Exhibit 10.27

             [MASTER TRUST LOAN AGREEMENT FOR MIDDLESEX WATER CO. -
                                  PRIVATE FORM]

                                 LOAN AGREEMENT

                                 BY AND BETWEEN

                  NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST

                                       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 Trust 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 State.................................
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 State'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.  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 TRUST LOAN AGREEMENT

      THIS LOAN AGREEMENT, made and entered into as of this November 1, 2004, by
and between the NEW JERSEY  ENVIRONMENTAL  INFRASTRUCTURE  TRUST,  a public body
corporate and politic with corporate  succession,  and the Borrower (capitalized
terms used in this Loan  Agreement  shall  have,  unless the  context  otherwise
requires, the meanings set forth in said Section 1.01);

                                WITNESSETH THAT:

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

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

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

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

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

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

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

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                                    ARTICLE I

                                   DEFINITIONS

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

      "Fund  Loan" means the loan made to the  Borrower by the State,  acting by
and through the New Jersey Department of Environmental  Protection,  pursuant to
the Fund Loan Agreement dated as of November 1, 2004 by and between the Borrower
and the State,  acting by and through the New Jersey Department of Environmental
Protection, to finance or refinance a portion of the Costs of the Project.

      "Fund Loan  Agreement"  means the loan  agreement  dated as of November 1,
2004 by and between the  Borrower  and the State,  acting by and through the New
Jersey  Department  of  Environmental   Protection,   regarding  the  terms  and
conditions of the Fund Loan.

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

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

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

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


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

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

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

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

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

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

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

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

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

      "Project"  means  the  Environmental   Infrastructure  Facilities  of  the
Borrower described in Exhibit A-1 attached hereto and made a part hereof,  which
constitutes  a project  for which the Trust is  permitted  to make a loan to the
Borrower pursuant to the Act, the Regulations and the Bond Resolution,  all or a
portion of the Costs of which is financed or refinanced by the Trust through the
making of the Loan under this Loan Agreement and which may be identified under


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either the Drinking  Water or Clean Water Project Lists with the Project  Number
specified in Exhibit A-1 attached hereto.

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

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

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

      "State" means the State of New Jersey.

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

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

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

      "Trustee"  means,  initially,  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.

      (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


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importing persons shall include firms, associations,  corporations, agencies and
districts. Words importing one gender shall include the other gender.


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                                   ARTICLE II

                    REPRESENTATIONS AND COVENANTS OF BORROWER

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

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

            (i) The Borrower is a corporation  duly created and validly existing
      under  and  pursuant  to the 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  State law and,  if  applicable,  authorized  by
      resolution of the Borrower to perform such actions. To the extent any such
      action was  performed  by an officer no longer the duly acting  officer of
      such Borrower, all such actions previously taken by such officer are still
      in full force and effect.

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

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

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


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<PAGE>

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

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

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

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


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

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

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

      (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


                                      -9-
<PAGE>

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

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

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

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

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


                                      -10-
<PAGE>

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

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

      SECTION 2.02. Particular Covenants of Borrower.

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

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

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


                                      -11-
<PAGE>

with respect thereto prior to, or of equal rank with, the Borrower Bond, and all
corporate  or other  action on the part of the Borrower to that end has been and
will be duly and validly taken.

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

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

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

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

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

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

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


                                      -12-
<PAGE>

      refinancing of  indebtedness  that was used to pay Costs of the Borrower's
      Project or to  reimburse  the Borrower  for  expenditures  with respect to
      Costs of the Borrower's Project paid by the Borrower prior to the issuance
      of such  indebtedness in accordance  with a  reimbursement  allocation for
      such   expenditures  that  complies  with  the  requirements  of  Treasury
      Regulations ss.1.150-2.

