Document:

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                                                                   Exhibit 10.40

                                    AGREEMENT

                  Agreement made as of the 1st day of December, 1999, by and
among Philadelphia Suburban Corporation, a Pennsylvania corporation ("PSC" or
the "Company") and David P. Smeltzer (the "Executive").

                  WHEREAS, the Executive is presently employed by the Company,
as its Senior Vice President - Finance; and

                  WHEREAS, the Company considers it essential to foster the
employment of well-qualified, key management personnel, and, in this regard, the
board of directors of the Company recognize that, as is the case with many
publicly-held corporations, the possibility of a change of control of the
Company may exist and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of key management personnel to the detriment of the Company;

                  WHEREAS, the board of directors of the Company have determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of key members of the Company's management to their
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change of control of the
Company, although no such change is now contemplated;

                  WHEREAS, in order to induce the Executive to remain in the
employ of the Company, the Company, for which certain of the employees of the
Company, such as the Executive, provide key executive services, agree that the
Executive shall receive the compensation set forth in this Agreement in the
event his employment with the Company is terminated subsequent to a "Change of
Control" (as defined in Section 1 hereof) as a cushion against the financial and
career impact on the Executive of any such Change of Control;

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                  NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, the parties hereto agree as follows:

                  1. Definitions. For all purposes of this Agreement, the
following terms shall have the meanings specified in this Section unless the
context clearly otherwise requires:

                  (a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").

                  (b) "Base Compensation" shall mean the average of the total
cash base salary, annual bonus and dividend equivalents (paid under the
Company's Equity Compensation Plan) received by the Executive in all capacities
with the Company, and its Subsidiaries or Affiliates, as reported for Federal
income tax purposes on Form W-2, together with any amounts the payment of which
has been deferred by the Executive under any deferred compensation plan of the
Company, and its Subsidiaries or Affiliates, or otherwise, and any and all
salary reduction authorized amounts under any of the benefit plans or programs
of the Company, and its Subsidiaries or Affiliates, but excluding any amounts
attributable to the exercise of stock options or the receipt of Restricted Stock
granted to the Executive under the Company's Equity Compensation Plan and its
predecessors or successors, for the three calendar years (or such number of
actual full calendar years of employment, if less than three) immediately
preceding the calendar year in which occurs a Change of Control or the
Executive's Termination Date, whichever period produces the higher amount.

                                      -2-
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                  (c) A Person shall be deemed the "Beneficial Owner" of any
securities: (i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such right
is exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of securities tendered pursuant to a tender or exchange offer made by
such Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for payment, purchase or exchange; (ii) that such Person
or any of such Person's Affiliates or Associates, directly or indirectly, has
the right to vote or dispose of or has "beneficial ownership" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange
Act), including without limitation pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however, that a Person shall
not be deemed the "Beneficial Owner" of any security under this clause (ii) as a
result of an oral or written agreement, arrangement or understanding to vote
such security if such agreement, arrangement or understanding (A) arises solely
from a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable provisions
of the General Rules and Regulations under the Exchange Act, and (B) is not then
reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or (iii) that are beneficially owned, directly
or indirectly, by any other Person (or any Affiliate or Associate thereof) with
which such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing) for the
purpose of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to clause (ii) above) or disposing of any voting
securities of PSC; provided, however, that nothing in this Section 1(c) shall
cause a Person engaged in business as an underwriter of securities to be the
"Beneficial Owner" of any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.

                                      -3-

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                  (d) "Board" shall mean the board of directors of PSC.

                  (e) "Change of Control" shall mean:

                  (i) any Person (including any individual, firm, corporation,
partnership or other entity except PSC or its subsidiaries or any employee
benefit plan of the PSC or its subsidiaries or of any Affiliate or Associate,
any Person or entity organized, appointed or established by PSC or its
subsidiaries for or pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person, shall become the
Beneficial Owner in the aggregate of 20% or more of the Common Stock of PSC then
outstanding;

                  (ii) during any twenty-four month period, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute a majority thereof, unless the election, or the nomination for
election by PSC's shareholders, of at least seventy-five percent of the
directors who were not directors at the beginning of such period was approved by
a vote of at least seventy-five percent of the directors in office at the time
of such election or nomination who were directors at the beginning of such
period; or

                                      -4-

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                  (iii) there occurs a sale of substantially all of the assets
of PSC or its liquidation is approved by a majority of its shareholders or PSC
is merged into or is merged with an unrelated entity such that following the
merger the shareholders of PSC no longer own more than 51% of the resultant
entity.

