Exhibit 10.26

     [MASTER FUND LOAN AGREEMENT FOR MIDDLESEX WATER COMPANY - PRIVATE FORM]

                                 LOAN AGREEMENT

                                 BY AND BETWEEN

                            THE STATE OF NEW JERSEY,

                      ACTING BY AND THROUGH THE NEW JERSEY
                     DEPARTMENT OF ENVIRONMENTAL PROTECTION,

                                       AND

                             MIDDLESEX WATER COMPANY

                          DATED AS OF NOVEMBER 1, 2004

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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.01.  Definitions......................................................

                                   ARTICLE II
                                   ----------

                    REPRESENTATIONS AND COVENANTS OF BORROWER

SECTION 2.01.  Representations of Borrower......................................
SECTION 2.02.  Particular Covenants of Borrower.................................

                                   ARTICLE III

              LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

SECTION 3.01.  Loan; Loan Term..................................................
SECTION 3.02.  Disbursement of Loan Proceeds....................................
SECTION 3.03.  Amounts Payable..................................................
SECTION 3.04.  Unconditional Obligations........................................
SECTION 3.05.  Loan Agreement to Survive Bond Resolution and Trust Bonds........
SECTION 3.06.  Disclaimer of Warranties and Indemnification.....................
SECTION 3.07.  Option to Prepay Loan Repayments.................................
SECTION 3.08.  Priority of Loan and Fund Loan...................................
SECTION 3.09.  Approval of the New Jersey State Treasurer.......................

                                   ARTICLE IV

                 ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

SECTION 4.01.  Assignment and Transfer by Trust.................................
SECTION 4.02.  Assignment by Borrower...........................................

                                    ARTICLE V

                         EVENTS OF DEFAULT AND REMEDIES

SECTION 5.01.  Events of Default................................................
SECTION 5.02.  Notice of Default................................................
SECTION 5.03.  Remedies on Default..............................................
SECTION 5.04.  Attorneys' Fees and Other Expenses...............................
SECTION 5.05.  Application of Moneys............................................


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SECTION 5.06.  No Remedy Exclusive; Waiver; Notice..............................
SECTION 5.07.  Retention of Trust's Rights......................................

                                   ARTICLE VI

                                  MISCELLANEOUS

SECTION 6.01.  Notices..........................................................
SECTION 6.02.  Binding Effect...................................................
SECTION 6.03.  Severability.....................................................
SECTION 6.04.  Amendments, Supplements and Modifications........................
SECTION 6.05.  Execution in Counterparts........................................
SECTION 6.06.  Applicable Law and Regulations...................................
SECTION 6.07.  Consents and Approvals...........................................
SECTION 6.08.  Captions.........................................................
SECTION 6.09.  Benefit of Loan Agreement; Compliance with Bond Resolution.......
SECTION 6.10.  Further Assurances...............................................

SCHEDULE A.Certain Additional Loan Agreement Provisions

EXHIBIT A   (1) Description of Project and Environmental Infrastructure
                System.....................................................A-1-1
            (2) Description of Loan........................................A-2-1

EXHIBIT B   Basis for Determination of Allowable Project Costs...............B-1

EXHIBIT C   Estimated Disbursement Schedule..................................C-1

EXHIBIT D   Specimen Borrower Bond...........................................D-1

EXHIBIT E   Opinions of Borrower's Bond and General Counsels.................E-1

EXHIBIT F   Additional Covenants and Requirements............................F-1

EXHIBIT G   General Administrative Requirements for the State
              Environmental Infrastructure Financing Program.................G-1

EXHIBIT H   Form of Continuing Disclosure Agreement..........................H-1


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           NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE FUND LOAN AGREEMENT

      THIS LOAN AGREEMENT,  made and entered into as of November 1, 2003, by and
between THE STATE OF NEW JERSEY, acting by and through the New Jersey Department
of Environmental  Protection,  and the Borrower  (capitalized terms used in this
Loan Agreement shall have, unless the context otherwise  requires,  the meanings
ascribed thereto in Section 1.01 hereof);

                                WITNESSETH THAT:

      WHEREAS, the Borrower has, in accordance with the Regulations, made timely
application  to the  State for a Loan to  finance  a portion  of the Cost of the
Project;

      WHEREAS, the State has approved the Borrower's application for a Loan from
Federal  Funds,  if and when received by and available to the State,  and moneys
from repayments of loans  previously made from such Federal Funds, in the amount
of the loan  commitment set forth in Exhibit A-2 attached hereto and made a part
hereof to finance a portion of the Cost of the Project;

      WHEREAS,  the New Jersey State  Legislature has approved an appropriations
act that  authorizes an expenditure  of said proceeds,  Federal Funds or related
moneys to finance a portion of the Cost of the Project;

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

      WHEREAS,  in accordance with the New Jersey  Environmental  Infrastructure
Trust Act, P.L. 1985, c. 334, as amended, and the Regulations,  the Borrower has
been  awarded a Trust Loan for a portion  of the Cost of the  Project  plus,  if
applicable  to the  Borrower,  capitalized  interest on the Trust Loan,  certain
costs of issuance and bond insurance premium related thereto.

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

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                                    ARTICLE I

                                   DEFINITIONS

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

      "Administrative  Fee" means an annual fee of up to one  percent  (1.0%) of
the initial  principal amount of the Loan or such lesser amount,  if any, as may
be  authorized by any act of the New Jersey State  Legislature  and as the State
may approve from time to time.

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

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

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

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

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

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

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

      "Environmental  Infrastructure  Facilities"  means Water Supply Facilities
(as such term is defined in the Regulations).


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

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

      "Federal  Funds"  means those funds  awarded to the State  pursuant to the
Clean Water Act (33 U.S.C.  ss.1251 et seq.) or the Safe Drinking  Water Act (42
U.S.C.  ss.300f  et  seq.),  as the same may from  time to time be  amended  and
supplemented.

      "Loan"  means the loan made by the State to the  Borrower  to  finance  or
refinance a portion of the Cost of the Project  pursuant to this Loan Agreement.
For all purposes of this Loan Agreement, the principal amount of the Loan at any
time  shall be the  amount  of the loan  commitment  set  forth in  Exhibit  A-2
attached  hereto and made a part hereof (such amount being also specified as the
initial aggregate principal amount of the Borrower Bond) less any amount of such
principal  amount that has been repaid by the Borrower under this Loan Agreement
and less any adjustment made for low bid or final building costs pursuant to the
provisions of N.J.A.C.  7:22-3.26 and the  appropriations  act of the New Jersey
State Legislature  authorizing the expenditure of moneys to finance a portion of
the Cost of the Project.

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

      "Loan  Agreements"  means any other loan  agreements  entered  into by and
between the State and one or more of the  Borrowers  pursuant to which the State
will make Loans to such Borrowers from Federal Funds.

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

      "Loan  Repayments"  means the sum of (i) the  repayments  of the principal
amount of the Loan payable by the Borrower  pursuant to Section  3.03(a) of this
Loan  Agreement  and (ii) any late  charges  incurred  hereunder,  but shall not
include the Administrative Fee.

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

      "Loans" means the loans made by the State to the Borrowers  under the Loan
Agreements from Federal Funds.

      "Master Program Trust  Agreement"  means that certain Master Program Trust
Agreement,  dated as of  November  1, 1995,  by and among the Trust,  the State,
United States Trust Company of New York, as Master Program  Trustee  thereunder,
The Bank of New York (NJ), in several capacities thereunder,  and First Fidelity
Bank, N.A.  (predecessor  to Wachovia Bank,  National  Association),  in several
capacities thereunder, as supplemented by that certain


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

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

      "Project"  means  the  Environmental   Infrastructure  Facilities  of  the
Borrower described in Exhibit A-1 attached hereto and made a part hereof,  which
constitutes  a project  for which the State is  permitted  to make a loan to the
Borrower  pursuant to the Regulations,  all or a portion of the Cost of which is
financed or  refinanced  by the State  through the making of the Loan under this
Loan  Agreement and which may be identified  under either the Drinking  Water or
Clean Water  Project  Lists with the  Project  Number  specified  in Exhibit A-1
attached hereto.

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

      "State"  means  the  State  of  New  Jersey,   acting,   unless  otherwise
specifically   indicated,   by  and  through  the  New  Jersey   Department   of
Environmental Protection, and its successors and assigns.

      "Trust" means the New Jersey Environmental  Infrastructure Trust, a public
body  corporate and politic with corporate  succession  duly created and validly
existing under and by virtue of P.L. 1985, c. 334, as amended (N.J.S.A. 58:11B-1
et seq.).

      "Trust Loan" means the loan made to the Borrower by the Trust  pursuant to
the Trust Loan Agreement.

      "Trust  Loan  Agreement"  means  the loan  agreement  by and  between  the
Borrower  and the Trust dated as of  November 1, 2003 to finance or  refinance a
portion of the Cost of the Project.

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

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


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<PAGE>

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


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                                   ARTICLE II

                    REPRESENTATIONS AND COVENANTS OF BORROWER

      SECTION 2.01. Representations of Borrower. The Borrower represents for the
benefit of the State as follows:

      (a) Organization and Authority.
          --------------------------

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

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

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

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

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


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<PAGE>

      the  execution,  delivery  and  due  performance  of  any  and  all  other
      certificates,  agreements  and  instruments  that  may be  required  to be
      executed,  delivered  and performed by the Borrower in order to carry out,
      give effect to and consummate the  transactions  contemplated by this Loan
      Agreement.

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

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

      (c)  Pending  Litigation.  There  are no  proceedings  pending  or, to the
knowledge of the Borrower,  threatened  against or affecting the Borrower in any
court or before any  governmental  authority  or  arbitration  board or tribunal
that,  if  adversely  determined,  would  materially  adversely  affect  (i) the
undertaking  or  completion  of the Project,  (ii) the  properties,  activities,
prospects  or  condition  (financial  or  otherwise)  of  the  Borrower  or  its
Environmental  Infrastructure  System, (iii) the ability of the Borrower to make
all Loan Repayments, (iv) the authorization,  execution, attestation or delivery
of this Loan  Agreement or the Borrower  Bond,  (v) the issuance of the Borrower
Bond and the sale thereof to the State,  (vi) the adoption of the Borrower  Bond
Resolution, or (vii) the Borrower's ability otherwise to observe and perform its
duties, covenants,  obligations and agreements under this Loan Agreement and the
Borrower Bond, which  proceedings have not been previously  disclosed in writing
to the State either in the Borrower's application for the Loan or otherwise.