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

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

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

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

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

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

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

            (xii) Based upon all of the  objective  facts and  circumstances  in
      existence  on the date of  issuance of the Trust Bonds used to finance the
      Project,  (A) within six months of the date of issuance of the Trust Bonds
      used to finance the Project, the Borrower will incur a substantial binding
      obligation to a third party to expend on the Project at least five


                                      -13-
<PAGE>

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

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

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

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

      (h) Records and Accounts.
          --------------------

            (i) The Borrower  shall keep  accurate  records and accounts for its
      Environmental  Infrastructure  System 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
      Trust at any reasonable time upon prior written notice, and a copy of


                                      -14-
<PAGE>

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

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

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


                                      -15-
<PAGE>

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

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

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

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

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

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


                                      -16-
<PAGE>

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

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

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

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

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

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

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


                                      -17-
<PAGE>

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

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

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

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


                                      -18-
<PAGE>

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


                                      -19-
<PAGE>

                                   ARTICLE III

              LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

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

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

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

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

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

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


                                      -20-
<PAGE>

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

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

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

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

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

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

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

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


                                      -21-
<PAGE>

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

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

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

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

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

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


                                      -22-
<PAGE>

however,  that  payments  hereunder  shall not  constitute  a waiver of any such
rights.  The Borrower shall not be obligated to make any payments required to be
made  by any  other  Borrowers  under  separate  Loan  Agreements  or  the  Bond
Resolution.

      The  Borrower  acknowledges  that payment of the Trust Bonds by the Trust,
including payment from moneys drawn by the Trustee from the Debt Service Reserve
Fund,  does not constitute  payment of the amounts due under this Loan Agreement
and the Borrower  Bond.  If at any time the amount in the Debt  Service  Reserve
Fund shall be less than the Debt Service  Reserve  Requirement  as the result of
any  transfer of moneys from the Debt  Service  Reserve Fund to the Debt Service
Fund (as all such terms are defined in the Bond  Resolution)  as the result of a
failure  by the  Borrower  to make  any  Trust  Bond  Loan  Repayments  required
hereunder,  the Borrower  agrees to replenish (i) such moneys so transferred and
(ii) any deficiency  arising from losses incurred in making such transfer as the
result of the  liquidation by the Trust of Investment  Securities (as defined in
the Bond  Resolution)  acquired as an  investment  of moneys in the Debt Service
Reserve Fund, by making payments to the Trust in equal monthly  installments for
the lesser of six (6) months or the  remaining  term of the Loan at an  interest
rate to be determined by the Trust  necessary to make up any loss caused by such
deficiency.

      The Borrower acknowledges that payment of the Trust Bonds from moneys that
were  originally  received by the Trustee from  repayments  by the  Borrowers of
loans made to the  Borrowers by the State,  acting by and through the New Jersey
Department of Environmental Protection,  pursuant to loan agreements dated as of
November  1, 2004 by and  between  the  Borrowers  and the State,  acting by and
through the New Jersey  Department of  Environmental  Protection,  to finance or
refinance a portion of the Costs of the Environmental  Infrastructure Facilities
of the  Borrowers,  and  which  moneys  were upon such  receipt  by the  Trustee
deposited  in  the  Trust  Bonds  Security  Account  (as  defined  in  the  Bond
Resolution),  does not  constitute  payment of the  amounts  due under this Loan
Agreement and the Borrower Bond.

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

      SECTION  3.06.  Disclaimer  of  Warranties  and  Indemnification.  (a) The
Borrower  acknowledges  and agrees  that (i)  neither  the Trust nor the Trustee
makes any  warranty or  representation,  either  express or  implied,  as to the
value, design,  condition,  merchantability or fitness for particular purpose or
fitness for any use of the Environmental Infrastructure System or the Project or
any  portions  thereof or any other  warranty  or  representation  with  respect
thereto;  (ii) in no event  shall the Trust or the  Trustee or their  respective
agents  be  liable or  responsible  for any  incidental,  indirect,  special  or
consequential  damages in connection  with or arising out of this Loan Agreement
or  the  Project  or  the  existence,  furnishing,  functioning  or  use  of the
Environmental  Infrastructure  System or the  Project or any item or products or
services provided


                                      -23-
<PAGE>

for in this Loan  Agreement;  and (iii) to the fullest extent  permitted by law,
the  Borrower  shall  indemnify  and hold the  Trust  and the  Trustee  harmless
against, and the Borrower shall pay any and all, liability,  loss, cost, damage,
claim,  judgment or expense of any and all kinds or nature and  however  arising
and imposed by law,  which the Trust and the Trustee may sustain,  be subject to
or be caused to incur by reason of any claim, suit or action based upon personal
injury, death or damage to property, whether real, personal or mixed, or upon or
arising out of contracts entered into by the Borrower,  the Borrower's ownership
of the Environmental  Infrastructure  System or the Project, or the acquisition,
construction or installation of the Project.

