ETOWN CORPORATION                                           EXHIBIT 4(C)
$12,000,000
6.79% Senior Notes due December15, 2007
----------------
NOTE PURCHASE AGREEMENT
----------------
Dated as of December15, 1997



TABLE OF CONTENTS

SECTION HEADING PAGE

SECTION1.      AUTHORIZATION OF NOTES                                    1

SECTION2.      SALE AND PURCHASE OF NOTES                                1

SECTION3.      CLOSINGS                                                  1

SECTION4.      CONDITIONS TO EACH CLOSING                                2
Section4.1.    Representations and Warranties                            2
Section4.2.    Performance; No Default                                   2
Section4.3.    Compliance Certificates                                   2
Section4.4.    Opinions of Counsel                                       2
Section4.5.    Purchase Permitted by Applicable Law, etc                 3
Section4.6.    Governmental Approvals                                    3
Section4.7.    Payment of Special Counsel Fees                           3
Section4.8.    Private Placement Number                                  3
Section4.9.    Changes in Corporate Structure                            3
Section4.10.   Proceedings and Documents                                 3

SECTION5.      REPRESENTATIONS AND WARRANTIES OF THE COMPANY             4
Section5.1.    Organization; Power and Authority                         4
Section5.2.    Authorization, etc                                        4
Section5.3.    Disclosure                                                4
Section5.4.    Organization and Ownership of Shares of Subsidiaries      4
Section5.5.    Financial Statements                                      5
Section5.6.    Compliance with Laws, Other Instruments, etc              5
Section5.7.    Governmental Authorizations, etc                          5
Section5.8.    Litigation; Observance of Statutes and Orders             5
Section5.9.    Taxes                                                     6
Section5.10.   Title to Property; Leases                                 6
Section5.11.   Licenses, Permits, etc                                    6
Section5.12.   Compliance with ERISA                                     6
Section5.13.   Private Offering by the Company                           7
Section5.14.   Use of Proceeds; Margin Regulations                       7
Section5.15.   Existing Indebtedness                                     8
Section5.16.   Foreign Assets Control Regulations, etc                   8
Section5.17.   Status under Certain Statutes                             8

SECTION6.      REPRESENTATIONS OF THE PURCHASER                          8
Section6.1.    Purchase for Investment                                   8
Section6.2.    Source of Funds                                           8

SECTION7.      INFORMATION AS TO COMPANY                                10
Section7.1.    Financial and Business Information                       10
Section7.2.    Officers Certificate                                     12
Section7.3.    Inspection                                               13

SECTION8.      PREPAYMENT OF THE NOTES                                  13
Section8.1.    Prepayments                                              13
Section8.2.    Optional Prepayments with Make-Whole Amount              13
Section8.3.    Allocation of Partial Prepayments                        14
Section8.4.    Maturity; Surrender, etc                                 14
Section8.5.    Purchase of Notes                                        14
Section8.6.    Make-Whole Amount                                        14
SECTION9.      AFFIRMATIVE COVENANTS                                    16
Section9.1.    Compliance with Law                                      16
Section9.2.    Insurance                                                16
Section9.3.    Maintenance of Properties                                16
Section9.4.    Payment of Taxes                                         16
Section9.5.    Corporate Existence, etc.; Maintenance of Ownership of
                Elizabethtown Water Company                             17

SECTION10.     NEGATIVE COVENANTS                                       17
Section10.1.   Transactions with Affiliates                             17
Section10.2.   Merger, Consolidation, etc                               17
Section10.3.   Fixed Charges Coverage Ratio                             18
Section10.4.   Consolidated Common Shareholders Equity                  18
Section10.5.   Consolidated Debt                                        18
Section10.6.   Liens                                                    18
Section10.7.   Sale of Assets of Elizabethtown Water Company and The
                Mount Holly Water Company                               18
Section10.8.   Restricted Investments                                   19

SECTION11.     EVENTS OF DEFAULT                                        19

SECTION12.     REMEDIES ON DEFAULT, ETC                                 21
Section12.1.   Acceleration                                             21
Section12.2.   Other Remedies                                           22
Section12.3.   Rescission                                               22
Section12.4.   No Waivers or Election of Remedies, Expenses, etc        22

SECTION13.     REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES            22
Section13.1.   Registration of Notes                                    22
Section13.2.   Transfer and Exchange of Notes                           23
Section13.3.   Replacement of Notes                                     23

SECTION14.     PAYMENTS ON NOTES                                        24
Section14.1.   Place of Payment                                         24
Section14.2.   Home Office Payment                                      24

SECTION15.     EXPENSES, ETC                                            24
Section15.1.   Transaction Expenses                                     24
Section15.2.   Survival                                                 25

SECTION16.     SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
                AGREEMENT                                               25
SECTION17.     AMENDMENT AND WAIVER                                     25
Section17.1.   Requirements                                             25
Section17.2.   Solicitation of Holders of Notes                         25
Section17.3.   Binding Effect, etc                                      26
Section17.4.   Notes Held by Company, etc                               26

SECTION18.     NOTICES                                                  26

SECTION19.     REPRODUCTION OF DOCUMENTS                                27

SECTION20.     CONFIDENTIAL INFORMATION                                 27

SECTION21.     SUBSTITUTION OF PURCHASER                                28

SECTION22.     MISCELLANEOUS                                            28
Section22.1.   Successors and Assigns                                   28
Section22.2.   Payments Due on Non-Business Days                        29
Section22.3.   Severability                                             29
Section22.4.   Construction                                             29
Section22.5.   Counterparts                                             29
Section22.6.   Governing Law                                            29
Signatures                                                              30


SCHEDULEA             INFORMATION RELATING TO PURCHASER

SCHEDULEB             DEFINED TERMS

SCHEDULE5.4           Subsidiaries of the Company and Ownership of
                       Subsidiary Stock

SCHEDULE5.15          Existing Indebtedness

EXHIBIT1              Form of 6.79% Senior Note due December15, 2007

EXHIBIT4.4(a)         Form of Opinion of  Counsel for the Company

EXHIBIT4.4(b)         Form of Opinion of Special New York Counsel for
                       the Company

EXHIBIT4.4(C)         Form of Opinion of Special Counsel for the Purchaser



ETOWN CORPORATION
600 South Avenue
Westfield, New Jersey  07091-0788
6.79% SENIOR NOTES DUE DECEMBER15, 2007

Dated as of
December15, 1997
American General Life Insurance Company
c/o American General Corporation
P.O. Box 3247
Houston, Texas 77253-3247
Ladies and Gentlemen:

ETOWN CORPORATION,  a New Jersey  corporation (the Company),  agrees with you as
follows:

SECTION1.  AUTHORIZATION OF NOTES. The Company will authorize the issue and sale
of  $12,000,000  aggregate  principal  amount  of its  6.79%  Senior  Notes  due
December15,  2007 (the  Notes,  such term to include  any such  notes  issued in
substitution therefor pursuant to Section13 of this Agreement).  The Notes shall
be substantially in the form set out in Exhibit1,  with such changes  therefrom,
if any, as may be approved by you and the  Company.  Certain  capitalized  terms
used in this Agreement are defined in ScheduleB;  references to a Schedule or an
Exhibit are, unless otherwise specified, to a Schedule or an Exhibit attached to
this Agreement.

SECTION2.  SALE AND PURCHASE OF NOTES.  Subject to the terms and  conditions  of
this  Agreement,  the Company  will issue and sell to you and you will  purchase
from  the  Company,  at each  Closing  provided  for in  Section3,  Notes in the
principal amount specified opposite your name in Schedule A with respect to such
Closing at the purchase price of 100% of the principal amount thereof.

SECTION3.  CLOSINGS.  The sale and  purchase of the Notes to be purchased by you
shall  occur at the  offices of Chapman  and  Cutler,  111 West  Monroe  Street,
Chicago,  Illinois  60603,  at 10:00 A.M.  Chicago  time, at not more than three
closings (each a Closing) which shall take place on December22,  1997, January8,
1998 and May15,  1998 or on such other Business Day or Business Days on or prior
to May31, 1998 as may be agreed upon by the Company and you. At each Closing the
Company will deliver to you the Notes to be purchased by you on such date in the
form of a single Note (or such greater  number of Notes in  denominations  of at
least $100,000 as you may request) dated the date of such Closing and registered
in your name (or in the name of your  nominee),  against  delivery by you to the
Company  or its  order  of  immediately  available  funds in the  amount  of the
purchase price therefor by wire transfer of immediately  available funds for the
account of the Company to account number  2083605002512  at First Union National
Bank, Newark,  New Jersey,  ABA number 031201467.  If at any Closing the Company
shall fail to tender such Notes to you as provided  above in this  Section3,  or
any of the  conditions  specified in Section4  shall not have been  fulfilled to
your  satisfaction,  you shall,  at your  election,  be  relieved of all further
obligations  under this  Agreement,  without  thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.

SECTION4.  CONDITIONS TO EACH CLOSING.  Your  obligation to purchase and pay for
the Notes to be sold to you at each  Closing is subject  to the  fulfillment  to
your  satisfaction,  prior to or at such Closing,  of the following  conditions:
Section4.1.  Representations and Warranties.  The representations and warranties
of the Company in this  Agreement  shall be correct when made and at the time of
such  Closing.  Section4.2.  Performance;  No Default.  The  Company  shall have
performed  and complied with all  agreements  and  conditions  contained in this
Agreement  required to be performed  or complied  with by it prior to or at such
Closing,  and after  giving  effect to the issue and sale of the Notes  (and the
application of the proceeds thereof as contemplated by Section5.14),  no Default
or  Event  of  Default  shall  have  occurred  and  be  continuing.  Section4.3.
Compliance  Certificates.  (a)  Officers  Certificate.  The  Company  shall have
delivered  to you an  Officers  Certificate,  dated  the  date of such  Closing,
certifying that the conditions  specified in Sections4.1,  4.2 and 4.9 have been
fulfilled.  (b) Secretarys Certificate.  (i) The Company shall have delivered to
you  on or  prior  to the  first  Closing  a  certificate  certifying  as to the
resolutions  attached  thereto and other corporate  proceedings  relating to the
authorization,  execution and delivery of the Notes and this Agreement. (ii) The
Company  shall have  delivered to you on or prior to each  subsequent  Closing a
certificate certifying as to no changes to the authorizing resolutions or any of
the other items  attached to the Companys  certificate  delivered in  connection
with the first Closing. Section4.4. Opinions of Counsel. You shall have received
opinions  in form and  substance  satisfactory  to you,  dated  the date of such
Closing  (a)from Walter M. Braswell,  Esq.,  Secretary of the Company,  (b) from
Winthrop,  Stimson, Putnam & Roberts,  special New York counsel for the Company,
covering the matters set forth in Exhibits4.4(a) and 4.4(b),  respectively,  and
covering such other matters incident to the transactions  contemplated hereby as
you or your counsel may reasonably request (and the Company hereby instructs its
counsel to deliver  such  opinion to you) and (c)from  Chapman and Cutler,  your
special counsel in connection with such transactions,  substantially in the form
set forth in  Exhibit4.4(c)  and covering  such other  matters  incident to such
transactions as you may reasonably  request.  Section4.5.  Purchase Permitted by
Applicable  Law,  etc. On the date of such Closing your  purchase of Notes shall
(i)be  permitted by the laws and  regulations of each  jurisdiction to which you
are subject,  without recourse to provisions (such as  Section1405(a)(8)  of the
New York Insurance Law) permitting  limited  investments by insurance  companies
without  restriction as to the character of the particular  investment,  (ii)not
violate  any  applicable  law  or  regulation  (including,  without  limitation,
Regulation  G, T or X of the Board of Governors of the Federal  Reserve  System)
and (iii)not  subject you to any tax,  penalty or liability under or pursuant to
any applicable  law or regulation,  which law or regulation was not in effect on
the date  hereof.  If  requested  by you,  you shall have  received  an Officers
Certificate  certifying as to such matters of fact as you may reasonably specify
to enable you to determine  whether such purchase is so  permitted.  Section4.6.
Governmental Approvals.  The Company shall have received all necessary consents,
authorizations  and  approvals  from  all  Governmental  Authorities,   if  any,
necessary for the  execution,  delivery and  performance  by the Company of this
Agreement and the Notes,  and any such consent,  authorization or approval shall
be final and unappealable.  Section4.7. Payment of Special Counsel Fees. Without
limiting the provisions of Section15.1, the Company shall have paid on or before
the first Closing the reasonable fees, charges and disbursements of your special
counsel referred to in Section4.4 to the extent reflected in a statement of such
counsel  rendered  to the Company at least one  Business  Day prior to the first
Closing. Section4.8. Private Placement Number. A Private Placement number issued
by Standard & Poors CUSIP Service  Bureau (in  cooperation  with the  Securities
Valuation Office of the National  Association of Insurance  Commissioners) shall
have been obtained for the Notes.  Section4.9.  Changes in Corporate  Structure.
The Company shall not have changed its  jurisdiction of  incorporation or been a
party to any merger or consolidation  and shall not have succeeded to all or any
substantial  part of the liabilities of any other entity,  at any time following
the  date  of the  most  recent  financial  statements  included  as part of the
Memorandum  and on or  prior  to the  date of the  first  Closing.  Section4.10.
Proceedings  and  Documents.  All corporate and other  proceedings in connection
with the  transactions  contemplated  by this  Agreement  and all  documents and
instruments  incident to such transactions shall be satisfactory to you and your
special  counsel,  and you and your special counsel shall have received all such
counterpart  originals or certified or other copies of such  documents as you or
they may reasonably request.

