Exhibit 4(k)


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                                LOAN AGREEMENT
NWK3: 352222.02

                                BY AND BETWEEN

                 NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST

                                      AND

                         THE MOUNT HOLLY WATER COMPANY










                         DATED AS OF NOVEMBER 1, 1998


<PAGE>
                                     -ii-
                               TABLE OF CONTENTS

                                                                           Page



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 ProgramG-1

EXHIBIT H  Form of Continuing Disclosure Agreement  H-1


<PAGE>
                                      -3-
         NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST LOAN AGREEMENT

      THIS  LOAN  AGREEMENT,  made  and  entered  into  as of  this  1st day of
November,  1998, by and between NEW JERSEY ENVIRONMENTAL  INFRASTRUCTURE TRUST,
a public body  corporate and politic with corporate  succession,  and THE MOUNT
HOLLY WATER  COMPANY,  a corporation  duly created and validly  existing  under
the laws of the State of New Jersey (the "State");

                               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 Section
23 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 cost of
Environmental  Infrastructure  Facilities  (as each of the  foregoing  terms is
defined  in  Section  1.01  hereof;  all  capitalized  terms  used in this Loan
Agreement shall have, unless the context otherwise  requires,  the meanings set
forth in said Section 1.01);

      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 Cost of the Project;

      WHEREAS,  the State  Legislature,  in  accordance  with Section 20 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 Cost 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 Cost
of the Project;

      WHEREAS, in accordance with the "Wastewater  Treatment Bond Act of 1985",
P.L.  1985,  c. 329, as amended,  and the  Regulations,  the  Borrower has been
awarded a Fund Loan for a portion of the Cost 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:


<PAGE>
                                   ARTICLE I


                                  DEFINITIONS

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

      "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
three-tenths  of one  percent  (.30%) 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.

      "Bond   Resolution"   means  the   "Environmental   Infrastructure   Bond
Resolution,  Series  1998B",  as adopted by the Board of Directors of the Trust
on or about  September 21, 1998,  authorizing  the issuance of the Trust Bonds,
and all further  amendments and supplements  thereto adopted in accordance with
the provisions thereof.

      "Borrower"  means the corporation  that is a party to and is described in
the first paragraph of 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 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.

      "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  loan  agreement  dated  as of  November  1,  1998  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 Cost of
the Project.

      "Guarantor" means Elizabethtown Water Company, a New Jersey corporation.

      "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  Cost  of  the  Project  pursuant  to  this  Loan
Agreement.  For all  purposes  of this Loan  Agreement,  the amount of the Loan
at any time shall be the initial  aggregate  principal  amount of the  Borrower
Bond (which  amount  equals 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,  and (iii) that portion of the Debt Service  Reserve Fund
attributable  to the cost of funding  reserve  capacity for the  Project)  less
any  amount of such  principal  amount  that has been  repaid  by the  Borrower
under  this  Loan  Agreement  and  less any  adjustment  made  pursuant  to the
provisions  of the Bond  Resolution,  including,  without  limitation,  Section
5.02(4) thereof,  N.J.A.C.  7:22-4.26 and the  appropriations  act of the State
Legislature  authorizing  the  expenditure  of Trust Bond proceeds to finance a
portion of the Cost of the Project.

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

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

      "Loan  Closing"  means the date upon  which  the  Trust  shall  issue and
deliver the Trust Bonds and the Borrower  shall  deliver its Borrower  Bond, as
previously authorized, executed and attested, 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  Servicer"  means,  initially,  First Union National Bank, the loan
servicer  for the Loan and the Fund Loan,  duly  appointed  and  designated  as
"Loan  Servicer"  pursuant  to the Loan  Servicing  and  Trust  Bonds  Security
Agreement  dated as of  November  1, 1998 by and among the  Trust,  the  State,
acting by and  through the  Treasurer  of the State on behalf of the New Jersey
Department of  Environmental  Protection,  and First Union  National  Bank, and
any  successors as "Loan  Servicer"  under such  agreement,  as the same may be
modified,  amended or  supplemented  from time to time in  accordance  with its
terms.

      "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 First Union  National  Bank),  in
several  capacities  thereunder,  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 Cost of which is  financed or  refinanced  by the Trust
through the making of the Loan under this Loan Agreement.

      "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 Cost 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  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  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,  First  Union  National  Bank,  the Trustee
appointed  by  the  Trust  and  its   successors  as  Trustee  under  the  Bond
Resolution, as provided in Article X of the Bond Resolution.

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


<PAGE>
                                  ARTICLE II


                   REPRESENTATIONS AND COVENANTS OF BORROWER

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

      (a)  Organization and Authority.