Notwithstanding anything in this Section 1(e) to the contrary, a Change of
Control shall not be deemed to have taken place under clause (e)(i) above if (a)
such Person becomes the beneficial owner in the aggregate of 20% or more of the
Common Stock of the Company then outstanding as a result of an inadvertent
acquisition by such Person if such Person, as soon as practicable, divests
itself of a sufficient amount of its Common Stock so that it no longer owns 20%
or more of the Common Stock then outstanding, as determined by the Board of
Directors of the Company, or (ii) the shares of Common Stock required to be
counted in order to meet the 20% minimum threshold described under such clause
(i) include any of the shares described in subsections (i) through (iv) of
section 2543(b) of the Pennsylvania Business Corporation Law of 1988 (15
Pa.C.S.A. section 2543(b)) as in effect on the date of adoption of the Plan.

                  (f) "Cause" shall mean 1) misappropriation of funds, 2)
habitual insobriety or substance abuse, 3) conviction of a crime involving moral
turpitude, or 4) gross negligence in the performance of duties, which gross
negligence has had a material adverse effect on the business, operations,
assets, properties or financial condition of the Company.

                                      -5-

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                  (g) "Good Reason Termination" shall mean a Termination of
Employment initiated by the Executive upon one or more of the following
occurrences:

                           (i) any failure of the Company to comply with and
                  satisfy any of the terms of this the Agreement;

                           (ii) any significant involuntary reduction of the
                  authority, duties or responsibilities held by the Executive
                  immediately prior to the Change of Control;

                           (iii) any involuntary removal of the Executive from
                  the employment grade, compensation level or officer positions
                  which the Executive holds with the Company or, if the
                  Executive is employed by a Subsidiary, with a Subsidiary, held
                  by him immediately prior to the Change of Control, except in
                  connection with promotions to higher office;

                           (iv) any involuntary reduction in the Executive's
                  target level of annual and long-term compensation as in effect
                  immediately prior to the Change of Control;

                           (v) any transfer of the Executive, without his
                  express written consent, to a location which is outside the
                  Bryn Mawr, Pennsylvania area by more than 50 miles, other than
                  on a temporary basis (less than 6 months); or

                           (vi) the Executive being required to undertake
                  business travel to an extent substantially greater than the
                  Executive's business travel obligations immediately prior to
                  the Change of Control.

                                      -6-

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                  (h) "Normal Retirement Date" shall mean the first day of the
calendar month coincident with or next following the Executive's 65th birthday.

                  (i) "Subsidiary" shall mean any corporation in which the
Company, directly or indirectly, owns at least a 50% interest or an
unincorporated entity of which the Company, directly or indirectly, owns at
least 50% of the profits or capital interests.

                  (j) "Termination Date" shall mean the date of receipt of the
Notice of Termination described in Section 2 hereof or any later date specified
therein, as the case may be.

                  (k) "Termination of Employment" shall mean the termination of
the Executive's actual employment relationship with the Company and any of it
Subsidiaries that actually employs the Executive.

                  2. Notice of Termination. Any Termination of Employment
following a Change of Control shall be communicated by a Notice of Termination
to the other party hereto given in accordance with Section 14 hereof. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific provision in this Agreement relied upon, (ii)
briefly summarizes the facts and circumstances deemed to provide a basis for the
Executive's Termination of Employment under the provision so indicated, and
(iii) if the Termination Date is other than the date of receipt of such notice,
specifies the Termination Date (which date shall not be more than 15 days after
the giving of such notice).

                  3. Severance Compensation upon Termination.

                  (a) Subject to the provisions of Section 11 hereof, in the
event of the Executive's involuntary Termination of Employment for any reason
other than Cause or in the event of a Good Reason Termination, in either event
within two years after a Change of Control, the Company shall pay to the
Executive, upon the execution of a release in the form required by the Company
of its terminating executives prior to the Change of Control, within 15 days
after the Termination Date (or as soon as possible thereafter in the event that
the procedures set forth in Section 11(b) hereof cannot be completed within 15
days), an amount in cash equal to two times the Executive's Base Compensation,
subject to required employment taxes and deductions.

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                  (b) In the event the Executive's Normal Retirement Date would
occur prior to 12 months after the Termination Date, the aggregate cash amount
determined as set forth in (a) above shall be reduced by multiplying it by a
fraction, the numerator of which shall be the number of days from the
Termination Date to the Executive's Normal Retirement Date and the denominator
of which shall be 365 days. In the event the Termination Date occurs after the
Executive's Normal Retirement Date, no payments shall be made under this Section
3.

                  4. Other Payments. The payment due under Section 3 hereof
shall be in addition to and not in lieu of any payments or benefits due to the
Executive under any other plan, policy or program of the Company, and its
Subsidiaries or Affiliates. In addition, the Executive shall be entitled to a
continuation of health, dental, life and welfare benefits, excluding disability
benefits, otherwise provided to senior level executives or employees generally,
as the same may be amended for all such individuals from time to time, for the
period of two (2) years.