SECTION5.  REPRESENTATIONS  AND WARRANTIES OF THE COMPANY The Company represents
and warrants to you that:  Section5.1.  Organization;  Power and Authority.  The
Company is a corporation  duly organized,  validly existing and in good standing
under the laws of its jurisdiction of incorporation,  and is duly qualified as a
foreign  corporation and is in good standing in each  jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Company
has the corporate  power and authority to own or hold under lease the properties
it purports to own or hold under  lease,  to transact  the business it transacts
and proposes to transact,  to execute and deliver this  Agreement  and the Notes
and to perform the  provisions  hereof and thereof.  Section5.2.  Authorization,
etc.  This  Agreement  and the Notes have been duly  authorized by all necessary
corporate action on the part of the Company, and this Agreement constitutes, and
upon execution and delivery  thereof each Note will constitute,  a legal,  valid
and  binding  obligation  of the  Company  enforceable  against  the  Company in
accordance  with its  terms,  except as such  enforceability  may be  limited by
(i)applicable  bankruptcy,  insolvency,  reorganization,   moratorium  or  other
similar laws  affecting  the  enforcement  of  creditors  rights  generally  and
(ii)general  principles of equity (regardless of whether such  enforceability is
considered in a proceeding  in equity or at law).  Section5.3.  Disclosure.  The
Company,  through its agent, PNC Capital  Markets,  Inc., has delivered to you a
copy of a Confidential Private Placement Memorandum,  dated November,  1997 (the
Memorandum),  relating to the transactions  contemplated hereby. This Agreement,
the Memorandum and the financial statements referred to in Section5.5,  taken as
a whole, do not contain any untrue statement of a material fact or omit to state
any material fact  necessary to make the  statements  therein not  misleading in
light of the  circumstances  under which they were made.  Except as disclosed in
the Memorandum or in the financial  statements referred to in Section5.5,  since
December31,  1996,  there  has  been  no  change  in  the  financial  condition,
operations,  business or  properties  of the Company or any of its  Subsidiaries
except  changes that  individually  or in the aggregate  would not reasonably be
expected  to  have a  Material  Adverse  Effect.  Section5.4.  Organization  and
Ownership of Shares of Subsidiaries. (a)Schedule5.4 is (except as noted therein)
a complete and correct list of the Companys  Subsidiaries,  showing,  as to each
Subsidiary, the correct name thereof, the jurisdiction of its organization,  and
the  percentage of shares of each class of its capital  stock or similar  equity
interests outstanding owned by the Company and each other Subsidiary. (b) All of
the  outstanding  shares of capital  stock or similar  equity  interests of each
Subsidiary  shown  in  Schedule5.4  as  being  owned  by  the  Company  and  its
Subsidiaries have been validly issued,  are fully paid and nonassessable and are
owned by the Company or another Subsidiary free and clear of any Lien (except as
otherwise  disclosed  in  Schedule5.4).   (c)  Each  Subsidiary   identified  in
Schedule5.4  is a  corporation  or other legal  entity duly  organized,  validly
existing  and  in  good  standing  under  the  laws  of  its   jurisdiction   of
organization,  and is duly  qualified  as a foreign  corporation  or other legal
entity and is in good standing in each jurisdiction in which such  qualification
is required by law, other than those jurisdictions as to which the failure to be
so qualified or in good standing  would not,  individually  or in the aggregate,
reasonably be expected to have a Material  Adverse Effect.  Each such Subsidiary
has the  corporate  or other power and  authority to own or hold under lease the
properties  it purports to own or hold under lease and to transact  the business
it transacts and proposes to transact.  Section5.5.  Financial  Statements.  The
consolidated  financial  statements  of the  Company  and its  Subsidiaries  (i)
included as part of the Memorandum, and (ii) to be delivered to you prior to the
final Closing pursuant to Section7 (including in each case the related schedules
and notes) fairly  present or will fairly  present in all material  respects the
consolidated  financial position of the Company and its Subsidiaries as of their
respective dates and the consolidated results of their operations and cash flows
for their  respective  periods and have been or will be  prepared in  accordance
with GAAP  consistently  applied  throughout the periods  involved except as set
forth  in the  notes  thereto  (subject,  in the case of any  interim  financial
statements, to normal year-end adjustments).  Section5.6.  Compliance with Laws,
Other Instruments,  etc. The execution,  delivery and performance by the Company
of this Agreement and the Notes will not (i)contravene, result in any breach of,
or constitute a default under,  or result in the creation of any Lien in respect
of any property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement,  lease,  corporate charter or
by-laws,  or any other Material  agreement or instrument to which the Company or
any  Subsidiary  is bound or by which the  Company or any  Subsidiary  or any of
their  respective  properties  may be bound or  affected,  (ii)conflict  with or
result in a breach of any of the terms,  conditions  or provisions of any order,
judgment,  decree, or ruling of any court,  arbitrator or Governmental Authority
applicable to the Company or any Subsidiary or (iii)violate any provision of any
statute or other ruleor regulation of any Governmental  Authority  applicable to
the Company or any Subsidiary. Section5.7.  Governmental Authorizations, etc. No
consent,  approval or authorization  of, or registration,  filing or declaration
with, any Governmental Authority (including,  without limitation, the New Jersey
Board of  Public  Utilities)  is  required  in  connection  with the  execution,
delivery  or  performance  by the  Company  of  this  Agreement  or  the  Notes.
Section5.8.   Litigation;  Observance  of  Statutes  and  Orders.  (a)Except  as
disclosed in the Memorandum,  there are no actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against or affecting the Company
or any  Subsidiary or any property of the Company or any Subsidiary in any court
or before any arbitrator of any kind or before or by any Governmental  Authority
that,  individually or in the aggregate,  would reasonably be expected to have a
Material  Adverse  Effect.  (b) Neither the  Company  nor any  Subsidiary  is in
default under any order, judgment,  decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or  regulation   (including  without  limitation   Environmental  Laws)  of  any
Governmental  Authority,  which  default or  violation,  individually  or in the
aggregate,  would  reasonably  be  expected to have a Material  Adverse  Effect.
Section5.9.  Taxes. The Company and its  Subsidiaries  have filed all income tax
returns that are required to have been filed in any jurisdiction,  and have paid
all taxes  shown to be due and  payable on such  returns and all other taxes and
assessments  payable by them,  to the extent  such  taxes and  assessments  have
become due and payable and before  they have become  delinquent,  except for any
taxes  and  assessments  (i)the  amount of which is not  individually  or in the
aggregate  Material  or (ii)the  amount,  applicability  or validity of which is
currently  being  contested in good faith by  appropriate  proceedings  and with
respect  to  which  the  Company  or a  Subsidiary,  as the  case  may  be,  has
established  adequate  reserves (if any) in  accordance  with GAAP.  The Federal
income tax liabilities of the Company and its Subsidiaries  have been determined
by the Internal  Revenue  Service for all fiscal years up to and  including  the
fiscal year ended December31, 1995. Section5.10.  Title to Property; Leases. The
Company and its Subsidiaries  have good and sufficient title to their respective
Material properties,  including all such properties reflected in the most recent
audited  balance  sheet  referred to in  Section5.5  or  purported  to have been
acquired by the  Company or any  Subsidiary  after said date  (except as sold or
otherwise  disposed of in the  ordinary  course of  business),  except for those
defects  in title  that,  individually  or in the  aggregate,  would  not have a
Material Adverse Effect. All Material leases are valid and subsisting and are in
full force and effect in all material respects. Section5.11.  Licenses, Permits,
etc.  The Company and its  Subsidiaries  own or possess all  licenses,  permits,
franchises,  authorizations,  patents, copyrights, service marks, trademarks and
trade names, or rights thereto,  that are Material,  without known conflict with
the rights of others,  except for those conflicts  that,  individually or in the
aggregate,  would not have a Material  Adverse Effect.  Section5.12.  Compliance
with  ERISA.   (a)The  Company  and  each  ERISA  Affiliate  have  operated  and
administered  each Plan in compliance  with all applicable  laws except for such
instances of  noncompliance  as have not resulted in and could not reasonably be
expected  to result in a Material  Adverse  Effect.  Neither the Company nor any
ERISA Affiliate has incurred any liability  pursuant to TitleI or IV of ERISA or
the penalty or excise tax  provisions of the Code  relating to employee  benefit
plans (as defined in Section3 of ERISA), and no event,  transaction or condition
has  occurred  or exists  that would  reasonably  be  expected  to result in the
incurrence of any such  liability by the Company or any ERISA  Affiliate,  or in
the  imposition  of any Lien on any of the rights,  properties  or assets of the
Company or any ERISA Affiliate, in either case pursuant to TitleI or IV of ERISA
or to such penalty or excise tax  provisions or to  Section401(a)(29)  or 412 of
the Code,  other than such  liabilities or Liens as would not be individually or
in the aggregate Material.  (b) The accumulated benefit obligation as determined
in accordance with Financial  Accounting  Standards Board Statement No. 87 under
each of the Plans (other than Multiemployer Plans),  determined as of the end of
such Plans most recently  ended plan year is as stated in the  Memorandum and in
respect  of the 1997  Plan  Year,  as will be stated  in the  audited  financial
statements  to be provided  pursuant to  Section7.1(b).  (c) The Company and its
ERISA Affiliates have not incurred  withdrawal  liabilities (and are not subject
to contingent  withdrawal  liabilities)  under  section4201  or 4204 of ERISA in
respect  of  Multiemployer  Plans  that  individually  or in the  aggregate  are
Material.  (d) The expected  postretirement benefit obligation (determined as of
the last day of the Companys most recently ended fiscal year in accordance  with
Financial  Accounting  Standards  Board  Statement  No. 106,  without  regard to
liabilities  attributable to continuation  coverage  mandated by section4980B of
the Code) of the Company and its Subsidiaries is as disclosed in the Memorandum.
(e) The  execution  and delivery of this  Agreement and the issuance and sale of
the Notes  hereunder  will not  involve any  transaction  that is subject to the
prohibitions  of section406 of ERISA or in connection  with which a tax could be
imposed pursuant to section4975(c)(1)(A)- (D) of the Code. The representation by
the  Company in the first  sentence of this  Section5.12(e)  is made in reliance
upon and subject to the accuracy of your  representation in Section6.2 as to the
sources  of the  funds to be used to pay the  purchase  price of the Notes to be
purchased by you.  Section5.13.  Private  Offering by the  Company.  Neither the
Company  nor anyone  acting on its behalf has  offered  the Notes or any similar
securities  for sale to, or solicited  any offer to buy any of the same from, or
otherwise  approached or negotiated  in respect  thereof with,  any person other
than you and not more than thirty-eight (38) other Institutional Investors, each
of which has been  offered the Notes at a private sale for  investment.  Neither
the Company nor anyone acting on its behalf has taken,  or will take, any action
that  would  subject  the  issuance  or sale of the  Notes  to the  registration
requirements  of Section5 of the Securities Act.  Section5.14.  Use of Proceeds;
Margin Regulations. The Company will apply the proceeds of the sale of the Notes
(i) to refinance existing  indebtedness and to fund future capital  expenditures
and (ii)  for  investments  in  water  and  wastewater  systems.  No part of the
proceeds  from  the  sale of the  Notes  hereunder  will be  used,  directly  or
indirectly,  for the purpose of buying or carrying  any margin  stock within the
meaning of RegulationG  of the Board of Governors of the Federal  Reserve System
(12CFR207),  or for  the  purpose  of  buying  or  carrying  or  trading  in any
securities under such  circumstances as to involve the Company in a violation of
Regulation  X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of RegulationT of said Board (12 CFR 220). The Company does not own or
presently intend to carry or purchase any margin stock. As used in this Section,
the terms margin stock and purpose of buying or carrying shall have the meanings
assigned  to them  in  said  RegulationG.  Section5.15.  Existing  Indebtedness.
Schedule5.15  sets  forth  a  complete  and  correct  list  of  all  outstanding
Indebtedness of the Company and its  Subsidiaries as of December15,  1997, since
which date there has been no Material  change in the  amounts,  interest  rates,
sinking funds,  installment  payments or maturities of the  Indebtedness  of the
Company or its  Subsidiaries.  Neither  the  Company  nor any  Subsidiary  is in
default and no waiver of default is currently  in effect,  in the payment of any
principal or interest on any  Indebtedness of the Company or such Subsidiary and
no event or condition  exists with respect to any Indebtedness of the Company or
any Subsidiary the outstanding  principal  amount of which exceeds $500,000 that
would permit (or that with notice or the lapse of time,  or both,  would permit)
one or more Persons to cause such  Indebtedness to become due and payable before
its  stated  maturity  or  before  its  regularly  scheduled  dates of  payment.
Section5.16.  Foreign Assets Control  Regulations,  etc. Neither the sale of the
Notes by the Company  hereunder nor its use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations  of the United  States  Treasury  Department  (31 CFR,  Subtitle  B,
Chapter V, as amended) or any enabling  legislation or executive  order relating
thereto. Section5.17. Status under Certain Statutes. Neither the Company nor any
Subsidiary is subject to regulation under the Investment Company Act of 1940, as
amended,  the Public Utility  Holding  Company Act of 1935, as amended,  the ICC
Termination Act of 1995, as amended, or the Federal Power Act, as amended.

SECTION6. REPRESENTATIONS OF THE PURCHASER. Section6.1. Purchase for Investment.
You represent  that you are purchasing the Notes for your own account or for one
or more  separate  accounts  maintained by you or for the account of one or more
pension or trust funds and not with a view to the distribution thereof, provided
that the disposition of your or their property shall at all times be within your
or their control.  You understand that the Notes have not been registered  under
the  Securities  Act  and  may be  resold  only if  registered  pursuant  to the
provisions  of  the  Securities  Act or if an  exemption  from  registration  is
available,  except under  circumstances where neither such registration nor such
an  exemption  is  required  by law,  and that the  Company is not  required  to
register the Notes. Section6.2. Source of Funds. You represent that at least one
of the following  statements is an accurate  representation as to each source of
funds (a Source) to be used by you to pay the purchase  price of the Notes to be
purchased  by you  hereunder:  (a) the Source is an  insurance  company  general
account within the meaning of Department of Labor Prohibited  Transaction  Class
Exemption  (PTCE) 95-60 (issued July12,  1995) and there is no employee  benefit
plan,  treating as a single plan,  all plans  maintained by the same employer or
employee  organization,  with respect to which the amount of the general account
reserves and  liabilities  for all contracts  held by or on behalf of such plan,
exceeds ten percent (10%) of the total reserves and  liabilities of such general
account (exclusive of separate account  liabilities) plus surplus,  as set forth
in the NAIC  Annual  Statement  filed  with your state of  domicile;  or (b) the
Source is either (i)an  insurance  company pooled separate  account,  within the
meaning  of PTCE 90-1  (issued  January  29,  1990),  or (ii)a  bank  collective
investment  fund,  within the meaning of the PTCE 91-38  (issued  July 12, 1991)
and,  except as you have  disclosed  to the Company in writing  pursuant to this
paragraph (b), no employee benefit plan or group of plans maintained by the same
employer or employee organization  beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective  investment fund; or (c)
the Source  constitutes assets of an investment fund (within the meaning of Part
V(b) of the QPAM Exemption) managed by a qualified professional asset manager or
QPAM (within the meaning of PartV(a) of the QPAM Exemption), no employee benefit
plans assets that are included in such  investment  fund, when combined with the
assets of all other employee benefit plans established or maintained by the same
employer or by an affiliate  (within the meaning of  SectionV(c)(1)  of the QPAM
Exemption) of such employer or by the same employee  organization and managed by
such  QPAM,  exceed 20% of the total  client  assets  managed by such QPAM,  the
conditions of PartI(c) and (g) of the QPAM Exemption are satisfied,  neither the
QPAM nor a person controlling or controlled by the QPAM (applying the definition
of control in SectionV(e) of the QPAM  Exemption)  owns a 5% or more interest in
the Company and (i)the  identity of such QPAM and (ii)the  names of all employee
benefit  plans  whose  assets are  included  in such  investment  fund have been
disclosed to the Company in writing  pursuant to this  paragraph (c); or (d) the
Source is a governmental plan; or (e) the Source is one or more employee benefit
plans,  or a separate  account or trust fund  comprised of one or more  employee
benefit  plans,  each of which has been  identified  to the  Company  in writing
pursuant to this paragraph (e); or (f) the Source does not include assets of any
employee benefit plan, other than a plan exempt from the coverage of ERISA. If a
proposed  transferee of the Notes  identifies a plan pursuant to paragraph  (b),
(c) or (e) above,  the Company shall  deliver a  certificate  on or prior to the
date of any transfer of the Notes to such transferee,  which  certificate  shall
either  state that (i)it is neither a party in interest  (as defined in Title I,
Section3(14)  of  ERISA)  nor a  disqualified  person  (as  defined  in  Section
4975(e)(2) of the Internal  Revenue Code of 1986,  as amended),  with respect to
any plan identified pursuant to paragraphs (b) or (e) above, or (ii)with respect
to any plan,  identified  pursuant to  paragraph  (c) above,  neither it nor any
affiliate (as defined in  SectionV(c)  of the QPAM  Exemption) has at this time,
and during the  immediately  preceding  one year has  exercised the authority to
appoint or terminate  said QPAM as manager of the assets of any plan  identified
in writing  pursuant to paragraph  (c) above or to  negotiate  the terms of said
QPAMs  management  agreement on behalf of any such identified  plans. As used in
this Section6.2,  the terms employee benefit plan,  governmental  plan, party in
interest and separate  account shall have the  respective  meanings  assigned to
such terms in Section3 of ERISA.