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

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

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

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

      SECTION 3.07.  Option to Prepay Loan  Repayments.  The Borrower may prepay
the Trust  Bond  Loan  Repayments,  in whole or in part (but if in part,  in the
amount of $100,000 or any integral multiple thereof),  upon prior written notice
to the Trust and the  Trustee  not less than ninety (90) days in addition to the
number of days' advance notice to the Trustee required for any


                                      -24-
<PAGE>

optional  redemption of the Trust Bonds, and upon payment by the Borrower to the
Trustee of amounts that,  together with  investment  earnings  thereon,  will be
sufficient to pay the principal  amount of the Trust Bond Loan  Repayments to be
prepaid plus the  Interest  Portion  described in clause (ii) of the  definition
thereof on any such date of redemption; provided, however, that any such full or
partial  prepayment  may only be made (i) if the Borrower is not then in arrears
on its Fund Loan,  (ii) if the  Borrower is  contemporaneously  making a full or
partial  prepayment of the Fund Loan such that, after the prepayment of the Loan
and the Fund  Loan,  the  Trust,  in its sole  discretion,  determines  that the
interests  of the owners of the Trust Bonds are not  adversely  affected by such
prepayments,  and  (iii)  upon the  prior  written  approval  of the  Trust.  In
addition, if at the time of such prepayment the Trust Bonds may only be redeemed
at the option of the Trust upon payment of a premium,  the Borrower shall add to
its  prepayment of Trust Bond Loan  Repayments  an amount,  as determined by the
Trust,  equal to such  premium  allocable to the Trust Bonds to be redeemed as a
result of the Borrower's  prepayment.  Prepayments shall be applied first to the
Interest  Portion  that  accrues on the portion of the Loan to be prepaid  until
such prepayment  date as described in clause (ii) of the definition  thereof and
then to principal payments  (including  premium,  if any) on the Loan in inverse
order of their maturity.

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

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

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

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


                                      -25-
<PAGE>

the New Jersey State  Treasurer  approved the Loan and the terms and  conditions
thereof as established by the provisions of this Loan Agreement.


                                      -26-
<PAGE>

                                   ARTICLE IV

                 ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

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

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

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

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


                                      -27-
<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 Trust Bond
Loan  Repayment  required to be paid  hereunder  when due,  which  failure shall
continue for a period of fifteen (15) days;

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

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

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

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

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


                                      -28-
<PAGE>

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

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

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

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

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

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


                                      -29-
<PAGE>

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

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


                                      -30-
<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 Trust and the Trustee at the following addresses:

      (a)   Trust:

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

      (b)   Trustee:

                               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 Trust  and the  Borrower  and their
respective successors and assigns.

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

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


                                      -31-
<PAGE>

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

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

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

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

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

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

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


                                      -32-
<PAGE>


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

                                               NEW JERSEY ENVIRONMENTAL
                                                 INFRASTRUCTURE TRUST

[SEAL]

                                               By:________________________
ATTEST:                                           Robert A. Briant, Sr.
                                                  Chairman

-----------------------------
Eileen Swan
Secretary

                                               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>

            (Except for assignment page, to be supplied by Borrower's
                bond counsel in substantially the following form)