      (d) Compliance with Existing Laws and Agreements.  (i) The  authorization,
execution, attestation and delivery of this Loan Agreement and the Borrower Bond
by the Borrower,  (ii) the authentication of the Borrower Bond by the trustee or
paying agent under the


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<PAGE>

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

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

      (f)  Governmental  Consent.  The  Borrower  has  obtained  all permits and
approvals  required  to  date  by any  governmental  body  or  officer  for  the
authorization,  execution,  attestation  and delivery of this Loan Agreement and
the Borrower Bond, for the issuance of the Borrower Bond and the sale thereof to
the State,  for the adoption of the Borrower  Bond  Resolution,  for the making,
observance and performance by the Borrower of its duties, covenants, obligations
and  agreements  under this Loan  Agreement  and the  Borrower  Bond and for the
undertaking  or  completion  of the Project  and the  financing  or  refinancing
thereof,  including,  but not limited to, if  required,  the approval by the New
Jersey Board of Public  Utilities (the "BPU") of the issuance by the Borrower of
the Borrower Bond to the State and any other approvals  required therefor by the
BPU;  and the  Borrower  has  complied  with all  applicable  provisions  of law
requiring  any  notification,  declaration,  filing  or  registration  with  any
governmental  body or officer in  connection  with the  making,  observance  and
performance by the Borrower of its duties, covenants, obligations and agreements
under this Loan Agreement and the Borrower Bond or


                                      -8-
<PAGE>

with  the  undertaking  or  completion  of the  Project  and  the  financing  or
refinancing  thereof.  No  consent,  approval  or  authorization  of, or filing,
registration or qualification  with, any  governmental  body or officer that has
not been  obtained is required on the part of the Borrower as a condition to the
authorization,  execution,  attestation  and delivery of this Loan Agreement and
the Borrower Bond, the issuance of the Borrower Bond and the sale thereof to the
State,  the undertaking or completion of the Project or the  consummation of any
transaction herein contemplated.

      (g) Compliance with Law. The Borrower:
          -------------------

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

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

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

      SECTION 2.02. Particular Covenants of Borrower.

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

      (b) Performance  Under Loan Agreement;  Rates. The Borrower  covenants and
agrees (i) to comply  with all  applicable  State and  federal  laws,  rules and
regulations  in the  performance  of this Loan  Agreement;  (ii) to maintain its
Environmental  Infrastructure  System in good  repair and  operating  condition;
(iii) to  cooperate  with the State in the  observance  and  performance  of the
respective duties, covenants, obligations and agreements of the Borrower and the
State under


                                      -9-
<PAGE>

this Loan Agreement;  and (iv) to establish,  levy and collect rents,  rates and
other  charges for the  products  and  services  provided  by its  Environmental
Infrastructure  System,  which rents,  rates and other charges shall be at least
sufficient to comply with all covenants pertaining thereto contained in, and all
other  provisions  of, any bond  resolution,  trust  indenture or other security
agreement,  if  any,  relating  to  any  bonds,  notes  or  other  evidences  of
indebtedness  issued  or  to  be  issued  by  the  Borrower,  including  without
limitation rents, rates and other charges, together with other available moneys,
sufficient to pay the principal of and Interest on the Borrower  Bond,  plus all
other amounts due hereunder.

      (c)  Revenue  Obligation;  No Prior  Pledges.  The  Borrower  shall not be
required to make payments under this Loan Agreement  except from the revenues of
its  Environmental  Infrastructure  System  and from  such  other  funds of such
Environmental  Infrastructure  System  legally  available  therefor and from any
other sources pledged to such payment pursuant to subsection (a) of this Section
2.02.  In no event shall the  Borrower be required to make  payments  under this
Loan Agreement from any revenues or receipts not derived from its  Environmental
Infrastructure  System or pledged  pursuant to  subsection  (a) of this  Section
2.02.  Except for (i) loan  repayments  required with respect to the Trust Loan,
(ii) the debt  service on any future  bonds or notes of the  Borrower  issued at
parity with the Borrower Bond under the Borrower Bond Resolution,  and (iii) the
debt service on any bonds, notes or evidences of indebtedness of the Borrower at
parity with the Borrower Bond under the Borrower Bond  Resolution  and currently
outstanding or issued on the date hereof,  the revenues  derived by the Borrower
from its Environmental  Infrastructure System, after the payment of all costs of
operating and maintaining the Environmental  Infrastructure System, are and will
be free and clear of any pledge,  lien,  charge or  encumbrance  thereon or with
respect  thereto prior to, or of equal rank with, the obligation of the Borrower
to make Loan Repayments under this Loan Agreement and the Borrower Bond, and all
corporate  or other  action on the part of the Borrower to that end has been and
will be duly and validly taken.

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

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

      (f) Reserved.

      (g) Operation and Maintenance of Environmental  Infrastructure System. The
Borrower  covenants  and  agrees  that it  shall,  in  accordance  with  prudent
environmental  infrastructure  utility  practice,  (i) at all times  operate the
properties  of its  Environmental  Infrastructure  System  and any  business  in
connection  therewith in an efficient  manner,  (ii) maintain its  Environmental
Infrastructure System in good repair, working order and operating


                                      -10-
<PAGE>

condition,  and (iii) from time to time make all necessary  and proper  repairs,
renewals, replacements,  additions, betterments and improvements with respect to
its  Environmental  Infrastructure  System  so that at all  times  the  business
carried  on  in  connection  therewith  shall  be  properly  and  advantageously
conducted.

      (h) Records and Accounts.  The Borrower  shall keep  accurate  records and
accounts for its Environmental  Infrastructure  System specifically  relating to
the project (the "System Records")  separate and distinct from its other records
and accounts  (the  "General  Records").  Such System  Records  shall be audited
annually by an independent certified public accountant, which may be part of the
annual audit of the General  Records of the  Borrower.  Such System  Records and
General  Records  shall be made  available  for  inspection  by the State at any
reasonable  time upon prior written  notice,  and a copy of such annual audit(s)
therefor, including all written comments and recommendations of such accountant,
shall be  furnished to the State within 150 days of the close of the fiscal year
being so audited or, with the consent of the State,  such  additional  period as
may be provided by law.

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

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

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

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

            (i) an opinion of the Borrower's bond counsel  substantially  in the
      form of  Exhibit E hereto;  provided,  however,  that the State may permit
      portions of such opinion to be rendered by general counsel to the Borrower
      and may  permit  variances  in such  opinion  from the  form set  forth in
      Exhibit E if such variances are acceptable to the State;


                                      -11-
<PAGE>

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

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

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

      (m)  Execution  and  Delivery  of  Borrower  Bond.  Concurrently  with the
delivery of this Loan  Agreement at the Loan  Closing,  the Borrower  shall also
deliver to the State the Borrower Bond, as previously executed, attested and, if
applicable, authenticated.

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

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

      (p)  Additional  Covenants  and  Requirements.  (i) No later than the Loan
Closing and, if necessary, in connection with the making of the Loan, additional
covenants  and  requirements  have been  included in Exhibit F hereto and made a
part hereof.  Such  covenants  and  requirements  may  include,  but need not be
limited to, the maintenance of specified levels of Environmental  Infrastructure
System rates,  the issuance of additional  debt of the Borrower and the transfer
of  revenues  and  receipts  from the  Borrower's  Environmental  Infrastructure
System.  The  Borrower  agrees to observe and comply  with each such  additional
covenant and requirement,  if any, included in Exhibit F hereto. (ii) Additional
defined terms, covenants, representations and requirements have been included in
Schedule  A attached  hereto and made a part  hereof.  Such  additional  defined
terms, covenants, representations and requirements are incorporated in this Loan
Agreement by reference thereto as if set forth in full herein and the


                                      -12-
<PAGE>

Borrower  hereby  agrees to observe and comply with each such  additional  term,
covenant,  representation and requirement  included in Schedule A as if the same
were set forth in its  entirety  where  reference  thereto  is made in this Loan
Agreement.


                                      -13-
<PAGE>

                                   ARTICLE III

              LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

      SECTION 3.01. Loan; Loan Term. The State hereby agrees to make the Loan as
described  in Exhibit  A-2 hereof and to  disburse  proceeds  of the Loan to the
Borrower in accordance with Section 3.02 and Exhibit C hereof,  and the Borrower
hereby  agrees to borrow  and  accept the Loan from the State upon the terms set
forth in Exhibit A-2 attached hereto and made a part hereof; provided,  however,
that the State shall be under no  obligation to make the Loan if (a) at the Loan
Closing,  the  Borrower  does not deliver to the State a Borrower  Bond and such
other  documents  required  under  Section  2.02(l)  hereof,  or (b) an Event of
Default has occurred and is continuing  under this Loan Agreement.  Although the
State intends to disburse  proceeds of the Loan to the Borrower at the times and
up to the  amounts  set forth in  Exhibit C to pay a portion  of the Cost of the
Project,  due to unforeseen  circumstances  there may not be sufficient  Federal
Funds  on  deposit  on any  date  to  make  the  disbursement  in  such  amount.
Nevertheless,  the Borrower agrees that the aggregate principal amount set forth
in Exhibit A-2 hereto shall constitute the initial  principal amount of the Loan
(as the  same  may be  adjusted  downward  in  accordance  with  the  definition
thereof),  and  the  State  shall  have no  obligation  thereafter  to loan  any
additional amounts to the Borrower.

      The  Borrower  shall have no legal or  equitable  interest  in the Federal
Funds  received by and  available to the State or in moneys from  repayments  of
loans previously made from Federal Funds by the State.

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

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

      SECTION 3.02.  Disbursement of Loan Proceeds. (a) The State shall disburse
Federal  Funds  earmarked  for the Loan to the Borrower in  accordance  with the
terms hereof.  Before each and every disbursement of the proceeds of the Loan by
the State to the Borrower,  the Borrower shall in accordance with the procedures
set forth in the  Regulations  submit to the State a requisition  executed by an
Authorized Officer of the Borrower.