SECTION7.   INFORMATION  AS  TO  COMPANY  Section7.1.   Financial  and  Business
Information.  The  Company  shall  deliver  to each  holder of Notes  that is an
Institutional  Investor:  (a) Quarterly Statements  promptly,  and in any event,
within 60 days after the end of each quarterly fiscal period in each fiscal year
of the Company (other than the last quarterly  fiscal period of each such fiscal
year),  duplicate copies of, (i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter, and (ii) consolidated statements
of income,  changes in shareholders equity and cash flows of the Company and its
Subsidiaries,  for  such  quarter  and (in  the  case of the  second  and  third
quarters) for the portion of the fiscal year ending with such  quarter,  setting
forth in each case in comparative form the figures for the corresponding periods
in the previous  fiscal year, all in reasonable  detail,  prepared in accordance
with GAAP applicable to quarterly financial statements generally,  and certified
by a Senior Financial Officer as fairly  presenting,  in all material  respects,
the financial  position of the companies  being reported on and their results of
operations  and  cash  flows,   subject  to  changes   resulting  from  year-end
adjustments,  provided that delivery  within the time period  specified above of
copies of the Companys Quarterly Report on Form 10-Q prepared in compliance with
the requirements  therefor and filed with the Securities and Exchange Commission
shall be deemed to satisfy the  requirements of this  Section7.1(a);  (b) Annual
Statements  promptly,  and in any  event,  within 105 days after the end of each
fiscal year of the  Company,  duplicate  copies of, (i) a  consolidated  balance
sheet of the Company and its Subsidiaries,  as at the end of such year, and (ii)
consolidated statements of income, changes in shareholders equity and cash flows
of the Company and its Subsidiaries,  for such year,  setting forth in each case
in comparative  form the figures for the previous fiscal year, all in reasonable
detail,  prepared in accordance with GAAP, and accompanied by an opinion thereon
of independent  certified public  accountants of recognized  national  standing,
which opinion shall state that such financial  statements present fairly, in all
material  respects,  the financial position of the companies being reported upon
and their  results  of  operations  and cash  flows and have  been  prepared  in
conformity with GAAP, and that the examination of such accountants in connection
with such  financial  statements  has been  made in  accordance  with  generally
accepted auditing standards, and that such audit provides a reasonable basis for
such opinion in the  circumstances,  provided that the delivery  within the time
period  specified  above of the  Companys  Annual  Report  on Form 10-K for such
fiscal year (together with the Companys annual report to  shareholders,  if any,
prepared  pursuant to Rule 14a-3 under the Exchange  Act) prepared in accordance
with the  requirements  therefor  and filed  with the  Securities  and  Exchange
Commission  shall be deemed to satisfy the  requirements of this  Section7.1(b);
(c) SEC and Other Reports  promptly upon their becoming  available,  one copy of
(i)each  financial  statement,  report,  notice or proxy  statement  sent by the
Company or any  Subsidiary  to public  securities  holders  generally,  (ii)each
regular or periodic report,  each registration  statement that shall have become
effective (without exhibits except as expressly  requested by such holder),  and
each final  prospectus  and all  amendments  thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission,  and (iii)a copy of each
Annual Report of each of  Elizabethtown  Water Company and The Mount Holly Water
Company  delivered  to the New Jersey Board of Public  Utilities;  (d) Notice of
Default or Event of Default  promptly  following,  and in any event  within five
Business Days after a Responsible  Officer  becoming  aware of, the existence of
any  Default or Event of Default,  a written  notice  specifying  the nature and
period of existence thereof and what action the Company is taking or proposes to
take with respect thereto;  (e) ERISA Matters promptly,  and in any event within
five  Business Days after a Responsible  Officer  becoming  aware of, any of the
following,  a written notice setting forth the nature thereof and the action, if
any,  that the  Company  or an ERISA  Affiliate  proposes  to take with  respect
thereto:  (i) with  respect to any Plan,  any  reportable  event,  as defined in
section4043(c) of ERISA and the regulations thereunder, for which notice thereof
has not been waived  pursuant to such  regulations as then in effect on the date
hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening
by the PBGC of the institution of,  proceedings  under  section4042 of ERISA for
the termination of, or the appointment of a trustee to administer,  any Plan, or
the  receipt  by  the  Company  or  any  ERISA  Affiliate  of a  notice  from  a
Multiemployer  Plan that such action has been taken by the PBGC with  respect to
such Multiemployer Plan; or (iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or any ERISA  Affiliate
pursuant  to Title I or IV of ERISA or the penalty or excise tax  provisions  of
the Code relating to employee benefit plans, or in the imposition of any Lien on
any of the rights,  properties  or assets of the Company or any ERISA  Affiliate
pursuant to Title I or IV of ERISA or such penalty or excise tax provisions,  if
such liability or Lien,  taken together with any other such liabilities or Liens
then existing,  would  reasonably be expected to have a Material Adverse Effect;
and (f) Requested  Information with reasonable  promptness,  such other data and
information relating to the business, operations,  affairs, financial condition,
assets or  properties of the Company or any of its  Subsidiaries  or relating to
the ability of the Company to perform its  obligations  hereunder  and under the
Notes as from time to time may be  reasonably  requested  by any such  holder of
Notes.  Section7.2.  Officers  Certificate.  Each  set of  financial  statements
delivered to a holder of Notes pursuant to Section7.1(a) or Section7.1(b) hereof
shall be  accompanied  by a certificate of a Senior  Financial  Officer  setting
forth: (a) Covenant Compliance the information (including detailed calculations)
required in order to establish  whether the Company was in  compliance  with the
requirements of Section10.2 through 10.8 hereof, inclusive, during the quarterly
or annual period covered by the statements then being furnished  (including with
respect to each such Section, where applicable,  the calculations of the maximum
or minimum amount,  ratio or percentage,  as the case may be,  permissible under
the  terms  of such  Sections,  and the  calculation  of the  amount,  ratio  or
percentage  then in  existence);  and (b) Event of Default a statement that such
officer has  reviewed the  relevant  terms hereof and has made,  or caused to be
made, under his or her supervision,  a review of the transactions and conditions
of the Company and its  Subsidiaries  from the  beginning  of the  quarterly  or
annual period covered by the statements  then being furnished to the date of the
certificate  and that such review shall not have disclosed the existence  during
such period of any condition or event that  constitutes a Default or an Event of
Default or, if any such condition or event existed or exists (including, without
limitation,  any such  event or  condition  resulting  from the  failure  of the
Company or any Subsidiary to comply with any Environmental Law),  specifying the
nature and period of  existence  thereof and what action the Company  shall have
taken or proposes to take with  respect  thereto.  Section7.3.  Inspection.  The
Company  shall  permit the  representatives  of each  holder of Notes that is an
Institutional  Investor:  (a) No Default if no Default or Event of Default  then
exists,  at the expense of such holder and upon  reasonable  prior notice to the
Company,  to visit the principal executive office of the Company, to discuss the
affairs,  finances  and  accounts of the Company and its  Subsidiaries  with the
Companys officers,  and, with the consent of the Company (which consent will not
be  unreasonably  withheld)  to visit the other  offices and  properties  of the
Company and each Subsidiary,  all at such reasonable times and as often (but not
more  than  twice by any such  holder  within  any  12-month  period)  as may be
reasonably  requested  in  writing;  and (b)  Default  if a Default  or Event of
Default then  exists,  at the expense of the Company to visit and inspect any of
the offices or properties of the Company or any Subsidiary, to examine all their
respective books of account,  records,  reports and other papers, to make copies
and extracts therefrom,  and to discuss their respective  affairs,  finances and
accounts  with their  respective  officers  and (if an officer of the Company is
present) their independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and accounts of the
Company  and  its  Subsidiaries),  all at  such  times  and as  often  as may be
requested.

SECTION8.   PREPAYMENT  OF  THE  NOTES.  Section8.1.   Prepayments.  The  entire
outstanding  principal  amount of the Notes  shall be due on  December15,  2007.
Except  as set  forth in  Section8.2,  the  Notes  may not be  prepaid  prior to
maturity at the option of the Company.  Section8.2.  Optional  Prepayments  with
Make-Whole  Amount.  The Company  may,  at its  option,  upon notice as provided
below,  prepay at any time all, or from time to time any part of, the Notes,  in
an amount not less than $1,000,000 in the case of a partial prepayment,  at 100%
of the principal amount so prepaid,  and accrued interest thereon to the date of
prepayment,  plus the Make-Whole  Amount determined for the prepayment date with
respect to such  principal  amount.  The Company  will give each holder of Notes
written notice of each optional  prepayment  under this Section8.2 not less than
30 days and not more than 60 days prior to the date  fixed for such  prepayment.
Each such notice shall specify such date, the aggregate  principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
holder  to be  prepaid  (determined  in  accordance  with  Section8.3),  and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid,  and shall be accompanied by a certificate of a Senior  Financial
Officer  as to the  estimated  Make-Whole  Amount  due in  connection  with such
prepayment  (calculated  as if the  date of such  notice  were  the  date of the
prepayment),  setting forth the details of such  computation.  Two Business Days
prior to such  prepayment,  the Company  shall deliver to each holder of Notes a
certificate of a Senior  Financial  Officer  specifying the  calculation of such
Make-Whole Amount as of the specified prepayment date. Section8.3. Allocation of
Partial  Prepayments.  In the case of each partial  prepayment of the Notes, the
principal  amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time  outstanding in proportion,  as nearly as practicable,  to the
respective unpaid principal amounts thereof.  Section8.4.  Maturity;  Surrender,
etc. In the case of each  prepayment  of Notes  pursuant to this  Section8,  the
principal  amount of each Note to be  prepaid  shall  mature  and become due and
payable on the date fixed for such  prepayment,  together  with interest on such
principal amount accrued to such date and the applicable  Make-Whole  Amount, if
any.  From and after  such  date,  unless  the  Company  shall  fail to pay such
principal  amount  when so due and  payable,  together  with  the  interest  and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue.  Any Note paid or prepaid in full shall be  surrendered  to the
Company and cancelled and shall not be reissued,  and no Note shall be issued in
lieu of any prepaid principal amount of any Note. Section8.5. Purchase of Notes.
The Company  will not and will not permit any  Affiliate  to  purchase,  redeem,
prepay or otherwise  acquire,  directly or  indirectly,  any of the  outstanding
Notes except  (a)upon the payment or prepayment of the Notes in accordance  with
the terms of this Agreement and the Notes or (b)pursuant to an offer to purchase
made by the Company or an Affiliate  pro rata to the holders of all Notes at the
time  outstanding  upon the same  terms and  conditions.  Any such  offer  shall
provide each holder with sufficient information to enable it to make an informed
decision  with  respect to such  offer,  and shall  remain  open for at least 10
Business  Days. If the holders of more than 25% of the  principal  amount of the
Notes then outstanding  accept such offer, the Company shall promptly notify the
remaining  holders of such fact and the  expiration  date for the  acceptance by
holders of Notes of such offer shall be extended by the number of days necessary
to give each such remaining holder at least 10 Business Days from its receipt of
such notice to accept such offer.  The Company  will  promptly  cancel all Notes
acquired by it or any Affiliate pursuant to any payment,  prepayment or purchase
of Notes  pursuant to any provision of this Agreement and no Notes may be issued
in substitution or exchange for any such Notes.  Section8.6.  Make-Whole Amount.
The term Make-Whole  Amount means,  with respect to any Note, an amount equal to
the excess, if any, of the Discounted Value of the Remaining  Scheduled Payments
with respect to the Called Principal of such Note over the amount of such Called
Principal,  provided  that the  Make-Whole  Amount  may in no event be less than
zero. For the purposes of determining the Make-Whole Amount, the following terms
have the following  meanings:  Called Principal means, with respect to any Note,
the  principal of such Note that is to be prepaid  pursuant to Section8.2 or has
become or is declared to be immediately due and payable pursuant to Section12.1,
as the context  requires.  Discounted  Value  means,  with respect to the Called
Principal  of any  Note,  the  amount  obtained  by  discounting  all  Remaining
Scheduled  Payments with respect to such Called  Principal from their respective
scheduled  due  dates  to the  Settlement  Date  with  respect  to  such  Called
Principal,  in  accordance  with accepted  financial  practice and at a discount
factor  (applied  on the same  periodic  basis as that on which  interest on the
Notes is payable)  equal to the  Reinvestment  Yield with respect to such Called
Principal. Reinvestment Yield means, with respect to the Called Principal of any
Note, 0.50% over the yield to maturity implied by (i)the yields reported,  as of
10:00  A.M.  (New York City  time) on the  second  Business  Day  preceding  the
Settlement Date with respect to such Called Principal, on the display designated
as  Page  678 on the Dow  Jones  Markets,  a  division  of Dow & Jones  Company,
Telerate  Access  Service (or such other  display as may replace Page 678 on the
Telerate Access Service) for actively traded U.S.  Treasury  securities having a
maturity equal to the Remaining Average Life of such Called Principal as of such
Settlement  Date,  or (ii)if such yields are not reported as of such time or the
yields  reported as of such time are not  ascertainable,  the Treasury  Constant
Maturity Series Yields  reported,  for the latest day for which such yields have
been so reported as of the second  Business Day  preceding the  Settlement  Date
with respect to such Called Principal,  in Federal Reserve  Statistical  Release
H.15 (519) (or any comparable  successor  publication)  for actively traded U.S.
Treasury  securities  having a constant  maturity equal to the Remaining Average
Life of such Called  Principal as of such  Settlement  Date.  Such implied yield
will be determined, if necessary, by (a)converting U.S. Treasury bill quotations
to  bond-equivalent  yields in accordance with accepted  financial  practice and
(b)interpolating  linearly between (1)the actively traded U.S. Treasury security
with the  maturity  closest to and greater than the  Remaining  Average Life and
(2)the actively traded U.S.  Treasury  security with the maturity closest to and
less than the Remaining Average Life. Remaining Average Life means, with respect
to any  Called  Principal,  the  number  of  years  (calculated  to the  nearest
one-twelfth year) obtained by dividing (i)such Called Principal into (ii)the sum
of the  products  obtained by  multiplying  (a)the  principal  component of each
Remaining  Scheduled  Payment  with  respect to such Called  Principal by (b)the
number of years  (calculated to the nearest  one-twelfth  year) that will elapse
between  the  Settlement  Date with  respect to such  Called  Principal  and the
scheduled due date of such  Remaining  Scheduled  Payment.  Remaining  Scheduled
Payments means,  with respect to the Called  Principal of any Note, all payments
of such  Called  Principal  and  interest  thereon  that  would be due after the
Settlement  Date with  respect to such  Called  Principal  if no payment of such
Called  Principal  were made prior to its scheduled  due date,  provided that if
such Settlement Date is not a date on which interest payments are due to be made
under the terms of the Notes,  then the amount of the next succeeding  scheduled
interest  payment  will be  reduced by the  amount of  interest  accrued to such
Settlement  Date and  required to be paid on such  Settlement  Date  pursuant to
Section8.2 or 12.1.  Settlement Date means, with respect to the Called Principal
of any Note, the date on which such Called  Principal is to be prepaid  pursuant
to  Section8.2  or has become or is declared to be  immediately  due and payable
pursuant to Section12.1, as the context requires.

