowed  money) incurred in the ordinary course of
business,  (c)  indebtedness  for the  purchase,  payment or redemption of which
money in the  necessary  amount  shall  have been  deposited  in trust,  and (d)
Current Indebtedness) to be outstanding upon the incurring by the Company of the

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indebtedness  in  connection  with  which  the  computation  is made;  provided,
however, that the interest requirements on the Debentures shall be determined by
reference  to the rate in  effect on the date  next  preceding  the date of such
computation.

         Section 5.06.  The Company  covenants  that, so long as any  Debentures
shall be outstanding  under the  Indenture,  it will not at any time mortgage or
pledge, or permit any other lien (other than Excepted  Encumbrances) to become a
lien on, any property  owned by the Company  just prior to such time,  to secure
any  other   indebtedness,   without  making  effective  provision  whereby  the
Debentures shall (so long as any such other indebtedness shall be so secured) be
secured (along with any other indebtedness  similarly entitled to be equally and
ratably  secured) by a direct  lien (on all the  property,  other than  Excepted
Property, owned by the Company just prior to the time such other lien shall have
become a lien on any of the property of the Company)  prior to the lien or liens
securing  any and all such  other  indebtedness;  provided,  however,  that this
restriction shall not be applicable to nor prevent

         (a) the  pledging  by the  Company  of its assets as  security  for the
     payment of any tax,  assessment  or other  similar  charge  demanded of the
     Company by any governmental authority or public body so long as the Company
     in good faith  contests its liability to pay the same, or as security to be
     deposited with any governmental authority or public body for any purpose at
     any time required by law or  governmental  regulation as a condition to the
     transaction  of any business or the exercise of any  privilege,  license or
     right; or

         (b) the  pledging  by the  Company  of any  assets  for the  purpose of
     securing a stay or discharge or for any other  purpose in the course of any
     legal proceeding in which the Company is a party; or

         (c) making good faith deposits in connection with tenders, contracts or
     leases to which the Company is a party.

         The  Company  covenants  that,  so  long  as any  Debentures  shall  be
outstanding  under this Indenture,  if, upon any  consolidation or merger of the
Company with or into any other  corporation,  or upon any sale or  conveyance of
all or substantially all of the property of the Company as an entirety,  or upon
any  acquisition  by  the  Company  of  the  property  of  another   corporation
substantially  as an entirety or upon any merger of any other  corporation  into
the Company,  any of the property  (other than Excepted  Property)  owned by the
Company just prior thereto,  would  thereupon  become subject to any lien (other
than Excepted Encumbrances),  the Company, prior to such consolidation,  merger,
sale,  conveyance  or  acquisition,  will take  appropriate  action  whereby the
Debentures  shall (so long as such  property  shall be  subject to such lien) be
secured (along with any other indebtedness  similarly entitled to be equally and
ratably secured) by a direct lien on such portion of the property of the Company
prior to all other liens,  other than Excepted  Encumbrances  and other than any
liens  existing  thereon  just  prior  to  such  consolidation,   merger,  sale,
conveyance or acquisition.

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         Any  instrument  creating a lien pursuant to the  requirements  of this
Section shall contain reasonable and customary provisions for the enforcement of
such lien and for the release of, or substitution for, the property subjected to
such lien.  Such direct lien shall be evidenced by an appropriate  instrument or
instruments  executed  and  delivered  to the Trustee (or to the extent  legally
necessary,  to another trustee as additional or separate trustee).  The Trustee,
subject to the  provisions  of Section  8.01  hereof,  may receive an Opinion of
Counsel as conclusive evidence that any such instrument is in customary form and
complies with the foregoing provisions of this paragraph;  and the Trustee shall
not be under any duty or  responsibility  to any  holder of any  Debenture  with
respect to the form,  validity or enforceability of any such instrument which it
may accept in reliance in good faith upon any such opinion.

         If the  Company  shall  fail to  create a  direct  lien to  secure  the
Debentures,  as  required  by the  foregoing  provisions  of  this  Section,  an
equitable lien shall exist to the same extent and on the same property as though
the Company had created such direct lien.

         The term  "Excepted  Encumbrances"  as used herein shall mean as of any
particular time any of the following:

            (i)  liens  for  taxes,  assessments  or  governmental  charges  not
     delinquent  and  liens  for  workmen's   compensation  awards  and  similar
     obligations not delinquent and liens for taxes, assessments or governmental
     charges delinquent but the validity of which is being contested at the time
     by  the  Company  in  good  faith  by  appropriate  proceedings  diligently
     conducted;

           (ii) any liens securing  indebtedness  neither assumed nor guaranteed
     by the Company nor on which it customarily  pays  interest,  existing in or
     relating  to  real  estate  acquired  by  the  Company  for   transmission,
     distribution  or  right-of-way  purposes,  or in connection  with its usual
     operations;

          (iii) easements or reservations in any property of the Company created
     for the purpose of roads,  railroads,  railroadside tracks, electric lines,
     pipe lines,  sewers,  water and gas transmission  and  distribution  mains,
     conduits,  water rights of the State of New Jersey or others,  building and
     use  restrictions  and  defects of title to, or leases of, any parts of the
     property  of the  Company  which  do not in the  opinion  of the  Company's
     counsel  materially  impair the use of the  property  as an entirety in the
     operation of the business of the Company;

             (iv)   undetermined   liens  and  charges   incidental  to  current
     construction,  including mechanics',  laborers',  materialmen's and similar
     liens not delinquent;

            (v) any obligations or duties  affecting the property of the Company
     to any  municipality  or public  authority  with respect to any  franchise,
     grant, license, permit or certificate;

#30165103.1
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           (vi)  rights  reserved  to or  vested in any  municipality  or public
     authority to control or regulate any property of the Company or to use such
     property  in a manner  which  does not  materially  impair  the use of such
     property for the purposes for which it is held by the Company;

          (vii)   judgments in course of appeal or otherwise in contest and
     secured by sufficient bond or security;

         (viii) any  irregularities in or deficiencies of title to any rights of
     way for mains or pipes and/or  appurtenances  thereto or other improvements
     thereon and to any real estate  used or to be used  primarily  for right of
     way  purposes,  provided  that the  Company  shall have  obtained  from the
     apparent owner of the lands or estates  covered by any such right of way an
     instrument  purporting  by its  terms  to  grant  the use  thereof  for the
     construction,  operation or maintenance of such main, pipe, appurtenance or
     improvement for which the same are used or are to be used, or provided that
     the Company has power, under eminent domain or similar statutes,  to remove
     such irregularities or deficiencies; or

           (ix) any other lien on any  property  owned by the  Company to secure
     any  indebtedness  so long as the  aggregate  principal  amount of all such
     indebtedness is not in excess of $10,000,000.

         The term "Excepted Property" as used herein shall mean (a) cash, bonds,
stocks,  obligations and other  securities;  (b) choses in action,  accounts and
bills  receivable,  judgments and other evidences of indebtedness and contracts,
leases and operating  agreements;  (c) stock in trade,  merchandise,  equipment,
apparatus,  materials  or supplies  manufactured  or acquired for the purpose of
sale  and/or  resale  in the usual  course  of  business  or  consumable  in the
operation  of any of the  properties  of the  Company or held for the purpose of
repairing or replacing  (in whole or in part) any rolling  stock,  buses,  motor
coaches,  trucks,  automobiles or other vehicles or aircraft;  (d) timber,  gas,
oil,  minerals  (including  developed and  undeveloped  natural gas reserves and
natural gas in underground storage or otherwise),  mineral rights and royalties;
(e) materials or products generated, manufactured,  produced or purchased by the
Company for sale,  distribution  or use in the ordinary  course of its business;
(f) office furniture and equipment,  tools, rolling stock, buses, motor coaches,
trucks,  automobiles  and other  vehicles and  aircraft;  and (g) the  Company's
franchise to be a corporation.

         Section 5.07.  The Company  covenants  that, so long as any  Debentures
shall be  outstanding  under  this  Indenture,  it will not  declare  or pay any
dividends  or  make  any  other   distribution   (except  dividends  payable  or
distributions  made in shares of capital  stock of the Company) on or in respect
of any of its Common Stock, or purchase or otherwise acquire for a consideration
any shares of its Common Stock (except out of the proceeds derived from the sale
of  additional  shares of its Common Stock  subsequent  to April 1, 1997, if the
aggregate  of such  dividends  and  distributions  and  such  consideration  for
purchase or other  acquisition of shares of its Common Stock made by the Company
after  December 31, 1975 would  exceed the sum of (a) the earned  surplus of the
Company accumulated after December 31, 1975 and determined without any deduction
on account of such dividends,

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distributions or acquisitions and (b) $10,000,000.  The term  "consideration" as
used in this Section shall mean cash or fair value if the consideration be other
than cash. Charges to earned surplus with corresponding credits to utility plant
acquisition  adjustment  account  or  utility  plant  adjustment  account or any
similar  account  or to any  reserve  for the  purpose of  ultimately  disposing
thereof and any provisions for  amortization of any amounts  included in utility
plant acquisition  account or utility plant adjustment account or in any similar
account shall be  disregarded in determining  earned surplus  accumulated  after
December 31, 1975.

         Section 5.08.  The Company  covenants  that, so long as any  Debentures
shall be outstanding under this Indenture,  if the Proceeds of Released Property
in any period of 12  consecutive  calendar  months shall amount to $5,000,000 or
more, and if,  immediately  subsequent to the receipt of such $5,000,000 (or the
part  hereof  making the total  thereof  $5,000,000  or more),  the ratio of the
aggregate  principal  amount  of all  outstanding  indebtedness  of the  Company
represented  by bonds,  debentures,  notes or other  evidences  of  indebtedness
(other than Current Indebtedness) to the net book value of the Company's utility
plant accounts  exceeds 60%, then the Company will use such Proceeds of Released
Property  to redeem  all or any  portion of  Debentures  or redeem to all or any
portion of 7.20%  Debentures  due 2019 issued by the Company  (herein called the
"7.20%  Debentures  due  2019")  or to  redeem  all  or  any  portion  of 7 1/2%
Debentures due 2020 issued by the Company  (herein called the "7 1/2% Debentures
due 2020") or to redeem all or any portion of 6.60%  Debentures  due 2021 issued
by the Company (herein called the "6.60%  Debentures due 2021") or to redeem all
or any portion of 6.70% Debentures due 2021 issued by the Company (herein called
the  "6.70%  Debentures  due  2021") or to redeem  all or any  portion of 8 3/4%
Debentures due 2021 issued by the Company  (herein called the "8 3/4% Debentures
due 2021") or to redeem all or any portion of 8%  Debentures  due 2022 issued by
the Company (herein called the "8% Debentures due 2022") or to redeem all or any
portion of 7 1/4%  Debentures due 2028 issued by the Company  (herein called the
"7  1/4%  Debentures  due  2028")  or to  redeem  all or any  portion  of  5.60%
Debentures due 2025 issued by the Company  (herein called the "5.60%  Debentures
due 2025") or to redeem all or any  portion  of other  debentures  issued by the
Company  under  indentures  having a  provision  substantially  similar  to this
Section 5.08  ("Subsequent  Debentures") at the earliest  practicable  date at a
redemption  price equal to the principal amount thereof plus accrued interest to
the date of  redemption;  provided,  however,  that  the  Company  shall  not be
required so to use any part of such  Proceeds  of Released  Property as to which
the Company shall have given to the Trustee  (within 30 days after such receipt)
an Officers'  Certificate  stating that the Company intends,  within a period of
one year thereafter, to apply such part to the making, constructing or otherwise
acquiring of Property  Additions.  If any such  Officers'  Certificate  shall so
state,  the  Company  covenants  so to apply such part  within  such one year as
stated in such Officers' Certificate or, to the extent that it does not so apply
such part,  to use such part  within  such one year to redeem  Debentures  or to
redeem 7.20%  Debentures due 2019 or to redeem 7 1/2%  Debentures due 2020 or to
redeem 6.60%  Debentures  due 2021 or to redeem 6.70%  Debentures due 2021 or to
redeem 8 3/4%  Debentures  due 2021 or to  redeem 8%  Debentures  due 2022 or to
redeem 7 1/4%  Debentures due 2028 or to redeem 5.60%  Debentures due 2025 or to
redeem Subsequent Debentures.