                  5. Trust Fund. PSC sponsors an irrevocable trust fund pursuant
to a trust agreement to hold assets to satisfy its obligations to the Executive
under this Agreement. Funding of such trust fund shall be subject to the
discretion of PSC's President, as set forth in the agreement pursuant to which
the fund has been established.

                                      -8-

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                  6. Enforcement.

                  (a) In the event that the Company shall fail or refuse to make
payment of any amounts due the Executive under Sections 3 and 4 hereof within
the respective time periods provided therein, the Company shall pay to the
Executive, in addition to the payment of any other sums provided in this
Agreement, interest, compounded daily, on any amount remaining unpaid from the
date payment is required under Section 3 or 4, as appropriate, until paid to the
Executive, at the rate from time to time announced by PNC Bank as its "prime
rate" plus 1%, each change in such rate to take effect on the effective date of
the change in such prime rate.

                  (b) It is the intent of the parties that the Executive not be
required to incur any expenses associated with the enforcement of his rights
under this Agreement by arbitration, litigation or other legal action because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, the Company
shall pay the Executive on demand the amount necessary to reimburse the
Executive in full for all reasonable expenses (including all attorneys' fees and
legal expenses) incurred by the Executive in enforcing any of the obligations of
the Company under this Agreement.

                  7. No Mitigation. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for herein be reduced by any compensation earned by other
employment or otherwise.

                                      -9-

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                  8. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in or rights
under any benefit, bonus, incentive or other plan or program provided by the
Company, or any of its Subsidiaries or Affiliates, and for which the Executive
may qualify.

                  9. No Set-Off. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.

                  10. Taxes. Any payment required under this Agreement shall be
subject to all requirements of the law with regard to the withholding of taxes,
filing, making of reports and the like, and the Company shall use its best
efforts to satisfy promptly all such requirements.

                  11. Certain Reduction of Payments.

                  (a) Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would constitute an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of Agreement Payments without
causing any Payment to be subject to the loss of deduction under Section 280G of
the Code. For purposes of this Section 11, present value shall be determined in
accordance with Section 280G(d)(4) of the Code.

                                      -10-

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                  (b) All determinations to be made under this Section 11 shall
be made by the Company's independent public accountant immediately prior to the
Change of Control (the "Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to the Company and the
Executive within 10 days of the Termination Date. Any such determination by the
Accounting Firm shall be binding upon the Company and the Executive. The
Executive shall then have the right to determine which of the Agreement Payments
shall be eliminated or reduced in order to produce the Reduced Amount in
accordance with the requirements of this Section. Within five days after this
determination, the Company shall pay (or cause to be paid) or distribute (or
cause to be distributed) to or for the benefit of the Executive such amounts as
are then due to the Executive under this Agreement.

                  (c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Agreement Payments, as the case
may be, will have been made by the Company which should not have been made
("Overpayment") or that additional Agreement Payments which have not been made
by the Company could have been made ("Underpayment"), in each case, consistent
with the calculations required to be made hereunder. Within two years after the
Termination of Employment, the Accounting Firm shall review the determination
made by it pursuant to the preceding paragraph and the Company shall cooperate
and provide all information necessary for such review. In the event that the
Accounting Firm determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the Executive which
the Executive shall repay to the Company together with interest from the date of
payment under this Agreement at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no
amount shall be payable by the Executive to the Company if and to the extent
such payment would not reduce the limit on the amount that is deductible under
Section 280G of the Code. In the event that the Accounting Firm determines that
an Underpayment has occurred, any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Executive together with interest from
the date of payment under this Agreement at the Federal Rate.

                                      -11-

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                  (d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (b) and (c) above shall
be borne solely by the Company. The Company agrees to indemnify and hold
harmless the Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations pursuant to
subsections (b) and (c) above, except for claims, damages or expenses resulting
from the gross negligence or willful misconduct of the Accounting Firm.

                  12. Term of Agreement. The term of this Agreement shall be
indefinite until the Company notifies the Executive in writing that this
Agreement will not be renewed at least sixty days prior to the proposed
termination; provided, however, that (i) after a Change of Control during the
term of this Agreement, this Agreement shall remain in effect until all of the
obligations of the parties hereunder are satisfied or have expired, and (ii)
this Agreement shall terminate if, prior to a Change of Control, the employment
of the Executive with the Company and its Subsidiaries, as the case may be,
shall terminate for any reason; provided, however, that if a Change of Control
occurs within 18 months after (a) the Executive's termination incurred for any
reason other than a voluntary resignation or retirement ( a Good Reason
Termination shall not be deemed voluntary) or termination for Cause or (b) the
termination of this Agreement, the Executive shall be entitled to all of the
terms and conditions of this Agreement as if the Executive's termination had
occurred on the date of the Change of Control.