SECTION9.  AFFIRMATIVE  COVENANTS.  The Company covenants that so long as any of
the Notes are outstanding: Section9.1. Compliance with Law. The Company will and
will cause  each of its  Subsidiaries  to comply  with all laws,  ordinances  or
governmental  rules or regulations to which each of them is subject,  including,
without  limitation,  Environmental Laws, and will obtain and maintain in effect
all  licenses,   certificates,   permits,   franchises  and  other  governmental
authorizations  necessary to the ownership of their respective  properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance  with such laws,  ordinances or governmental rules
or  regulations  or failures  to obtain or  maintain  in effect  such  licenses,
certificates,  permits,  franchises and other governmental  authorizations would
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect, provided that such compliance with any such law, ordinance, rule
or  regulation  by the  Company or any  Subsidiary  shall not be required to the
extent that the applicability or validity thereof is contested by the Company or
such Subsidiary on a timely basis in good faith and in appropriate  proceedings,
the  Company or a  Subsidiary  has  established  adequate  reserves  therefor in
accordance  with GAAP on the books of the  Company or such  Subsidiary  and such
contest  would not  reasonably  be expected to have a Material  Adverse  Effect.
Section9.2.  Insurance. The Company will and will cause each of its Subsidiaries
to maintain,  with  financially  sound and reputable  insurers,  insurance  with
respect to their  respective  properties and businesses  against such casualties
and  contingencies,  of such types, on such terms and in such amounts (including
deductibles,   co-insurance  and   self-insurance,   if  adequate  reserves  are
maintained  with  respect  thereto) as is  customary  in the case of entities of
established  reputations engaged in the same or a similar business and similarly
situated. Section9.3. Maintenance of Properties. The Company will and will cause
each of its  Subsidiaries  to maintain and keep, or cause to be  maintained  and
kept,  their respective  properties in good repair,  working order and condition
(other  than  ordinary  wear and  tear),  so that  the  business  carried  on in
connection therewith may be properly conducted at all times,  provided that this
Sectionshall  not prevent the Company or any Subsidiary from  discontinuing  the
operation and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of its business and the Company has concluded that such
discontinuance  would not,  individually  or in the  aggregate,  have a Material
Adverse Effect.  Section9.4.  Payment of Taxes.  The Company will and will cause
each of its  Subsidiaries to file all income tax or similar tax returns required
to be filed in any  jurisdiction  and to pay and discharge all taxes shown to be
due and payable on such returns and all other taxes,  assessments,  governmental
charges,  or  levies  payable  by any of them,  to the  extent  such  taxes  and
assessments have become due and payable and before they have become  delinquent,
provided  that neither the Company nor any  Subsidiary  need pay any such tax or
assessment if (i)the amount,  applicability  or validity thereof is contested by
the  Company  or  such  Subsidiary  on a  timely  basis  in  good  faith  and in
appropriate  proceedings,  and  the  Company  or a  Subsidiary  has  established
adequate  reserves  therefor in accordance with GAAP on the books of the Company
or such  Subsidiary or (ii)the  nonpayment of all such taxes and  assessments in
the  aggregate  would not  reasonably  be  expected  to have a Material  Adverse
Effect.  Section9.5.  Corporate  Existence,  etc.;  Maintenance  of Ownership of
Elizabethtown Water Company. (a)Except as permitted by Section10.2,  the Company
will at all times  preserve  and keep in full  force and  effect  its  corporate
existence.  Subject to Section 10.7,  the Company will at all times preserve and
keep in full force and effect the  corporate  existence  of each of its  Utility
Subsidiaries  (unless merged into the Company or a Utility  Subsidiary)  and all
rights and franchises of the Company and its Utility Subsidiaries unless, in the
good faith  judgment of the Company,  the  termination of or failure to preserve
and keep in full force and effect such corporate  existence,  right or franchise
would not, individually or in the aggregate, have a Material Adverse Effect. (b)
The Company will at all times own and hold 100% of the shares of the outstanding
common stock of Elizabethtown Water Company.

SECTION10.  NEGATIVE COVENANTS. The Company covenants that so long as any of the
Notes are outstanding:  Section10.1.  Transactions with Affiliates.  The Company
will not and will not permit any Subsidiary to enter into directly or indirectly
any Material  transaction or Material group of related  transactions  (including
without  limitation the purchase,  lease,  sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than the Company
or another  Subsidiary),  except pursuant to the reasonable  requirements of the
Companys or such Subsidiarys business and upon fair and reasonable terms no less
favorable  to the  Company  or such  Subsidiary  than would be  obtainable  in a
comparable arms-length transaction with a Person not an Affiliate.  Section10.2.
Merger, Consolidation, etc. The Company shall not consolidate with or merge with
any other corporation  unless: (a) the successor formed by such consolidation or
the survivor of such  merger,  as the case may be (the  Successor  Corporation),
shall be a solvent  corporation  organized  and  existing  under the laws of the
United States of America, any State thereof or the District of Columbia;  (b) if
the  Company  is not the  Successor  Corporation,  such  corporation  shall have
executed  and  delivered to each holder of Notes its  assumption  of the due and
punctual  performance  and  observance  of each  covenant and  condition of this
Agreement  and the  Notes;  and (c)  immediately  after  giving  effect  to such
transaction:  (i) no  Default  or Event of  Default  would  exist,  and (ii) the
Successor  Corporation would be in compliance with the provisions of Section10.5
hereof if the ratio specified  thereunder were calculated as of the date of such
transaction and after giving effect thereto. Section10.3. Fixed Charges Coverage
Ratio.  The Company  will not, at the end of any fiscal  quarter of the Company,
permit the Fixed Charges  Coverage Ratio to be less than 1.5 to 1.  Section10.4.
Consolidated  Common  Shareholders  Equity.  The Company  will not, at any time,
permit  Consolidated  Common  Shareholders  Equity to be less than $165,000,000.
Section10.5.  Consolidated Debt. The Company will not at the end of any calendar
year  permit  the  ratio of (a)the  sum of (i)  Consolidated  Debt plus  (ii)the
aggregate  Redeemable  Preferred  Stock  of the  Company  and  its  Subsidiaries
outstanding on such date, minus  $10,000,000,  to (b)the sum of (i) Consolidated
Debt plus (ii)the aggregate  Preferred Stock of the Company and its Subsidiaries
outstanding on such date plus  (iii)Consolidated  Common Shareholders Equity, to
exceed  0.65  to 1.  Section10.6.  Liens.  The  Company  will  not  directly  or
indirectly  create,  incur,  assume or permit to exist (upon the  happening of a
contingency or otherwise)  any Consensual  Lien on or with respect to any of the
common stock of Elizabethtown Water Company, or any income or profits therefrom,
or assign or  otherwise  convey any right to  receive  such  income or  profits.
Section10.7.  Sale of Assets of Elizabethtown  Water Company and The Mount Holly
Water Company.  The Company will not permit  Elizabethtown  Water Company or its
Subsidiary, The Mount Holly Water Company, to make any Asset Disposition unless:
(a) in the good  faith  opinion  of the  Company,  the Asset  Disposition  is in
exchange for consideration  having a Fair Market Value at least equal to that of
the property exchanged and is in the best interest of the Company, Elizabethtown
Water Company or Mount Holly Water  Company;  and (b)  immediately  after giving
effect to the Asset Disposition, no Default or Event of Default would exist; and
(c) immediately  after giving effect to the Asset  Disposition,  the Disposition
Value of all property that was the subject of any Asset Disposition occurring on
or after the date of the Closing would not exceed 25% of Consolidated  Assets of
Elizabethtown  Water Company as of December31,  1997. If the Net Proceeds Amount
for any  Transfer is applied to (i) a Debenture  Indenture  Application,  (ii) a
Debt Prepayment Application, or (iii) a Property Reinvestment Application,  then
such Transfer,  only for the purpose of determining  compliance  with subsection
(c) of this  Section10.7  as of any  date,  shall be  deemed  not to be an Asset
Disposition.  Section10.8.  Restricted Investments.  (a) Limitation. The Company
will not,  and will not  permit any of its  Subsidiaries  to,  declare,  make or
authorize any Restricted  Investment  unless  immediately after giving effect to
such  action:  (i) the  aggregate  value of all  Restricted  Investments  of the
Company and its Subsidiaries  (valued  immediately  after such action) would not
exceed  $30,000,000;  and (ii) no Default or Event of Default  would exist.  (b)
Investments  of  Subsidiaries.  Each Person which  becomes a  Subsidiary  of the
Company  after the date of the Closing will be deemed to have made,  on the date
such Person becomes a Subsidiary of the Company,  all Restricted  Investments of
such Person in existence on such date.

SECTION11.  EVENTS OF  DEFAULT.  An Event of Default  shall  exist if any of the
following  conditions or events shall occur and be  continuing:  (a) the Company
defaults in the payment of any  principal or Make-Whole  Amount,  if any, on any
Note when the same  becomes  due and  payable,  whether at maturity or at a date
fixed for prepayment or by declaration or otherwise; or (b) the Company defaults
in the  payment of any  interest  on any Note for more than five  Business  Days
after the same  becomes  due and  payable;  or (c) the  Company  defaults in the
performance of or compliance  with any term  contained  herein (other than those
referred to in paragraphs (a) and (b) of this Section11) and such default is not
remedied within 30 Business Days; or (d) any  representation or warranty made in
writing by or on behalf of the  Company or by any officer of the Company in this
Agreement  or in any  writing  furnished  in  connection  with the  transactions
contemplated  hereby  proves to have been  false or  incorrect  in any  material
respect  on the date as of which  made;  or (e)  either  (i)the  Company  or any
Subsidiary  is in default (as  principal or as guarantor or other surety) in the
payment of any principal of or premium or  make-whole  amount or interest on any
Indebtedness  that is outstanding in an aggregate  principal  amount of at least
$5,000,000 beyond any period of grace provided with respect thereto,  or (ii)the
Company or any Subsidiary is in default in the performance of or compliance with
any  term  of any  evidence  of any  Indebtedness  in an  aggregate  outstanding
principal amount of at least  $5,000,000 or of any mortgage,  indenture or other
agreement  relating thereto or any other condition exists,  and as a consequence
of such default or condition such  Indebtedness has become, or has been declared
due and payable  before its stated  maturity or before its  regularly  scheduled
dates of payment; or (f) the Company or any Principal Subsidiary (i)is generally
not paying,  or admits in writing its inability to pay, its debts as they become
due, (ii)files,  or consents by answer or otherwise to the filing against it of,
a petition for relief or  reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy,  insolvency,
reorganization,  moratorium or other similar law of any jurisdiction, (iii)makes
an assignment for the benefit of its creditors,  (iv)consents to the appointment
of a custodian,  receiver,  trustee or other  officer  with similar  powers with
respect to it or with respect to any  substantial  part of its  property,  (v)is
adjudicated as insolvent or to be liquidated,  or (vi)takes corporate action for
the purpose of any of the foregoing; or (g) a court or governmental authority of
competent  jurisdiction  enters  an order  appointing,  without  consent  by the
Company or any Principal  Subsidiary,  a custodian,  receiver,  trustee or other
officer  with  similar  powers  with  respect  to  it or  with  respect  to  any
substantial  part of its  property,  or  constituting  an order  for  relief  or
approving  a petition  for relief or  reorganization  or any other  petition  in
bankruptcy  or  for  liquidation  or to  take  advantage  of any  bankruptcy  or
insolvency law of any jurisdiction,  or ordering the dissolution,  winding-up or
liquidation  of the Company or any of its  Principal  Subsidiaries,  or any such
petition shall be filed against the Company or any of its Principal Subsidiaries
and such petition shall not be dismissed within 60 days; or (h) a final judgment
or  judgments  for  the  payment  of  money  aggregating  in  excess  of  5%  of
Consolidated  Total Assets are  rendered  against one or more of the Company and
its  Principal  Subsidiaries  and are not,  within 60 days after entry  thereof,
bonded,  discharged or stayed pending  appeal,  or are not discharged  within 60
days  after the  expiration  of such stay;  or (i) if (i)any  Plan shall fail to
satisfy the minimum funding  standards of ERISA or the Code for any plan year or
part thereof or a waiver of such  standards  or  extension  of any  amortization
period is sought or granted under section412 of the Code, (ii)a notice of intent
to terminate any Plan shall have been filed with the PBGC or the PBGC shall have
instituted proceedings under ERISA section4042 to terminate or appoint a trustee
to administer  any Plan or the PBGC shall have notified the Company or any ERISA
Affiliate  that a Plan may  become a subject of any such  proceedings,  (iii)the
Company or any ERISA  Affiliate  shall have incurred any  liability  pursuant to
Title I or IV of ERISA or the  penalty  or  excise  tax  provisions  of the Code
relating to  employee  benefit  plans,  (iv)the  Company or any ERISA  Affiliate
incurs  withdrawal   liability  in  connection  with  the  withdrawal  from  any
Multiemployer  Plan, or (v)the Company or any  Subsidiary  establishes or amends
any employee welfare benefit plan that provides post-employment welfare benefits
in a manner that would  increase the liability of the Company or any  Subsidiary
thereunder;  provided,  however,  none of the  events  described  in  clauses(i)
through (v) above shall  constitute an Event of Default unless any such event or
events  described  in clauses  (i)  through (v) above,  either  individually  or
together  with any other such event or events,  would  reasonably be expected to
have a Material  Adverse  Effect.  As used in  Section11(i),  the terms employee
benefit  plan and  employee  welfare  benefit  plan  shall  have the  respective
meanings assigned to such terms in Section3 of ERISA.