         In lieu of using any such Proceeds of Released  Property for redemption
as aforesaid, the Company may deliver to the Trustee for cancellation Debentures
or may

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deliver for  cancellation  to the trustee under the indenture  pursuant to which
the 7.20%  Debentures  due 2019 were issued 7.20%  Debentures  due 2019,  or may
deliver for  cancellation  to the trustee under the indenture  pursuant to which
the 7 1/2%  Debentures  due 2020 were issued 7 1/2%  Debentures due 2020, or may
deliver for  cancellation  to the trustee under the indenture  pursuant to which
the 6.60%  Debentures  due 2021 were issued 6.60%  Debentures  due 2021,  or may
deliver for  cancellation  to the Trustee under the indenture  pursuant to which
the 6.70%  Debentures  due 2021 were issued 6.70%  Debentures  due 2021,  or may
deliver for  cancellation  to the trustee under the indenture  pursuant to which
the 8 3/4%  Debentures  due 2021 were issued 8 3/4%  Debentures due 2021, or may
deliver for  cancellation  to the trustee under the indenture  pursuant to which
the 8% Debentures  due 2022 were issued 8%  Debentures  due 2022, or may deliver
for cancellation to the trustee under the indenture pursuant to which the 7 1/4%
Debentures  due 2028 were issued 7 1/4%  Debentures due 2028, or may deliver for
cancellation  to the  Trustee  under the  Indenture  pursuant to which the 5.60%
Debentures  due 2025 were issued 5.60%  Debentures  due 2025, or may deliver for
cancellation to the trustee under any indenture pursuant to which any Subsequent
Debentures  were  issued  such  Subsequent  Debentures,  in each  case  with all
unmatured coupons, if any, appertaining thereto,  theretofore  reacquired by the
Company and not theretofore so delivered, and in any such case the obligation of
the Company to use such Proceeds of Released  Property for  redemption  shall be
reduced to the extent of the  aggregate  principal  amount of  Debentures or the
7.20%  Debentures due 2019 or 7 1/2%  Debentures due 2020 or 6.60 Debentures due
2021 or 6.70% Debentures due 2021 or 8 3/4% Debentures due 2021 or 8% Debentures
due  2022  or 7 1/4%  Debentures  due  2028  or  5.60%  Debentures  due  2025 or
Subsequent  Debentures so delivered.  All Debentures so delivered to the Trustee
shall be canceled by the Trustee.

         The term  "Proceeds  of  Released  Property"  as used herein and in the
Debentures shall mean the aggregate amount of the  consideration  received or to
be  received  by the  Company on the  actual  sale or other  actual  disposition
(subsequent  to the  execution of this  Indenture)  of any property  included in
utility plant accounts  (including  therein an amount  equivalent to any part of
such  consideration  consisting  of other than cash at the fair value thereof to
the Company at the time of such sale or other disposition, as determined in good
faith by the Board of  Directors  of the  Company,  and  excluding  therefrom an
amount equivalent to any consideration received or to be received by the Company
on the sale or other  disposition  of any property (i) which property shall have
become worn out or permanently  unserviceable  and the book value of which shall
have been credited to utility plant accounts upon the retirement thereof or (ii)
to the  extent  that the  consideration  so  received  or to be  received  shall
constitute  Property  Additions) after deducting from such amount, to the extent
paid or payable by the Company,  all expenses  and all taxes  (including  income
taxes, if any) upon or in respect of any such sale or other disposition.

         Section 5.09.  The Company will deliver to the Trustee  within 120 days
after the end of each  fiscal  year of the  Company  the  Officers'  Certificate
required by Section  314(a)(4) of the Trust Indenture Act. See Section 314(a)(4)
of the Trust Indenture Act.

         Section 5.10.  The Company will deliver to the Trustee true and correct
copies of the Loan Agreement and the Bond  Indenture as originally  executed and
all amendments or supplements thereto.

#30165103.1
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                       ARTICLE SIX.

          Debentureholders' Lists and Reports by the Company and the Trustee.

         Section 6.01. The Company shall deliver to the Trustee,  semi-annually,
not more than 15 days  after each  record  date,  the  information  required  by
Section  312(a)  of the  Trust  Indenture  Act.  See  Section  312 of the  Trust
Indenture Act.

         Section 6.02.  See Section 312 of the Trust Indenture Act.

         Section 6.03.  See Section 314(a) of the Trust Indenture Act.

         Section 6.04. On or before June 1 in each year, beginning June 1, 1997,
so long as any Debentures are outstanding hereunder,  the Trustee shall transmit
by mail to the  Debentureholders  the report  required by Section  313(a) of the
Trust  Indenture  Act,  if such  report is  required.  See Trust  Indenture  Act
Sections 311(b) and 313.

                      ARTICLE SEVEN.

                Remedies  of  the  Trustee  and  Debentureholders  on  Event  of
           Default.

         Section 7.01.  In case one or more of the  following  Events of Default
shall have occurred and be continuing, that is to say:

         (a)  default  in the due and  punctual  payment of any  installment  of
     interest  upon any of the  Debentures as and when the same shall become due
     and payable,  and  continuance of such default for a period of thirty days;
     or

         (b) default in the due and punctual  payment of the principal of any of
     the  Debentures as and when the same shall become due and payable either at
     maturity, by declaration as authorized by this Indenture, or otherwise; or

         (c) failure on the part of the  Company  duly to observe or perform any
     other of the covenants, conditions or agreements on the part of the Company
     in the Debentures or in this Indenture contained for a period of sixty days
     after the date on which written notice of such failure,  requiring the same
     to be remedied,  shall have been given to the Company by the Trustee, or to
     the Company  and the  Trustee by the  holders of at least 25% in  aggregate
     principal amount of the Debentures at the time outstanding; or

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         (d) a decree or order by a court  having  jurisdiction  in the premises
     shall have been entered  adjudging the Company a bankrupt or insolvent,  or
     approving a petition seeking  reorganization of the Company under Title 11,
     United  States Code or any other similar  applicable  Federal or State law,
     and such decree or order shall have continued undischarged and unstayed for
     a period of sixty days; or a decree or order of a court having jurisdiction
     in the premises for the  appointment of a receiver or liquidator or trustee
     or  assignee  in  bankruptcy  or  insolvency  of the  Company  or of all or
     substantially all of its property,  or for the winding up or liquidation of
     its affairs  shall have been  entered,  and such decree or order shall have
     remained in force undischarged and unstayed for a period of sixty days; or

         (e)  the  Company  shall  institute  proceedings  to be  adjudicated  a
     voluntary  bankrupt,  or  shall  consent  to  the  filing  of a  bankruptcy
     proceeding  against  it, or shall  file a  petition  or  answer or  consent
     seeking  reorganization  under  Title 11,  United  States Code or any other
     similar  applicable Federal or State law, or shall consent to the filing of
     any such  petition,  or shall consent to the  appointment  of a receiver or
     liquidator  or trustee or assignee in  bankruptcy or insolvency of it or of
     all or substantially  all of its property,  or shall make an assignment for
     the benefit of  creditors,  or shall admit in writing its  inability to pay
     its debts generally as they become due; or

         (f) an event of  default,  as  defined  in (i) any  indenture  or trust
     agreement  securing or protecting  any debt of the Company now or hereafter
     outstanding aggregating more than $10,000,000,  or (ii) the Bond Indenture,
     shall  happen and be then  continuing  and such debt shall be or become due
     and payable, prior to the date on which the same would otherwise become due
     and payable,  provided  that, in the case of clause (i), such  acceleration
     shall not be rescinded  or annulled  within ten days after  written  notice
     thereof to the  Company  from the Trustee or to the Company and the Trustee
     from the holders of not less than 25% in principal amount of the Debentures
     then outstanding hereunder;

then and in each and every such case, so long as such Event of Default shall not
have been  remedied,  unless  the  principal  of all the  Debentures  shall have
already  become due and  payable,  either the Trustee or the holders of not less
than 25% in  aggregate  principal  amount  of the  Debentures  then  outstanding
hereunder,  by notice in writing to the Company  (and to the Trustee if given by
the  Debentureholders),  may declare the  principal of all the  Debentures  then
outstanding to be due and payable immediately, and upon any such declaration the
same  shall  become  and shall be  immediately  due  payable,  anything  in this
Indenture or in the said Debentures  contained to the contrary  notwithstanding.
This provision,  however, is subject to the condition that if, at any time after
the principal of the Debentures shall have been so declared due and payable, but
before  the  Debentures  shall  have  become  due by their  terms and before any
judgment or decree for the payment of the monies due shall have been obtained or
entered as hereinafter provided, the Company shall pay or shall deposit with the
Trustee a sum  sufficient to pay all matured  installments  of interest upon all
the Debentures then outstanding and the principal of any and all Debentures then
outstanding  which shall have become due otherwise  than by  acceleration  (with
interest upon such principal and, to the extent that payment of such interest is
enforceable under

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<PAGE>



applicable  law, upon overdue  installments  of interest,  at the rate per annum
expressed  in the  Debentures  to the date of such  payment or deposit)  and the
amount payable to the Trustee under Section 8.06, and any and all defaults under
the  Indenture,  other than the  nonpayment  of  principal  on  Debentures  then
outstanding  which  shall not have  become due by their  terms,  shall have been
remedied or provisions  shall have been made therefor to the satisfaction of the
Trustee -- then and in every such case the  holders of a majority  in  aggregate
principal  amount of the Debentures then  outstanding,  by written notice to the
Company and to the  Trustee,  may waive all  defaults and rescind and annul such
declaration and its consequences; but no such waiver or rescission and annulment
shall  extend to or shall  affect any  subsequent  default,  or shall impair any
right consequent thereon.