                                      -12-

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                  13. Successor Company. PSC shall require any successor or
successors (whether direct or indirect, by purchase, merger or otherwise) to all
or substantially all of the business and/or assets of PSC or of any of its
Subsidiaries that actually employ the Executive, by agreement in form and
substance satisfactory to the Executive, to acknowledge expressly that this
Agreement is binding upon and enforceable against the successor or successors,
in accordance with the terms hereof, and to become jointly and severally
obligated with PSC to perform this Agreement in the same manner and to the same
extent that PSC would be required to perform if no such succession or
successions had taken place. Failure of PSC to notify the Executive in writing
as to such successorship, to provide the Executive the opportunity to review and
agree to the successor's assumption of this Agreement or to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement. As used in this Agreement, PSC and the Company shall mean PSC
and its Subsidiaries as hereinbefore defined and any such successor or
successors to their business and/or assets, jointly and severally.

                                      -13-

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                  14. Notice. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and shall be delivered personally or mailed by registered or
certified mail, return receipt requested, or by overnight express courier
service, as follows:

                  If to PSC to:

                           Philadelphia Suburban Corporation
                           762 W. Lancaster Avenue
                           Bryn Mawr, PA 19010-3489
                           Attention: President

                  If to the Executive, to:

                           Mr. David P. Smeltzer
                           910 Ridgeview Lane
                           Lower Gwynedd, PA 19002

or to such other names or addresses as the Company or the Executive, as the case
may be, shall designate by notice to the other party hereto in the manner
specified in this Section; provided, however, that if no such notice is given by
the Company following a Change of Control, notice at the last address of the
Company or to any successor pursuant to Section 13 hereof shall be deemed
sufficient for the purposes hereof. Any such notice shall be deemed delivered
and effective when received in the case of personal delivery, five days after
deposit, postage prepaid, with the U.S. Postal Service in the case of registered
or certified mail, or on the next business day in the case of overnight express
courier service.

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                  15. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the Commonwealth of Pennsylvania without giving
effect to any conflict of laws provisions.

                  16. Contents of Agreement, Amendment and Assignment. This
Agreement supersedes all prior agreements, sets forth the entire understanding
between the parties hereto with respect to the subject matter hereof and cannot
be changed, modified, extended or terminated except upon written amendment
executed by the Executive and the Company's Chairman of the Company's Executive
Compensation and Employee Benefits Committee, or its successor. The provisions
of this Agreement may require a variance from the terms and conditions of
certain compensation or bonus plans under circumstances where such plans would
not provide for payment thereof in order to obtain the maximum benefits for the
Executive. It is the specific intention of the parties that the provisions of
this Agreement shall supersede any provisions to the contrary in such plans, and
such plans shall be deemed to have been amended to correspond with this
Agreement without further action by the Company or the Board.

                  17. No Right to Continued Employment. Nothing in this
Agreement shall be construed as giving the Executive any right to be retained in
the employ of the Company.

                  18. Successors and Assigns. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, representatives, successors and assigns of
the parties hereto, except that the duties and responsibilities of PSC hereunder
shall not be assignable in whole or in part.

                                      -15-

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                  19. Severability. If any provision of this Agreement or
application thereof to anyone or under any circumstances shall be determined to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application.

                  20. Remedies Cumulative; No Waiver. No right conferred upon
the Executive by this Agreement is intended to be exclusive of any other right
or remedy, and each and every such right or remedy shall be cumulative and shall
be in addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No delay or omission by the Executive in
exercising any right, remedy or power hereunder or existing at law or in equity
shall be construed as a waiver thereof.

                  21. Miscellaneous. All section headings are for convenience
only. This Agreement may be executed in several counterparts, each of which is
an original. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.

                  22. Arbitration. In the event of any dispute under the
provisions of this Agreement other than a dispute in which the sole relief
sought is an equitable remedy such as an injunction, the parties shall be
required to have the dispute, controversy or claim settled by arbitration in
Bryn Mawr, Pennsylvania, in accordance with the National Rules for the
Settlement of Employment Disputes of the American Arbitration Association,
before one arbitrator who shall be an executive officer or former executive
officer of a publicly traded corporation, selected by the parties. Any award
entered by the arbitrator shall be final, binding and nonappealable and judgment
may be entered thereon by either party in accordance with applicable law in any
court of competent jurisdiction. This arbitration provision shall be
specifically enforceable. The arbitrator shall have no authority to modify any
provision of this Agreement or to award a remedy for a dispute involving this
Agreement other than a benefit specifically provided under or by virtue of the
Agreement. The Company shall be responsible for all of the fees of the American
Arbitration Association and the arbitrator and any expenses relating to the
conduct of the arbitration (including reasonable attorneys' fees and expenses).

                                      -16-

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                  IN WITNESS WHEREOF, the undersigned, intending to be legally
bound, have executed this Agreement as of the date first above written.