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

           (ii) The acting  officers of the Borrower who are  contemporaneously
      herewith performing or have previously  performed any action contemplated
      in this Loan  Agreement  either  are or, at the time any such  action was
      performed,  were the duly appointed or elected  officers of such Borrower
      empowered  by  applicable  State law and, if  applicable,  authorized  by
      resolution  of the  Borrower to perform such  actions.  To the extent any
      such  action  was  performed  by an  officer  no longer  the duly  acting
      officer  of such  Borrower,  all such  actions  previously  taken by such
      official 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 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  Borrower's  board of  directors  has taken  all  necessary
      action to authorize the execution,  attestation and delivery of this Loan
      Agreement  and the Borrower  Bond,  the sale of the Borrower  Bond to the
      Trust and the Borrower's undertaking and completion of the Project.

           (v) 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 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;  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  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,  or (vi) 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 sale of the Borrower Bond to the
Trust,  (iii) the  observation  and  performance by the Borrower of its duties,
covenants,  obligations  and  agreements  hereunder  and  thereunder,  (iv) the
consummation  of the  transactions  provided for in this Loan Agreement and the
Borrower Bond, and (v) the  undertaking  and completion of the Project will not
(A)  other  than  the  lien,  charge  or  encumbrance  created  hereby,  by the
Borrower Bond 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 or the  receipt  of the  amount of the Loan,  would
constitute  an Event of Default  hereunder.  Since  December 31, 1975 and as of
the date of delivery of this Loan  Agreement,  the Borrower  has not been,  and
is not now,  in default in the payment of the  principal  of or interest on any
of its bonds,  notes,  lease  purchase  agreements  or other debt  obligations.
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 principal and redemption
premiums,  if  any,  of and  interest  on the  Borrower  Bond or  otherwise  to
observe and perform its duties,  covenants,  obligations  and agreements  under
this Loan Agreement and the Borrower Bond.

      (f)  Governmental  Consent.  The  Borrower  has  obtained all permits and
approvals  required  to  date  by any  governmental  body  or  officer  for the
authorization,  execution,  attestation and delivery of this Loan Agreement and
the Borrower  Bond,  for the issuance of the Borrower Bond and the sale thereof
to the Trust,  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, 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 or (B)
      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 or (B)
      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 Cost of the  Borrower's
Project;  and (ii) where  applicable,  to reimburse  the Borrower for a portion
of the Cost of the  Borrower's  Project,  which portion was paid or incurred in
anticipation  of   reimbursement   by  the  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.

      (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 were  "deemed  final" by the  Borrower  for the  purposes and within the
meaning of Rule 15c2-12.

      SECTION 2.02.  Particular Covenants of Borrower.

      (a)  Promise  to  Pay.  The  Borrower  unconditionally  promises  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.   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;
and (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.

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

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

      (e)  Disposition  of  Environmental  Infrastructure  System.  Neither the
Borrower  nor  the   Guarantor   shall  permit  the   disposition   of  all  or
substantially  all  of  the  Borrower's  Environmental  Infrastructure  System,
directly  or  indirectly,  including,  without  limitation,  by  means of sale,
lease,   abandonment,   sale  of   stock,   statutory   merger   or   otherwise
(collectively,  a  "Disposition"),  except on ninety (90) days'  prior  written
notice to the Trust, and, in any event,  shall not permit a Disposition  unless
the following  conditions are met: (i) the Borrower  shall,  in accordance with
Section 4.02 hereof,  assign this Loan  Agreement and the Borrower Bond and its
rights and  interests  hereunder  and  thereunder to the purchaser or lessee of
the  Environmental  Infrastructure  System,  and such purchaser or lessee shall
assume all  duties,  covenants,  obligations  and  agreements  of the  Borrower
under this Loan  Agreement and the Borrower  Bond;  and (ii) the Trust shall by
appropriate  action determine,  in its sole discretion,  that such sale, lease,
abandonment  or other  disposition  will not  adversely  affect (A) the Trust's
ability to meet its duties,  covenants,  obligations  and agreements  under the
Bond  Resolution,  (B) the value of this Loan Agreement or the Borrower Bond as
security  for the payment of Trust Bonds and the interest  thereon,  or (C) the
excludability  from  gross  income  for  federal  income  tax  purposes  of the
interest  on Trust  Bonds  then  outstanding  or that  could be  issued  in the
future.