         In case the  Trustee  shall have  proceeded  to enforce any right under
this Indenture and such  proceedings  shall have been  discontinued or abandoned
because of such  rescission  or  annulment or for any other reason or shall have
been  determined  adversely  to the  Trustee,  then and in every  such  case the
Company and the Trustee shall be restored respectively to their former positions
and rights hereunder, and all rights, remedies and powers of the Company and the
Trustee shall continue as though no such proceedings had been taken,  subject to
any applicable order or ruling in a court of competent jurisdiction.

         Section 7.02.  The Company  covenants that (1) in case default shall be
made in the payment of any installment of interest on any of the Debentures,  as
and when the same shall  become due and  payable,  and such  default  shall have
continued  for a period of thirty days,  or (2) in case default shall be made in
the payment of the principal of any of the  Debentures  when the same shall have
become  due  and  payable,  whether  upon  maturity  of the  Debentures  or upon
declaration as authorized by this Indenture or otherwise -- then, upon demand of
the Trustee, the Company will pay to the Trustee, for the benefit of the holders
of the Debentures then outstanding, the whole amount that then shall have become
due and payable on all such  Debentures  for principal or interest,  as the case
may be, with interest upon the overdue principal and (to the extent that payment
of such interest is enforceable under applicable law) upon overdue  installments
of interest at the rate per annum expressed in the Debentures;  and, in addition
thereto,  such  further  amount  as shall be  sufficient  to cover the costs and
expenses of  collection,  and the amount  payable to the Trustee  under  Section
8.06.

         In case the Company shall fail  forthwith to pay such amounts upon such
demand,  the Trustee,  in its own name and as trustee of an express trust, shall
be entitled and  empowered to institute any action or  proceedings  at law or in
equity for the  collection of the sums so due and unpaid,  and may prosecute any
such action or proceeding to judgment or final decree,  and may enforce any such
judgment  or  final  decree  against  the  Company  or  other  obligor  upon the
Debentures and collect in the manner provided and to the extent permitted by law
out of the property of the Company or other obligor upon the Debentures wherever
situated the monies adjudged or decreed to be payable.

         The Trustee shall be entitled and empowered,  either in its own name or
as trustee of an express trust,  or as  attorney-in-fact  for the holders of the
Debentures,  or in any one or more of such  capacities,  to file  such  proof of
debt,  amendment of proof of debt,  claim,  petition or other document as may be
necessary or advisable in order to have the

#30165103.1
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<PAGE>



claims of the Trustee and of the holders of the Debentures allowed in any equity
receivership, insolvency, bankruptcy, liquidation, readjustment,  reorganization
or other  judicial  proceedings  relative to the Company or any other obligor on
the Debentures or their creditors,  or affecting their property.  The Trustee is
hereby  irrevocably  appointed  (and the  successive  respective  holders of the
Debentures by taking and holding the same shall be  conclusively  deemed to have
so appointed the Trustee) the true and lawful attorney-in-fact of the respective
holders of the  Debentures,  with  authority to make and file in the  respective
names of the  holders  of the  Debentures  or on  behalf of the  holders  of the
Debentures as a class,  subject to deduction from any such claims of the amounts
of any claims  filed by any of the  holders of the  Debentures  themselves,  any
proof of debt, amendment of proof of debt, claim,  petition or other document in
any such  proceedings and to receive payment of any sums becoming  distributable
on account thereof, and to execute any such other papers and documents and to do
and perform  any and all such acts and things for and on behalf of such  holders
of the Debentures as may be necessary or advisable in the opinion of the Trustee
in order to have the respective  claims of the Trustee and of the holders of the
Debentures  against the Company or its property  allowed in any such proceeding,
and to receive payment of or on account of such claims; provided,  however, that
nothing  contained in this Indenture  shall be deemed to give to the Trustee any
right to accept or consent to any plan of  reorganization or otherwise by action
of any character in any such  proceeding to waive or change in any way any right
of any Debentureholder.

         All rights of action and of asserting  claims under this Indenture,  or
under  any of the  Debentures,  may be  enforced  by  the  Trustee  without  the
possession of any of the Debentures,  or the production  thereof on any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall be for the ratable  benefit of the holders of the
Debentures, subject to the provisions of this Indenture.

         In case  of an  Event  of  Default  hereunder  the  Trustee  may in its
discretion  proceed  to protect  and  enforce  the  rights  vested in it by this
Indenture by such  appropriate  judicial  proceedings  as the Trustee shall deem
most  effectual to protect and enforce any of such  rights,  either at law or in
equity or in bankruptcy or otherwise,  whether for the specific  enforcement  of
any covenant or agreement  contained in this Indenture or in aid of the exercise
of any power  granted  in this  Indenture,  or to  enforce  any  other  legal or
equitable right vested in the Trustee by this Indenture or by law.

         Section 7.03. Any monies  collected by the Trustee  pursuant to Section
7.02, shall be applied in the order following, at the date or dates fixed by the
Trustee,  upon presentation of the several Debentures,  and stamping thereon the
payment, if only partially paid, and upon surrender thereof if fully paid:

         First:  To the payment of costs and expenses of collection and of all
     amounts
     payable to the Trustee under Section 8.06;

         Second:  In case the principal of the outstanding Debentures shall
     not have become due and be unpaid, to the payment of interest on the
     Debentures, in the order of the maturity of the installments of such
     interest, with interest (so far as may be

#30165103.1
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<PAGE>



     lawful and if such  interest has been  collected  by the Trustee)  upon the
     overdue  installments  of interest at the rate per annum  expressed  in the
     Debentures,  such  payments  to be made  ratably  to the  persons  entitled
     thereto, without discrimination or preference;

         Third: In case the principal of the outstanding  Debentures  shall have
     become due, by declaration as authorized by this Indenture or otherwise, to
     the payment of the whole  amount then owing and unpaid upon the  Debentures
     for principal and interest,  with interest on the overdue principal and (so
     far as may be  lawful  and if  such  interest  has  been  collected  by the
     Trustee)  upon  overdue  installments  of  interest  at the rate per  annum
     expressed in the Debentures;  and in case such monies shall be insufficient
     to pay in full the whole amount so due and unpaid upon the Debentures, then
     to the  payment of such  principal  and  interest,  without  preference  or
     priority of principal over interest,  or of interest over principal,  or of
     any installment of interest over any other  installment of interest,  or of
     any Debenture  over any other  Debenture,  ratably to the aggregate of such
     principal and accrued and unpaid interest; and

         Fourth:  To the payment of the remainder, if any, to the Company, its
     successors or assigns, or to whomsoever may be lawfully entitled to
     receive the same, or as a court of competent jurisdiction may direct.

         Section 7.04. Except as otherwise  expressly  provided in this Section,
no holder of any Debenture  shall have any right by virtue or by availing of any
provision  in this  Indenture or  otherwise  to  institute  any suit,  action or
proceeding in equity or at law upon or under or with respect to this  Indenture,
for the appointment of a receiver or trustee,  for the execution of any trust or
power hereof, or for any other remedy  hereunder,  unless such holder previously
shall have given to the Trustee written notice of default and of the continuance
thereof, as hereinbefore  provided, and unless also the holders of not less than
25% in aggregate  principal amount of the Debentures then outstanding shall have
made written  request upon the Trustee  either to proceed to exercise the powers
hereinbefore  granted or to institute such action, suit or proceeding in its own
name as trustee  hereunder  and shall have  offered or caused the holders of the
Bonds to have  offered,  to the  Trustee  such  reasonable  indemnity  as it may
require against the costs,  expenses and  liabilities to be incurred  therein or
thereby,  and the Trustee  within a reasonable  time (which in no event shall be
less than sixty  days) after its  receipt of such  notice,  request and offer of
indemnity,  shall have failed to proceed to exercise such powers or to institute
any such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by the taker and holder of every Debenture with every other
taker and  holder and the  Trustee,  that no one or more  holders of  Debentures
shall  have any right in any manner  whatever  by virtue or by  availing  of any
provision of this  Indenture to affect,  disturb or prejudice  the rights of the
holders of any other of such Debentures, or to obtain or seek to obtain priority
over or preference to any other such holder,  or to enforce any right under this
Indenture,  except in the manner herein provided and for the equal,  ratable and
common benefit of all holders of Debentures.  For the protection and enforcement
of the  provisions  of this  Section,  each and  every  Debentureholder  and the
Trustee  shall be entitled  to such  relief as can be given  either at law or in
equity.

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         Nothing herein  contained shall,  however,  affect or impair the right,
which is absolute and  unconditional,  of any  Debentureholder to receive and to
institute  suit to enforce the payment of the  principal  of and interest on his
Debentures  at and after the  respective  due dates  (including,  subject to the
provisions of Section 7.01,  maturity by declaration  pursuant to this Indenture
or otherwise) of such  principal or interest,  or the obligation of the Company,
which is also absolute and  unconditional,  to pay the principal of and interest
on each of the  Debentures to the  respective  holders  thereof at the times and
places in the Debentures expressed.

         Section  7.05.  No delay or omission of the Trustee or of any holder of
any of the  Debentures to exercise any right or power accruing upon any Event of
Default  shall  impair  any such  right or power or shall be  construed  to be a
waiver of any such  default  or an  acquiescence  therein;  and,  subject to the
provisions of Section  7.04,  every power and remedy given by this Article or by
law to the  Trustee or to the  Debentureholders  may be  exercised  from time to
time,  and as often  as shall be  deemed  expedient,  by the  Trustee  or by the
Debentureholders.

         Section 7.06.  See Section 316(a)(1) of the Trust Indenture Act.

         Section 7.07.  See Section 315(b) of the Trust Indenture Act.

         Section 7.08.  See Section 315(e) of the Trust Indenture Act.

                      ARTICLE EIGHT.

                  Concerning the Trustee.

         Section 8.01. See Trust Indenture Act,  including Section 315(a),  (b),
(c) and (d) thereof.