ATTEST:                                     PHILADELPHIA SUBURBAN CORPORATION
  [Seal]

   /s/ Patricia M. Mycek                    By /s/ Roy H. Stahl
------------------------------------           ------------------------------
    Secretary

  /s/ Grace  J. Lennon                         /s/ David P. Smeltzer
------------------------------------           ------------------------------
   Witness                                      Executive

                                      -17-<PAGE>

                                                                  Exhibit 10.41

                              FIRST MORTGAGE BONDS
                          1999 MEDIUM TERM NOTE SERIES

                             Up to U.S. $300,000,000
                  Maturities from One Year to Thirty-Five Years

                           PLACEMENT AGENCY AGREEMENT

                                  By and Among

                       PHILADELPHIA SUBURBAN WATER COMPANY
                                    as Issuer

                                       and

                   AGENTS LISTED ON SCHEDULE I ATTACHED HERETO

                             Dated December 3, 1999

<PAGE>

                       PHILADELPHIA SUBURBAN WATER COMPANY
                                U.S. $300,000,000
                              First Mortgage Bonds
                          1999 Medium Term Note Series

                            Maturities from One Year
                     to Thirty-Five Years from Date of Issue

                           Placement Agency Agreement

                                                              New York, New York
                                                                December 3, 1999

To Each of the Addressees Names
on Schedule I Hereto Acting
Severally and Not Jointly in the
Capacities of Agent and Purchaser
or in Either Such Capacity

Gentlemen and Ladies:

                  Philadelphia Suburban Water Company, a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania (the "Issuer")
which is a wholly-owned subsidiary of Philadelphia Suburban Corporation, a
Pennsylvania corporation ("PSC"), confirms its agreement with you with respect
to the issue and sale by the Issuer of its First Mortgage Bonds, 1999 Medium
Term Note Series (the "Notes"). The Notes will be issued in one or more
subseries under and secured in accordance with the Thirty-Third Supplemental
Indenture dated as of November 15, 1999 (the "Supplemental Indenture") to the
Indenture of Mortgage dated as of January 1, 1941 (the "Indenture of Mortgage")
between the Issuer and Chase Manhattan Trust Company, National Association (as
successor in interest to The Pennsylvania Company for Insurance on Lives and
Granting Annuities), as Trustee (the "Trustee"). The Notes may be sold during
the five year period from November 18, 1999 through November 17, 2004 (the
"Offering Period"), by the Issuer in an aggregate principal amount of up to U.S.
$300,000,000.

                  It is understood, however, that the Issuer may from time to
time, if permitted under the Indenture of Mortgage and pursuant to subsequent
supplemental indentures, authorize the issuance of additional notes and that
such additional notes may be sold through or to you subject to and in accordance
with the terms of this Placement Agency Agreement (the "Agreement"), all as
though the issuance of such additional Notes or the sale of Notes after the
expiration of the Offering Period were authorized as of the date hereof. In
addition, it is understood that the Issuer may from time to time during the
Offering Period issue notes, bonds or other evidences of indebtedness to the
extent permitted by the Indenture of Mortgage and any subsequent Supplemental
Indenture.

<PAGE>

                  The Notes will be offered during the Offering Period from time
to time on a private placement basis without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the
exemption therefrom provided by Section 4(2) of the Securities Act. The Notes
will be offered only to "Qualified Institutional Buyers" (as defined in Rule
144A under the Securities Act) pursuant to this Placement Agreement. All Notes
having a common issue date, maturity date, interest rate and otherwise identical
terms are referred to herein as a "Tranche". This Agreement is non-exclusive as
the Notes of each Tranche may be offered through one or more Agents (hereinafter
defined) pursuant to this Agreement. The Notes will be issued, and the terms
thereof established, in accordance with the terms of the Indenture of Mortgage
and the Supplemental Indenture, and in the case of Notes sold pursuant to
Section 2(a), in accordance with the Medium Term Notes Administrative Procedures
attached hereto as Exhibit A (the "Administrative Procedures"). The Notes will
be payable in accordance with a Paying Agency Agreement dated December 3, 1999
(the "Paying Agency Agreement"), among the Issuer, Chase Manhattan Trust
Company, National Association, as paying agent (the "Paying Agent"), the Trustee
and the Agents. The Administrative Procedures set forth in Exhibit A shall
remain in effect with respect to sales solicited by the Agents until changed by
the Issuer, the Agents and the Paying Agent. For the purposes of this Agreement,
the term "Agent" shall refer to each addressee named on Schedule I hereto acting
severally and not jointly in the sole capacity as agent for the Issuer pursuant
to Section 2(a) and not as principal; the term "Agents" shall refer in general
terms to all addressees named on Schedule I acting in the capacity as agent to
the Issuer pursuant to Section 2(a); the term "Purchaser" shall refer to the
same addressees named on Schedule I hereto acting severally and not jointly in
the sole capacity as principal pursuant to Section 2(b) and not as agent; and
the term "you" shall refer to each or any addressee named on Schedule I hereto
acting severally and not jointly in both such capacities or in either such
capacity.