      (b) The State  shall  not be under any  obligation  to  disburse  any Loan
proceeds to the Borrower under this Loan Agreement, unless:

            (i) the Loan  Closing  shall have  occurred on the date  established
      therefor by the State;


                                      -14-
<PAGE>

            (ii) there  shall be Federal  Funds  available  from time to time to
      fund the Loan, as determined solely by the State;

            (iii)   in   accordance   with   the   "New   Jersey   Environmental
      Infrastructure  Trust  Act",  P.L.  1985,  c. 334,  as  amended  (N.J.S.A.
      58:11B-1 et seq.),  and the  Regulations,  the Borrower  shall have timely
      applied for, shall have been awarded and, prior to or simultaneously  with
      the Loan  Closing,  shall  have  closed a Trust  Loan for a portion of the
      Allowable  Costs (as  defined in such  Regulations)  of the  Project in an
      amount  not in excess  of the  amount of  Allowable  Costs of the  Project
      financed by the Loan from the State,  plus the amount of: (i)  capitalized
      interest during the Project  construction period, if any, (ii) the cost of
      funding reserve capacity for the Project,  if any, as well as that portion
      of the Debt Service  Reserve Fund (as defined in the Trust Loan Agreement)
      attributable to the cost of funding such reserve capacity for the Project,
      and  (iii)  certain  issuance  expenses  related  thereto,  including,  if
      applicable, a municipal bond insurance policy premium;

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

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

      SECTION 3.03.  Amounts  Payable.  (a) The Borrower shall repay the Loan at
zero-interest in principal  installments  payable to the Trustee semiannually on
the  Principal  Payment  Dates,  in  accordance  with the  schedule set forth in
Exhibit A-2 attached  hereto and made a part hereof,  as the same may be amended
or  modified  by the  State,  in  particular,  without  limitation,  to make any
adjustments to the amount of the Loan in accordance with the definition thereof;
provided,  however,  that the amount of any reduction in the principal amount of
the Loan  pursuant to  N.J.A.C.  7:22-3.26  shall be  credited to the  principal
payments  set forth in  Exhibit  A-2 in  inverse  order of their  maturity.  The
obligations  of the  Borrower  under  the  Borrower  Bond  shall be deemed to be
amounts  payable  under this  Section  3.03.  Each  payment  made to the Trustee
pursuant  to the  Borrower  Bond  shall be  deemed  to be a credit  against  the
corresponding  obligation of the Borrower  under this Section 3.03, and any such
payment made to the Trustee shall fulfill the Borrower's  obligation to pay such
amount  hereunder and under the Borrower Bond.  Each payment made to the Trustee
pursuant to this Section 3.03 shall be applied to the principal of the Loan.

      (b) In  addition  to  the  principal  payments  on the  Loan  required  by
subsection  (a) of this Section 3.03,  the Borrower  shall pay a late charge for
any such payment that is received by the Trustee later than the tenth (10th) day
following its due date in an amount equal to the greater of twelve percent (12%)
per annum or the Prime Rate plus one half of one percent per annum on


                                      -15-
<PAGE>

such  late  payment  from  its due  date to the date  actually  paid;  provided,
however, that such late charge payable on the Loan shall not be in excess of the
maximum interest rate permitted by law.

      (c) In addition to the Loan Repayments  payable under  subsections (a) and
(b) of this Section 3.03, the Borrower shall pay one-half of the  Administrative
Fee,  if any,  to the  Trustee  semiannually  on each  Principal  Payment  Date,
commencing with the first Principal Payment Date subsequent to the Loan Closing.

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

      SECTION 3.05.  Loan Agreement to Survive Loan.  The Borrower  acknowledges
that its duties,  covenants,  obligations  and  agreements set forth in Sections
3.06(a) and (b) hereof shall survive the payment in full of the Loan.

      SECTION  3.06.  Disclaimer  of  Warranties  and  Indemnification.  (a) The
Borrower  acknowledges and agrees that: (i) the State does not make any warranty
or  representation,  either  express  or  implied,  as  to  the  value,  design,
condition,  merchantability or fitness for particular purpose or fitness for any
use of the  Environmental  Infrastructure  System or the Project or any portions
thereof or any other warranty or representation with respect thereto; (ii) in no
event shall the State or its agents be liable or responsible for any incidental,
indirect,  special or consequential damages in connection with or arising out of
this Loan Agreement or the Project or the existence, furnishing,  functioning or
use of the  Environmental  Infrastructure  System or the  Project or any item or
products  or  services  provided  for in this Loan  Agreement;  and (iii) to the
fullest extent permitted by law, the Borrower shall indemnify and hold the State
harmless against, and the Borrower shall pay any and all, liability, loss, cost,
damage,  claim,  judgment  or expense of any and all kinds or nature and however
arising and  imposed by law,  which the State may  sustain,  be subject to or be
caused to incur by reason of any  claim,  suit or  action  based  upon  personal
injury, death or damage to property, whether real, personal or mixed, or upon or
arising


                                      -16-
<PAGE>

out of contracts entered into by the Borrower,  the Borrower's  ownership of the
Environmental   Infrastructure  System  or  the  Project,  or  the  acquisition,
construction or installation of the Project.

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

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

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

      SECTION 3.07.  Option to Prepay Loan  Repayments.  The Borrower may prepay
the Loan  Repayments,  in whole or in part, upon not less than ninety (90) days'
prior  written  notice to the State;  provided,  however,  that any such full or
partial  prepayment  may only be made (i) if the Borrower is not then in arrears
on its Trust Loan,  (ii) if the Borrower is  contemporaneously  making a full or
partial prepayment of the Trust Loan such that, after the prepayment of the Loan
and the Trust Loan, the Trust gives its consent required under Section 3.07(iii)
of the Trust Loan  Agreement,  and (iii) upon the prior written  approval of the
State.  Prepayments shall be applied to the principal payments on the portion of
the Loan to be prepaid in inverse order of their maturity.

      SECTION  3.08.  Priority of Loan and Trust Loan.  (a) The Borrower  hereby
agrees that, to the extent allowed by law, including,  without  limitation,  the
appropriations  act  of  the  New  Jersey  State  Legislature   authorizing  the
expenditure  of Trust  bond  proceeds  to  finance a portion  of the Cost of the
Project,  or the Borrower  Bond  Resolution,  any loan  repayments  then due and
payable  on the  Borrower's  Trust  Loan,  including,  without  limitation,  any
administrative  fees and any late payment charges then due and payable under the
Trust  Loan  Agreement,  shall be  satisfied  by the  Borrower  before  any Loan
Repayments then due and payable  hereunder on the Loan shall be satisfied by the
Borrower.


                                      -17-
<PAGE>

      (b) The Borrower hereby  acknowledges that in the event the Borrower fails
or is unable to pay  promptly  to the Trust in full any loan  repayments  on the
Trust Loan, then any Loan Repayments paid by the Borrower on the Loan under this
Loan  Agreement  and  received by the  Trustee  during the time of any such loan
repayment  deficiency  under the Trust  Loan  Agreement  shall be applied by the
Trustee first to satisfy such Trust Loan Agreement loan repayment  deficiency as
a credit against the obligations of the Borrower to make loan repayments of that
portion of interest  under the Trust Loan  Agreement  that is  allocable  to the
interest payable on the Trust Bonds (as defined in the Trust Loan Agreement) and
to make  payments of that  portion of interest  under the bond or note issued by
the Borrower to the Trust that is allocable to the interest payable on the Trust
Bonds,  second,  to the extent  available,  to make loan repayments of principal
under the Trust Loan  Agreement  and  payments of  principal on the bond or note
issued by the Borrower to the Trust pursuant to the Trust Loan Agreement, third,
to the extent available,  to the payment of the administrative fee payable under
the Trust Loan  Agreement and to make payments of that portion of interest under
the bond or note issued by the  Borrower to the Trust that is  allocable  to the
administrative fee payable under the Trust Loan Agreement, fourth, to the extent
available, to the payment of late charges payable under the Trust Loan Agreement
and to make  payments of that portion of interest  under the bond or note issued
by the Borrower to the Trust that is allocable to the late charges payable under
the Trust Loan Agreement,  and finally,  to the extent  available,  to make Loan
Repayments on the Loan.

      (c) The Borrower hereby further acknowledges that any Loan Repayments paid
by the Borrower on the Loan under this Loan Agreement shall be applied according
to the provisions of the Master Program Trust Agreement.

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


                                      -18-
<PAGE>

                                   ARTICLE IV

                 ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

      SECTION  4.01.  Assignment  and  Transfer by State.  The  Borrower  hereby
approves and consents to any  assignment or transfer of this Loan  Agreement and
the Borrower  Bond that the State deems to be necessary in  connection  with the
environmental infrastructure loan program of the State under the Regulations.

      SECTION 4.02. Assignment by Borrower.  Neither this Loan Agreement nor the
Borrower  Bond may be  assigned  by the  Borrower  for any  reason,  unless  the
following conditions shall be satisfied:  (i) the State shall have approved said
assignment in writing; (ii) the assignee shall have expressly assumed in writing
the full and faithful  observance  and  performance  of the  Borrower's  duties,
covenants,  obligations  and  agreements  under this Loan  Agreement and, to the
extent permitted under applicable law, the Borrower Bond; and (iii)  immediately
after such assignment, the assignee shall not be in default in the observance or
performance of any duties, covenants,  obligations or agreements of the Borrower
under this Loan Agreement or the Borrower Bond.


                                      -19-
<PAGE>

                                    ARTICLE V

                         EVENTS OF DEFAULT AND REMEDIES

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

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

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

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

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

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

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


                                      -20-
<PAGE>

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

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

      SECTION 5.03.  Remedies on Default.  Whenever an Event of Default referred
to in Section 5.01 hereof shall have occurred and be continuing, the State shall
have the right to take whatever action at law or in equity may appear  necessary
or  desirable  to collect  the  amounts  then due and  thereafter  to become due
hereunder or to enforce the  observance and  performance of any duty,  covenant,
obligation or agreement of the Borrower hereunder.

      In addition,  if an Event of Default referred to in Section 5.01(a) hereof
shall have occurred and be continuing, the State shall, to the extent allowed by
applicable  law,  have the right to declare  all Loan  Repayments  and all other
amounts  due  hereunder  (including,  without  limitation,  payments  under  the
Borrower  Bond)  to be  immediately  due and  payable,  and upon  notice  to the
Borrower the same shall become due and payable without further notice or demand.

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

      SECTION 5.05.  Application  of Moneys.  Any moneys  collected by the State
pursuant to Section 5.03 hereof shall be applied (a) first to pay any attorneys'
fees or other fees and expenses  owed by the  Borrower  pursuant to Section 5.04
hereof, (b) second, to the extent available, to pay principal due and payable on
the Loan, (c) third, to the extent  available,  to pay any other amounts due and
payable hereunder,  and (d) fourth, to the extent available, to pay principal on
the Loan and other  amounts  payable  hereunder as such  amounts  become due and
payable.