         Section 8.02.  Except as otherwise provided in Section 8.01:

         (a) The Trustee may rely and shall be protected in acting or refraining
     from acting upon any  resolution,  Officers'  Certificate,  certificate  of
     auditors, or any other certificate, statement, instrument, opinion, report,
     notice, request, consent, order, appraisal,  bond, debenture or other paper
     or  document,  including  without  limitation  documents  delivered  to  it
     pursuant to Section  5.10 (which  documents  the Trustee may rely on as not
     being amended or  supplemented  other than to the extent any  amendments or
     supplements  have been delivered to it) believed by it to be genuine and to
     have been signed or presented by the proper party or parties;

         (b) Any request,  direction,  order or demand of the Company  mentioned
     herein shall be sufficiently  evidenced by an Officers' Certificate (unless
     other evidence in respect thereof be herein specifically  prescribed);  and
     any resolution of

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     the Board of Directors may be evidenced to the Trustee by a copy thereof
     certified by the Secretary or an Assistant Secretary of the Company;

         (c) The Trustee  may  consult  with  counsel of its  selection  and any
     Opinion of Counsel shall be full and complete  authorization and protection
     in respect of any action  taken or suffered or omitted by it  hereunder  in
     good faith and in accordance with such Opinion of Counsel;

         (d) The Trustee  shall be under no  obligation  to exercise  any of the
     trusts or powers  vested in it by this  Indenture at the request,  order or
     direction of any of the  Debentureholders,  pursuant to the  provisions  of
     this Indenture,  unless such  Debentureholders  or the holders of the Bonds
     shall have offered to the Trustee reasonable  security or indemnity against
     the  costs,  expenses  and  liabilities  which may be  incurred  therein or
     thereby;

         (e) The Trustee shall not be personally  liable for any action taken or
     omitted by it in good faith and believed by it to be  authorized  or within
     the discretion or rights or powers conferred upon it by this Indenture;

         (f) Prior to the occurrence of an Event of Default  hereunder and after
     the curing or waiving of all Events of Default,  the  Trustee  shall not be
     bound to make any  investigation  into the facts or  matters  stated in any
     resolution,  certificate,  statement,  instrument, opinion, report, notice,
     request,  consent,  order,  approval,  bond,  debenture  or other  paper or
     document  unless  requested  in writing so to do by the holders of not less
     than a majority in principal  amount of the  Debentures  then  outstanding;
     provided,  however,  that if the payment  within a  reasonable  time to the
     Trustee of the costs,  expenses or liabilities  likely to be incurred by it
     in the making of such investigation is, in the opinion of the Trustee,  not
     reasonably  assured to the  Trustee by the  security  afforded to it by the
     terms of this  Indenture,  the  Trustee may  require  reasonable  indemnity
     against such expense or  liability  as a condition  to so  proceeding.  The
     reasonable expense of every such investigation shall be paid by the Company
     or, if paid by the Trustee, shall be repaid by the Company upon demand;

         (g) The Trustee may  execute any of the trusts or powers  hereunder  or
     perform any duties  hereunder  either  directly or by or through  agents or
     attorneys and the Trustee shall not be  responsible  for any  misconduct or
     negligence on the part of any agent or attorney  appointed by it hereunder;
     and

         (h) None of the provisions of this Indenture  shall require the Trustee
     to expend or risk its own funds or otherwise  incur any personal  financial
     liability  in the  performance  of any of its duties  hereunder,  or in the
     exercise  of any of its  rights  or  powers,  if it shall  have  reasonable
     grounds for believing  that  repayment of such funds or adequate  indemnity
     against such risk or liability is not reasonably assured to it.

         Section 8.03.  The recitals contained herein and in the Debentures
 (other than the certificate of authentication on the Debentures) shall be
 taken as the statements of the Company, and the Trustee assumes no
 responsibility for the correctness of the same.  The

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Trustee  makes no  representations  as to the  validity or  sufficiency  of this
Indenture or of the Debentures. The Trustee shall not be accountable for the use
or  application  by the Company of any of the  Debentures  or of the proceeds of
such  Debentures,  or for the use or  application of any moneys paid over by the
Trustee in accordance  with any provision of this  Indenture,  or for the use or
application of any moneys received by any paying agent.

         Section  8.04.  The  Trustee  or any  paying  agent  or  any  Debenture
registrar,  in its  individual  or any other  capacity,  may become the owner or
pledgee of Debentures with the same rights it would have if it were not Trustee,
paying agent or Debenture registrar.

         Section 8.05.  Subject to the provisions of Section  13.04,  all moneys
received by the Trustee shall, until used or applied as herein provided, be held
in  trust  for the  purposes  for  which  they  were  received,  but need not be
segregated  from other funds  except to the extent  required by law. The Trustee
shall be under no liability for interest on any moneys  received by it hereunder
except such as it may agree in writing with the Company to pay thereon.  So long
as no Event of Default  shall have  occurred  and be  continuing,  all  interest
allowed  on any such  moneys  shall be paid from  time to time upon the  written
order of the Company,  signed by its President, a Vice President,  its Treasurer
or an Assistant Treasurer.

         Section  8.06.  The Company  covenants and agrees to pay to the Trustee
from time to time,  and the Trustee shall be entitled to, such  compensation  as
the Company and the Trustee  shall from time to time agree to in writing  (which
shall not be limited by any provision of law in regard to the  compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trusts  hereby  created and in the  exercise and  performance  of any of the
powers  and  duties  hereunder  of the  Trustee,  and the  Company  will  pay or
reimburse   the  Trustee   upon  its  request  for  all   reasonable   expenses,
disbursements  and advances  incurred or made by the Trustee in accordance  with
any of the provisions of this Indenture  (including the reasonable  compensation
and the  expenses  and  disbursements  of its  counsel  and of all  persons  not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith.  The Company also covenants to indemnify
the Trustee  for,  and to hold it harmless  against,  any and all loss,  damage,
claims,  liability or expense  incurred  without  negligence or bad faith on the
part of the Trustee,  and arising out of or in connection with the acceptance or
administration  of this trust,  including  the costs and  expenses of  defending
itself  against any claim of liability in the premises.  The  obligations of the
Company  under this Section to compensate  the Trustee,  to pay or reimburse the
Trustee for  expenses,  disbursements  and advances and to indemnify the Trustee
shall constitute additional indebtedness hereunder. Such additional indebtedness
shall be secured by a lien prior to that of the Debentures upon all property and
funds held or collected  by the Trustee as such,  except funds held in trust for
the benefit of the holders of particular Debentures.

         Section 8.07. Except as otherwise provided in Section 8.01, whenever in
the  administration  of the trusts of this  Indenture  the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
suffering or omitting any action  hereunder,  such matter (unless other evidence
in  respect  thereof  be  herein  specifically  prescribed)  may be deemed to be
conclusively proved and established by an Officers'

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Certificate,  and such certificate  shall be full warrant to the Trustee for any
action taken,  suffered or omitted by it under the  provisions of this Indenture
upon the faith thereof.

         Section  8.08.  See  Section  310(b) of the  Trust  Indenture  Act.  In
addition,  excluded  from  the  operation  of  Section  310(b)(1)  of the  Trust
Indenture  Act are the  following:  the  Indenture  dated as of December 1, 1989
between the Company and Citibank, N.A., Trustee, pursuant to which the Company's
7.20% Debentures due 2019 are outstanding,  the Indenture dated as of October 1,
1990  between the Company and  Citibank,  N.A.,  Trustee,  pursuant to which the
Company's 7 1/2% Debentures due 2020 are outstanding,  the Indenture dated as of
August 1, 1991 between the Company and The Bank of New York,  Trustee,  pursuant
to which  the  Company's  6.60%  Debentures  due 2021 are  outstanding,  and the
Indenture  dated as of August 1, 1991  between  the  Company and The Bank of New
York,  Trustee,  pursuant to which the Company's  6.70%  Debentures due 2021 are
outstanding,  the Indenture  dated as of October 1, 1991 between the Company and
The Bank of New York, Trustee, pursuant to which the Company's 8 3/4% Debentures
due 2021 are  outstanding,  the Indenture  dated as of September 1, 1992 between
the Company and The Bank of New York,  Trustee,  pursuant to which the Company's
8% Debentures due 2022 are  outstanding,  the Indenture  dated as of November 1,
1993  between the Company and The Bank of New York,  Trustee,  pursuant to which
the  Company's 7 1/4%  Debentures  due 2028 are  outstanding,  and the Indenture
dated as of  December  1, 1995  between  the  Company  and The Bank of New York,
Trustee,  pursuant  to  which  the  Company's  5.60%  Debentures  due  2025  are
outstanding.

         Section 8.09. The Trustee hereunder shall at all times be a corporation
organized and doing business under the laws of the United States or any State or
Territory or of the District of Columbia  authorized under such laws to exercise
corporate  trust  powers,  having a  combined  capital  and  surplus of at least
$5,000,000,   subject  to  supervision   or   examination  by  Federal,   State,
Territorial,  or District of Columbia authority.  If such corporation  publishes
reports of condition at least annually,  pursuant to law or to the  requirements
of the aforesaid  supervising or examining  authority,  then for the purposes of
this  Section,  the combined  capital and surplus of such  corporation  shall be
deemed to be its  combined  capital  and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 8.10.

         Section 8.10. (a) The Trustee,  or any successor  hereafter  appointed,
may at any time  resign  and be  discharged  from the trust  hereby  created  by
mailing  notice thereof to the Company and to the  Debentureholders  whose names
and addresses appear in the information  preserved at the time by the Trustee in
accordance with the provisions of Section  6.02(a)  hereof.  Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee by
written instrument, in duplicate, executed by order of the Board of Directors of
the Company,  one copy of which  instrument  shall be delivered to the resigning
Trustee and one copy to the  successor  trustee.  If no successor  trustee shall
have been so appointed  and have accepted  appointment  within thirty days after
the mailing of such notice of  resignation,  the resigning  Trustee may petition
any court of competent  jurisdiction for the appointment of a successor trustee,
or any Debentureholder who has been a bona fide

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<PAGE>



holder of a Debenture or Debentures for at least six months may,  subject to the
provisions  of  Section  7.08,  on behalf of himself  and all  others  similarly
situated,  petition any such court for the  appointment of a successor  trustee.
Such court may  thereupon  after such notice,  if any, as it may deem proper and
prescribe, appoint a successor trustee.

         (b)  In case at any time any of the following shall occur--

              (1) the  Trustee  shall  fail to  comply  with the  provisions  of
     Section 310(b) of the Trust Indenture Act after written request therefor by
     the Company or by any  Debentureholder who has been a bona fide holder of a
     Debenture or Debentures for at least six months, or

              (2) the Trustee shall cease to be eligible in accordance  with the
     provisions of Section 8.09 and shall fail to resign after  written  request
     therefor by the Company or by any such Debentureholder, or

              (3) the Trustee  shall  become  incapable  of acting,  or shall be
     adjudged a bankrupt  or  insolvent,  or a receiver of the Trustee or of its
     property  shall be  appointed,  or any public  officer shall take charge or
     control of the  Trustee or of its  property  or affairs  for the purpose of
     rehabilitation, conservation or liquidation,

then,  in any such  case,  the  Company  may remove the  Trustee  and  appoint a
successor trustee by written instrument, in duplicate,  executed by order of the
Board  of  Directors  of the  Company,  one copy of  which  instrument  shall be
delivered to the Trustee so removed and one copy to the successor  trustee,  or,
subject to the  provisions of Section 7.08, any  Debentureholder  who has been a
bona fide holder of a Debenture  or  Debentures  for at least six months may, on
behalf of  himself  and all others  similarly  situated,  petition  any court of
competent  jurisdiction  for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper and prescribe, remove the Trustee and appoint a successor trustee.