      IMPORTANT  NOTE:  The next three 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.,
amounts  payable  under the  Borrower  Bond set  forth in the  first  paragraph,
assignment  in  the  second  paragraph,   disbursement  language  in  the  third
paragraph, unconditional obligation in the fourth paragraph, optional prepayment
provisions  in the fifth  paragraph and the date of the Borrower  Bond).  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 (the  "Borrower"),
hereby   promises  to  pay  to  the  order  of  the  New  Jersey   Environmental
Infrastructure    Trust   (the   "Trust")   (i)   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,  together with (ii) 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) in the amount
calculated  as  provided in the Loan  Agreement,  payable on the days and in the
amounts  and as  provided  in the Loan  Agreement,  which  principal  amount and
Interest Portion of the Interest on the Loan shall, unless otherwise provided in
the Loan Agreement,  be payable on the days and in the amounts as also set forth
in Exhibit A attached  hereto under the column  headings  respectively  entitled
"Principal" and "Interest", plus (iii) any other amounts due and owing under the
Loan Agreement at the times and in the amounts as provided therein. The Borrower
unconditionally and irrevocably promises, in accordance with the terms of and to
the extent  provided in the  Borrower  Bond  Resolution  (as defined in the Loan
Agreement) to pay in full and when due the principal of and the Interest on this
Borrower Bond (as defined in the Loan Agreement) 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,  2004  by and  between  the  Trust  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.   This   Borrower  Bond  has  been  assigned  to
_____________________________,    as   trustee   (the   "Trustee")   under   the
"Environmental  Infrastructure Bond Resolution,  Series 2004[_]", adopted by the
Trust on September  __,  2004,  as the same may be amended and  supplemented  in
accordance  with  the  terms  thereof  (the  "Bond  Resolution"),  and  payments
hereunder  shall,  except as otherwise  provided in the Loan Agreement,  be made
directly  to  the  Trustee  for  the  account  of the  Trust  pursuant  to  such
assignment.  Such  assignment  has been made as security  for the payment of the
Trust Bonds (as defined in the Loan  Agreement)  issued to finance or  refinance
the Loan and as otherwise described in the Loan Agreement. This Borrower Bond is
subject to further assignment or endorsement in accordance with the terms of the
Bond  Resolution  and 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 Trustee
to the Borrower,  in accordance  with written  instructions  of the Trust,  upon
receipt by the Trust and the Trustee 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


                                      D-3
<PAGE>

absolute   and   unconditional,   without  any  defense  or  right  of  set-off,
counterclaim  or recoupment by reason of any default by the Trust under the Loan
Agreement or under any other agreement between the Borrower and the Trust or out
of any  indebtedness or liability at any time owing to the Borrower by the Trust
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.

      IN WITNESS WHEREOF,  the Borrower has caused this Borrower Bond to be duly
executed, sealed and delivered as of October 15, 2004.

                                    [NAME OF BORROWER]

[SEAL]

                                    By:_______________________
ATTEST:                                Mayor

_____________________               By:_______________________
Clerk                                  [Treasurer] [Chief Financial Officer]


                                      D-4
<PAGE>

      New Jersey Environmental Infrastructure Trust hereby assigns the foregoing
Borrower Bond to _________________________,  as Trustee under the "Environmental
Infrastructure Bond Resolution,  Series 2004[_]", adopted on September __, 2004,
as  amended  and  supplemented,  all as of the date of this  Borrower  Bond,  as
security for the Trust Bonds issued or to be issued under the Bond Resolution to
finance or refinance the Project Fund (as defined in the Bond Resolution).

                                                 NEW JERSEY ENVIRONMENTAL
                                                   INFRASTRUCTURE TRUST

[SEAL]

                                                 By:____________________________
ATTEST:                                             Robert A. Briant, Sr.
                                                    Chairman

-----------------------------
Eileen Swan
Secretary


                                      D-6
<PAGE>


                                    EXHIBIT E

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


                                      E-1
<PAGE>

                       [LETTERHEAD OF COUNSEL TO BORROWER]

                                                      November __, 2004

New Jersey Environmental Infrastructure Trust
P.O. Box 440
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 (the  "Borrower"),
which has entered into a Loan  Agreement (as  hereinafter  defined) with the New
Jersey Environmental  Infrastructure Trust (the "Trust"), 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 Trust's  "Environmental  Infrastructure  Bond  Resolution,  Series
2004[_]", adopted by the Board of Directors of the Trust on September __, 2004

      (b) the Loan Agreement dated as of November 1, 2004 (the "Loan Agreement")
by and between the Trust and the Borrower;

      (c) 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;

      (d) the Borrower Bond dated as of October 15, 2004 (the  "Borrower  Bond")
issued by the Borrower to the Trust to evidence the Loan; and


                                      E-2
<PAGE>

      (e) the proceedings  (together with the proceedings  referred to in clause
(c) 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 Trust (the Loan  Agreement  and the
Borrower Bond are referred to herein collectively as the "Loan Documents").

      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 Trust, 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 in the  Resolution,  the Borrower has  unconditionally  and irrevocably
promised  to make the Loan  Repayments  and pay all other  amounts due under the
Loan Documents.