      (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  hereinafter  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 Cost of the Borrower's  Project paid by
      the Borrower  prior to the  issuance of the Trust  Bonds,  unless (A) the
      allocation  by  the  Borrower  of the  proceeds  of the  Trust  Bonds  to
      reimburse such  expenditure  complies with the  requirements  of Treasury
      Regulations 1.150-2 necessary to enable the reimbursement  allocation to
      be treated  as an  expenditure  of the  proceeds  of the Trust  Bonds for
      purposes of applying  Sections 103 and 141-150,  inclusive,  of the Code,
      or (B) such proceeds of the Trust Bonds will be used for  refinancing  of
      indebtedness  that was used to pay Costs of the Borrower's  Project or to
      reimburse  the  Borrower  for  expenditures  with respect to Costs of the
      Borrower's  Project  paid by the  Borrower  prior to the issuance of such
      indebtedness  in  accordance  with a  reimbursement  allocation  for such
      expenditures that complies with the requirements of Treasury  Regulations
      1.150-2.

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

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

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

           (viii)  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.

           (ix) The  Borrower  will  not have a  reserve  or  replacement  fund
      (within the meaning of Section  148(d)(1)  of the Code)  allocable to the
      Borrower Bond evidencing the Loan.

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

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

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

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

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

      (h)  Records and Accounts.

           (i) The Borrower  shall keep  accurate  records and accounts for its
      Environmental  Infrastructure System (the "System Records").  Such System
      Records  shall be part of the annual audit of the general  records of the
      Guarantor.  Such  System  Records and  general  records of the  Guarantor
      shall be made  available for  inspection  by the Trust at any  reasonable
      time  upon  prior  written  notice,  and a copy  of  such  annual  audit,
      including all written  comments and  recommendations,  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"  (not held by the Trustee)
      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  supporting
      the "rebate amount"  attributable to any "nonpurpose  investment" made by
      the Borrower  allocated to "gross  proceeds" of the Trust Bonds,  and (3)
      any other information  requested by the Trust relating to compliance with
      Section 148 of the Code  (e.g.,  information  related to any  "nonpurpose
      investment"   of  the  Borrower  for  purposes  of   application  of  the
      "universal cap").

           (iv) The  Borrower  covenants  and agrees  that it will  account for
      "gross proceeds" of the Trust Bonds,  investments  allocable to the Trust
      Bonds  and  expenditures  of  "gross  proceeds"  of the  Trust  Bonds  in
      accordance  with  Treasury  Regulations  1.148-6.   All  allocations  of
      "gross  proceeds" of the Trust Bonds to expenditures  will be recorded on
      the books of the  Borrower  kept in  connection  with the Trust  Bonds no
      later than 18 months after the later of the date the  particular  Cost 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)  Cost of Project.  The Borrower  certifies  that the building cost of
the  Project,  as  listed  in  Exhibit B hereto  and made a part  hereof,  is a
reasonable and accurate estimation  thereof,  and it will supply to the 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  twenty (20) years
from the expected date of the Loan Closing.

      (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:

           (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,  resolutions  of  the  Borrower  authorizing  the  execution,
      attestation  and  delivery  of this  Loan  Agreement  and the  execution,
      attestation,  sale and  delivery of the Borrower  Bond to the Trust,  and
      certified  copies of  orders 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;

           (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 and attested,
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 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,  if the  Trust  determines  that the  Borrower  is a  material
"obligated  person",  upon request of the Trust, 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  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.  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  agrees to observe and
comply with each such additional  covenant and  requirement,  if any,  included
in Exhibit F hereto.


<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  Cost  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,  and  (iii)  that  portion  of the Debt  Service
Reserve  Fund  attributable  to the cost of funding  reserve  capacity  for the
Project  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.

      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;

           (ii) in  accordance  with  the  "Wastewater  Treatment  Bond  Act of
      1985", P.L. 1985, c. 329, as amended,  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 covered by the Loan from the Trust;

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

           (i) the principal of the Loan shall be repaid  annually on August 1,
      commencing  August 1, 2000, 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  February  1  and  August  1,
      commencing  August 1, 2000, 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 Loan  Servicer 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  Loan
Servicer  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.

      (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 Loan  Servicer  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  Loan  Servicer  semiannually  on  each
February 1 and August 1,  commencing  February 1, 1999,  during the term of the
Loan.

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

      The Borrower  acknowledges  that payment of the Trust Bonds by the Trust,
including  payment  from  moneys  drawn by the  Trustee  from the Debt  Service
Reserve Fund,  does not  constitute  payment of the amounts due under this Loan
Agreement  and the  Borrower  Bond.  If at any  time  the  amount  in the  Debt
Service  Reserve Fund shall be less than the Debt Service  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 Loan  Servicer  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, 1998 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  cost  of  the
Environmental  Infrastructure  Facilities  of the  Borrowers,  and which moneys
were  upon such  receipt  by the Loan  Servicer  deposited  in the Trust  Bonds
Security  Account  (as  defined in the Bond  Resolution),  does not  constitute
payment of the amounts due under this Loan Agreement and the Borrower Bond.