         (c) The  holders of a majority  in  aggregate  principal  amount of the
Debentures  at the time  outstanding  may at any time  remove  the  Trustee  and
appoint a successor trustee.

         (d) Any  resignation or removal of the Trustee and any appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.11.

         Section 8.11.  Any successor  trustee  appointed as provided in Section
8.10  shall  execute,  acknowledge  and  deliver  to  the  Company  and  to  its
predecessor  trustee an instrument  accepting such  appointment  hereunder,  and
thereupon the  resignation  or removal of the  predecessor  trustee shall become
effective  and  such  successor  trustee,  without  any  further  act,  deed  or
conveyance,  shall become fully vested with all the rights,  powers,  duties and
obligations  of its  predecessor  hereunder,  with like effect as if  originally
named as trustee herein.  The predecessor  trustee shall,  nevertheless,  at the
written  request of the successor  trustee,  and upon payment of any amount then
due it pursuant to Section 8.06, pay over to

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the  successor  trustee  all  moneys at the time held by it  hereunder;  and the
Company and the predecessor  trustee shall execute and deliver such  instruments
and do such  other  things as may  reasonably  be  required  for more  fully and
certainly  vesting and  confirming  in the  successor  trustee all such  rights,
powers,  duties and obligations.  Any Trustee ceasing to act shall  nevertheless
retain a lien on all funds  held or  collected  by such  Trustee  to secure  any
amount due it pursuant to Section 8.06.

         No  successor  trustee  shall  accept  appointment  as provided in this
Section unless at the time of such  acceptance  such successor  trustee shall be
qualified under the provisions of Section 8.08 and eligible under the provisions
of Section 8.09.

         Upon  acceptance of appointment  by a successor  trustee as provided in
this Section,  the Company  shall mail notice of the  succession of such trustee
hereunder to all  Debentureholders  at their last  addresses  appearing upon the
register.  If the  Company  fails to mail such notice in the  prescribed  manner
within 10 days after the acceptance of appointment by the successor trustee, the
successor  trustee  shall  cause such  notice to be mailed at the expense of the
Company.

         Section 8.12. Any  corporation  into which the Trustee may be merged or
with which it may be consolidated,  or any corporation resulting from any merger
or  consolidation  to which the  Trustee  shall be a party,  or any  corporation
succeeding to the business of the Trustee, shall be the successor of the Trustee
hereunder,  provided such corporation shall be qualified under the provisions of
Section 8.08 and eligible  under the  provisions  of Section  8.09,  without the
execution  or filing of any paper or any  further  act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.

         In case at the time such  successor to the Trustee shall succeed to the
trusts  created  by  this  Indenture  any  of the  Debentures  shall  have  been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate  of  authentication  of any  predecessor  trustee,  and deliver such
Debentures  so  authenticated;  and in case at that  time any of the  Debentures
shall not have been authenticated, any successor to the Trustee may authenticate
such Debentures  either in the name of any predecessor  hereunder or in the name
of the successor trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Debentures or in this Indenture  provided
that the  certificate  of the Trustee shall have;  provided,  however,  that the
right to adopt the certificate of authentication  of any predecessor  trustee or
authenticate  Debentures in the name of any predecessor trustee shall apply only
to its successor or successors by merger, conversion or consolidation.

         Section 8.13.  See Section 311 of the Trust Indenture Act.

                       ARTICLE NINE.

             Concerning the Debentureholders.

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         Section  9.01.  Whenever  in this  Indenture  it is  provided  that the
holders  of  a  specified  percentage  in  aggregate  principal  amount  of  the
Debentures  may take any action  (including the making of any demand or request,
the giving of any notice,  consent or waiver or the taking of any other action),
the fact  that at the  time of  taking  any  such  action  the  holders  of such
specified  percentage have joined therein may be evidenced (a) by any instrument
or any number of instruments of similar tenor  executed by  Debentureholders  in
person or by attorney or proxy appointed in writing, or (b) by the record of the
holders of Debentures voting in favor thereof at any meeting of Debentureholders
duly called and held in accordance with the provisions of Article Ten, or (c) by
a combination of such  instrument or  instruments  and any such record of such a
meeting of Debentureholders.

         Section 9.02.  Subject to the provisions of Section 8.01,  proof of the
execution of any  instrument by a  Debentureholder  or his attorney or proxy and
proof of the holding by any person of any of the Debentures  shall be sufficient
for any purpose of this  Indenture if made in  accordance  with such  reasonable
rules and  regulations  as may be prescribed by the Trustee or in such manner as
shall be  satisfactory  to the Trustee.  The  ownership of  Debentures  shall be
proved by the register of such  Debentures or by a certificate  of the Debenture
registrar.

         The  record  of any  Debentureholders'  meeting  shall be proved in the
manner provided in Section 10.06.

         Section  9.03.  The  Company,  the  Trustee,  any paying  agent and any
Debenture  registrar  may deem and treat the person in whose name any  Debenture
shall be registered  upon the register as the absolute  owner of such  Debenture
(whether or not such Debenture shall be overdue and  notwithstanding  any notice
of ownership or writing thereon),  for the purpose of receiving payment of or on
account of the principal of and interest and premium,  if any, on such Debenture
and for all other  purposes,  and  neither  the  Company nor the Trustee nor any
paying agent nor any Debenture  registrar shall be affected by any notice to the
contrary.  All such payments so made to any such registered holder, for the time
being or upon his order,  shall be valid,  and, to the extent of the sum or sums
so paid,  effectual to satisfy and discharge  the  liability for moneys  payable
upon any such Debenture.

         Section  9.04.  In  determining  whether the  holders of the  requisite
aggregate  principal  amount of  Debentures  have  concurred  in any  direction,
consent  or  waiver  under  this  Indenture,  Debentures  which are owned by the
Company or any other  obligor on the  Debentures  or by any person  directly  or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control  with the  Company  or any  other  obligor  on the  Debentures  shall be
disregarded  and  deemed  not to be  outstanding  for the  purpose  of any  such
determination,  except that for the purpose of  determining  whether the Trustee
shall be  protected  in relying on any such  direction,  consent or waiver  only
Debentures  which  the  Trustee  knows  are so owned  shall  be so  disregarded.
Debentures  so owned  which have been  pledged in good faith may be  regarded as
outstanding for the purposes of this Section,  if the pledgee shall establish to
the  satisfaction of the Trustee the pledgee's right to vote such Debentures and
that  the  pledgee  is  not a  person  directly  or  indirectly  controlling  or
controlled by or under direct or indirect common control with the Company or any
such other obligor.

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In case of a dispute as to such right,  any  decision by the Trustee  taken upon
the advice of counsel shall be full protection to the Trustee.

         Section  9.05.  Any  demand,  request,  waiver,  consent or vote of the
holder of any  Debenture  shall be  conclusive  and binding upon such holder and
upon all future  holders  and  owners of such  Debenture,  and of any  Debenture
issued in exchange therefor or in place thereof,  irrespective of whether or not
any notation in regard thereto is made upon such Debenture.  Any action taken by
the holders of the majority or percentage in aggregate  principal  amount of the
Debentures  specified in this Indenture in connection  with such action shall be
conclusively  binding upon the  Company,  the Trustee and the holders of all the
Debentures.

                       ARTICLE TEN.

                Debentureholders' Meetings.

         Section 10.01. A meeting of Debentureholders  may be called at any time
and from time to time pursuant to the  provisions of this Article Ten for any of
the following purposes:

         (1) to give any notice to the Company or to the Trustee, or to give any
     directions  to the  Trustee,  or to consent to the  waiving of any  default
     hereunder and its  consequences,  or to take any other action authorized to
     be taken by  Debentureholders  pursuant to any of the provisions of Article
     Seven;

         (2)  to remove the Trustee and appoint a successor trustee pursuant
     to the provisions of Article Eight;

         (3)  to consent to the execution of an indenture or indentures
     supplemental hereto pursuant to the provisions of Section 11.02; or

         (4) to take any other action  authorized to be taken by or on behalf of
     the holders of any specified  aggregate  principal amount of the Debentures
     under any other provision of this Indenture,  or authorized or permitted by
     law.

         Section 10.02.  The Trustee may at any time call a meeting of

Debentureholders  to take any action  specified in Section 10.01,  to be held at
such time and at such place in the Borough of  Manhattan,  City and State of New
York,  as  the  Trustee  shall  determine.   Notice  of  every  meeting  of  the
Debentureholders,  setting  forth the time and the place of such  meeting and in
general terms the action  proposed to be taken at such meeting,  shall be mailed
not less  than  fifteen  days  prior to the date  fixed for the  meeting  to the
Debentureholders  whose names and addresses appear in the information  preserved
at the time by the Trustee in accordance  with the provisions of Section 6.02(a)
hereof or obtained in accordance with the provisions of Section 6.01 hereof.

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         Any meeting of  Debentureholders  shall be valid without  notice if the
holders of all Debentures then  outstanding are present in person or by proxy or
if notice is waived before or after the meeting by the holders of all Debentures
outstanding,  and if the  Company  and the  Trustee  are either  present by duly
authorized representatives or have, before or after the meeting, waived notice.

         Section  10.03.  In  case  at  any  time  the  Company,  pursuant  to a
resolution of its Board of Directors or the holders of at least 20% in aggregate
principal amount of the Debentures then  outstanding,  shall request the Trustee
to call a meeting of  Debentureholders  to take any action  specified in Section
10.01, by written request setting forth in reasonable detail the action proposed
to be taken at the meeting  and the time and place in the Borough of  Manhattan,
City and State of New York,  for such meeting,  the Trustee shall mail notice of
such meeting as provided in Section  10.02 within  twenty days after  receipt of
such request.

         Section   10.04.   To  be   entitled   to  vote  at  any   meeting   of
Debentureholders a person shall (a) be a holder of one or more Debentures or (b)
be a person  appointed  by an  instrument  in writing as proxy for the holder or
holders of  Debentures by a holder of one or more  Debentures.  The only persons
who  shall  be   entitled   to  be  present  or  to  speak  at  any  meeting  of
Debentureholders shall be the persons entitled to vote at such meeting and their
counsel  and  any  representatives  of the  Trustee  and  its  counsel  and  any
representatives of the Company and its counsel.