      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  Trust  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,[(vi) authorizng the approval
of the inclusion in the Official Statement of the Borrower Appendices,] and (vi)
[(vii)]  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,  [including, without limitation,
the designation of the Borrower  Appendices portion of the Preliminary  Official
Statement  as "deemed  final" for the  purposes  and within the  meaning of Rule
15c2-12(b)(1) of the Securities Exchange Act of 1934, as amended, as promulgated
by the Securities and Exchange


                                      E-3
<PAGE>

Commission,]  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) [(vii)] 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  Borrower  to the Trust,  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 Trust 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 Trust,  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.


                                      E-4
<PAGE>

      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.

      10. 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 subsections (f) and (h) of
Section  2.02 and,  if  applicable,  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  subsections (f) and
(h) of Section 2.02 and, if applicable, Exhibit F of the Loan Agreement.

      12. Assuming that (i) the Borrower complies on a continuing basis with the
covenants  contained  in  subsections  (f)  and  (h) of  Section  2.02  and,  if
applicable, Exhibit F of the Loan Agreement, (ii) interest on the Trust Bonds is
otherwise  excluded from gross income of the holders  thereof for federal income
tax purposes under the Internal Revenue Code of 1986, as amended,  and (iii) the
proceeds of the Trust Bonds loaned to the Borrower represent all of the proceeds
of the  Trust  Bonds,  the  application  of the  proceeds  of the Loan for their
intended  purposes will not adversely affect the exclusion from gross income for
federal income tax purposes of the interest on the Trust Bonds.

      We hereby authorize McCarter & English, LLP, acting as bond counsel to the
Trust,  and the Attorney  General of the State of New Jersey,  acting as general
counsel  to the  Trust,  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>
                                     <PAGE>

                                    EXHIBIT H

                     Form of Continuing Disclosure Agreement
                     ---------------------------------------


                                      H-1
<PAGE>

                                 M O R T G A G E

                       THIRTY-FIRST 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
                                    721 Route 202/206
                                    P.O. Box 1018
                                    Somerville, NJ  08876
                                    (908) 722-0700

Prepared By: ________________________
               Peter D. Hutcheon, Esq.

<PAGE>

            THIS THIRTY-FIRST SUPPLEMENTAL INDENTURE,  dated as of the fifteenth
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 Bonds"),  which bonds were paid at
maturity by Water Company, and otherwise supplementing the Mortgage; and

<PAGE>

            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

            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

<PAGE>

"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 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

<PAGE>

            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

            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

<PAGE>

            WHEREAS,  as  of  January  15,  2002,  Water  Company  executed  and
delivered to Trustee a Twenty-Ninth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Seventh 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,  as  of  October  15,  2004,  Water  Company  executed  and
delivered  to Trustee a Thirtieth  Supplemental  Indenture  of Mortgage  (herein
called the "Thirtieth  Supplemental  Indenture") to secure its First Mortgage 0%
Bond,   Series  EE  (herein   called  the  "Series  EE  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,  the Thirtieth  Supplemental  Indentures and by this  Thirty-First
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  $8,920,000  designated  Series  FF and to be known as its
"First Mortgage  Scheduled  Interest Rates Bonds,  Series FF" (herein called the
"Series FF Bond"), it being the intention of the parties that the Series FF 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 FF Bond shall be
issued to fund payment of the  principal of  $8,920,000,  the amount of the Loan
borrowed from the New Jersey  Environmental  Infrastructure  Trust (the "Trust")
under the Loan Agreement dated as of November 1, 2004 (the "Loan  Agreement") by
and between the Trust 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