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

      SECTION  3.06.  Disclaimer  of Warranties  and  Indemnification.  (a) The
Borrower  acknowledges  and agrees  that (i)  neither the Trust nor the Trustee
makes any  warranty or  representation,  either  express or implied,  as to the
value,  design,  condition,  merchantability  or fitness for particular purpose
or  fitness  for  any use of the  Environmental  Infrastructure  System  or the
Project or any portions  thereof or any other warranty or  representation  with
respect  thereto;  (ii) in no event  shall  the Trust or the  Trustee  or their
respective  agents be  liable  or  responsible  for any  incidental,  indirect,
special or  consequential  damages in  connection  with or arising  out of this
Loan  Agreement or the Project or the  existence,  furnishing,  functioning  or
use of the  Environmental  Infrastructure  System or the Project or any item or
products or services  provided  for in this Loan  Agreement;  and (iii)  during
the term of this Loan  Agreement  and 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 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, 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 Loan
Servicer  during  the time of any such Trust  Bond Loan  Repayment  deficiency,
shall  first be applied by the Loan  Servicer  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 (i) according to Section 3(c) of the Loan  Servicing
and Trust  Bonds  Security  Agreement  (as  defined in the  definition  of Loan
Servicer  herein) and (ii)  according to the  provisions of the Master  Program
Trust Agreement.


<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  (except to the  Guarantor,
which  shall  occur   pursuant  to  N.J.S.A.   14A:10-5.1  or  such   successor
provision,  upon notice to the Trust and the  Trustee)  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.


<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  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;

      (c)  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;

      (d)  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;

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

      (f)  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.

      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.


<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,  the  Trustee  and the Loan
Servicer at the following addresses:

      (a)  Trust:

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

      (b)  Trustee:

      First Union National Bank
                765 Broad Street
                Newark, New Jersey  07102
                Attention:  Corporate Trust Department

      (c)  Loan Servicer:

      First Union National Bank
                765 Broad Street
                Newark, New Jersey  07102
                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  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.


<PAGE>
                               [Signature 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]


ATTEST:                             By:_______________________
                                          Barton E. Harrison
                                          Vice-Chairman

_____________________________
Robert A. Briant, Sr.
Secretary

                                    THE MOUNT HOLLY WATER
                                      COMPANY
[SEAL]


ATTEST:                             By:_______________________
                                          Authorized Officer


_____________________________
Authorized Officer


                                    Approval of New Jersey State
                                      Treasurer required pursuant
                                      to Section 9a of the Act



                                    By:_______________________
                                          James A. DiEleuterio, Jr.
                                          New Jersey State Treasurer


<PAGE>
                                    A-1-36
                                  EXHIBIT A-1


        Description of Project and Environmental Infrastructure System


<PAGE>
                                    A-2-37
                                  EXHIBIT A-2


                              Description of Loan


<PAGE>
                                     B-38
                                   EXHIBIT B


              Basis for Determination of Allowable Project Costs


<PAGE>
                                     C-39
                                   EXHIBIT C


                        Estimated Disbursement Schedule


<PAGE>
                                     D-40
                                   EXHIBIT D


                            Specimen Borrower Bond


<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).


<PAGE>
                       SEE IMPORTANT NOTE ON PRIOR PAGE



      FOR VALUE  RECEIVED,  The Mount Holly Water Company,  a corporation  duly
created and validly  existing under the  Constitution  and laws of the State of
New Jersey  (the  "Borrower"),  hereby  promises to pay to the order of the 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  irrevocably
pledges  its full faith and credit for the  punctual  payment of the  principal
of and the Interest on this  Borrower  Bond (as defined in the Loan  Agreement)
and for the  punctual  payment of 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,  1998 by and  between  the  Trust  and  the  Borrower  (the  "Loan
Agreement"),  and is issued in  consideration  of the loan made thereunder (the
"Loan") and to evidence  the payment  obligations  of the Borrower set forth in
the  Loan  Agreement.  This  Borrower  Bond has been  assigned  to First  Union
National   Bank,   as  trustee  (the   "Trustee")   under  the   "Environmental
Infrastructure  Bond  Resolution,  Series  1998B",  adopted  by  the  Trust  on
September 21, 1998, 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
Loan Servicer (as defined in the Loan  Agreement)  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 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 this 15th day of October, 1998.