         Section 10.05.  Notwithstanding  any other provision of this Indenture,
the Trustee may make such  reasonable  regulations  as it may deem advisable for
any meeting of Debentureholders, in regard to proof of the holding of Debentures
and of the  appointment of proxies,  and in regard to the appointment and duties
of inspectors of votes, the submission and examination of proxies,  certificates
and other evidence of the right to vote,  and such other matters  concerning the
conduct of the meeting as it shall think fit.  Except as otherwise  permitted or
required by any such  regulations,  the holding of Debentures shall be proved in
the manner  specified in Section 9.02 and the  appointment of any proxy shall be
proved in the  manner  specified  in Section  9.02.  Pursuant  to the  foregoing
authority  the  Trustee  may  fix,  in  advance,  a date as a  record  date  for
determining  the  Debentureholders  entitled  to notice  of, or to vote at,  any
meeting,  such date to be not less than  fifteen nor more than  forty-five  days
prior to the date fixed for such meeting.

         The Trustee  shall,  by an instrument  in writing,  appoint a temporary
chairman of the meeting, unless the meeting shall have been called by request of
the Company or  Debentureholders as provided in Section 10.03, in which case the
Company  or such  Debentureholders,  as the  case may be,  shall in like  manner
appoint a temporary chairman.  A permanent chairman and a permanent secretary of
the meeting  shall be elected by vote of the holders of a majority in  principal
amount of the Debentures represented at the meeting and entitled to vote.

         Subject  to  the  provisions  of  Section  9.04,  at any  meeting  each
Debentureholder or proxy shall be entitled to one vote for each $1,000 principal
amount of Debentures,  provided,  however, that no vote shall be cast or counted
at any meeting in respect of any

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Debentures  challenged  as not  outstanding  and  ruled by the  chairman  of the
meeting to be not  outstanding.  The chairman of the meeting shall have no right
to vote other than by virtue of Debentures held by him or instruments in writing
as  aforesaid  duly  designating  him as the  person  to vote on behalf of other
Debentureholders.  Any meeting of  Debentureholders  duly called pursuant to the
provisions of Section 10.02 or 10.03 may be adjourned from time to time, and the
meeting may be held as so adjourned without further notice.

         Section 10.06. The vote upon any resolution submitted to any meeting of
Debentureholders  shall be by written  ballots on which shall be subscribed  the
signatures of the holders of Debentures  or of their  representatives  by proxy.
The permanent chairman of the meeting shall appoint two inspectors of votes, who
shall count all votes cast at the meeting for or against any  resolution and who
shall make and file with the  secretary of the meeting  their  verified  written
reports in duplicate of all votes cast at the meeting.  A record in duplicate of
the  proceedings  of each meeting of  Debentureholders  shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports  of the  inspectors  of votes on any vote by ballot  taken  thereat  and
affidavits by one or more person having knowledge of the facts,  setting forth a
copy of the notice of the  meeting  and  showing  that said notice was mailed as
provided  in Section  10.02.  The record  shall be signed  and  verified  by the
affidavits of the permanent chairman and secretary of the meeting and one of the
duplicates  shall be delivered to the Company and the other to the Trustee to be
preserved by the Trustee,  the latter to have attached thereto the ballots voted
at the meeting.

         Any record so signed and verified  shall be conclusive  evidence of the
matters therein stated.

         Section 10.07. Nothing in this Article Ten contained shall be deemed or
construed  to  authorize  or  permit,  by  reason  of any call of a  meeting  of
Debentureholders  or any rights  expressly or impliedly  conferred  hereunder to
make such call,  any  hindrance  or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the  Debentureholders  under any
of the provisions of this Indenture or of the Debentures.

                      ARTICLE ELEVEN.

                 Supplemental Indentures.

         Section  11.01.  The Company,  when  authorized  by a resolution of its
Board of Directors,  and the Trustee, subject to the conditions and restrictions
of this Indenture contained, may from time to time and at any time enter into an
indenture  or  indentures  supplemental  hereto  (which  shall  conform  to  the
provisions of the Trust Indenture Act of 1939 as then in effect) for one or more
of the following purposes:

         (a) to evidence the  succession of another  corporation to the Company,
     or successive successions,  and the assumption by the successor corporation
     of the  covenants,  agreements and  obligations of the Company  pursuant to
     Article Twelve;

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         (b) to add to the  covenants  and  agreements  of the  Company  in this
     Indenture contained such further covenants and agreements  thereafter to be
     observed,  and to  surrender  any  right or  power  herein  reserved  to or
     conferred upon the Company; and

         (c) to cure any ambiguity or to correct or supplement  any defective or
     inconsistent  provisions contained in this Indenture or in any supplemental
     indenture.

         The  Trustee  is  hereby  authorized  to join with the  Company  in the
execution of any supplemental  indenture authorized or permitted by the terms of
this Indenture and to make any further  appropriate  agreements and stipulations
which may be therein contained,  but the Trustee shall not be obligated to enter
into any such  supplemental  indenture  which  affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.

         Any supplemental indenture authorized by the provisions of this Section
may be  executed  by the  Company  and the  Trustee  without  the consent of the
holders of any of the Debentures at the time outstanding, notwithstanding any of
the provisions of Section 11.02.

         Section 11.02. With the consent (evidenced as provided in Section 9.01)
of the holders (or persons entitled to vote, or to give consents  respecting the
same) of more than 50% in aggregate  principal  amount of the  Debentures at the
time outstanding,  the Company,  when authorized by a resolution of its Board of
Directors,  and the  Trustee may from time to time and at any time enter into an
indenture  or  indentures  supplemental  hereto  (which  shall  conform  to  the
provisions of the Trust Indenture Act of 1939 as then in effect) for the purpose
of adding any provisions to or changing in any manner or eliminating  any of the
provisions of this Indenture or of any supplemental indenture or of modifying in
any manner the rights and  obligations  of the holders of the  Debentures and of
the Company;  provided,  however, that no such supplemental  indenture shall (i)
extend the fixed  maturity  of any  Debenture,  or reduce the  principal  amount
thereof,  or reduce the rate or extend the time of payment of interest  thereon,
without the consent of the holder of each Debenture so affected,  or (ii) reduce
the  aforesaid  percentage of  Debentures,  the holders of which are required to
consent to any such supplemental  indenture,  without the consent of the holders
of all Debentures then outstanding.

         Upon the request of the Company,  accompanied by a copy of a resolution
of its Board of Directors  certified by the secretary or an assistant  secretary
of the Company authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of  Debentureholders
as  aforesaid,  the Trustee shall join with the Company in the execution of such
supplemental  indenture unless such supplemental indenture affects the Trustee's
own rights,  duties or immunities  under this  Indenture or otherwise,  in which
case the Trustee may in its  discretion but shall not be obligated to enter into
such supplemental indenture.

         It shall not be necessary for the consent of the Debentureholders under
this  Section  to  approve  the  particular  form of any  proposed  supplemental
indenture,  but it  shall  be  sufficient  if such  consent  shall  approve  the
substance thereof.

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         Promptly  after the  execution  by the  Company  and the Trustee of any
supplemental  indenture pursuant to the provisions of this Section,  the Company
shall  mail a notice,  setting  forth in  general  terms the  substance  of such
supplemental   indenture,  to  all  Debentureholders  at  their  last  addresses
appearing upon the register.  Any failure of the Company to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture.

         Section  11.03.  Upon  the  execution  of  any  supplemental  indenture
pursuant to the  provisions  of this  Article,  this  Indenture  shall be and be
deemed to be modified and amended in  accordance  therewith  and the  respective
rights,  limitation of rights,  obligations,  duties and  immunities  under this
Indenture  of the  Trustee,  the  Company and the  holders of  Debentures  shall
thereafter  be  determined,  exercised  and  enforced  hereunder  subject in all
respects to such modifications and amendments,  and all the terms and conditions
of any such  supplemental  indenture  shall be and be  deemed  to be part of the
terms and conditions of this Indenture for any and all purposes.

         Section  11.04.  Debentures   authenticated  and  delivered  after  the
execution  of any  supplemental  indenture  pursuant to the  provisions  of this
Article,  or after any action taken at a  Debentureholders'  meeting pursuant to
Article  Ten,  may bear a notation  in form  approved  by the  Trustee as to any
matter provided for in such supplemental  indenture or as to any action taken at
any  such  meeting;  and,  in such  case,  suitable  notation  may be made  upon
outstanding  Debentures after proper  presentation and demand. If the Company or
the Trustee shall so determine, new Debentures so modified as to conform, in the
opinion  of the  Trustee  and the  Board of  Directors  of the  Company,  to any
modification of this Indenture contained in any such supplemental  indenture, or
to any  action  taken at any  such  meeting,  may be  prepared  by the  Company,
authenticated  by the Trustee and delivered in exchange for the Debentures  then
outstanding,  upon demand of, and without  cost to, the  holders  thereof,  upon
surrender of such Debentures.

         Section 11.05. The Trustee,  subject to the provisions of Section 8.01,
may receive an Opinion of Counsel as conclusive  evidence that any  supplemental
indenture executed pursuant to this Article Eleven is authorized or permitted by
the terms of this Indenture and that it is not inconsistent therewith.

                      ARTICLE TWELVE.

              Consolidation, Merger and Sale.

         Section  12.01.  Nothing  contained in this  Indenture or in any of the
Debentures shall prevent any consolidation or merger of the Company with or into
any other  corporation  or  corporations  (whether  or not  affiliated  with the
Company),  or successive  consolidations  or mergers in which the Company or its
successor or successors  shall be a party or parties,  or shall prevent any sale
or conveyance (or successive sales or conveyances) of the property and assets of
the Company (or of its successor or successors) as an entirety or  substantially
as an entirety, to any other corporation (whether or not affiliated with the

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Company)  authorized  to acquire the same;  provided,  however,  and the Company
hereby covenants and agrees that, upon any such  consolidation,  merger, sale or
conveyance, the due and punctual payment of the principal of and interest on all
the Debentures,  according to their tenor, and the due and punctual  performance
and  observance of all the terms,  covenants and conditions of this Indenture to
be kept or performed by the Company,  shall be expressly  assumed,  by indenture
supplemental hereto, satisfactory in form to the Trustee, executed and delivered
to the Trustee by the corporation  formed by such  consolidation,  or into which
the  Company  shall have been  merged,  or by the  corporation  which shall have
acquired such  property and assets.  In the event of any such sale or conveyance
the  predecessor  Company may be dissolved,  wound up and liquidated at any time
thereafter.