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


                                      -21-
<PAGE>

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


                                      -22-
<PAGE>

                                   ARTICLE VI

                                  MISCELLANEOUS

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

      (a)   State:

                               New Jersey Department of Environmental Protection
                               Municipal Finance and Construction Element
                               401 East State Street - 3rd Floor
                               Trenton, New Jersey  08625-0425
                               Attention:  Assistant Director

                               New Jersey Department of the Treasury
                               Office of Public Finance
                               State Street Square - 5th Floor
                               Trenton, New Jersey  08625-0002
                               Attention:  Director

      (b)   Trustee:

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

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

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

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

      SECTION  6.04.  Amendments,   Supplements  and  Modifications.  This  Loan
Agreement may not be amended, supplemented or modified without the prior written
consent of the State and the Borrower.


                                      -23-
<PAGE>

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

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

      SECTION  6.07.  Consents and  Approvals.  Whenever the written  consent or
approval  of the  State  shall be  required  under the  provisions  of this Loan
Agreement, such consent or approval may only be given by the State.

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

      SECTION 6.09.  Further  Assurances.  The Borrower shall, at the request of
the State,  authorize,  execute,  attest,  acknowledge  and deliver such further
resolutions,  conveyances, transfers, assurances, financing statements and other
instruments  as may be necessary or desirable  for better  assuring,  conveying,
granting, assigning and confirming the rights, security interests and agreements
granted or intended to be granted by this Loan Agreement and the Borrower Bond.


                                      -24-
<PAGE>


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

                                       THE STATE OF NEW JERSEY,
                                       ACTING BY AND THROUGH THE
                                       NEW JERSEY DEPARTMENT OF
                                       ENVIRONMENTAL PROTECTION

[SEAL]

                                       By:_____________________________
ATTEST:                                      Bradley M. Campbell
                                             Commissioner, Department of
                                             Environmental Protection

-----------------------------
Stanley V. Cach, Jr. P.E., P.P.
Assistant Director,
Municipal Finance and Construction Element,
Department of Environmental Protection

                                       MIDDLESEX WATER COMPANY

[SEAL]

                                       By: /s/Dennis G. Sullivan
                                           ---------------------------
ATTEST:                                 Dennis G. Sullivan
                                                  President

/s/Kenneth J. Quinn
---------------------------
    Kenneth J. Quinn
    Secretary


                                [Signature Page]

<PAGE>

                                   SCHEDULE A

                  Certain Additional Loan Agreement Provisions
                  --------------------------------------------


                                      S-1
<PAGE>

                                   EXHIBIT A-1

         Description of Project and Environmental Infrastructure System
         --------------------------------------------------------------

                                      A-1-1


<PAGE>

                                   EXHIBIT A-2

                               Description of Loan
                               -------------------


                                      A-2-1

<PAGE>

                                    EXHIBIT B

               Basis for Determination of Allowable Project Costs
               --------------------------------------------------


                                       B-1

<PAGE>

                                    EXHIBIT C

                         Estimated Disbursement Schedule
                         -------------------------------


                                       C-1

<PAGE>

                                    EXHIBIT D

                             Specimen Borrower Bond
                             ----------------------

                                       D-1

<PAGE>

                          (To be supplied by Borrower's
                bond counsel in substantially the following form)

      IMPORTANT NOTE: The next two pages set forth the form of the Borrower Bond
prepared by the Trust's Bond Counsel for  municipal/county  Borrowers.  Although
the Trust  recognizes  that  each  corporate  Borrower  has its own bond form as
required  pursuant to its Borrower Bond  Resolution,  please  incorporate in the
bond form the pertinent  information from this municipal/county bond form (e.g.,
include the concept of principal  amount or lesser  amount under  Section  3.01,
reference  to  payments  to the  Trustee,  disbursement  process,  unconditional
nature,  prepayment,  security and date).  To the extent that you do not have an
existing  Bond  Resolution,  the  pledge  under your Bond  Resolution  should be
drafted to constitute a general  obligation pledge of (i) all the gross revenues
of the company and (ii) any specific property (e.g.  mortgage) or other security
pledged for this transaction (e.g. letter of credit).


                                      D-2
<PAGE>

                        SEE IMPORTANT NOTE ON PRIOR PAGE

      FOR VALUE  RECEIVED,  [NAME OF BORROWER],  a corporation  duly created and
validly existing under the Constitution and laws of the State of New Jersey (the
"Borrower"), hereby promises to pay to the order of the State of New Jersey (the
"State") the principal amount of ___________________  Dollars ($__________),  or
such lesser amount as shall be determined in accordance with Section 3.01 of the
Loan  Agreement  (as  hereinafter  defined),  at the  times  and in the  amounts
determined  as provided in the Loan  Agreement,  plus any other  amounts due and
owing  under the Loan  Agreement  at the times and in the  amounts  as  provided
therein.  The  Borrower  irrevocably  pledges  its full faith and credit for the
punctual  payment of the  principal  of, and all other  amounts due under,  this
Borrower Bond and the Loan Agreement according to their respective terms.

      This Borrower Bond is issued  pursuant to the Loan  Agreement  dated as of
November 1, 2003 by and between the State,  acting by and through the New Jersey
Department of Environmental Protection, and the Borrower (the "Loan Agreement").
This  Borrower Bond is issued in  consideration  of the loan made under the Loan
Agreement  (the "Loan") to evidence the payment  obligations of the Borrower set
forth  therein.  Payments  under this Borrower  Bond shall,  except as otherwise
provided in the Loan  Agreement,  be made directly to the Trustee (as defined in
the Loan Agreement) for the account of the State.  This Borrower Bond is subject
to assignment or endorsement in accordance with the terms of the Loan Agreement.
All of the terms,  conditions  and provisions of the Loan Agreement are, by this
reference thereto, incorporated herein as part of this Borrower Bond.

      Pursuant to the Loan Agreement,  disbursements  shall be made by the State
to the  Borrower  upon  receipt by the State of  requisitions  from the Borrower
executed and delivered in accordance with the  requirements set forth in Section
3.02 of the Loan Agreement.

      This  Borrower  Bond is  entitled  to the  benefits  and is subject to the
conditions of the Loan  Agreement.  The  obligations of the Borrower to make the
payments  required  hereunder shall be absolute and  unconditional,  without any
defense or right of set-off, counterclaim or recoupment by reason of any default
by the State under the Loan Agreement or under any other  agreement  between the
Borrower and the State or out of any indebtedness or liability at any time owing
to the Borrower by the State or for any other reason.

      This Borrower Bond is subject to optional  prepayment  under the terms and
conditions,  and in the amounts, provided in Section 3.07 of the Loan Agreement.
To the extent  allowed by  applicable  law, this Borrower Bond may be subject to
acceleration  under the terms and  conditions,  and in the amounts,  provided in
Section 5.03 of the Loan Agreement.

      To  the  extent  provided  by  law,  this  Borrower  Bond  is  junior  and
subordinate in all respects to any bonds or notes of the Borrower issued on even
date herewith to the New Jersey  Environmental  Infrastructure  Trust as to lien
on, and source and security for payment from, the revenues of the Borrower.


                                      D-3
<PAGE>

      IN WITNESS WHEREOF,  the Borrower has caused this Borrower Bond to be duly
executed, sealed and delivered as of October 15, 2003.

                                     [NAME OF BORROWER]

[SEAL]

                                     By:_____________________________________
ATTEST:                                  Mayor

_______________________              By:_____________________________________
Clerk                                    Chief Financial Officer/Treasurer


                                      D-4
<PAGE>

                                    EXHIBIT E

                Opinions of Borrower's Bond and General Counsels
                ------------------------------------------------


                                      E-1
<PAGE>

                       [LETTERHEAD OF COUNSEL TO BORROWER]

                                                           November 6, 2003

State of New Jersey
Department of Environmental Protection
401 East State Street
Trenton, New Jersey  08625

Ladies and Gentlemen:

      We have  acted as  counsel  to  [Name of  Borrower],  a  corporation  duly
organized  and validly  existing  under the laws of the State of New Jersey (the
"Borrower"),  which has entered into a Loan Agreement (as  hereinafter  defined)
with the State of New Jersey, acting by and through the New Jersey Department of
Environmental  Protection  (the  "State"),  and have acted as such in connection
with the authorization,  execution,  attestation and delivery by the Borrower of
its Loan Agreement and Borrower Bond (as  hereinafter  defined)  pursuant to the
New Jersey  Business  Corporation  Act,  P.L.  1968,  c. 263,  as  amended  (the
"Business Corporation Law"), and a [bond resolution] [indenture] of the Borrower
[adopted on] [dated] [DATE] and entitled "[TITLE]", as amended and supplemented,
including by a supplemental [resolution] [indenture] [adopted on] [dated] [DATE]
and entitled  "[TITLE]" (such  [resolutions]  [indentures] shall be collectively
referred  to herein as the  "Resolution").  All  capitalized  terms used but not
defined  herein  shall  have the  meanings  ascribed  to such  terms in the Loan
Agreement.

      In so acting,  we have examined the  Constitution and laws of the State of
New Jersey, including, without limitation, the Business Corporation Law, and the
certificate of incorporation and by-laws of the Borrower.  We have also examined
originals,  or copies certified or otherwise identified to our satisfaction,  of
the following:

      (a) the Loan Agreement dated as of November 1, 2003 (the "Loan Agreement")
by and between the State and the Borrower;

      (b) the proceedings of the board of directors of the Borrower  relating to
the approval of the Loan Agreement and the execution,  attestation  and delivery
thereof on behalf of the Borrower and the  authorization  of the undertaking and
completion of the Project;

      (c) the Borrower Bond dated as of October 15, 2003 (the  "Borrower  Bond")
issued by the Borrower to the State to evidence the Loan; and

      (d) the proceedings  (together with the proceedings  referred to in clause
(b) above and Section 5 below, the  "Proceedings")  of the board of directors of
the Borrower,  including,  without limitation,  the Resolution,  relating to the
authorization  of the  Borrower  Bond  and  the  sale,  execution,  attestation,
authentication  and delivery  thereof to the State (the Loan  Agreement  and the
Borrower Bond are referred to herein collectively as the "Loan Documents").