         1. Representations and Warranties. The Issuer represents and warrants
to you as of the date hereof, and shall be deemed to represent and warrant to
you at and as of each time the Issuer gives a notice requesting you to solicit
offers as Agent, at and as of each acceptance of an offer by the Issuer, at and
as of the date of each Terms Agreement (as defined in Section 2(b)), and upon
the delivery to the purchaser (or its agent) pursuant to such offer or to the
Purchaser of any Note pursuant to such Terms Agreement, as the case may be,
that:

                                       3

<PAGE>

                  (a) The Issuer confirms that it has prepared a confidential
         Offering Memorandum (defined below) and authorizes you to distribute
         copies thereof in connection with the offering of Notes as provided
         herein. The Offering Memorandum does not and will not contain any
         untrue statement of a material fact or omit to state any material fact
         necessary to make the statements therein, in the light of the
         circumstances under which they were made, not misleading; provided,
         however, that the foregoing representation and warranty shall not apply
         to statements or omissions in the Offering Memorandum made in reliance
         upon and in conformity with information furnished to the Issuer in
         writing by you or on your behalf which has been furnished by a person
         authorized to do so, specifically for use therein. As used in this
         Agreement, the term "Offering Memorandum" means the confidential
         offering memorandum dated the same date as this Agreement relating to
         the Notes, as it may be amended or supplemented from time to time,
         including with respect to each Tranche, the related pricing supplement
         (each, a "Pricing Supplement"), any documents expressly incorporated by
         reference therein and any quarterly or annual reports of the Issuer
         delivered to any Agent for delivery together with the Offering
         Memorandum, which amendment or supplement may be in the form of a
         separate document that does not state that it is a supplement to the
         Offering Memorandum, and any reference to the terms "amend",
         "amendment" or "supplement" with respect to the Offering Memorandum
         shall refer to and include the filings with the Securities and Exchange
         Commission (the "Commission") of any documents expressly incorporated
         by reference into the Offering Memorandum after the date hereof.

                  (b) The financial statements and schedules included in, or as
         an exhibit, attachment or appendix to, the Offering Memorandum present
         fairly the consolidated financial condition of the Issuer as of the
         respective dates thereof, and the consolidated results of operations
         and changes in financial condition of the Issuer for the respective
         periods covered thereby, all in conformity with generally accepted
         accounting principles applied on a consistent basis throughout the
         entire period involved, except as otherwise disclosed in the Offering
         Memorandum. KPMG LLP (the "Accountants"), who have reported on the
         annual financial statements and schedules of the Issuer, are
         independent certified public accountants with respect to the Issuer and
         its subsidiaries within the meaning of Rule 1.01 of the Code of
         Professional Conduct of the American Institute of Certified Public
         Accountants.

                                       4

<PAGE>

                  (c) Subsequent to the respective dates as of which information
         is given in the Offering Memorandum, except as otherwise set forth
         therein, (i) there has been no material adverse change, or to the
         knowledge of the Issuer any development involving a prospective
         material adverse change, in the financial condition, earnings, business
         or business prospects or properties of the Issuer and its subsidiaries,
         considered as a single enterprise (a "Material Adverse Effect"), (ii)
         neither the Issuer nor any of its subsidiaries have incurred any
         material liabilities or obligations, direct or contingent, nor have any
         of them entered into any material transactions other than pursuant to
         this Agreement, the Supplemental Indenture and the Paying Agency
         Agreement and the transactions referred to herein and therein and (iii)
         no rating of any of the securities of the Issuer has been lowered by
         any "nationally recognized statistical rating organization" (as defined
         for purposes of Rule 436(g) of the Securities Act) (each, a "Rating
         Agency"), nor has there been any notice given by any Rating Agency of
         any intended or potential decrease in any such rating or of a possible
         change in any such rating where such notice does not indicate the
         direction of the possible change.

                  (d) The Issuer and each of its subsidiaries is a corporation
         organized, validly existing and in good standing under the laws of its
         jurisdiction of incorporation. The Issuer and each of its subsidiaries
         has full power and authority to conduct all the activities conducted by
         it, to own or lease all the assets owned or leased by it and to conduct
         its business as described in the Offering Memorandum. The Issuer and
         each of its subsidiaries is duly licensed or qualified to do business
         and in good standing as a foreign corporation in all jurisdictions in
         which the nature of the activities conducted by it or the character of
         the assets owned or leased by it makes such license or qualification
         necessary, except where the failure to so qualify or be in good
         standing would not have a Material Adverse Effect.

                  (e) Except for stock of its subsidiaries, or as disclosed in
         the Offering Memorandum, the Issuer does not own, directly or
         indirectly, any shares of stock or any other equity or long-term debt
         securities of any corporation or have any equity interest in any firm,
         partnership, joint venture, association or other entity, other than
         equity investments made by the Issuer for business development purposes
         or otherwise which are not material to the Issuer.