         Section  12.02.  In case of any  such  consolidation,  merger,  sale or
conveyance  and upon the execution by the successor  corporation of an indenture
supplemental  hereto, as provided in Section 12.01,  such successor  corporation
shall succeed to and be substituted for the Company,  with the same effect as if
it had  been  named  herein  as the  party of the  first  part.  Such  successor
corporation  thereupon  may  issue  either in its own name or in the name of the
Company,  with such suitable reference,  if any, to such consolidation,  merger,
sale  or  conveyance  as  may be  required  by  the  Trustee,  any or all of the
Debentures  issuable  hereunder which  theretofore shall not have been issued by
the Company and  delivered to the Trustee;  and,  upon the written order of such
successor  corporation,  instead of the  Company,  and subject to all the terms,
conditions  and  limitations  in this  Indenture  prescribed,  the Trustee shall
authenticate  and shall deliver any Debentures  which previously shall have been
executed by the  Company and any  Debentures  which such  successor  corporation
thereafter  shall cause to be executed in accordance with the provisions of this
Indenture and delivered to the Trustee for that purpose.  All the  Debentures so
issued  shall in all  respects  have the same legal rank and benefit  under this
Indenture as the Debentures  theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such  Debentures had been issued at
the date of the execution hereof.

         In case of any such  consolidation,  merger,  sale or  conveyance  such
changes  in  phraseology  and  form  (but not in  substance)  may be made in the
Debentures thereafter to be issued as may be appropriate).

         Nothing  contained in this Indenture or in any of the Debentures  shall
prevent  the  Company  from  consolidating  with,  or merging  into  itself,  or
acquiring by purchase or otherwise all or any part of the property of, any other
corporation (whether or not affiliated with the Company).

         Section 12.03. The Trustee,  subject to the provisions of Section 8.01,
may  receive  an  Opinion  of  Counsel  as  conclusive  evidence  that  any such
consolidation,  merger,  sale or conveyance,  and any such assumption,  complies
with the provisions of this Article.

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                     ARTICLE THIRTEEN.

Satisfaction and Discharge of Indenture; Deposited Moneys.

         Section 13.01.  If:

         (1)  Either  (i)  the  Company   shall   deliver  to  the  Trustee  for
cancellation all Debentures  (other than Debentures deemed not to be outstanding
under  clause  (c)  of the  definition  thereof)  not  theretofore  canceled  or
delivered  to the  Trustee  for  cancellation,  or (ii) the  Company  shall have
deposited in trust with the Trustee cash  sufficient  to pay at maturity or upon
redemption  (after notice of redemption has been duly given or provided for) all
of the Debentures  (other than  Debentures  deemed not to be  outstanding  under
clause (c) of the definition  thereof) not theretofore  canceled or delivered to
the Trustee for cancellation, including principal, premium, if any, and interest
due or to become due to such date of maturity or  redemption  date,  as the case
may be, or (iii) the  Company  shall have  deposited  in trust with the  Trustee
direct  obligations  of the United  States or  obligations  the principal of and
interest on which are fully  guaranteed by the United States,  and which are not
subject to  prepayment,  redemption or call prior to their stated  maturity,  in
such amounts and  maturing at such times that the proceeds of said  obligations,
together  with the  income  that can be  predetermined  will  accrue  thereon by
reference  to the  terms  thereof  (without  consideration  of any  reinvestment
thereof),  to be received upon their respective  maturities and interest payment
dates will provide funds sufficient to pay the principal,  premium,  if any, and
interest due or to become due to the date of maturity or to the redemption date,
as the case may be, with respect to all of the Debentures (other than Debentures
deemed not to be  outstanding  under clause (c) of the  definition  thereof) not
theretofore canceled or delivered to the Trustee for cancellation, provided that
the Trustee shall have been irrevocably instructed to apply the proceeds of said
obligations to the payment of such principal,  premium and interest with respect
to such  Debentures,  or (iv) the Company shall have deposited in trust with the
Trustee any combination of cash or obligations referred to in (ii) and (iii),

         (2)  the Company shall pay or cause to be paid all other sums payable
with respect to the Debentures, and

         (3) the Company  shall  deliver to the Trustee and the Bond  Trustee an
Officers'  Certificate  and  an  Opinion  of  Counsel,  each  stating  that  all
conditions  precedent  herein  provided  for  relating to the  satisfaction  and
discharge of the entire  indebtedness on the Debentures have been complied with,
then

         (a) this  Indenture  shall  cease to be of  further  effect  (except as
     otherwise provided herein) and on or after such maturity date or redemption
     date, as the case may be, the Trustee, on demand of, and at the expense of,
     the Company,  shall execute proper instruments  acknowledging  satisfaction
     and discharge of this Indenture; and

         (b)  all obligations of the Company in respect of the Debentures shall
     cease and be discharged and the holders of such Debentures shall
     thereafter be restricted

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<PAGE>



     exclusively  to such  funds for any and all  claims of  whatever  nature on
     their  part  under  this  Indenture  or with  respect  to such  Debentures;
     provided,  however,  that, in no event shall the Company be discharged from
     (i) any  payment  obligation  in  respect  of  Debentures  deemed not to be
     outstanding under clause (c) of the definition  thereof if such obligations
     continue to be valid obligations under applicable law, (ii) any obligations
     under  Sections  2.05  and  2.06  (except  that   Debentures   issued  upon
     registration  of  transfer  or  exchange  or in  lieu of  mutilated,  lost,
     destroyed or stolen  Debentures shall not be deemed to be such obligations)
     or (iii) any obligations under Sections 6.01, 8.06, 13.02, 13.03 and 13.04;
     further  provided,  however,  that the rights and privileges of the Trustee
     under this Indenture shall survive any such discharge.

         The Company  hereby  agrees to  reimburse  the Trustee for any costs or
expenses  thereafter   reasonably  and  properly  incurred  by  the  Trustee  in
connection  with this  Indenture  or the  Debentures,  and  without bad faith or
negligence.

         Section  13.02.  All moneys  deposited  with the  Trustee  pursuant  to
Section  13.01 shall be held in trust and applied by it to the  payment,  to the
holders of the particular Debentures for the payment or redemption of which such
moneys have been deposited  with the Trustee,  of all sums due and to become due
thereon for principal, premium, if any, and interest.

         Section 13.03.  In connection  with the  satisfaction  and discharge of
this  Indenture all moneys then held by any paying agent under the provisions of
this  Indenture  shall,  upon demand of the  Company or Trustee,  be paid to the
Trustee  and  thereupon  such paying  agent  shall be released  from all further
liability with respect to such moneys.

         Section 13.04. In case the holder of any Debenture  entitled to payment
hereunder at any time  outstanding  hereunder  shall not, within two years after
the maturity date of such  Debenture or the date fixed for the redemption of any
such Debenture, claim the amount on deposit with the Trustee or other depositary
for the payment of such  Debenture,  the Trustee or other  depositary  shall pay
over to or upon the written order of the Company the amount so  deposited,  upon
receipt of a request signed by the President or a Vice President of the Company,
and thereupon the Trustee or other depositary shall be released from any and all
further  liability  with respect to the payment of such Debenture and the holder
of said  Debenture  shall be  entitled  (subject  to any  applicable  statute of
limitations)  to look  only to the  Company  as an  unsecured  creditor  for the
payment thereof.

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                     ARTICLE FOURTEEN.

    Immunity of Incorporators, Stockholders, Officers,
                  Trustees and Directors.

         Section 14.01.  No recourse under or upon any  obligation,  covenant or
agreement of this Indenture, or of any Debenture, or for any claim based thereon
or  otherwise  in  respect  thereof,  shall  be had  against  any  incorporator,
stockholder,  officer, trustee or director, as such, past, present or future, of
the Company or of any  predecessor  or successor  corporation,  either  directly
through the Company or any such predecessor or successor corporation, whether by
virtue  of any  constitution,  statute  or  rule  of law  or  equity,  or by the
enforcement  of any  assessment  or penalty  or  otherwise;  it being  expressly
understood that this Indenture and the obligations  issued  hereunder are solely
corporate obligations, and that no such personal liability whatever shall attach
to, or is or shall be incurred by, the  incorporators,  stockholders,  officers,
trustees  or  directors  of the  Company,  as  such,  or of any  predecessor  or
successor  corporation,  or  any  of  them,  because  of  the  creation  of  the
indebtedness  hereby  authorized,  or under  or by  reason  of the  obligations,
covenants or agreements  contained in this Indenture or in any of the Debentures
or implied  therefrom;  and that any and all such liability is hereby  expressly
waived and released by every holder of  Debentures  as a condition  of, and as a
consideration  for,  the  execution  of this  Indenture  and the  issue  of such
Debentures.

                     ARTICLE FIFTEEN.

                 Miscellaneous Provisions.

         The  provisions  of the Trust  Indenture Act which impose duties on any
person (including  provisions  automatically  deemed included in an indenture by
the Trust  Indenture Act unless the indenture  provides that such provisions are
excluded  which  provision  is hereby  expressly  excluded  other  than  Section
316(a)(2) of the Trust  Indenture Act) are a part of and govern this  Indenture.
If any provision  hereof  limits,  qualifies or conflicts with any of the duties
imposed by operation of the Trust  Indenture Act, the Trust  Indenture Act shall
control.

         Section 15.01. All the covenants, stipulations, promises and agreements
in this  Indenture  contained  by or in behalf  of the  Company  shall  bind its
successors and assigns, whether so expressed or not.

         Section 15.02. Any act or proceeding by any provision of this Indenture
authorized  or  required  to be done or  performed  by any board,  committee  or
officer of the Company shall and may be done and  performed  with like force and
effect by the like board,  committee or officer of any corporation that shall at
the time be the lawful successor of the Company.

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         Section  15.03.  The  Company by  instruments  in writing  executed  by
authority of its Board of Directors  and  delivered to the Trustee may surrender
any  of  the  powers  reserved  to the  Company  and  thereupon  such  power  so
surrendered  shall  terminate  both as to the  Company  and as to any  successor
corporation.

         Section  15.04.  Any notice or demand  which by any  provision  of this
Indenture  is required or  permitted  to be given or served by the Trustee or by
the holders of  Debentures  to or on the Company may be given or served by being
deposited  postage prepaid in a post-office  letterbox  addressed (until another
address  is filed in writing  by the  Company  with the  Trustee),  as  follows:
Elizabethtown Water Company,  600 South Avenue,  Westfield NJ 07090. Any notice,
election,  request or demand by any Debentureholder to or upon the Trustee shall
be deemed to have been sufficiently given or made, for all purposes, if given or
made at the  principal  corporate  trust office of the Trustee in the Borough of
Manhattan, City and State of New York.

         Section 15.05.  This Indenture and each Debenture shall be deemed to be
a contract  made under the laws of the State of New York,  and for all  purposes
shall be construed in accordance with the laws of said state.