SECTION12. REMEDIES ON DEFAULT, ETC. Section12.1.  Acceleration.  (a)If an Event
of Default  with respect to the Company  described  in  paragraph  (f) or (g) of
Section11  (other than an Event of Default  described in clause (i) of paragraph
(f) or described in clause (vi) of paragraph (f) by virtue of the fact that such
clause encompasses clause (i) of paragraph (f)) has occurred, all the Notes then
outstanding shall automatically  become immediately due and payable.  (b) If any
other Event of Default has occurred and is continuing,  any holder or holders of
at least 51% in principal amount of the Notes at the time outstanding may at any
time at its or their  option,  by  written  notice or  notices  to the  Company,
declare all the Notes then outstanding to be immediately due and payable. (c) If
any Event of Default described in paragraph (a) or (b) of Section11 has occurred
and is  continuing,  any  holder  or  holders  of Notes at the time  outstanding
affected by such Event of Default may at any time,  at its or their  option,  by
notice or notices to the Company, declare all the Notes held by it or them to be
immediately due and payable.  Upon any Notes becoming due and payable under this
Section12.1,  whether automatically or by declaration,  such Note will forthwith
mature and the entire unpaid  principal amount of such Note, plus (x)all accrued
and unpaid interest thereon and (y)the  Make-Whole  Amount determined in respect
of such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without  presentment,
demand,  protest or further notice,  all of which are hereby waived. The Company
acknowledges,  and the parties hereto agree,  that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically  provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are  accelerated  as a result of an Event of  Default,  is  intended  to provide
compensation  for  the  deprivation  of such  right  under  such  circumstances.
Section12.2. Other Remedies. If any Default or Event of Default has occurred and
is continuing,  and  irrespective  of whether any Notes have become or have been
declared  immediately due and payable under Section12.1,  the holder of any Note
at the time  outstanding  may  proceed to protect and enforce the rights of such
holder  by an action at law,  suit in  equity or other  appropriate  proceeding,
whether for the specific performance of any agreement contained herein or in any
Note,  or for an  injunction  against a violation  of any of the terms hereof or
thereof,  or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise. Section12.3. Rescission. At any time after any Notes have been
declared  due and payable  pursuant to clause (b) of  Section12.1,  the Required
Holders,  by  written  notice to the  Company,  may  rescind  and annul any such
declaration and its consequences if (a)the Company has paid all overdue interest
on the Notes, all principal of and Make-Whole  Amount, if any, on any Notes that
are due and payable and are unpaid other than by reason of such declaration, and
all interest on such overdue  principal and Make-Whole  Amount,  if any, and (to
the extent  permitted by applicable law) any overdue  interest in respect of the
Notes,  at the Default Rate,  (b)all Events of Default and Defaults,  other than
non-payment   of  amounts  that  have  become  due  solely  by  reason  of  such
declaration,  have been cured or have been  waived  pursuant to  Section17,  and
(c)no  judgment  or decree has been  entered  for the  payment of any monies due
pursuant  hereto  or to the  Notes.  No  rescission  and  annulment  under  this
Section12.3  will extend to or affect any subsequent Event of Default or Default
or impair any right consequent thereon.  Section12.4.  No Waivers or Election of
Remedies,  Expenses,  etc.  No course of dealing and no delay on the part of any
holder of any Note in exercising  any right,  power or remedy shall operate as a
waiver thereof or otherwise  prejudice such holders rights,  powers or remedies.
No right,  power or remedy  conferred by this  Agreement or by any Note upon any
holder thereof shall be exclusive of any other right,  power or remedy  referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise.  Without  limiting the obligations of the Company under Section15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient  to cover all costs and expenses of such holder  incurred in
any  enforcement  or  collection  under  this  Section12,   including,   without
limitation, reasonable attorneys fees, expenses and disbursements.

SECTION13.   REGISTRATION;   EXCHANGE;   SUBSTITUTION  OF  NOTES.   Section13.1.
Registration of Notes. The Company shall keep at its principal  executive office
a register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes,  each transfer  thereof and the
name and address of each  transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be  registered  shall be deemed and  treated as the
owner and holder thereof for all purposes  hereof,  and the Company shall not be
affected by any notice or knowledge to the  contrary.  The Company shall give to
any holder of a Note that is an  Institutional  Investor  promptly  upon request
therefor,  a  complete  and  correct  copy of the  names  and  addresses  of all
registered holders of Notes.  Section13.2.  Transfer and Exchange of Notes. Upon
surrender  of any Note at the  principal  executive  office of the  Company  for
registration  of  transfer  or  exchange  (and in the  case of a  surrender  for
registration of transfer,  duly endorsed or accompanied by a written  instrument
of transfer duly executed by the registered  holder of such Note or its attorney
duly  authorized in writing and  accompanied  by the address for notices of each
transferee of such Note or part thereof), the Company shall execute and deliver,
at the Companys  expense (except as provided  below),  one or more new Notes (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal  amount of the surrendered  Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially  in the form of  Exhibit  1. Each such new Note shall be dated and
bear  interest  from the date to which  interest  shall  have  been  paid on the
surrendered  Note or dated the date of the surrendered Note if no interest shall
have been paid thereon.  The Company may require  payment of a sum sufficient to
cover  any stamp tax or  governmental  charge  imposed  in  respect  of any such
transfer of Notes.  Notes shall not be transferred in denominations of less than
$100,000, provided that if necessary to enable the registration of transfer by a
holder of its entire holding of Notes, one Note may be in a denomination of less
than  $100,000.  Any  transferee  of a Note,  or  purchaser  of a  participation
therein,  shall,  by its  acceptance  of such  Note be  deemed  to make the same
representations  to the Company  regarding the Note or participation as you have
made  pursuant to  Section6.2,  provided  that such entity may (in reliance upon
information provided by the Company,  which shall not be unreasonably  withheld)
make a representation to the effect that the purchase by such entity of any Note
will not constitute a non-exempt  prohibited  transaction under Section406(a) of
ERISA.  Section13.3.  Replacement  of Notes.  Upon  receipt  by the  Company  of
evidence reasonably  satisfactory to it of the ownership of and the loss, theft,
destruction  or mutilation of any Note (which  evidence shall be, in the case of
an  Institutional  Investor,  notice  from such  Institutional  Investor of such
ownership and such loss, theft, destruction or mutilation),  and (a) in the case
of loss,  theft or  destruction,  of  indemnity  reasonably  satisfactory  to it
(provided  that if the  holder  of such Note is,  or is a  nominee  for,  you or
another holder of a Note with a minimum net worth of at least $50,000,000,  such
Persons  own   unsecured   agreement  of   indemnity   shall  be  deemed  to  be
satisfactory), or (b) in the case of mutilation, upon surrender and cancellation
thereof,  the Company at its own expense  shall  execute  and  deliver,  in lieu
thereof,  a new Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen,  destroyed or mutilated Note or dated
the date of such lost, stolen,  destroyed or mutilated Note if no interest shall
have been paid thereon.

SECTION14.  PAYMENTS  ON  NOTES.  Section14.1.  Place  of  Payment.  Subject  to
Section14.2,  payments of  principal,  Make-Whole  Amount,  if any, and interest
becoming due and payable on the Notes shall be made in Westfield,  New Jersey at
the principal office of the Company in such jurisdiction. The Company may at any
time,  by notice to each  holder of a Note,  change  the place of payment of the
Notes so long as such place of payment shall be either the  principal  office of
the  Company in such  jurisdiction  or the  principal  office of a bank or trust
company in such jurisdiction.  Section14.2.  Home Office Payment. So long as you
or your nominee shall be the holder of any Note,  and  notwithstanding  anything
contained in Section14.1  or in such Note to the contrary,  the Company will pay
all sums becoming due on such Note for principal, Make-Whole Amount, if any, and
interest by the method and at the address  specified for such purpose below your
name in  Schedule  A, or by such other  method or at such  other  address as you
shall  have from time to time  specified  to the  Company  in  writing  for such
purpose, without the presentation or surrender of such Note or the making of any
notation  thereon,  except  that  upon  written  request  of  the  Company  made
concurrently with or reasonably  promptly after payment or prepayment in full of
any Note, you shall surrender such Note for  cancellation,  reasonably  promptly
after any such request,  to the Company at its principal  executive office or at
the place of  payment  most  recently  designated  by the  Company  pursuant  to
Section14.1.  The Company  will afford the benefits of this  Section14.2  to any
Institutional  Investor  that is the direct or indirect  transferee  of any Note
purchased  by you  under  this  Agreement  and that has made the same  agreement
relating to such Note as you have made in this Section14.2.

SECTION15. EXPENSES, ETC. Section15.1.  Transaction Expenses. Whether or not the
transactions contemplated hereby are consummated, the Company will pay all costs
and expenses (including  reasonable  attorneys fees of a special counsel and, if
reasonably required,  local or other counsel) incurred by you and each holder of
a Note  in  connection  with  such  transactions  and  in  connection  with  any
amendments,  waivers or consents  under or in respect of this  Agreement  or the
Notes  (whether or not such  amendment,  waiver or consent  becomes  effective),
including,  without limitation:  (a)the costs and expenses incurred in enforcing
or  defending  (or  determining  whether or how to enforce or defend) any rights
under this  Agreement  or the Notes or in  responding  to any  subpoena or other
legal process or informal  investigative  demand issued in connection  with this
Agreement or the Notes,  or by reason of being a holder of any Note,  and (b)the
costs and expenses,  including  financial advisors fees,  incurred in connection
with the  insolvency  or  bankruptcy  of the  Company  or any  Subsidiary  or in
connection with any work-out or restructuring  of the transactions  contemplated
hereby and by the Notes.  The Company will pay, and will save you and each other
holder of a Note  harmless  from,  all claims in  respect of any fees,  costs or
expenses  if any, of brokers  and  finders  (other than those  retained by you).
Section15.2.  Survival. The obligations of the Company under this Section15 will
survive  the  payment or transfer of any Note,  the  enforcement,  amendment  or
waiver of any provision of this Agreement or the Notes,  and the  termination of
this Agreement.

SECTION16.  SURVIVAL OF REPRESENTATIONS  AND WARRANTIES;  ENTIRE AGREEMENT.  All
representations and warranties  contained herein shall survive the execution and
delivery of this Agreement and the Notes, the purchase or transfer by you of any
Note or portion thereof or interest therein and the payment of any Note, and may
be  relied  upon  by  any  subsequent  holder  of  a  Note,  regardless  of  any
investigation  made at any time by or on behalf of you or any other  holder of a
Note. All statements  contained in any certificate or other instrument delivered
by or on  behalf  of the  Company  pursuant  to this  Agreement  shall be deemed
representations  and warranties of the Company under this Agreement.  Subject to
the preceding sentence, this Agreement and the Notes embody the entire agreement
and understanding between you and the Company and supersede all prior agreements
and understandings relating to the subject matter hereof.

SECTION17. AMENDMENT AND WAIVER. Section17.1.  Requirements.  This Agreement and
the Notes may be amended,  and the observance of any term hereof or of the Notes
may be waived (either retroactively or prospectively),  with (and only with) the
written  consent of the  Company  and the  Required  Holders,  except that (a)no
amendment  or  waiver of the  notice  periods  in  Section8  hereof,  any of the
provisions of Section1,  2, 3, 4, 5, 6 or 21 hereof,  or any defined term (as it
is used  therein),  will be  effective  as to you unless  consented to by you in
writing,  and (b)no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby,  (i)subject to
the provisions of Section12  relating to acceleration or rescission,  change the
amount or time of any  prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of  computation  of  interest  or of the
Make-Whole  Amount on, the Notes,  (ii)change  the  percentage  of the principal
amount of the Notes the  holders  of which are  required  to consent to any such
amendment  or waiver,  or  (iii)amend  any of  Sections 8 (other than the notice
periods  therein),  11(a),  11(b),  12, 17 or 20.  Section17.2.  Solicitation of
Holders of Notes. (a) Solicitation.  The Company will provide each holder of the
Notes  (irrespective  of the amount of Notes  then owned by it) with  sufficient
information,  sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and  considered  decision with respect to
any proposed  amendment,  waiver or consent in respect of any of the  provisions
hereof or of the Notes.  The Company will  deliver  executed or true and correct
copies of each amendment,  waiver or consent effected pursuant to the provisions
of this  Section17 to each holder of outstanding  Notes  promptly  following the
date on which it is  executed  and  delivered  by, or  receives  the  consent or
approval of, the requisite  holders of Notes. (b) Payment.  The Company will not
directly or indirectly pay or cause to be paid any remuneration,  whether by way
of supplemental or additional interest, fee or otherwise, or grant any security,
to any holder of Notes as consideration  for or as an inducement to the entering
into by any holder of Notes or any waiver or  amendment  of any of the terms and
provisions hereof or of the Notes unless such remuneration is concurrently paid,
or security is concurrently  granted, on the same terms,  ratably to each holder
of Notes then outstanding whether or not such holder consented to such waiver or
amendment.  Section17.3.  Binding Effect, etc. Any amendment or waiver consented
to as provided in this Section17  applies equally to all holders of Notes and is
binding  upon them and upon each future  holder of any Note and upon the Company
without  regard to whether such Note has been marked to indicate such  amendment
or waiver.  No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising  any rights  hereunder or
under any Note  shall  operate  as a waiver of any  rights of any holder of such
Note. As used herein,  the term this Agreement and references thereto shall mean
this  Agreement  as it may  from  time  to  time  be  amended  or  supplemented.
Section17.4.  Notes Held by Company,  etc. Solely for the purpose of determining
whether the  holders of the  requisite  percentage  of the  aggregate  principal
amount of Notes then outstanding approved or consented to any amendment,  waiver
or consent to be given under this  Agreement or the Notes,  or have directed the
taking  of any  action  provided  herein  or in the  Notes to be taken  upon the
direction of the holders of a specified  percentage of the  aggregate  principal
amount of Notes then  outstanding,  Notes  directly or  indirectly  owned by the
Company or any of its Affiliates shall be deemed not to be outstanding.

SECTION18.  NOTICES. All notices and communications provided for hereunder shall
be in writing and sent (a)by telefacsimile if the sender on the same day sends a
confirming  copy of such  notice  by a  recognized  overnight  delivery  service
(charges  prepaid),  or (b)by  registered or certified  mail with return receipt
requested  (postage prepaid),  or (c)by a recognized  overnight delivery service
(with  charges  prepaid).  Any such notice  must be sent:  (i) if to you or your
nominee,  to you or it at the  address  specified  for  such  communications  in
Schedule A, or at such other  address as you or it shall have  specified  to the
Company in writing,  (ii) if to any other holder of any Note,  to such holder at
such  address  as such  other  holder  shall have  specified  to the  Company in
writing,  or (iii) if to the Company, to the Company at its address set forth at
the beginning hereof to the attention of the Treasurer, or at such other address
as the  Company  shall have  specified  to the  holder of each Note in  writing.
Notices under this Section18 will be deemed given only when actually received.

SECTION19.  REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
thereto, including, without limitation,  (a)consents,  waivers and modifications
that may  hereafter  be  executed,  (b)documents  received by you at the Closing
(except the Notes  themselves),  and (c)financial  statements,  certificates and
other information previously or hereafter furnished to you, may be reproduced by
you  by  any  photographic,   photostatic,   microfilm,   microcard,   miniature
photographic or other similar process and you may destroy any original  document
so reproduced.  The Company agrees and stipulates  that, to the extent permitted
by applicable law, any such reproduction  shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the  regular  course of  business)  and any  enlargement,  facsimile  or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section19  shall not  prohibit  the  Company  or any other  holder of Notes from
contesting  any such  reproduction  to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.