                                       5

<PAGE>

                  (f) The Issuer has full corporate power and authority to enter
         into this Agreement, the Supplemental Indenture, and the Paying Agency
         Agreement, to issue the Notes, and to perform its obligations under
         this Agreement, the Supplemental Indenture, the Paying Agency Agreement
         and the Notes. This Agreement, the Indenture, the Supplemental
         Indenture and the Paying Agency Agreement have been duly authorized,
         executed and delivered by the Issuer and, when authorized, executed and
         delivered by the other parties hereto and thereto, will constitute
         valid and binding agreements of the Issuer and will be enforceable
         against the Issuer in accordance with their terms (subject to
         applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
         moratorium and other similar laws affecting creditors' rights generally
         from time to time in effect, and subject, as to enforceability, to
         general principles of equity, regardless of whether such enforceability
         is considered in a proceeding in equity or at law). The Supplemental
         Indenture and the Paying Agency Agreement conform in all material
         respects to the descriptions thereof in the Offering Memorandum.

                  (g) The execution and delivery of the Notes has been duly
         authorized by all necessary corporate action on the part of the Issuer;
         each Note, when completed, executed, authenticated and delivered in
         accordance with the Indenture of Mortgage and the Supplemental
         Indenture against payment of the consideration therefor will constitute
         a legal, valid and binding obligation of the Issuer, enforceable
         against the Issuer in accordance with the terms of such Note (subject
         to applicable bankruptcy, insolvency, fraudulent transfer,
         reorganization, moratorium and other similar laws affecting creditors'
         rights generally from time to time in effect, and subject, as to
         enforceability, to general principles of equity, regardless of whether
         such enforceability is considered in a proceeding in equity or at law),
         and will entitle its holder to the benefits of the Indenture of
         Mortgage and the Supplemental Indenture. Each Note will conform in all
         material respects to the description thereof in the Offering
         Memorandum.

                  (h) Other than the liens created by the Indenture of Mortgage
         as supplemented by supplemental indentures in accordance with the terms
         of the Indenture, including as supplemented by the Supplemental
         Indenture, the performance by the Issuer of this Agreement and the
         Paying Agency Agreement, the issuance of any Notes and the consummation
         of the transactions contemplated hereby and thereby will not result in
         the creation or imposition of any lien, charge or encumbrance upon any
         of the assets of the Issuer or any of its subsidiaries pursuant to the
         terms or provisions of, or result in a breach or violation of any of
         the terms or provisions of, or constitute a default under, or give any
         other party a right to terminate any of its obligations under, or
         result in the acceleration of any obligation under, the certificate of
         incorporation or by-laws of the Issuer or any of its subsidiaries, any
         indenture, mortgage, deed of trust, voting trust agreement, loan
         agreement, bond, debenture, note agreement or other evidence of
         indebtedness, lease, contract or other agreement or instrument to which
         the Issuer or any of its subsidiaries is a party or by which the Issuer
         or any of its subsidiaries or any of its properties is bound or
         affected, or violate or conflict with any judgment, ruling, decree,
         order, statute, rule or regulations of any court or governmental agency
         or body applicable to the business or properties of the Issuer or any
         of its subsidiaries.

                                       6

<PAGE>

                  (i) Except as set forth in or contemplated by the Offering
         Memorandum, there are no actions, suits or proceedings pending or
         threatened against or affecting the Issuer or any of its subsidiaries,
         or any of their respective officers or directors in their capacity as
         such, before or by any Federal or state court, commission, regulatory
         body, administrative agency or other governmental body, domestic or
         foreign, wherein an unfavorable ruling, decision or finding is likely
         that would materially and adversely affect (i) the financial condition,
         earnings, business or business prospects or properties of the Issuer
         and its subsidiaries, considered as a single enterprise, or (ii) the
         ability of the Issuer to perform its obligations under this Agreement,
         the Supplemental Indenture, the Paying Agency Agreement and the Notes.
         There are no such actions, suits or proceedings pending or, to the
         knowledge of the Issuer, threatened, relating to the Notes, their
         offering, or the Offering Memorandum.

                  (j) In each of the following cases except for such exceptions
         which would not have a Material Adverse Effect and do not interfere
         with the conduct of the business of the Company, the Issuer and each of
         its subsidiaries has (i) all governmental licenses, permits, consents,
         orders, approvals and other authorizations (collectively, "Approvals")
         necessary to carry on its business as described in the Offering
         Memorandum, (ii) complied with all laws, regulations and orders
         applicable to it or its business, and (iii) performed all its
         obligations required to be performed by it, and is not in default under
         any material contract or other instrument to which it is a party or by
         which its property is bound or affected. To the best knowledge of the
         Issuer, no other party under any material contract or other instrument
         to which it is a party is in default in any respect thereunder that
         would have a Material Adverse Effect. Neither the Issuer nor any of its
         subsidiaries is in violation of any provision of its certificate of
         incorporation or by-laws.