                                    THE MOUNT HOLLY WATER
                                      COMPANY

[SEAL]

                                    By:___________________
ATTEST:                                   _____________



_____________________                     By:___________________
_______________                           _____________


<PAGE>
      New  Jersey   Environmental   Infrastructure  Trust  hereby  assigns  the
foregoing  Borrower  Bond to First Union  National  Bank,  as Trustee under the
"Environmental  Infrastructure  Bond  Resolution,  Series  1998B",  adopted  on
September  21, 1998,  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]

ATTEST:                             By:_______________________
                                          Barton E. Harrison
                                          Vice-Chairman

_____________________________
Robert A. Briant, Sr.
Secretary


<PAGE>
                                     E-45
                                   EXHIBIT E


               Opinions of Borrower's Bond and General Counsels

                          See Closing Item No. 11.04


<PAGE>
                      [LETTERHEAD OF COUNSEL TO BORROWER]



                                    November 5, 1998

New Jersey Environmental Infrastructure Trust
P.O. Box 440
Trenton, New Jersey  08625

First Union National Bank
765 Broad Street
Newark, New Jersey  07102

Ladies and Gentlemen:

      I have acted as counsel to The Mount Holly Water  Company,  a corporation
duly  organized and validly  existing under the laws of the State of New Jersey
(the  "Borrower"),  which has entered  into a Loan  Agreement  (as  hereinafter
defined)  with  the  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  resolutions  of the Board of Directors of the Borrower  adopted on
________,  1998  (the  "Resolutions").  All  capitalized  terms  used  but  not
defined  herein  shall  have the  meanings  ascribed  to such terms in the Loan
Agreement.

      In so acting,  I 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.  I have also
examined  originals,   or  copies  certified  or  otherwise  identified  to  my
satisfaction, of the following:

      (a)  the Trust's  "Environmental  Infrastructure Bond Resolution,  Series
1998B", adopted by the Board of Directors of the Trust on September 21, 1998;

      (b)  the  Loan  Agreement  dated  as  of  November  1,  1998  (the  "Loan
Agreement") by and between the Trust and the Borrower;

      (c)  the  Resolutions  and the  proceedings  of the Board of Directors of
the Borrower relating to the undertaking and completion of the Project;

      (d)  the  Borrower  Bond  dated as of  October  15,  1998 (the  "Borrower
Bond") issued by the Borrower to the Trust to evidence the Loan; and

      (e)  the   proceedings  of  the  Board  of  Directors  of  the  Borrower,
including,  without limitation, the Resolutions,  relating to the authorization
of the  Borrower  Bond  and  the  sale,  execution,  attestation  and  delivery
thereof to the Trust (the Loan  Agreement  and the  Borrower  Bond are referred
to herein collectively as the "Loan Documents").
      I have also examined and relied upon  originals,  or copies  certified or
otherwise authenticated to my satisfaction,  of such other records,  documents,
certificates  and other  instruments,  and have made such  investigation of law
as in my  judgment I have  deemed  necessary  or  appropriate,  to enable me to
render the opinions expressed below.

      I am 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
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.   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,  (iv) authorizing the
Borrower to consummate the  transactions  contemplated  by the Loan  Documents,
(v)  authorizing  the Borrower to undertake and complete the Project,  and (vi)
authorizing the execution and delivery of all other  certificates,  agreements,
documents and  instruments in connection  with the execution,  attestation  and
delivery of the Loan  Documents,  have each been duly and lawfully  adopted and
authorized in accordance with applicable law,  including,  without  limitation,
the Business Corporation Law.

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

      6.   The authorization,  execution,  attestation and delivery of the Loan
Documents  by the  Borrower  and, in the case of the  Borrower  Bond only,  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  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  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.

      7.   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.

      8.   There  is no  litigation  or  other  proceeding  pending  or,  to my
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 Resolutions,  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.

      9.   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.

      10.  To  the  best  of  my   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 I 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.

      11.  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.

      I 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 I had  addressed
this opinion to them in addition to you.

                                    Very truly yours,


<PAGE>
                                     F-50
EXHIBIT F


                     Additional Covenants and Requirements

Guaranty of Loan:

      The repayment of the Loan will be  guaranteed  by the Guarantor  pursuant
to the terms and  conditions  as set forth in that  certain  Guaranty  made and
delivered  as of  November  1,  1998  by the  Guarantor,  a copy  of  which  is
attached hereto.


<PAGE>
                                     G-51
                                   EXHIBIT G


                  General Administrative Requirements for the
             State Environmental Infrastructure Financing Program


<PAGE>
                                     H-52
                                   EXHIBIT H


                    Form of Continuing Disclosure Agreement