                                      E-2
<PAGE>

      We have also examined and relied upon  originals,  or copies  certified or
otherwise authenticated to our satisfaction,  of such other records,  documents,
certificates and other  instruments,  and have made such investigation of law as
in our judgment we have deemed necessary or appropriate,  to enable us to render
the opinions expressed below.

      We are of the opinion that:

      1. The Borrower is a corporation  duly created and validly  existing under
and  pursuant  to the  Constitution  and  statutes  of the State of New  Jersey,
including  the Business  Corporation  Law,  with the legal right to carry on the
business of its Environmental Infrastructure System as currently being conducted
and as proposed to be conducted.

      2. The Borrower has full legal right and authority to execute,  attest and
deliver the Loan Documents, to sell the Borrower Bond to the State, to cause the
authentication  of the  Borrower  Bond,  to  observe  and  perform  its  duties,
covenants,  obligations and agreements under the Loan Documents and to undertake
and complete the Project.

      3. The acting officers of the Borrower who are contemporaneously  herewith
performing  or have  previously  performed any action  contemplated  in the Loan
Agreement  are,  and at the time any such action was  performed  were,  the duly
appointed or elected officers of the Borrower empowered by applicable New Jersey
law and authorized by resolution of the Borrower to perform such actions.

      4. In  accordance  with the  terms  of the  Resolution  and to the  extent
provided therein, the Borrower has irrevocably pledged its full faith and credit
for the punctual  payment of the Loan Repayments and all other amounts due under
the Loan Documents according to their respective terms.

      5. The proceedings of the Borrower's  board of directors (i) approving the
Loan Documents,  (ii) authorizing  their execution,  attestation and delivery on
behalf  of  the  Borrower,  (iii)  with  respect  to  the  Borrower  Bond  only,
authorizing  its  sale  by  the  Borrower  to  the  State  and  authorizing  its
authentication  on behalf of the  Borrower,  (iv)  authorizing  the  Borrower to
consummate the transactions  contemplated by the Loan Documents, (v) authorizing
the Borrower to undertake  and complete the Project,  and (vi)  authorizing  the
execution  and delivery of all other  certificates,  agreements,  documents  and
instruments in connection  with the execution,  attestation  and delivery of the
Loan  Documents,  have each been duly and  lawfully  adopted and  authorized  in
accordance  with  applicable  law and  applicable  resolutions  of the Borrower,
including,  without  limitation,  the Resolution,  the other Proceedings and the
Business  Corporation  Law,  which  Proceedings  constitute  all of the  actions
necessary to be taken by the Borrower to authorize its actions  contemplated  by
clauses  (i)  through  (vi)  above and  which  Proceedings,  including,  without
limitation, the Resolution,  were duly adopted in accordance with applicable New
Jersey law at a meeting or  meetings  duly  called and held in  accordance  with
applicable  New  Jersey  law  and at  which  quorums  were  present  and  acting
throughout.

      6. The Loan Documents have been duly  authorized,  executed,  attested and
delivered by the Authorized Officers of the Borrower, the Borrower Bond has been
duly sold by the


                                      E-3
<PAGE>

Borrower to the State, and the Borrower Bond has been duly  authenticated by the
trustee or paying agent under the Resolution, if applicable; and assuming in the
case of the Loan Agreement that the State has the requisite  power and authority
to authorize,  execute,  attest and deliver, and has duly authorized,  executed,
attested and delivered,  the Loan Agreement,  the Loan Documents  constitute the
legal, valid and binding  obligations of the Borrower,  enforceable  against the
Borrower in accordance with their respective  terms,  subject,  however,  to the
effect of, and to  restrictions  and  limitations  imposed by or resulting from,
bankruptcy,  insolvency,  moratorium,   reorganization  or  other  similar  laws
affecting  creditors'  rights  generally.  No  opinion  is  rendered  as to  the
availability of any particular remedy.

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

      8. All approvals,  consents or  authorizations  of, or registrations of or
filings with, any governmental or public agency, authority or person required to
date  on  the  part  of the  Borrower  in  connection  with  the  authorization,
execution, attestation, delivery and performance of the Loan Documents, the sale
of the Borrower Bond and the undertaking and completion of the Project have been
obtained or made.

      9.  There  is no  litigation  or  other  proceeding  pending  or,  to  our
knowledge,  after due  inquiry,  threatened  in any court or other  tribunal  of
competent  jurisdiction  (either State or federal) (i) questioning the creation,
organization  or existence  of the  Borrower,  (ii)  questioning  the  validity,
legality or  enforceability  of the Resolution,  the Loan or the Loan Documents,
(iii)  questioning the undertaking or completion of the Project,  (iv) otherwise
challenging the Borrower's  ability to consummate the transactions  contemplated
by the Loan or the Loan Documents, or (v) that, if adversely decided, would have
a materially adverse impact on the financial condition of the Borrower.


                                      E-4
<PAGE>

      10. Other than its bond or note dated as of October 15, 2003 issued to the
New Jersey Environmental  Infrastructure Trust, the Borrower has no bonds, notes
or other  debt  obligations  outstanding  that are  superior  or  senior  to the
Borrower  Bond as to lien on, and source and security for payment  thereof from,
the revenues of the Borrower.

      [11.  To  the  best  of  our   knowledge,   upon  due  inquiry,   (i)  all
representations  made by the  Borrower  contained  within  Exhibit F of the Loan
Agreement are true, accurate and complete,  and (ii) all expectations  contained
therein  are  reasonable,  and we know of no reason  why the  Borrower  would be
unable to comply on a  continuing  basis  with the  covenants  contained  within
Exhibit F of the Loan Agreement.]

      We hereby authorize McCarter & English, LLP, acting as bond counsel to the
State in connection with the Loan, and the Attorney  General of the State of New
Jersey,  acting as general  counsel to the State in connection with the Loan, to
rely on this opinion as if we had addressed  this opinion to them in addition to
you.

                                                            Very truly yours,


                                      E-5
<PAGE>

                                    EXHIBIT F

                      Additional Covenants and Requirements
                      -------------------------------------


                                      F-1
<PAGE>

                                    EXHIBIT G

                   General Administrative Requirements for the
              State Environmental Infrastructure Financing Program
              ----------------------------------------------------


                                      G-1
<PAGE>

                                 M O R T G A G E

                        THIRTIETH SUPPLEMENTAL INDENTURE

                             MIDDLESEX WATER COMPANY

                                       TO

                       WACHOVIA BANK, NATIONAL ASSOCIATION
                                     Trustee

                          Dated as of October 15, 2004

                                           Record and Return to:

                                           Peter D. Hutcheon, Esq.
                                           Norris, McLaughlin & Marcus, P.A.
                                           721 Route 202/206
                                           P.O. Box 1018
                                           Somerville, NJ  08876
                                           (908) 722-0700

Prepared By:_______________________
                Peter D. Hutcheon, Esq.

<PAGE>

            THIS THIRTIETH SUPPLEMENTAL  INDENTURE,  dated as of the 15th day of
October,  2004,  between  MIDDLESEX WATER COMPANY,  a corporation  organized and
existing under the laws of the State of New Jersey,  having its principal office
in the Township of Iselin,  New Jersey (herein called the "Water Company"),  and
WACHOVIA BANK, NATIONAL  ASSOCIATION (as successor to First Union National Bank,
the successor to Meridian Bank,  the successor to United  Counties Trust Company
in turn  the  successor  to the  Union  County  Trust  Company),  a  corporation
organized and existing under the laws of the United States, having its principal
New Jersey  corporate  trust office in the Town of  Morristown,  New Jersey,  as
Trustee under the Indenture of Mortgage hereinafter mentioned (herein called the
"Trustee"):

            WHEREAS,  on April 1, 1927,  Water Company executed and delivered to
the Trustee an Indenture of Mortgage  (herein  called the  "Mortgage") to secure
its First and Refunding Mortgage Gold Bonds, Series A, 5-1/2%,  which bonds have
since been redeemed by Water Company,  and which Mortgage provides that bonds of
other  series may be issued  under and  pursuant  to an  indenture  supplemental
thereto; and

            WHEREAS,  on May 14, 1935,  Water Company  executed and delivered to
the Trustee a Supplemental  Indenture to secure its First and Refunding Mortgage
Bonds, Series B, 4-1/2%,  which Supplemental  Indenture,  prior to the execution
and delivery  hereof,  was satisfied and  discharged of record,  no bonds having
been issued thereunder; and

            WHEREAS, as of October 1, 1939, Water Company executed and delivered
to the Trustee a Second  Supplemental  Indenture of Mortgage  (herein called the
"Second  Supplemental  Indenture")  to secure its First and  Refunding  Mortgage
3-3/4% Bonds,  Series C (herein  called the "Series C Bonds"),  which bonds were
paid at  maturity  by Water  Company,  and  otherwise  modifying,  amending  and
supplementing the Mortgage; and

            WHEREAS,  as of April 1, 1946,  Water Company executed and delivered
to the Trustee a Third  Supplemental  Indenture of Mortgage  (herein  called the
"Third  Supplemental  Indenture") to secure its First and Refunding  Mortgage 3%
Bonds,  Series D (herein called the "Series D Bonds"),  which bonds were paid at
maturity by Water Company, and otherwise  modifying,  amending and supplementing
the Mortgage; and

            WHEREAS,  as of April 1, 1949,  Water Company executed and delivered
to the Trustee a Fourth  Supplemental  Indenture of Mortgage  (herein called the
"Fourth  Supplemental  Indenture")  to secure its First  Mortgage  3-1/2% Bonds,
Series E (herein called the "Series E Bonds"), which bonds were paid at maturity
by Water  Company,  and  otherwise  modifying,  amending and  supplementing  the
Mortgage; and

            WHEREAS,  as  of  February  1,  1955,  Water  Company  executed  and
delivered  to the Trustee a Fifth  Supplemental  Indenture  of Mortgage  (herein
called the "Fifth  Supplemental  Indenture") to secure its First Mortgage 3-5/8%
Bonds,  Series F (herein called the "Series F