SECTION20.  CONFIDENTIAL  INFORMATION.  For  the  purposes  of  this  Section20,
Confidential  Information means information  delivered to you by or on behalf of
the Company or any Subsidiary in connection with the  transactions  contemplated
by or otherwise  pursuant to this  Agreement  that is  proprietary in nature and
that was  clearly  marked or labeled or  otherwise  adequately  identified  when
received  by you as  being  confidential  information  of the  Company  or  such
Subsidiary,  provided  that such term does not include  information  that (a)was
publicly known or otherwise  known to you prior to the time of such  disclosure,
(b)subsequently  becomes publicly known through no act or omission by you or any
person  acting on your  behalf,  (c)otherwise  becomes  known to you other  than
through disclosure by the Company or any Subsidiary or (d)constitutes  financial
statements  delivered  to you  under  Section7.1  that  are  otherwise  publicly
available.   You  will  maintain  the   confidentiality   of  such  Confidential
Information  in  accordance  with  procedures  adopted  by you in good  faith to
protect  confidential  information of third parties  delivered to you,  provided
that you may deliver or disclose Confidential  Information to (i)your directors,
officers,  employees,  agents,  attorneys  and  affiliates  (to the extent  such
disclosure   reasonably   relates  to  the   administration  of  the  investment
represented by your Notes),  (ii)your  financial advisors and other professional
advisors  who  agree  to  hold   confidential   the   Confidential   Information
substantially  in accordance  with the terms of this  Section20,  (iii)any other
holder of any Note, (iv)any Institutional Investor to which you sell or offer to
sell such Note or any part thereof or any participation  therein (if such Person
has agreed in writing prior to its receipt of such  Confidential  Information to
be  bound  by the  provisions  of  this  Section20),  (v)any  federal  or  state
regulatory  authority having jurisdiction over you, (vi)the National Association
of  Insurance  Commissioners  or any  similar  organization,  or any  nationally
recognized  rating  agency  that  requires  access  to  information  about  your
investment  portfolio,  or  (vii)any  other  Person to which  such  delivery  or
disclosure may be necessary or appropriate (w)to effect compliance with any law,
rule,  regulation or order  applicable to you, (x)in response to any subpoena or
other legal process,  (y)in connection with any litigation  involving or related
to the Company, this Agreement or the Notes to which you are a party or (z)if an
Event  of  Default  has  occurred  and is  continuing,  to the  extent  you  may
reasonably determine such delivery and disclosure to be necessary or appropriate
in the  enforcement  or for the protection of the rights and remedies under your
Notes and this  Agreement.  Each holder of a Note, by its  acceptance of a Note,
will be deemed to have agreed to be bound by and to be entitled to the  benefits
of this  Section20 as though it were a party to this  Agreement.  On  reasonable
request by the Company in  connection  with the delivery to any holder of a Note
of  information  required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this  Agreement
or its nominee or any other holder that shall have  previously  delivered such a
confirmation),  such  holder  will  confirm in  writing  that it is bound by the
provisions of this Section20.

SECTION21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any
one of your  Affiliates  as the  purchaser  of the Notes that you have agreed to
purchase  hereunder,  by written  notice to the  Company,  which notice shall be
signed by both you and such Affiliate,  shall contain such Affiliates  agreement
to be bound by this Agreement and shall contain a confirmation by such Affiliate
of the accuracy with respect to it of the representations set forth in Section6.
Upon  receipt of such notice,  wherever  the word you is used in this  Agreement
(other  than in this  Section21),  such  word  shall be  deemed to refer to such
Affiliate in lieu of you. In the event that such  Affiliate is so substituted as
a purchaser hereunder and such Affiliate  thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer,  wherever the word you is used in this  Agreement  (other than in this
Section21),  such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you,  and you shall have all the rights of an original  holder of
the Notes under this Agreement.

SECTION22. MISCELLANEOUS. Section22.1. Successors and Assigns. All covenants and
other  agreements  contained  in this  Agreement  by or on  behalf of any of the
parties hereto bind and inure to the benefit of their respective  successors and
assigns (including, without limitation, any subsequent holder of a Note) whether
so expressed or not. Section22.2. Payments Due on Non-Business Days. Anything in
this  Agreement  or the Notes to the  contrary  notwithstanding,  any payment of
principal of or Make-whole  Amount or interest on any Note that is due on a date
other  than a Business  Day shall be made on the next  succeeding  Business  Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding  Business Day.  Section22.3.  Severability.  Any
provision  of  this  Agreement  that  is  prohibited  or  unenforceable  in  any
jurisdiction  shall,  as to such  jurisdiction,  be ineffective to the extent of
such  prohibition  or  unenforceability   without   invalidating  the  remaining
provisions  hereof,  and  any  such  prohibition  or   unenforceability  in  any
jurisdiction  shall (to the full  extent  permitted  by law) not  invalidate  or
render  unenforceable  such  provision in any other  jurisdiction.  Section22.4.
Construction.  Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein,  so that  compliance  with any one  covenant  shall not (absent  such an
express  contrary  provision)  be  deemed to  excuse  compliance  with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which  such  Person  is  prohibited  from  taking,  such  provision  shall be
applicable  whether such action is taken  directly or indirectly by such Person.
Section22.5.  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one  instrument.  Each  counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.  Section22.6.  Governing  Law.  This  Agreement  shall be construed  and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York excluding  choice-of-law  principles of the law
of such State that would require the  application  of the laws of a jurisdiction
other than such State.  * * * * * If you are in  agreement  with the  foregoing,
please  sign the  form of  agreement  on the  accompanying  counterpart  of this
Agreement and return it to the Company,  whereupon the foregoing  shall become a
binding agreement between you and the Company. Signatures Very truly yours,

ETOWN CORPORATION


By
        [Title]


The foregoing is hereby
agreed to as of the
date thereof.

AMERICAN GENERAL LIFE INSURANCE COMPANY


By
Its


INFORMATION RELATING TO PURCHASERS


NAME AND ADDRESS OF PURCHASER

PRINCIPAL AMOUNT OF NOTES TO BE
PURCHASED
AMERICAN GENERAL LIFE INSURANCE COMPANY
c/o American General Corporation
Attention:  Investment Research Department, A37-01
P. O. Box 3247
Houston, Texas  77253-3247

December22, 1997 Closing:  $4,000,000
January8, 1998 Closing:  $6,000,000
May15, 1998 Closing:  $2,000,000

Overnight Mailing Address:
2929 Allen Parkway
Houston, Texas  77019-2155

Facsimile No. (713) 831-1366
Payments

     All  payments on or in respect of the Notes to be by bank wire  transfer of
Federal or other immediately  available funds (identifying each payment as Etown
Corporation,  6.79% Senior Notes due 2007, PPN269242 B@1, principal or interest)
to:

ABA #011000028
State Street Bank and Trust Company
Boston, Massachusetts  02101
Re:  American General Life Insurance Company
AC-0125-880-5
OBI=PPN # and description of payment
Fund Number PA 40
Notices
     All  notices  of  payment  on  or in  respect  of  the  Notes  and  written
confirmation of each such payment to:
American General Life Insurance Company and PA 40
c/o State Street Bank and Trust Company
Insurance Services Custody (AH2)
1776 Heritage Drive
North Quincy, Massachusetts  02171
Attention:  Susan Collins, Manager Insurance Services
Facsimile Number:  (617) 985-4923
     Duplicate payment notices and all other  correspondences to be addressed as
first  provided  above.  Name of Nominee in which  Notes are to be issued:  None
Taxpayer I.D. Number: 25-0598210


     DEFINED TERMS GENERAL PROVISIONS Where the character or amount of any asset
or  liability or item of income or expense is required to be  determined  or any
consolidation  or other  accounting  computation  is required to be made for the
purposes of this  Agreement,  the same shall be done in accordance with GAAP, to
the extent  applicable,  except where such principles are inconsistent  with the
express requirements of this Agreement.