<PAGE>

ductile  iron  pipe  line from its raw  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 Trust  requires  as a  condition  of  making  the loan
documented by the Loan Agreement,  that a single Series FF Bond be issued to the
Trust,  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 FF
Bond be made to the Loan  Servicer  (as defined in the Loan  Agreement)  for the
account of the  Trust,  that the  Series FF 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 FF Bond,  that the obligations of the Water Company
under the  Series FF Bond  shall be  absolute  and  unconditional,  without  any
defense or right of set-off,  counterclaim or recoupment by reason of default by
the Trust  under the Loan  Agreement  or under any other  agreement  between the
Water Company and the Trust or out of any  indebtedness or liability at any time
owing to the Water Company or for any other  reason,  that the Series FF 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 FF 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,  the Twenty-Ninth,  and the Thirtieth Supplemental Indentures (to
the extent  applicable)  necessary to make the Series FF 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
Thirty-First  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,  the Twenty-Ninth,  and the Thirtieth 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 Thirty-First  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  Thirty-First   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,  the Twenty-Ninth,  the
Thirtieth  and the  Thirty-First  Supplemental  Indentures,  or  intended  to be
(including  without limitation all such property acquired by Water Company since
October  15,  2004,  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,  the
Twenty-Ninth,  and the  Thirtieth  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 trusts set
forth  in  the  Mortgage,   as  modified,   amended  and  supplemented  by  such
Supplemental Indentures and this Thirty-First  Supplemental Indenture; and Water
Company for

<PAGE>

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 Scheduled Interest Rates Bond, Series FF

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, the Twenty-Ninth and
      the   Thirtieth   Supplemental   Indentures   and  by  this   Thirty-First
      Supplemental  Indenture,  and to be designated as, and to be distinguished
      from the bonds of all other series by the title, "First Mortgage Scheduled
      Interest  Rates Bond,  Series FF". The Series FF 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 Trust.  The Series FF Bond
      shall  bear  interest  from the date of  issuance  of the  Series FF 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 FF Bond shall  evidence the  obligation  to pay to the order of
the Trust the  principal  amount of the Loan (as defined in the Loan  Agreement)
made by the Trust under the Loan  Agreement  which shall be  $8,920,000  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

<PAGE>

Water  Company  to make  payments  under  the  Series FF Bond are  absolute  and
unconditional,  without  any  defense  or  right  of  set-off,  counterclaim  or
recoupment  by reason of any  default by the Trust under the Loan  Agreement  or
under any other agreement  between the Water Company and the Trust or out of any
indebtedness or liability at any time owing to the Water Company by the Trust or
for any other reason. The Series FF Bond is subject to assignment or transfer in
accordance with the terms of the Loan  Agreement.  The Series FF 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 FF 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 Trust.

      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,  the
Twenty-Ninth and the Thirtieth  Supplemental  Indentures,  it shall be a default
under  this  Thirty-First  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 Trust
under the Loan  Agreement  evidenced  by the Series FF Bond shall be made by the
Trust to the Water  Company upon receipt by the Trust 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 FF 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  Thirty-First  Supplemental  Indenture  as  Exhibit  A; and  shall  contain
appropriate  references to this Thirty-First  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,  the Twenty-Ninth and the Thirtieth  Supplemental  Indentures and
appropriate  changes with respect to the aggregate  principal  amount,  interest
rate, redemption dates and provisions,  and maturity date of the Series FF 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 only as provided
in the  Mortgage  and  except  that the  Series FF Bond  shall not  contain  any
references to a sinking fund.

<PAGE>

            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,  the Twenty-Ninth and the
Thirtieth Supplemental Indentures,  forthwith upon the execution and delivery of
this  Thirty-First  Supplemental  Indenture,  or from  time to time  thereafter,
Series FF Bond in an aggregate principal amount of $8,920,000 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 FF 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 Thirty-First 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,  the  Twenty-Ninth  and the Thirtieth
      Supplemental Indentures, and as modified and extended by this Thirty-First
      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 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 the Thirtieth 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,  Series DD and Series EE Bonds  shall  apply to the
      Series FF Bond to the same extent as if they were set forth

<PAGE>

      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,  the Twenty-Ninth and the Thirtieth Supplemental Indentures
      to the Mortgage or any of such Supplemental  Indentures shall be construed
      as  also  referring  to  this  Thirty-First  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.

The terms and  provisions of the Series FF Bond shall not be amended by, and the
Series FF 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
Thirty-First 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

<PAGE>

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,  the Thirtieth and this
Thirty-First 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  FF Bond for the
account of the Trust.

            Section  5.  This  Thirty-First   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 Thirty-First  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 FF Bonds by Water Company.

            Section 7. In any case where the payment of  principal of the Series
FF Bond or the date  fixed  for  redemption  of any  Series  FF 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.

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