<PAGE>

Bonds"),  which  bonds were paid at  maturity by Water  Company,  and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  December  1,  1959,  Water  Company  executed  and
delivered  to the Trustee a Sixth  Supplemental  Indenture  of Mortgage  (herein
called the "Sixth  Supplemental  Indenture") to secure its First Mortgage 5-3/4%
Bonds,  Series G (herein  called the  "Series G Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  January  15,  1963,  Water  Company  executed  and
delivered to the Trustee a Seventh  Supplemental  Indenture of Mortgage  (herein
called the "Seventh Supplemental Indenture") to secure its First Mortgage 4-1/2%
Bonds,  Series H (herein called the "Series H Bonds"),  which bonds were paid at
maturity by Water Company and otherwise supplementing the Mortgage; and

            WHEREAS, as of July 1, 1964, Water Company executed and delivered to
the Trustee,  an Eighth  Supplemental  Indenture of Mortgage  (herein called the
"Eighth  Supplemental  Indenture")  to secure its First  Mortgage 4 3/4%  Bonds,
Series I (herein  called  the  "Series I  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS, as of June 1, 1965, Water Company executed and delivered to
the Trustee a Ninth Supplemental Indenture of Mortgage (herein called the "Ninth
Supplemental  Indenture")  to secure its First Mortgage  4-3/4% Bonds,  Series J
(herein  called the "Series J Bonds"),  which bonds have since been  redeemed by
Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  February  1,  1968,  Water  Company  executed  and
delivered  to the Trustee a Tenth  Supplemental  Indenture  of Mortgage  (herein
called the "Tenth  Supplemental  Indenture") to secure its First Mortgage 6-3/4%
Bonds,   Series  K  (herein   called  the  "Series  K  Bonds"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  December  1,  1968,  Water  Company  executed  and
delivered to the Trustee an Eleventh Supplemental  Indenture of Mortgage (herein
called the  "Eleventh  Supplemental  Indenture")  to secure  its First  Mortgage
6-7/8% Bonds,  Series L (herein  called the "Series L Bonds"),  which bonds have
since been redeemed by Water Company, and otherwise  supplementing the Mortgage;
and

            WHEREAS,  as  of  December  1,  1970,  Water  Company  executed  and
delivered to the Trustee a Twelfth  Supplemental  Indenture of Mortgage  (herein
called the "Twelfth  Supplemental  Indenture")  to secure its First Mortgage 10%
Bonds,  Series M (herein  called the  "Series M Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

<PAGE>

            WHEREAS,  as  of  December  1,  1972,  Water  Company  executed  and
delivered to the Trustee a Thirteenth Supplemental Indenture of Mortgage (herein
called the  "Thirteenth  Supplemental  Indenture")  to secure its First Mortgage
8-1/8% Bonds,  Series N (herein  called the "Series N Bonds"),  which bonds have
since been redeemed by Water Company, and otherwise  supplementing the Mortgage;
and

            WHEREAS,  as of April 1, 1979,  Water Company executed and delivered
to the Trustee a Fourteenth  Supplemental  Indenture of Mortgage  (herein called
the "Fourteenth  Supplemental Indenture") to secure its First Mortgage 7% Bonds,
Series 0 (herein  called  the  "Series 0  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of April 1, 1983,  Water Company executed and delivered
to the Trustee a Fifteenth Supplemental Indenture of Mortgage (herein called the
"Fifteenth Supplemental  Indenture") to secure its First Mortgage 10-1/2% Bonds,
Series P (herein  called  the  "Series P  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of August 1, 1988, Water Company executed and delivered
to the Trustee a Sixteenth Supplemental Indenture of Mortgage (herein called the
"Sixteenth  Supplemental  Indenture")  to secure  its First  Mortgage  8% Bonds,
Series Q (herein  called  the  "Series Q  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of June 15, 1991,  Water Company executed and delivered
to the Trustee a Seventeenth  Supplemental  Indenture of Mortgage (herein called
the  "Seventeenth  Supplemental  Indenture")  to secure its First Mortgage 7.25%
Bonds,  Series R (herein  called the  "Series R Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of March 1, 1993,  Water Company executed and delivered
to  the  Trustee  a  Supplementary   Indenture  of  Mortgage  to  the  Fifteenth
Supplemental  Indenture of Mortgage (herein called the "Supplementary  Indenture
to the Fifteenth  Supplemental  Indenture") to secure its First Mortgage 2 7/8%,
Series P-1 (herein  called the "Series P-1 Bonds"),  which bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage.

            WHEREAS,  as of  September  1,  1993,  Water  Company  executed  and
delivered  to the  Trustee an  Eighteenth  Supplemental  Indenture  of  Mortgage
(herein  called the  "Eighteenth  Supplemental  Indenture")  to secure its First
Mortgage  5.20%  Bonds,  Series S (herein  called  the  "Series S  Bonds"),  and
otherwise supplementing the Mortgage; and

            WHEREAS,  as of  September  1,  1993,  Water  Company  executed  and
delivered to the Trustee a Nineteenth

<PAGE>

Supplemental  Indenture of Mortgage (herein called the "Nineteenth  Supplemental
Indenture") to secure its First  Mortgage  5.25% Bonds,  Series T (herein called
the "Series T Bonds"), and otherwise supplementing the Mortgage; and

            WHEREAS, as of January 1, 1994, Water Company executed and delivered
to Trustee a Twentieth  Supplemental  Indenture of Mortgage  (herein  called the
"Twentieth  Supplemental  Indenture")  to secure its First  Mortgage 6.4% Bonds,
Series U (herein called the "Series U Bonds"),  and otherwise  supplementing the
Mortgage; and

            WHEREAS, as of January 1, 1994, Water Company executed and delivered
to Trustee a Twenty-First  Supplemental Indenture of Mortgage (herein called the
"Twenty-First Supplemental Indenture") to secure its First Mortgage 5.25% Bonds,
Series V (herein called the "Series V Bonds"),  and otherwise  supplementing the
Mortgage; and

            WHEREAS,  as of March 1, 1998,  Water Company executed and delivered
to Trustee a Twenty-Second Supplemental Indenture of Mortgage (herein called the
"Twenty-Second  Supplemental  Indenture")  to secure  its First  Mortgage  5.35%
Bonds,   Series  W  (herein   called  the  "Series  W  Bonds"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1998,  Water  Company  executed  and
delivered to Trustee a Twenty-Third  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Third  Supplemental  Indenture") to secure its First Mortgage
0%  Bond,  Series  X  (herein  called  the  "Series  X  Bond"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1998,  Water  Company  executed  and
delivered to Trustee a Twenty-Fourth  Supplemental Indenture of Mortgage (herein
called the "Twenty-Fourth  Supplemental Indenture") to secure its First Mortgage
Scheduled  Interest Rate Bond, Series Y (herein called the "Series Y Bond"), and
otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1999,  Water  Company  executed  and
delivered to Trustee a Twenty-Fifth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Fifth  Supplemental  Indenture") to secure its First Mortgage
0%  Bond,  Series  Z  (herein  called  the  "Series  Z  Bond"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1999,  Water  Company  executed  and
delivered to Trustee a Twenty-Sixth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Sixth  Supplemental  Indenture") to secure its First Mortgage
Scheduled  Interest Rate Bond,  Series AA (herein  called the "Series AA Bond"),
and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  2001,  Water  Company  executed  and
delivered to Trustee a Twenty-Seventh Supplemental Indenture of Mortgage (herein
called the "Twenty-Seventh Supplemental Indenture") to secure its First Mortgage
0% Bond,  Series  BB  (herein  called  the  "Series  BB  Bond"),  and  otherwise
supplementing the Mortgage; and

<PAGE>

            WHEREAS,  as  of  October  15,  2001,  Water  Company  executed  and
delivered to Trustee a Twenty-Eighth  Supplemental Indenture of Mortgage (herein
called the "Twenty-Eighth  Supplemental Indenture") to secure its First Mortgage
Scheduled  Interest Rates Bond,  Series CC (herein called the "Series CC Bond"),
and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  January  15,  2002,  Water  Company  executed  and
delivered to Trustee a Twenty-Ninth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Ninth  Supplemental  Indenture") to secure its First Mortgage
5.10%  Bonds,  Series DD (herein  called the  "Series DD Bond"),  and  otherwise
supplementing the Mortgage; and

            WHEREAS,  Water  Company  deems it  necessary to borrow money and to
issue its bonds therefor, to be secured by the Mortgage, the Second Supplemental
Indenture,  the Third Supplemental Indenture, the Fourth Supplemental Indenture,
the Fifth Supplemental Indenture,  the Sixth Supplemental Indenture, the Seventh
Supplemental   Indenture,   the  Eighth   Supplemental   Indenture,   the  Ninth
Supplemental  Indenture,   the  Tenth  Supplemental   Indenture,   the  Eleventh
Supplemental  Indenture,  the Twelfth  Supplemental  Indenture,  the  Thirteenth
Supplemental Indenture,  the Fourteenth  Supplemental  Indenture,  the Fifteenth
Supplemental Indenture,  the Sixteenth Supplemental  Indenture,  the Seventeenth
Supplemental   Indenture,   the   Supplementary   Indenture  to  the   Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  the
Twenty-Ninth   Supplemental   Indentures  and  by  this  Thirtieth  Supplemental
Indenture;

            WHEREAS,  Water Company  desires to authorize and create a series of
bonds  under  which a  single  bond  shall be  issued  limited  to an  aggregate
principal  amount  of  $7,715,909  designated  Series  EE and to be known as its
"First  Mortgage 0% Bond,  Series EE" (herein  called the "Series EE Bond"),  it
being the intention of the parties that the Series EE Bond shall,  together with
all other  Bonds  issued  under the  Mortgage  and all  indentures  supplemental
thereto, be entitled to priority over all other obligations of the Water Company
and  shall be  secured  by a prior  first  lien on all the  mortgaged  property,
subject  only to the prior liens  specifically  permitted  under the Mortgage or
under any indenture supplemental thereto; and

            WHEREAS,  Water  Company  desires  that the  Series EE Bond shall be
issued to fund  payment of the  principal of  $7,715,909  the amount of the Loan
borrowed  from the from the State of New  Jersey,  acting by and through the New
Jersey  Department of  Environmental  Protection  (the  "State")  under the Loan
Agreement dated as of November 1, 2004 the "Loan  Agreement") by and between the
State and the Water  Company,  or such lesser  amount as shall be  determined in
accordance with Section 3.01 of the Loan  Agreement,  plus any other amounts due
and owing  under the Loan  Agreement  at the time and in the amounts as provided
therein,  which principal amount is to be applied for the cleaning and lining of
certain  pipes and  mains and the spot  replacement  of water  mains,  hydrants,
service lines and valves which are utilized by Water Company for the  furnishing
of water in its New Jersey service area and  construction  of a six thousand two
hundred fifty linear foot,  sixty inch  diameter  ductile iron pipeline from its
raw