DEFINITIONS  As  used  herein,  the
following terms have the respective meanings set forth below or set forth in the
Sectionhereof  following  such  term:  Affiliate  means,  at any time,  and with
respect to any Person, any other Person that at such time directly or indirectly
through one or more  intermediaries  Controls,  or is Controlled by, or is under
common  Control with,  such first Person.  As used in this  definition,  Control
means the  possession,  directly or indirectly,  of the power to direct or cause
the direction of the  management and policies of a Person,  whether  through the
ownership of voting  securities,  by contract or  otherwise.  Unless the context
otherwise clearly  requires,  any reference to an Affiliate is a reference to an
Affiliate of the Company.  Asset Disposition means any Transfer except:  (a) any
(i) Transfer from a Subsidiary of  Elizabethtown  Water Company to Elizabethtown
Water Company or a Wholly-Owned  Subsidiary of Elizabethtown Water Company; (ii)
Transfer  from  Elizabethtown  Water  Company to a  Wholly-Owned  Subsidiary  of
Elizabethtown Water Company; and (iii) Transfer from Elizabethtown Water Company
to a  Subsidiary  of  Elizabethtown  Water  Company  (other than a  Wholly-Owned
Subsidiary of Elizabethtown Water Company) or from a Subsidiary of Elizabethtown
Water Company to another Subsidiary of Elizabethtown Water Company (other than a
Wholly-Owned Subsidiary of Elizabethtown Water Company), which in either case is
for Fair Market Value, so long as immediately  before and immediately  after the
consummation of any such Transfer and after giving effect thereto, no Default or
Event of Default  exists;  and (b) any Transfer  made in the ordinary  course of
business and involving  only property that is either (i) inventory held for sale
or (ii) pipes and other  utility plant assets,  equipment,  vehicles,  fixtures,
supplies or  materials  no longer  required in the  operation of the business of
Elizabethtown  Water Company or any Subsidiary of Elizabethtown Water Company or
that is worn out,  permanently  unserviceable  or  obsolete.  Business Day means
(a)for the purposes of Section8.6 only, any day other than a Saturday,  a Sunday
or a day on which  commercial  banks in New York City are required or authorized
to be closed,  and (b)for the purposes of any other provision of this Agreement,
any day other than a Saturday,  a Sunday or a day on which  commercial  banks in
Newark,  New  Jersey or New York,  New York are  required  or  authorized  to be
closed.  Capital  Lease  means,  at any time,  a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in  accordance  with GAAP.  Capital  Lease  Obligation
means,  with  respect  to any  Person  and a Capital  Lease,  the  amount of the
obligation of such Person as the lessee under such Capital Lease which would, in
accordance  with GAAP,  appear as a liability on a balance sheet of such Person.
Closing is defined in Section3. Code means the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations  promulgated thereunder
from time to time.  Company means Etown Corporation,  a New Jersey  corporation.
Confidential Information is defined in Section20. Consensual Lien means any Lien
that is  voluntarily  agreed to or  consented to by the Company or that has been
granted  or  created  by the  Company  for  the  benefit  of any  other  Person.
Consolidated  Assets means, at any time, the total assets of the Company and its
Subsidiaries  which would be shown as assets on a consolidated  balance sheet of
the Company and its  Subsidiaries  as of such time prepared in  accordance  with
GAAP, after eliminating all amounts properly attributable to minority interests,
if  any,  in  the  stock  and  surplus  of  Subsidiaries.   Consolidated  Common
Shareholders  Equity  means,  at any time,  (a) the sum of (i) the par value (or
value stated on the books of the corporation) of the common stock of the Company
and its  Subsidiaries  plus (ii) the amount of the paid-in  capital and retained
earnings of the Company and its Subsidiaries, in each case as such amounts would
be shown on a consolidated  balance sheet of the Company and its Subsidiaries as
of such time  prepared in  accordance  with GAAP,  provided  that there shall be
excluded from this  clause(a)  treasury  stock and common stock  subscribed  and
unissued,  minus (b) to the extent included in clause (a), all amounts  properly
attributable  to  minority  interests,  if any,  in the  stock  and  surplus  of
Subsidiaries.  Consolidated  Debt means,  as of any date of  determination,  the
total of all Debt of the Company and its Subsidiaries  outstanding on such date,
after  eliminating all offsetting debits and credits between the Company and its
Subsidiaries  and all other items required to be eliminated in the course of the
preparation  of  consolidated  financial  statements  of  the  Company  and  its
Subsidiaries in accordance with GAAP.  Consolidated  Income  Available for Fixed
Charges  means,  with  respect to any period,  Consolidated  Net Income for such
period  plus all  amounts  deducted  in the  computation  thereof  on account of
(a)Fixed  Charges  and  (b)taxes  imposed  on or  measured  by  income or excess
profits. Consolidated Net Income means, with reference to any period, the income
(or  loss)  of  the  Company  and  its  Subsidiaries  for  such  period,  before
Distributions paid during such period by the Company and its Subsidiaries (taken
as  a  cumulative  whole  excluding   Extraordinary  Items),  as  determined  in
accordance  with GAAP,  after  eliminating  all  offsetting  debits and  credits
between  the  Company and its  Subsidiaries  and all other items  required to be
eliminated in the course of the preparation of consolidated financial statements
of the  Company  and its  Subsidiaries  in  accordance  with GAAP.  Consolidated
Operating  Revenues means, for any period, the operating revenues of the Company
and  its  Subsidiaries   which  would  be  shown  as  operating  revenues  on  a
consolidated  statement of income of the Company and its  Subsidiaries  for such
period prepared in accordance with GAAP. Debenture Indenture  Application means,
with respect to any Transfer of property, the application by Elizabethtown Water
Company within 365 days of such Transfer of the Net Proceeds Amount with respect
to such Transfer in accordance  with Section 5.08 (and the related  definitions)
of the Indenture dated as of October15, 1988 between Elizabethtown Water Company
and Citibank, N.A., as trustee, as amended through the date of the first Closing
(or any provision of any other Debenture  Indenture which is  substantially  the
same as such Section 5.08 (and the related  definitions)).  Debenture Indentures
means (i)the Indentures  pursuant to which the Debentures of Elizabethtown Water
Company  listed  on  Schedule  5.15  were  issued  and  are   outstanding,   and
(ii)substantially  similar  Indentures  pursuant to which  future  series of the
Debentures  of  Elizabethtown  Water  Company may be issued.  Debt  means,  with
respect to any Person,  without  duplication,  (a) its  liabilities for borrowed
money; (b) its liabilities for the deferred  purchase price of property acquired
by such Person  (excluding  accounts  payable  arising in the ordinary course of
business but including,  without limitation,  all liabilities created or arising
under any conditional  sale or other title  retention  agreement with respect to
any such property);  (c) its Capital Lease Obligations;  (d) all liabilities for
borrowed  money  secured by any Lien with respect to any property  owned by such
Person  (whether  or not it has  assumed  or  otherwise  become  liable for such
liabilities); and (e) any Guaranty of such Person with respect to liabilities of
a type  described  in any of clauses (a) through (d) hereof.  Debt of any Person
shall  include all  obligations  of such Person of the  character  described  in
clauses (a) through (e) to the extent  such  Person  remains  legally  liable in
respect  thereof  notwithstanding  that  any such  obligation  is  deemed  to be
extinguished under GAAP. Debt Prepayment  Application means, with respect to any
Transfer of property,  the  application  within 180days of such Transfer  (other
than in a Debenture Indenture Application) of cash in an amount equal to the Net
Proceeds  Amount with respect to such Transfer to pay Debt of the  Subsidiary of
the  Company   making  such  Transfer,   Elizabethtown   Water  Company  or  any
Wholly-Owned  Subsidiary  (other  than  Debt  owing to the  Company,  any of its
Subsidiaries  or any Affiliate  and Debt in respect of any  revolving  credit or
similar credit facility  providing the Company or any of its  Subsidiaries  with
the  right to obtain  loans or other  extensions  of  credit  from time to time,
except  to the  extent  that  in  connection  with  such  payment  of  Debt  the
availability of credit under such credit  facility is permanently  reduced by an
amount not less than the amount of such proceeds  applied to the payment of such
Debt).  Default means an event or condition the occurrence or existence of which
would,  with the lapse of time or the giving of notice or both,  become an Event
of  Default.  Default  Rate means that rate of  interest  that is the greater of
(i)2% per annum  above the rate of  interest  stated in clause  (a) of the first
paragraph of the Notes or (ii)2% over the rate of interest publicly announced by
The  Bank  of New  York  in New  York,  New  York as its  base  or  prime  rate.
Disposition  Value means,  at any time,  with respect to any property (a) in the
case of  property  that does not  constitute  Subsidiary  Stock,  the book value
thereof,  valued at the time of such  disposition  in good faith by the Company,
and (b) in the case of property that  constitutes  Subsidiary  Stock,  an amount
equal to that  percentage  of book  value of the assets of the  Subsidiary  that
issued  such  stock as is equal to the  percentage  that the book  value of such
Subsidiary Stock represents of the book value of all of the outstanding  capital
stock of such  Subsidiary  (assuming,  in  making  such  calculations,  that all
Securities  convertible into such capital stock are so converted and giving full
effect to all  transactions  that would occur or be required in connection  with
such  conversion)  determined at the time of the  disposition  thereof,  in good
faith  by the  Company.  Distribution  means,  in  respect  of any  corporation,
association or other business  entity  dividends paid on Preferred Stock of such
corporation,  association or other business entity (except distributions in such
stock or other equity interest).  Environmental  Laws means any and all Federal,
state,  local,  and foreign  statutes,  laws,  regulations,  ordinances,  rules,
judgments, orders, decrees, permits, concessions,  grants, franchises, licenses,
agreements or governmental restrictions relating to pollution and the protection
of the  environment  or the  release  of any  materials  into  the  environment,
including  but not limited to those  related to hazardous  substances or wastes,
air  emissions  and  discharges  to waste or  public  systems.  ERISA  means the
Employee  Retirement  Income Security Act of 1974, as amended from time to time,
and the  rules  and  regulations  promulgated  thereunder  from  time to time in
effect.   ERISA  Affiliate   means  any  trade  or  business   (whether  or  not
incorporated)  that is treated as a single  employer  together  with the Company
under section414 of the Code. Event of Default is defined in Section11. Exchange
Act means the Securities  Exchange Act of 1934, as amended.  Extraordinary Items
shall mean  extraordinary  items as defined and  determined in  accordance  with
GAAP. Fair Market Value means, at any time and with respect to any property, the
sale value of such  property  that would be realized in an  arms-length  sale at
such time  between an  informed  and willing  buyer and an informed  and willing
seller  (neither being under a compulsion to buy or sell).  Fixed Charges means,
with respect to any period, the sum of (a)Interest  Charges for such period plus
(b)Lease Rentals for such period. Fixed Charges Coverage Ratio means, at the end
of any  fiscal  quarter of the  Company,  the ratio of (a)  Consolidated  Income
Available for Fixed Charges for the period of four  consecutive  fiscal quarters
ending at the end of such fiscal quarter,  to (b)the sum of (i)Fixed Charges for
such  period plus  (ii)Distributions  paid during such period by the Company and
its  Subsidiaries.  GAAP means generally  accepted  accounting  principles as in
effect from time to time in the United States of America. Governmental Authority
means (a) the  government  of (i) the  United  States of America or any State or
other  political  subdivision  thereof,  or (ii) any  jurisdiction  in which the
Company or any  Subsidiary  conducts all or any part of its  business,  or which
asserts  jurisdiction  over any properties of the Company or any Subsidiary,  or
(b) any  entity  exercising  executive,  legislative,  judicial,  regulatory  or
administrative  functions of, or pertaining  to, any such  government.  Guaranty
means, with respect to any Person, any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such  Person  guaranteeing  or in effect  guaranteeing  (whether by reason of
being a  general  partner  of a  partnership  or  otherwise)  any  Indebtedness,
dividend or other obligation of any other Person in any manner, whether directly
or indirectly,  including (without  limitation)  obligations incurred through an
agreement,  contingent  or  otherwise,  by such  Person:  (a) to  purchase  such
Indebtedness or obligation or any property constituting  security therefor;  (b)
to advance or supply funds (i) for the purchase or payment of such  indebtedness
or  obligation,  or (ii) to maintain any working  capital or other balance sheet
condition or any income statement  condition of any other Person or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or  obligation;  (c) to lease  properties or to purchase  properties or services
primarily  for the  purpose  of  assuring  the  owner  of such  Indebtedness  or
obligation  of  the  ability  of  any  other  Person  to  make  payment  of  the
Indebtedness  or  obligation;  or (d)  otherwise  to  assure  the  owner of such
Indebtedness or obligation  against loss in respect thereof.  In any computation
of the Indebtedness or other liabilities of the obligor under any Guaranty,  the
Indebtedness or other obligations that are the subject of such Guaranty shall be
assumed to be direct obligations of such obligor.  holder means, with respect to
any Note,  the  Person in whose  name such Note is  registered  in the  register
maintained by the Company pursuant to Section13.1.  Indebtedness with respect to
any Person means,  at any time,  without  duplication,  (a) its  liabilities for
borrowed  money  and  its  redemption  obligations  in  respect  of  mandatorily
Redeemable  Preferred Stock; (b) its liabilities for the deferred purchase price
of property acquired by such Person  (excluding  accounts payable arising in the
ordinary  course of business but  including all  liabilities  created or arising
under any conditional  sale or other title  retention  agreement with respect to
any such  property);  (c) all  liabilities  appearing  on its  balance  sheet in
accordance  with GAAP in respect  of Capital  Leases;  (d) all  liabilities  for
borrowed  money  secured by any Lien with respect to any property  owned by such
Person  (whether  or not it has  assumed  or  otherwise  become  liable for such
liabilities);  (e) all its  liabilities  in  respect  of  letters  of  credit or
instruments  serving a similar  function  issued or accepted  for its account by
banks and other financial institutions (whether or not representing  obligations
for  borrowed  money);  (f) Swaps of such  Person;  and (g) any Guaranty of such
Person with  respect to  liabilities  of a type  described in any of clauses (a)
through (f) hereof.  Institutional Investor means (a)any original purchaser of a
Note,  (b)any holder of a Note holding more than 10% of the aggregate  principal
amount of the Notes then  outstanding,  and (c)any bank, trust company,  savings
and loan  association  or other  financial  institution,  any pension plan,  any
investment  company,  any insurance company,  any broker or dealer holding Notes
other than in trading accounts,  or any other similar  financial  institution or
entity,  regardless of legal form.  Interest Charges means,  with respect to any
period,  the  sum  (without   duplication)  of  the  following  (in  each  case,
eliminating  all  offsetting  debits and  credits  between  the  Company and its
Subsidiaries  and all other items required to be eliminated in the course of the
preparation  of  consolidated  financial  statements  of  the  Company  and  its
Subsidiaries in accordance with GAAP): (a)all interest in respect of Debt of the
Company  and its  Subsidiaries  (including  imputed  interest  on Capital  Lease
Obligations) to the extent deducted in determining  Consolidated  Net Income for
such period,  together  with all interest  capitalized  or deferred  during such
period and not deducted in determining  Consolidated Net Income for such period,
and (b)all debt  discount  and expense  amortized or required to be amortized in
the  determination  of  Consolidated  Net Income for such period.  Lease Rentals
means,  with respect to any period,  the sum of the minimum amount of rental and
other  obligations  required to be paid during such period by the Company or any
Subsidiary as lessee under all leases of real or personal  property  (other than
(i)any leases with annual  rentals that do not exceed $10,000 in the case of any
single lease and $100,000 in the aggregate for all such leases excluded pursuant
to this clause (i), and (ii) Capital Leases),  excluding any amounts required to
be paid by the lessee (whether or not therein designated as rental or additional
rental)  (a)which are on account of maintenance and repairs,  insurance,  taxes,
assessments,  water rates and similar charges, or (b)which are based on profits,
revenues or sales  realized by the lessee from the leased  property or otherwise
based on the performance of the lessee.  Lien means, with respect to any Person,
any mortgage,  lien, pledge, charge, security interest or other encumbrance,  or
any interest or title of any vendor, lessor, lender or other secured party to or
of such Person under any conditional sale or other title retention  agreement or
Capital  Lease,  upon or with  respect to any  property  or asset of such Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all  similar  arrangements).  Make-Whole  Amount is defined  in  Section8.6.
Material  means  material  in  relation to the  business,  operations,  affairs,
financial  condition,  assets, or properties of the Company and its Subsidiaries
taken as a whole.  Material  Adverse  Effect means a material  adverse effect on
(a)the business, operations,  affairs, financial condition, assets or properties
of the Company and its  Subsidiaries  taken as a whole, or (b)the ability of the
Company to perform its obligations under this Agreement and the Notes, or (c)the
validity or enforceability of this Agreement or the Notes. Memorandum is defined
in Section5.3.  Multiemployer  Plan means any Plan that is a multiemployer  plan
(as such term is defined in  section4001(a)(3)  of ERISA).  Net Proceeds  Amount
means,  with respect to any  Transfer of any  Property by any Person,  an amount
equal to the difference of (a) the aggregate amount of the consideration (valued
at the Fair Market Value of such  consideration  at the time of the consummation
of such Transfer) received by such Person in respect of such Transfer, minus (b)
all ordinary and reasonable  out-of-pocket  costs and expenses actually incurred
by such Person in connection  with such Transfer.  Notes is defined in Section1.
Officers Certificate means a certificate of a Senior Financial Officer or of any
other officer of the Company whose responsibilities extend to the subject matter
of such  certificate.  PBGC  means  the  Pension  Benefit  Guaranty  Corporation
referred  to and  defined in ERISA or any  successor  thereto.  Person  means an
individual,  partnership,  corporation,  limited liability company, association,
trust,  unincorporated  organization,  or a  government  or agency or  political
subdivision  thereof.  Plan  means  an  employee  benefit  plan (as  defined  in
section3(3)  of ERISA) that is or,  within the  preceding  five years,  has been
established  or  maintained,  or to  which  contributions  are  or,  within  the
preceding  five years,  have been made or required to be made, by the Company or
any ERISA  Affiliate or with respect to which the Company or any ERISA Affiliate
may have any liability.  Preferred Stock means,  in respect of any  corporation,
shares of the capital stock of such  corporation that are entitled to preference
or priority  over any other shares of the capital stock of such  corporation  in
respect of payment of  dividends  or  distribution  of assets upon  liquidation.
Principal Subsidiary means any Subsidiary for which either (i)total assets equal
or  exceed  30%  of  Consolidated  Assets  or  (ii)operating  revenues  for  the
immediately  preceding four fiscal  quarters equal or exceed 30% of Consolidated
Operating  Revenues  for such  period.  property  or  properties  means,  unless
otherwise  specifically limited, real or personal property of any kind, tangible
or intangible, choate or inchoate. Property Reinvestment Application means, with
respect to any Transfer of property,  the  satisfaction of each of the following
conditions: (a) the application within 180days of such Transfer (other than in a
Debenture  Indenture  Application) of an amount equal to the Net Proceeds Amount
with  respect to such  Transfer  to the  acquisition  by the  Subsidiary  of the
Company  making such  Transfer,  Elizabethtown  Water Company or a  Wholly-Owned
Subsidiary  of utility  property of such  Subsidiary  to be used in the ordinary
course of business of such  Subsidiary  and which has a Fair Market Value (after
deduction for any Liens attributable  thereto) at least equal to the Disposition
Value  of the  property  sold;  and (b)  the  Company  shall  have  delivered  a
certificate  of a  Responsible  Officer of the  Company to each holder of a Note
referring to Section10.7  and  identifying  the property that was the subject of
such  Transfer if such  Transfer  shall have  resulted in a Net Proceeds  Amount
greater than $500,000,  the Disposition Value of such property,  and the nature,
terms, amount and application of the proceeds from the Transfer.  QPAM Exemption
means Prohibited  Transaction  Class Exemption 84-14 issued by the United States
Department of Labor.  Redeemable means, with respect to the capital stock of any
Person,  each share of such  Persons  capital  stock  that is:  (a)  redeemable,
payable or required to be  purchased or otherwise  retired or  extinguished,  or
convertible into Debt of such Person (i)at a fixed or determinable date, whether
by operation of sinking fund or otherwise, (ii)at the option of any Person other
than such Person,  or (iii)upon the  occurrence of a condition not solely within
the control of such Person;  or (b) convertible  into other  Redeemable  capital
stock.  Required  Holders  means,  at any time,  the  holders of at least 51% in
principal amount of the Notes at the time  outstanding  (exclusive of Notes then
owned by the Company or any of its  Affiliates).  Responsible  Officer means any
Senior   Financial   Officer  and  any  other   officer  of  the  Company   with
responsibility for the administration of the relevant portion of this agreement.
Restricted  Investments  means  all  investments  in cash in the  common  equity
interests  of  Persons  which  are  not  primarily  engaged  in the  generation,
distribution  or sale of electric  energy or natural gas or the  distribution or
sale of water, or the furnishing of communications  services, or water treatment
and analysis  services,  or in the treatment of wastewater.  Security shall have
the same meaning as in Section  2(a)(1) of the  Securities  Act.  Securities Act
means the Securities Act of 1933, as amended from time to time. Senior Financial
Officer  means  the  chief  financial  officer,  principal  accounting  officer,
treasurer or controller of the Company.  Subsidiary means, as to any Person, any
corporation, association, limited liability company, or other business entity (a
Business Entity) in which such Person and/or one or more of its Subsidiaries own
directly or indirectly a majority of (a)the combined voting power of all classes
of voting stock having  general  voting power under  ordinary  circumstances  to
elect  a  majority  of  the  directors  of  such  Business  Entity,  if  it is a
corporation,  (b)the  capital  interest  or profits  interest  of such  Business
Entity,  if it is a  partnership,  joint  venture  or  similar  entity or (c)the
beneficial  interest of such Business Entity,  if it is a trust,  association or
other  unincorporated   organization.   Unless  the  context  otherwise  clearly
requires,  any  reference to a Subsidiary  is a reference to a Subsidiary of the
Company.  Subsidiary Stock means, with respect to any Person,  the stock (or any
options or warrants to purchase stock or other  Securities  exchangeable  for or
convertible  into stock) of any  Subsidiary  of such Person.  Swaps means,  with
respect to any Person,  payment obligations with respect to interest rate swaps,
currency swaps and similar obligations  obligating such Person to make payments,
whether periodically or upon the happening of a contingency. For the purposes of
this Agreement,  the amount of the obligation under any Swap shall be the amount
determined  in  respect  thereof as of the end of the then most  recently  ended
fiscal  quarter  of such  Person,  based on the  assumption  that  such Swap had
terminated at the end of such fiscal quarter,  and in making such determination,
if any  agreement  relating  to such Swap  provides  for the  netting of amounts
payable by and to such Person  thereunder or if any such agreement  provides for
the  simultaneous  payment of amounts by and to such  Person,  then in each such
case,  the  amount of such  obligation  shall be the net  amount so  determined.
Transfer means, with respect to any Person, any transaction in which such Person
sells, conveys, transfers or leases (as lessor) any of its property,  including,
without   limitation,   Subsidiary   Stock.  For  purposes  of  determining  the
application of the Net Proceeds  Amount in respect of any Transfer,  the Company
may  designate any Transfer as one or more  separate  Transfers  each yielding a
separate Net Proceeds  Amount.  In any such case, the  Disposition  Value of any
property  subject to each such separate  Transfer shall be determined by ratably
allocating the aggregate  Disposition  Value of all property subject to all such
separate  Transfers to each such  separate  Transfer on a  proportionate  basis.
Utility Subsidiary means any Subsidiary of the Company that is generally subject
to  regulation  by the New Jersey Board of Public  Utilities or any other public
service commission, public utility commission or similar regulatory authority in
the  United  States  of  America  or any  State or other  political  subdivision
thereof.  Wholly-Owned  Subsidiary means any Subsidiary of  Elizabethtown  Water
Company all of the equity interests  (except  directors  qualifying  shares) and
voting interests are owned by any one or more of Elizabethtown Water Company and
Elizabethtown Water Companys other Wholly-Owned Subsidiaries.

[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE
TRANSFERRED IN VIOLATION THEREOF.