         Section  15.06.  Upon any  application  or demand by the Company to the
Trustee to take any action under any of the  provisions of this  Indenture,  the
Company shall furnish to the Trustee an Officers'  Certificate  stating that all
conditions  precedent,  if any,  provided for in this Indenture  relating to the
proposed  action have been complied with and an Opinion of Counsel  stating that
in the opinion of such counsel all such conditions  precedent have been complied
with.

         Each  certificate  or  opinion  provided  for  in  this  Indenture  and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this  Indenture  shall  include (1) a statement  that the person
making such  certificate  or opinion has read such covenant or condition;  (2) a
brief statement as to the nature and scope of the  examination or  investigation
upon which the statements or opinions  contained in such  certificate or opinion
are based; (3) a statement that, in the opinion of such person, he has made such
examination  or  investigation  as is  necessary  to enable  him to  express  an
informed  opinion as to  whether  or not such  covenant  or  condition  has been
complied  with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.

         Any certificate,  statement or opinion of an officer of the Company may
be based,  in so far as it  relates  to legal  matters,  upon a  certificate  or
opinion of or  representations  by counsel,  unless such officer  knows that the
certificate or opinion or representations with respect to the matters upon which
his  certificate,  statement or opinion may be based as aforesaid are erroneous,
or in the exercise of reasonable  care should know that the same are  erroneous.
Any  certificate,  statement or opinion of counsel may be based (in so far as it
relates  to  factual  matters  information  with  respect  to  which  is in  the
possession  of the  Company)  upon the  certificate,  statement or opinion of or
representations  by an officer or officers of the  Company,  unless such counsel
knows that the certificate, statement or opinion or representations with respect
to the matters upon which his certificate,

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statement or opinion may be based as aforesaid are erroneous, or in the exercise
of reasonable care should know that the same are erroneous.

         Any  certificate,  statement or opinion of an officer of the Company or
of counsel may be based, in so far as it relates to accounting  matters,  upon a
certificate  or  opinion  of or  representations  by an  accountant  or  firm of
accountants in the employ of the Company, unless such officer or counsel, as the
case may be,  knows that the  certificate  or opinion  or  representations  with
respect to the  accounting  matters  upon which his  certificate,  statement  or
opinion  may  be  based  as  aforesaid  are  erroneous,  or in the  exercise  of
reasonable care should know that the same are erroneous.

         Section 15.07. In any case where the date of maturity of interest on or
principal of the  Debentures  or the date fixed for  redemption of any Debenture
shall be a Sunday or legal  holiday or a date on which banking  institutions  in
the city of payment are  authorized  by law to close,  then payment of interest,
principal  or premium may be made on the next  succeeding  day not a Sunday or a
legal holiday or a date on which banking institutions in the city of payment are
authorized  by law to close  with the same  force  and  effect as if made on the
nominal  date and no interest  shall  accrue for the period  after such  nominal
date.

         Section  15.08.  If  and to the  extent  that  any  provision  of  this
Indenture limits, qualifies or conflicts with another provision included in this
Indenture  which is required to be included in this Indenture by any of Sections
310 to 317,  inclusive,  of the  Trust  Indenture  Act of  1939,  such  required
provision shall control.

         Section 15.09.  In case any one or more of the provisions  contained in
this Indenture or in the Debentures  shall for any reason be held to be invalid,
illegal  or  unenforceable  in  any  respect,  such  invalidity,  illegality  or
unenforceability  shall not affect any other  provisions of this Indenture or of
such Debentures, but this Indenture and such Debentures shall be construed as if
such  invalid or illegal or  unenforceable  provision  had never been  contained
herein or therein.

         Section  15.10.  This  Indenture  may  be  executed  in any  number  of
counterparts,  each of which shall be an original;  but such counterparts  shall
together constitute but one and the same instrument.

         The Bank of New York, the party of the second part,  hereby accepts the
trusts in this  Indenture  declared and provided,  upon the terms and conditions
hereinabove set forth.

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                           -45-


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         IN WITNESS WHEREOF, Elizabethtown Water Company, the party of the first
part,  has  caused  this  Indenture  to be  signed  in its  corporate  name  and
acknowledged by its President, or one of its Vice Presidents,  and its corporate
seal to be affixed  hereunto,  duly  attested by its  Secretary  or an Assistant
Secretary;  and The Bank of New York,  the party of the second part,  has caused
this Indenture to be signed and acknowledged by one of its Responsible Officers,
all as of the day and year first above written.

                          ELIZABETHTOWN WATER COMPANY,

(Seal)

                          By
                                  Vice President

Attest:

Secretary

                                    THE BANK OF NEW YORK,

                                     as Trustee

                           By

                                      Title

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<PAGE>



STATE OF NEW JERSEY  )
                     ) ss.:

COUNTY OF UNION      )

         On this fourth day of June, 1997,  before me, the subscriber,  a Notary
Public  within  and for  the  County  of  Union,  in the  State  of New  Jersey,
personally appeared Gail P. Brady, to me personally known, who, being by me duly
sworn, did say that she resides at 49 Howell Drive,  Verona, New Jersey and is a
Vice President of Elizabethtown Water Company, one of the corporations described
in and which  executed the  foregoing  instrument;  that she knows the corporate
seal of the said corporation and that the seal affixed to said instrument is the
corporate  seal of said  corporation;  and that said  instrument  was signed and
sealed in behalf of said  corporation by authority of its Board of Directors and
that she  subscribed  her name  thereto by like  authority;  and said  Walter M.
Braswell  acknowledged  said  instrument  to be the  free  act and  deed of said
corporation.

         My commission as Notary Public as aforesaid expires

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



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<PAGE>



STATE OF NEW YORK )
                  ) ss.:

COUNTY OF NEW YORK)

         On this fourth day of June, 1997,  before me, the subscriber,  a Notary
Public  within  and for the  County  of New  York,  in the  State  of New  York,
personally appeared

                            , to me personally known, who, being by me duly
 sworn, did say that

he resides at and is an Assistant Vice President of The Bank of New York, one of
the corporations described in and which executed the foregoing instrument;  that
he knows the corporate seal of the said corporation and that the seal affixed to
said  instrument  is the  corporate  seal of said  corporation;  and  that  said
instrument  was signed and sealed in behalf of said  corporation by authority of
its  Board  of  Directors  and  that he  subscribed  his  name  thereto  by like
authority;  and said acknowledged said instrument to be the free act and deed of
said corporation.

         My commission as Notary Public as aforesaid expires

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


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<PAGE>




                                 EXECUTION COPY

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






                ELIZABETHTOWN WATER COMPANY

                            TO

               THE BANK OF NEW YORK, TRUSTEE

                        -----------


                         INDENTURE

                 Dated as of June 1, 1997

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



      1997 Series B Variable Rate Debentures due 2027

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


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<PAGE>









                     TABLE OF CONTENTS

                                                       Page

                       ARTICLE ONE.

                        Definitions

     Section 1.01....................................... 6

                       ARTICLE TWO.

     Description, Execution and Exchange of Debentures

     Section 2.01....................................... 8
     Section 2.02....................................... 8
     Section 2.03....................................... 9
     Section 2.04....................................... 9
     Section 2.05...................................... 10
     Section 2.06...................................... 10
     Section 2.07...................................... 11
     Section 2.08...................................... 11
     Section 2.09...................................... 12

                      ARTICLE THREE.

                    Issue of Debentures

     Section 3.01...................................... 12

                       ARTICLE FOUR.

                 Redemption of Debentures

     Section 4.01...................................... 12
     Section 4.02...................................... 12
     Section 4.03...................................... 13
     Section 4.04...................................... 13

                       ARTICLE FIVE.

            Particular Covenants of the Company

     Section 5.01...................................... 14
     Section 5.02...................................... 14
     Section 5.03...................................... 14

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     Section 5.04...................................... 14
     Section 5.05...................................... 15
     Section 5.06...................................... 18
     Section 5.07...................................... 21
     Section 5.08...................................... 21
     Section 5.09...................................... 23
     Section 5.10...................................... 23

                       ARTICLE SIX.

          Debentureholders' Lists and Reports by
                the Company and the Trustee

     Section 6.01...................................... 23
     Section 6.02...................................... 23
     Section 6.03...................................... 23
     Section 6.04...................................... 23

                      ARTICLE SEVEN.

                Remedies of the Trustee and
           Debentureholders on Event of Default

     Section 7.01...................................... 24
     Section 7.02...................................... 25
     Section 7.03...................................... 27
     Section 7.04...................................... 28
     Section 7.05...................................... 28
     Section 7.06...................................... 28
     Section 7.07...................................... 28
     Section 7.08...................................... 29

                      ARTICLE EIGHT.

                  Concerning the Trustee

     Section 8.01...................................... 29
     Section 8.02...................................... 29
     Section 8.03...................................... 30
     Section 8.04...................................... 30
     Section 8.05...................................... 30
     Section 8.06...................................... 30
     Section 8.07...................................... 31
     Section 8.08...................................... 31
     Section 8.09...................................... 32
     Section 8.10...................................... 32
     Section 8.11...................................... 33
     Section 8.12...................................... 33
     Section 8.13...................................... 34

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                       ARTICLE NINE.

              Concerning the Debentureholders

     Section 9.01...................................... 34
     Section 9.02...................................... 34
     Section 9.03...................................... 34
     Section 9.04...................................... 35
     Section 9.05...................................... 35

                       ARTICLE TEN.

                Debentureholders' Meetings

     Section 10.01..................................... 35
     Section 10.02..................................... 36
     Section 10.03..................................... 36
     Section 10.04..................................... 36
     Section 10.05..................................... 37
     Section 10.06..................................... 37
     Section 10.07..................................... 38

                      ARTICLE ELEVEN.

                  Supplemental Indentures

     Section 11.01..................................... 38
     Section 11.02..................................... 38
     Section 11.03..................................... 39
     Section 11.04..................................... 39
     Section 11.05..................................... 40

                      ARTICLE TWELVE.

              Consolidation, Merger and Sale

     Section 12.01..................................... 40
     Section 12.02..................................... 40
     Section 12.03..................................... 41

                     ARTICLE THIRTEEN.

 Satisfaction and Discharge of Indenture; Deposited Moneys

     Section 13.01..................................... 41
     Section 13.02..................................... 42
     Section 13.03..................................... 42
     Section 13.04..................................... 43

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                     ARTICLE FOURTEEN.

    Immunity of Incorporators, Stockholders, Officers,
                  Trustees and Directors

     Section 14.01..................................... 43

                     ARTICLE FIFTEEN.

                 Miscellaneous Provisions

     Section 15.01..................................... 44
     Section 15.02..................................... 44
     Section 15.03..................................... 44
     Section 15.04..................................... 44
     Section 15.05..................................... 44
     Section 15.06..................................... 44
     Section 15.07..................................... 45
     Section 15.08..................................... 45
     Section 15.09..................................... 46
     Section 15.10..................................... 46

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