<PAGE>

water pump  station in the City of New  Brunswick,  New  Jersey,  to the Carl J.
Olsen Water Treatment Plant in the Township of Edison, New Jersey; and

            WHEREAS,  the State  requires  as a  condition  of  making  the loan
documented by the Loan Agreement,  that a single Series EE Bond be issued to the
State,  that such Bond  evidence the payment  obligations  of the Water  Company
under Section 2.02(m) of the Loan  Agreement,  that payments under the Series EE
Bond be made to the Loan  Servicer  (as defined in the Loan  Agreement)  for the
account of the  State,  that the  Series EE Bond be  subject  to  assignment  or
transfer in  accordance  with the terms of the Loan  Agreement,  that all of the
terms, conditions and provisions of the Loan Agreement be expressly incorporated
by reference into the Series EE Bond,  that the obligations of the Water Company
under the  Series EE Bond  shall be  absolute  and  unconditional,  without  any
defense or right of set-off,  counterclaim or recoupment by reason of default by
the State  under the Loan  Agreement  or under any other  agreement  between the
Water Company and the State or out of any  indebtedness or liability at any time
owing to the Water Company or for any other  reason,  that the Series EE Bond be
subject to optional prepayment under the terms and conditions and in the amounts
provided in Section 3.07 of the Loan Agreement,  and that the Series EE Bond may
be subject to  acceleration  under the terms and  conditions and in the amounts,
provided in Section 5.03 of the Loan Agreement; and

            WHEREAS,  Water  Company  represents  that all acts and  proceedings
required  by law and by the Charter  and  By-Laws of Water  Company,  and by the
Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth,
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth  Supplemental  Indenture,  and the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh,  the
Twenty-Eighth,  and the  Twenty-Ninth  Supplemental  Indentures  (to the  extent
applicable)  necessary  to make the  Series  EE  Bond,  when  executed  by Water
Company, authenticated and delivered by the Trustee, and duly issued, the valid,
binding and legal  obligations of Water Company and to constitute this Thirtieth
Supplemental  Indenture a valid and binding  supplement  to the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  and  the  Twenty-Ninth
Supplemental Indentures in accordance with its and their terms, for the security
of all bonds issued and which may  hereafter be issued  pursuant to the Mortgage
and all indentures  supplemental thereto, have been done and performed;  and the
execution and delivery of this Thirtieth Supplemental Indenture have been in all
respects duly authorized;

            NOW  THEREFORE,   THIS  INDENTURE   WITNESSETH,   that  for  and  in
consideration  of the  premises,  and of the sum of One Dollar  ($1.00),  lawful
money of the United States of America, by each of the parties paid to the other,
at or before the delivery  hereof,  and for other  valuable  consideration,  the
receipt  and  sufficiency  whereof is hereby  acknowledged,

<PAGE>

Water Company has executed and delivered this Thirtieth Supplemental  Indenture,
and has granted,  bargained, sold, aliened,  enfeoffed,  conveyed and confirmed,
and by these presents does grant,  bargain,  sell,  alien,  enfeoff,  convey and
confirm,  unto to the Trustee,  its  successors  and assigns  forever,  all real
property  of Water  Company,  together  with all  appurtenances  and  contracts,
rights, privileges, permits and franchises used or useful in connection with the
business of the Water  Company as a water  company or as a water utility or used
directly for the purpose of supplying water, granted,  bargained, sold, aliened,
enfeoffed,  conveyed  and  confirmed  unto the Trustee by the  Mortgage  and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  and  the  Supplementary  Indenture  to the  Fifteenth  Supplemental
Indenture and the Eighteenth,  the Nineteenth,  the Twentieth, the Twenty-First,
the Twenty-Second,  the Twenty-Third,  the Twenty-Fourth,  the Twenty-Fifth, the
Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  and  the  Twenty-Ninth
Supplemental  Indentures,  or intended to be (including  without  limitation all
such property  acquired by Water  Company  since January 15, 2002,  and all such
property  which Water  Company may  hereafter  acquire),  subject,  however,  to
Permissible  Encumbrances,  and excepting all Property  heretofore released from
the lien of the Mortgage and the indentures  supplemental thereto, and excepting
all property of Water Company which is not used or useful in connection with its
business  as a water  company  or as a  water  utility  as well as all  personal
property (both tangible and intangible) as to which a security  interest may not
be perfected by a filing under the Uniform  Commercial  Code as in effect in the
State of New Jersey;

            TO HAVE AND TO HOLD all and  singular  the above  granted  property,
unto the Trustee,  its successors and assigns forever,  IN TRUST,  nevertheless,
for the equal and proportionate  use, benefit,  security and protection of those
who from  time to time  shall  hold any bonds  which  have been or may be issued
under  the  Mortgage  or  any  indenture   supplemental  thereto,   without  any
discrimination,  preference or priority of any one bond over any other by reason
of  priority in the time of issue,  sale or  negotiation  thereof or  otherwise,
except as  otherwise in the Mortgage or in any  indenture  supplemental  thereto
provided;  and in trust for  enforcing  the payment of the  principal of and the
interest on such bonds,  according to the tenor, purport and effect of the bonds
and of the Mortgage and all  indentures  supplemental  thereto and for enforcing
the terms,  provisions,  covenants and stipulations therein and in the bonds set
forth;  and upon the trust,  uses and  purposes  and  subject to the  covenants,
agreements  and  conditions  set forth and declared in the Mortgage as modified,
amended and supplemented by all indentures supplemental thereto;

            AND the parties do hereby  covenant  and agree that the Mortgage and
the  Second,  Third,  Fourth,  Fifth,  Sixth,  Seventh,  Eighth,  Ninth,  Tenth,
Eleventh, Twelfth, Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth,  Seventeenth
Supplemental   Indentures,   the   Supplementary   Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the Twenty-Seventh,  the Twenty-Eighth and the
Twenty-Ninth   Supplemental   Indentures  be  and  hereby  are  supplemented  as
hereinafter  provided,  and that the above  granted  property  is to be held and
applied subject to the covenants,  conditions,  uses and

<PAGE>

trusts set forth in the Mortgage, as modified,  amended and supplemented by such
Supplemental  Indentures and this Thirtieth  Supplemental  Indenture;  and Water
Company for itself and its successors does hereby covenant and agree to and with
the Trustee,  and its  successors  in said trust,  for the equal  benefit of all
present and future holders and  registered  owners of the bonds issued under the
Mortgage and all indentures supplemental thereto, as follows:

                                    ARTICLE I

                       First Mortgage 0% Bonds, Series EE

            Section  1.  Water  Company  hereby  creates a series of bonds to be
issued under and secured by the  Mortgage,  the Second,  Third,  Fourth,  Fifth,
Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth,
Fifteenth, Sixteenth, and Seventeenth Supplemental Indentures, the Supplementary
Indenture  to  the  Fifteenth  Supplemental  Indenture,   the  Eighteenth,   the
Nineteenth,   the  Twentieth,   the   Twenty-First,   the   Twenty-Second,   the
Twenty-Third,  the  Twenty-Fourth,   the  Twenty-Fifth,  the  Twenty-Sixth,  the
Twenty-Seventh,  the Twenty-Eighth and the Twenty-Ninth  Supplemental Indentures
and by this Thirtieth Supplemental Indenture, and to be designated as, and to be
distinguished  from the bonds of all other series by the title,  "First Mortgage
0%  Bonds,  Series  EE".  The  Series EE Bond  shall be issued  only as a single
registered  bond without  coupons in the principal  amount of the Loan under the
Loan  Agreement;  shall be dated as of November 1, 2004;  and shall be issued in
non-negotiable  form to the State.  The Series EE Bond shall bear  interest from
the date of issuance  of the Series EE Bond,  computed on the basis of a 360-day
year composed of twelve 30-day months until the obligations of the Water Company
with  respect to the payment of  principal  shall be  discharged,  in the dollar
amount set forth for each  respective  payment  period under the column  heading
"Interest" in Exhibit A-2 to the Loan  Agreement,  shall be payable as set forth
below,  shall state that, subject to certain  limitations,  the Mortgage and all
indentures  supplemental  thereto may be modified,  amended or  supplemented  as
provided in the Mortgage as heretofore supplemented; shall mature on November 1,
2024, and shall be earlier  redeemable (i) under the terms and conditions and in
the amounts  provided in Section 3.07 of the Loan Agreement at the option of the
Water Company with, to the extent required by the July 8, 2004 Order (Docket No.
WF04050341 of the Board of Public  Utilities of the State of New Jersey  ("BPU")
and/or  required by then applicable law and  regulations,  the prior approval of
the BPU,  (ii) as, when and to the extent  mandated  pursuant to subsection B of
Section 4 of Article  VIII of the Second  Supplemental  Indenture;  and shall be
subject to, entitled to the benefit of, and expressly  incorporate by reference,
all of the terms, conditions and provisions of the Loan Agreement.

            The Series EE Bond shall evidence the obligation to pay to the order
of the State the principal amount of the Loan (as defined in the Loan Agreement)
made by the State under the Loan Agreement  which shall be  $7,715,909,  or such
lesser  amount  as  determined  in  accordance  with  Section  3.01 of the  Loan
Agreement,  at the times and in the amounts  determined  as provided in the Loan
Agreement,  plus any other amounts due and owing under the Loan Agreement at the
times and in the  amounts as  provided  therein.  The  obligations  of the Water

<PAGE>

Company  to  make   payments   under  the  Series  EE  Bond  are   absolute  and
unconditional,  without  any  defense  or  right  of  set-off,  counterclaim  or
recoupment  by reason of any  default by the State under the Loan  Agreement  or
under any other agreement  between the Water Company and the State or out of any
indebtedness or liability at any time owing to the Water Company by the State or
for any other reason. The Series EE Bond is subject to assignment or transfer in
accordance with the terms of the Loan  Agreement.  The Series EE Bond is subject
to acceleration under the terms and conditions,  and in the amounts, provided in
Section  5.03 of the Loan  Agreement.  Payments  under the Series EE Bond shall,
except as otherwise provided in the Loan Agreement, be made directly to the Loan
Servicer (as defined in the Loan Agreement), for the account of the State.