ETOWN CORPORATION

6.79% SENIOR NOTE DUE DECEMBER15, 2007

     No. R-[_______] [Date] $[__________] PPN 269242 B@1 FOR VALUE RECEIVED, the
undersigned,  ETOWN  CORPORATION  (herein  called the  Company),  a  corporation
organized  and  existing  under  the  laws of the  State of New  Jersey,  hereby
promises to pay to  [_____________________] or registered assigns, the principal
sum of [______________]  DOLLARS on December15,  2007 with interest (computed on
the basis of a 360-day year of twelve 30-day  months)  (a)on the unpaid  balance
thereof  at  the  rate  of  6.79%  per  annum  from  the  date  hereof,  payable
semiannually, on the fifteenth day of June and December in each year, commencing
with the  June15  or  December15  next  succeeding  the date  hereof,  until the
principal  hereof  shall  have  become  due and  payable,  and (b)to the  extent
permitted by law on any overdue  payment  (including any overdue  prepayment) of
principal,  any  overdue  payment of  interest  and any  overdue  payment of any
Make-Whole Amount (as defined in the Note Purchase Agreement referred to below),
payable  semiannually  as aforesaid (or, at the option of the registered  holder
hereof,  on demand),  at a rate per annum from time to time equal to the greater
of (i)8.79% or (ii)2% over the rate of interest  publicly  announced by The Bank
of New York from time to time in New York,  New York as its base or prime  rate.
Payments of principal of, interest on and any Make-Whole  Amount with respect to
this Note are to be made in lawful  money of the  United  States of  America  in
Westfield,   New  Jersey  at  the  principal  office  of  the  Company  in  such
jurisdiction  or at such other place as the  Company  shall have  designated  by
written  notice  to the  holder of this Note as  provided  in the Note  Purchase
Agreement  referred  to below.  This  Note is one of a series  of  Senior  Notes
(herein called the Notes) issued pursuant to the Note Purchase Agreement,  dated
as of  December15,  1997  (as  from  time to time  amended,  the  Note  Purchase
Agreement),  between the Company and American General Life Insurance Company and
is entitled to the benefits thereof. Each holder of this Note will be deemed, by
its acceptance hereof,  (i)to have agreed to the confidentiality  provisions set
forth in  Section20  of the Note  Purchase  Agreement  and (ii)to  have made the
representation set forth in Section6.2 of the Note Purchase Agreement,  provided
that such holder may (in  reliance  upon  information  provided by the  Company,
which shall not be unreasonably  withheld) make a  representation  to the effect
that the  purchase by such holder of any Note will not  constitute  a non-exempt
prohibited  transaction under  Section406(a) of ERISA. This Note is a registered
Note and, as provided in the Note  Purchase  Agreement,  upon  surrender of this
Note for  registration of transfer,  duly endorsed,  or accompanied by a written
instrument of transfer duly executed,  by the  registered  holder hereof or such
holders  attorney duly  authorized in writing,  a new Note for a like  principal
amount will be issued to, and registered in the name of, the  transferee.  Prior
to due  presentment  for  registration  of  transfer,  the Company may treat the
person in whose name this Note is registered as the owner hereof for the purpose
of  receiving  payment and for all other  purposes,  and the Company will not be
affected  by any  notice to the  contrary.  This  Note is  subject  to  optional
prepayment, in whole or from time to time in part, at the times and on the terms
specified in the Note  Purchase  Agreement,  but not  otherwise.  If an Event of
Default,  as defined in the Note Purchase  Agreement,  occurs and is continuing,
the  principal of this Note may be declared or otherwise  become due and payable
in the manner,  at the price  (including any applicable  Make-Whole  Amount) and
with the effect  provided  in the Note  Purchase  Agreement.  This Note shall be
construed and enforced in accordance  with,  and the rights of the parties shall
be  governed  by,  the law of the  State  of New  York  excluding  choice-of-law
principles  of the law of such State that would require the  application  of the
laws of a jurisdiction other than such State.

ETOWN CORPORATION


By
        [Title:]






FORM OF OPINION OF COUNSEL
TO THE COMPANY


Each closing opinion of Walter M. Braswell, Esq., counsel for the Company, which
is called for by Section4.4 of the Note Purchase  Agreement,  shall be dated the
date of the respective  Closing and addressed to you, shall be  satisfactory  in
scope and form to you and shall be to the effect that:
        1. The Company is a corporation, duly incorporated, validly existing and
in good  standing  under the laws of the State of New Jersey,  has the corporate
power and the  corporate  authority  to execute and  perform  the Note  Purchase
Agreement  and to issue  the  Notes  and has the full  corporate  power  and the
corporate  authority to conduct the activities in which it is now engaged and is
duly licensed or qualified and is in good standing as a foreign  corporation  in
each jurisdiction in which the character of the properties owned or leased by it
or the  nature  of  the  business  transacted  by it  makes  such  licensing  or
qualification necessary.
        2. Each Subsidiary of the Company is a corporation or other legal entity
duly  organized,  validly  existing and in good  standing  under the laws of its
jurisdiction  of  incorporation  and is duly  licensed or qualified as a foreign
corporation  or other legal entity and is in good standing in each  jurisdiction
in which the character of the properties  owned or leased by it or the nature of
the business  transacted by it makes such licensing or  qualification  necessary
and all of the  issued  and  outstanding  shares of  capital  stock of each such
Subsidiary have been duly issued, are fully paid and nonassessable and are owned
by the Company,  by one or more Subsidiaries,  or by the Company and one or more
Subsidiaries.
        3. The Note Purchase Agreement has been duly authorized by all necessary
corporate  action  on the  part of the  Company,  has  been  duly  executed  and
delivered by the Company and constitutes valid contract of the Company.
        4. The Notes have been duly authorized by all necessary corporate action
on the part of the Company, have been duly executed and delivered by the Company
and constitute valid obligations of the Company.
        5. No approval,  consent or  withholding of objection on the part of, or
filing,  registration or qualification  with, any New Jersey  governmental  body
(including,  without limitation,  the New Jersey Board of Public Utilities),  is
necessary in connection with the execution, delivery and performance of the Note
Purchase Agreement or the Notes.
        6. The  issuance and sale of the Notes and the  execution,  delivery and
performance  by the Company of the Note Purchase  Agreement do not conflict with
any  New  Jersey  law or any  order  of any New  Jersey  court  or  governmental
authority or agency applicable to or binding on the Company, or conflict with or
result in any breach of any of the  provisions  of or constitute a default under
or result in the creation or  imposition of any Lien upon any of the property of
the Company  pursuant to the provisions of the Certificate of  Incorporation  or
By-laws  of the  Company  or any  agreement  or other  instrument  known to such
counsel to which the Company is a party or by which the Company may be bound.
        7. There is no  litigation  pending  or, to the best  knowledge  of such
counsel,  threatened which in such counsels opinion could reasonably be expected
to have a materially adverse effect on the Companys business or assets, or which
would  question  the  validity of the Note  Purchase  Agreement  or the Notes or
impair the  ability of the  Company to issue and  deliver the Notes or to comply
with the  provisions  of the Note Purchase  Agreement.  The opinion of Walter M.
Braswell,  Esq. shall cover such other matters relating to the sale of the Notes
as you may  reasonably  request.  With  respect to matters of fact on which such
opinion  is  based,  such  counsel  shall  be  entitled  to rely on  appropriate
certificates of public officials and officers of the Company.


FORM OF OPINION OF SPECIAL NEW YORK COUNSEL
FOR THE COMPANY


     Each closing opinion of Winthrop,  Stimson,  Putnam & Roberts,  special New
York  counsel for the  Company,  which is called for by  Section4.4  of the Note
Purchase  Agreement,  shall be  dated  the date of the  respective  Closing  and
addressed to you, shall be satisfactory in scope and form to you and shall be to
the effect that:

1. The Note Purchase Agreement constitutes the legal and binding contract of the
Company,  enforceable  in  accordance  with its terms,  subject  to  bankruptcy,
insolvency,  fraudulent  conveyance or similar laws affecting  creditors  rights
generally,   and  general  principles  of  equity  (regardless  of  whether  the
application  of such  principles  is  considered in a proceeding in equity or at
law).

2. The Notes  constitute  the legal and binding
obligations of the Company  enforceable in accordance with their terms,  subject
to  bankruptcy,  insolvency,  fraudulent  conveyance  or similar laws  affecting
creditors  rights  generally,  and general  principles of equity  (regardless of
whether the  application  of such  principles  is  considered in a proceeding in
equity or at law).

3. No approval,  consent or  withholding of objection on the part of, or filing,
registration or qualification  with, any governmental  body,  Federal,  state or
local (including, without limitation, the New Jersey Board of Public Utilities),
is necessary in connection  with the execution,  delivery and performance of the
Note Purchase Agreement or the Notes.

4. The issuance and
sale of the Notes and the execution,  delivery and performance by the Company of
the Note  Purchase  Agreement do not  conflict  with any law or any order of any
court or  governmental  authority  or agency  applicable  to or  binding  on the
Company, or conflict with or result in any breach of any of the provisions of or
constitute a default  under or result in the creation or  imposition of any Lien
upon any of the  property  of the  Company  pursuant  to the  provisions  of the
Certificate of Incorporation or By-laws of the Company or any agreement or other
instrument known to such counsel to which the Company is a party or by which the
Company may be bound.

5. The issuance,  sale and delivery of the Notes under the
circumstances contemplated by the Note Purchase Agreement do not, under existing
law,  require the registration of the Notes under the Securities Act of 1933, as
amended,  or the  qualification of an indenture under the Trust Indenture Act of
1939, as amended.

6. The  issuance  of the  Notes and the use of the  proceeds  of the sale of the
Notes in accordance with the provisions of and contemplated by the Note Purchase
Agreement do not violate or conflict with  Regulations G, T or X of the Board of
Governors of the Federal Reserve System.

7. The Company is not
an investment company,  or a company controlled by an investment company,  under
the  Investment  Company  Act of 1940,  as  amended.  The  opinion of  Winthrop,
Stimson, Putnam & Roberts shall cover such other matters relating to the sale of
the Notes as you may  reasonably  request.  With  respect  to matters of fact on
which  such  opinion  is  based,  such  counsel  shall  be  entitled  to rely on
appropriate certificates of public officials and officers of the Company.

FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS


_________________, 199__

American General Life Insurance Company
Houston, Texas
Re:     $12,000,000 6.79% Senior Notes
Due December15, 2007
of
ETOWN CORPORATION
     Ladies and Gentlemen:  We have acted as your special  counsel in connection
with your  purchase  on the date  hereof of  $[__________]  aggregate  principal
amount  of the 6.79%  Senior  Notes due  December15,  2007 (the  Notes) of Etown
Corporation,  a New Jersey corporation (the Company),  issued under and pursuant
to the Note  Purchase  Agreement  as of  December15,  1997  (the  Note  Purchase
Agreement),  between the Company and you. In that  connection,  we have examined
the following: (a) The Note Purchase Agreement; (b) A copy of the Certificate of
Incorporation  of the  Company  and  all  amendments  thereto  certified  by the
Secretary  of  State of the  State  of New  Jersey  and the  Certificate  of the
Secretary of State of the State of New Jersey  evidencing that the Company is in
good standing in such state (the Good Standing  Certificate);  (c) A copy of the
By-laws  of the  Company,  as  amended  to the  date  hereof,  and a copy of the
resolutions adopted by the Board of Directors of the Company with respect to the
authorization of the Note Purchase Agreement, the issuance, sale and delivery of
the Notes  and  related  matters,  each as  certified  by the  Secretary  of the
Company;  (d) The opinion of Walter M. Braswell,  Esq., counsel for the Company,
dated the date hereof and  delivered  responsive  to  Section4.4(a)  of the Note
Purchase  Agreement,  and the opinion of  Winthrop,  Stimson,  Putnam & Roberts,
special New York  counsel to the  Company,  dated the date hereof and  delivered
responsive  to  Section  4.4(b) of the Note  Purchase  Agreement;  (e) The Notes
delivered on the date hereof;  (f) Such  certificates of officers of the Company
and of  public  officials  as we have  deemed  necessary  to give  the  opinions
hereinafter  expressed;  and (g) Such other  documents  and matters of law as we
have deemed  necessary to give the opinions  hereinafter  expressed.  We believe
that each opinion  referred to in clause (d) above is  satisfactory in scope and
form and that you are  justified in relying  thereon.  Our opinion as to matters
referred  to in  paragraph1  below is based  solely upon an  examination  of the
Certificate of Incorporation,  the By-laws and the Good Standing  Certificate of
the Company and the Business Corporation Act of the State of New Jersey. We have
also relied,  as to certain factual matters,  upon  appropriate  certificates of
public  officials  and officers of the Company and upon  representations  of the
Company and you delivered in connection with the issuance and sale of the Notes.
Based upon the foregoing, we are of the opinion that:

1. The  Company is a
corporation,  validly  existing and in good standing under the laws of the State
of New Jersey and has the corporate power and the corporate authority to execute
and deliver the Note Purchase Agreement and to issue the Notes.

2. The Note
Purchase Agreement has been duly authorized by all necessary corporate action on
the part of the Company, has been duly executed and delivered by the Company and
constitutes the legal, valid and binding contract of the Company  enforceable in
accordance  with  its  terms,  subject  to  bankruptcy,  insolvency,  fraudulent
conveyance and similar laws affecting  creditors rights  generally,  and general
principles of equity  (regardless of whether the  application of such principles
is considered in a proceeding in equity or at law).

3. The Notes have been duly
authorized by all necessary corporate action on the part of the Company, and the
Notes being  delivered on the date hereof have been duly  executed and delivered
by the Company and  constitute the legal,  valid and binding  obligations of the
Company  enforceable  in  accordance  with their terms,  subject to  bankruptcy,
insolvency,  fraudulent  conveyance and similar laws affecting  creditors rights
generally,   and  general  principles  of  equity  (regardless  of  whether  the
application  of such  principles  is  considered in a proceeding in equity or at
law).

4.  The  issuance,  sale and  delivery  of the  Notes  under  the  circumstances
contemplated by the Note Purchase  Agreement do not, under existing law, require
the  registration of the Notes under the Securities Act of 1933, as amended,  or
the  qualification  of an indenture  under the Trust  Indenture  Act of 1939, as
amended.  Our  opinion  is  limited  to the laws of the State of New  York,  the
Business  Corporation Act of the State of New Jersey and the Federal laws of the
United States and we express no opinion on the laws of any other jurisdiction.
Respectfully submitted,

Model Form No. 1        Version of September13, 1994

Model Form No. 1        Version of September13, 1994

Draft of December 19, 1997

1463181

-6-
-5-
-2-
Etown Corporation      Note Purchase Agreement
Etown Corporation      Note Purchase Agreement
-38-
-39-





-1-
-41-

SCHEDULEA
(to Note Purchase Agreement)



B-54

B-53


SCHEDULEB
(to Note Purchase Agreement)



E-1-56

E-1-1


EXHIBIT1
(to Note Purchase Agreement)



E-4.4(a)-58

E-4.4(a)-1


EXHIBIT4.4(a)
(to Note Purchase Agreement)



E-4.4(b)-60

E-4.4(b)-1


EXHIBIT4.4(b)
(to Note Purchase Agreement)



E-4.4(c)-64

E-4.4(c)-63


EXHIBIT4.4(c)
(to Note Purchase Agreement)