      In addition to any other  default  provided for under the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth,   Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth  and  Seventeenth,
Supplemental  Indentures  and  the  Supplementary  Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,   the   Twenty-Second,   the  Twenty-Third,   Twenty-Fourth,   the
Twenty-Fifth, the Twenty-Sixth, the Twenty-Seventh,  the Twenty-Eighth,  and the
Twenty-Ninth Supplemental Indentures, it shall be a default under this Thirtieth
Supplemental  Indenture if payment of any of the principal or of the Interest on
the Loan constituting the Interest Portion,  the Administrative Fee and any late
charges incurred under the Loan Agreement (as such terms are defined in the Loan
Agreement)  is  not  made  when  the  same  shall  become  due  and  payable  in
installments, at maturity, upon redemption or otherwise.

            Section 2.  Disbursements of the proceeds of the Loan from the State
under the Loan  Agreement  evidenced  by the Series EE Bond shall be made by the
State to the Water  Company upon receipt by the State of  requisitions  from the
Water Company  executed and delivered in accordance  with the  requirements  set
forth in Section 3.02 of the Loan Agreement.

            Section 3. The Series EE Bond and the certificate of  authentication
of the  Trustee  to be  executed  thereon  shall  be  substantially  in the form
prescribed  for  registered  bonds  without  coupons in the Second  Supplemental
Indenture  (except that there may be deleted  therefrom  all  references  to the
issuance of coupon bonds in exchange therefor); shall be in the form attached to
this  Thirtieth   Supplemental   Indenture  as  Exhibit  A;  and  shall  contain
appropriate  references to this Thirtieth  Supplemental Indenture in addition to
the Mortgage and the Second,  Third,  Fourth,  Fifth,  Sixth,  Seventh,  Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth
and Seventeenth  Supplemental  Indentures and the Supplementary Indenture to the
Fifteenth  Supplemental  Indenture  and  the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh,  the
Twenty-Eighth,  and the  Twenty-Ninth  Supplemental  Indentures and  appropriate
changes  with  respect  to  the  aggregate  principal  amount,   interest  rate,
redemption  dates and  provisions,  and maturity date of the Series EE Bond, and
with appropriate reference to the provision of the Fourth Supplemental Indenture
that,  subject  to  certain   limitations,   the  Mortgage  and  all  indentures
supplemental  thereto may be modified,  amended or supplemented

<PAGE>

only as  provided in the  Mortgage  and except that the Series EE Bond shall not
contain any references to a sinking fund.

            Section 4. Subject to the provisions of the Mortgage and the Second,
Third, Fourth, Fifth, Sixth, Seventh,  Eighth, Ninth, Tenth, Eleventh,  Twelfth,
Thirteenth,   Fourteenth,  Fifteenth,  Sixteenth  and  Seventeenth  Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  and  the  Twenty-Ninth
Supplemental  Indentures,  forthwith  upon the  execution  and  delivery of this
Thirtieth  Supplemental  Indenture,  or from time to time thereafter,  Series EE
Bond in an aggregate  principal  amount of  $7,715,909  may be executed by Water
Company and delivered to the Trustee for  authentication  and shall thereupon be
authenticated  and  delivered  by the Trustee  upon the  written  order of Water
Company,  signed by its  President  or a Vice  President  and its  Treasurer  or
Assistant Treasurer,  in such denominations and registered in such name or names
as may be specified in such written order.

            Section 5. Sections 4(A)(iii) and (iv) of Article VIII of the Second
Supplemental  Indenture shall not be available to the Water Company with respect
to the Series EE Bond.  The Water  Company  shall issue its written  order under
Section 4(a)(i) or (ii), as the case may be,  reasonably  promptly after receipt
by the Trustee of proceeds of sale,  eminent  domain or insurance (not otherwise
to be paid  directly to the Company  under the Mortgage as  supplemented  by the
Supplemental Indentures including this Thirtieth Supplemental Indenture).

                                   ARTICLE II
                                  Miscellaneous
                                  -------------

Section 1. The provisions of the Mortgage as modified,  amended and supplemented
                  by the Second, Third, Fourth,  Fifth, Sixth, Seventh,  Eighth,
                  Ninth,  Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,
                  Fifteenth,  Sixteenth and Seventeenth Supplemental Indentures,
                  the  Supplementary  Indenture  to the  Fifteenth  Supplemental
                  Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,
                  the Twenty-First,  the  Twenty-Second,  the Twenty-Third,  the
                  Twenty-Fourth,   the  Twenty-Fifth,   the  Twenty-Sixth,   the
                  Twenty-Seventh,   the  Twenty-Eighth,   and  the  Twenty-Ninth
                  Supplemental Indentures,  and as modified and extended by this
                  Thirtieth Supplemental Indenture are hereby reaffirmed. Except
                  insofar as they are inconsistent  with the provisions  hereof,
                  the provisions of the Mortgage and the Second,  Third, Fourth,
                  Fifth,  Sixth,  Seventh,   Eighth,  Ninth,  Tenth,   Eleventh,
                  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth  and
                  Seventeenth  Supplemental  Indentures  and  the  Supplementary
                  Indenture  to the  Fifteenth  Supplemental  Indenture  and the
                  Eighteenth,  the Nineteenth,  the Twentieth, the

<PAGE>

                  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
                  Twenty-Fourth,   the  Twenty-Fifth,   the  Twenty-Sixth,   the
                  Twenty-Seventh,   the  Twenty-Eighth,   and  the  Twenty-Ninth
                  Supplemental  Indentures  with respect to the Series C, Series
                  D, Series E, Series F, Series G, Series H, Series I, Series J,
                  Series K,  Series L,  Series M,  Series N, Series O, Series P,
                  Series Q, Series R, Series P-1,  Series S, Series T, Series U,
                  Series V,  Series W,  Series X, Series Y, Series Z, Series AA,
                  Series BB,  Series CC and Series DD Bonds  shall  apply to the
                  Series  EE Bond to the same  extent  as if they were set forth
                  herein in full.  Unless  there is  something in the subject or
                  context repugnant to such construction,  each reference in the
                  Mortgage and the Second, Third, Fourth, Fifth, Sixth, Seventh,
                  Eighth,   Ninth,   Tenth,   Eleventh,   Twelfth,   Thirteenth,
                  Fourteenth,  Fifteenth, Sixteenth and Seventeenth Supplemental
                  Indentures,  the  Supplementary  Indenture  to  the  Fifteenth
                  Supplemental Indenture and the Eighteenth, the Nineteenth, the
                  Twentieth,   the   Twenty-First,   the   Twenty-Second,    the
                  Twenty-Third,   the  Twenty-Fourth,   the  Twenty-Fifth,   the
                  Twenty-Sixth, the Twenty-Seventh,  the Twenty-Eighth,  and the
                  Twenty-Ninth Supplemental Indentures to the Mortgage or any of
                  such  Supplemental  Indentures  shall  be  construed  as  also
                  referring  to  this  Thirtieth  Supplemental  Indenture.   The
                  Mortgage  and  all  indentures  supplemental  thereto  may  be
                  modified,  amended or supplemented by Water Company with prior
                  notice by the Water  Company to but without the consent of any
                  of the bondholders to accomplish any more of the following:

            (1)   to cure any ambiguity, supply any omission, or cure or correct
                  any defect or  inconsistent  provision  in the Mortgage or any
                  indenture supplemental thereto;

            (2)   to cure any ambiguity, supply any omission, or cure or correct
                  any defect in any  description of the Mortgaged  Property,  if
                  such action is not adverse to the interests of the bondholder;

            (3)   to insert  such  provisions  clarifying  matters or  questions
                  arising  under  the  Mortgage  or any  indenture  supplemental
                  thereto as are  necessary or desirable and are not contrary to
                  or   inconsistent   with  the   Mortgage   or  any   indenture
                  supplemental thereto as in effect; or

            (4)   to restate the Mortgage as  supplemented  by the  Supplemental
                  Indentures  as a  single  integrated  document  which  may add
                  headings, an index and other provisions aiding the convenience
                  of use.

<PAGE>

The terms and  provisions of the Series EE Bond shall not be amended by, and the
Series EE Bond shall not be  entitled to the  benefit of any  covenant,  term or
condition contained in any subsequent supplemental indenture without the express
written concurrence of the Water Company.

            Section  2. The  Trustee  shall  not be  responsible  in any  manner
whatsoever  for or in respect of the validity and  sufficiency of this Thirtieth
Supplemental  Indenture or the due execution  hereof by Water Company or for the
recitals  contained  herein,  all of which  recitals  are made by Water  Company
solely.

            Section 3. The Trustee hereby accepts the trusts hereby declared and
provided  and agrees to perform  the same upon the terms and  conditions  in the
Mortgage,  the Second,  Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth,  Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth Supplemental Indenture, the Eighteenth, the Nineteenth, Twentieth, the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  the
Twenty-Ninth  and this Thirtieth  Supplemental  Indenture set forth. The Trustee
also hereby  agrees to execute and deliver the Escrow  Agreement  (as defined in
the Loan Agreement).

            Section 4. The Trustee hereby authorizes the Loan Servicer to accept
payments  made by Water  Company  of  principal  of the  Series  EE Bond for the
account of the State.

            Section 5. This Thirtieth  Supplemental  Indenture has been executed
simultaneously in several counterparts and all of said counterparts executed and
delivered, each as an original, shall constitute one and the same instrument.

            Section 6.  Although  this  Thirtieth  Supplemental  Indenture,  for
convenience  and for the purpose of reference,  is dated as of October 15, 2004,
the actual  date of  execution  by Water  Company and the Trustee is as shown by
their respective acknowledgments hereto annexed, and the actual date of delivery
hereof by Water  Company  and the Trustee is the date of the closing of the sale
of the Series EE Bonds by Water Company.

            Section 7. In any case where the payment of  principal of the Series
EE Bond or the date  fixed  for  redemption  of any  Series  EE Bond  shall be a
Saturday or Sunday or a legal holiday or a day on which banking  institutions in
the City of the principal corporate trust office of the Loan Servicer is located
are  authorized  by law to close,  then  payment of  interest  or  principal  or
redemption  price  need  not be made on such  date  but may be made on the  next
proceeding business day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest on such payment shall
accrue after such date.

            THE MORTGAGOR HEREBY DECLARES AND ACKNOWLEDGES THAT IT HAS RECEIVED,
WITHOUT CHARGE, A TRUE COPY OF THIS MORTGAGE.

<PAGE>

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