                                       7

<PAGE>

                  (k) The Issuer and each of its subsidiaries has good and
         marketable title to all properties and assets described in the Offering
         Memorandum as owned by it, free and clear of all liens, charges,
         encumbrances or restrictions, except such as are described in the
         Offering Memorandum or are not material to the business of the Issuer
         or its subsidiaries. The Issuer and each of its subsidiaries has valid,
         subsisting and enforceable leases for the properties described in the
         Offering Memorandum as leased by it, with such exceptions as are not
         material and do not materially interfere with the use made and proposed
         to be made of such properties by the Issuer and such subsidiaries.

                  (l) No consent, approval, authorization or other order of, or
         any filing with, any government, governmental or other administrative
         agency or body is required in connection with the execution and
         delivery by the Issuer of this Agreement, the Supplemental Indenture
         and the Paying Agency Agreement, the solicitation of offers to purchase
         Notes, the issuance of any Note or the performance by the Issuer of any
         of its obligations hereunder or thereunder, except such as may be
         required under the blue sky laws of any jurisdiction in connection with
         the offering and sale of the Notes or as required by the Pennsylvania
         Public Utility Commission. All necessary approvals have been obtained
         from the Pennsylvania Public Utility Commission to authorize the
         issuance and sale of the Notes and such approvals remain in full force
         and effect on the date hereof.

                  (m) The Notes satisfy the requirements set forth in paragraph
         (d)(3) of Rule 144A ("Rule 144A") under the Securities Act.

                  (n) Neither the Issuer nor any affiliate (which, for purposes
         of this Agreement, shall have the meaning given in Rule 501(b) under
         the Securities Act) of the Issuer has directly or indirectly, (i) sold,
         offered for sale, solicited offers to buy or otherwise negotiated in
         respect of, any of the Notes or, within the six-month period prior to
         the date hereof, any other debt security of the same class as the Notes
         which is or will be integrated with any sale of the Notes in a manner
         that would require the registration of the Notes under the Securities
         Act or (ii) engaged or will engage in any form of general solicitation
         or general advertising (within the meaning of Rule 502(c) under the
         Securities Act) in connection with the offering of the Notes.

                                       8

<PAGE>

                  (o) Assuming (A) compliance by you with the offering and
         transfer procedures and restrictions described in the Offering
         Memorandum and under Rule 144A and Section 4(2) of the Securities Act,
         (B) the accuracy of the acknowledgments, representations, warranties
         and agreements made in accordance with this Agreement and the Offering
         Memorandum by you and the purchasers to whom you initially offer, sell
         or resell the Notes and (C) purchasers to whom you initially offer,
         sell or resell the Notes receive a copy of the Offering Memorandum
         prior to such sale or resale, the offer, sale and delivery of the Notes
         in the manner contemplated by this Agreement and the Offering
         Memorandum will be exempt from the registration requirements of the
         Securities Act by reason of Section 4(2) thereof, and the initial
         resale of the Notes in the manner contemplated by this Agreement will
         be exempt from the registration requirements of the Securities Act by
         reason of Rule 144A thereunder or Section 4(2) thereunder, as the case
         may be, and the Notes are not required to be issued pursuant to an
         indenture that qualifies under the Trust Indenture Act of 1939, as
         amended.

                  (p) Each Note will be an unconditional and direct debt
         obligation of the Issuer and will rank pari passu with other senior
         secured existing and future obligations of the Issuer.

                  (q) The Issuer is not an "investment company" within the
         meaning of the Investment Company Act of 1940, as amended.

                  (r) Neither the Issuer nor any agent thereof acting on behalf
         of the Issuer has taken or will take any action that is reasonably
         likely to cause this Agreement or the issuance or sale of the Notes to
         violate Regulation T, Regulation U or Regulation X (collectively, the
         "Margin Rules") of the Board of Governors of the Federal Reserve
         System.

                  (s) The Issuer is in material compliance with all applicable
         Federal, state and local environmental laws and regulations, including,
         without limitation, those applicable to safe drinking water, emissions
         to the environment, waste management and waste disposal (collectively,
         the "Environmental Laws"), except for such noncompliance as is not
         reasonably likely to have a Material Adverse Effect, or as disclosed in
         the Offering Memorandum, and, to the knowledge of the Issuer, there are
         no circumstances that would prevent, interfere with or materially
         increase the cost of such compliance in the future.

                  (t) Except as disclosed in the Offering Memorandum, there is
         no claim under any Environmental Law, including common law, pending or
         threatened against the Issuer (an "Environmental Claim") which would be
         reasonably likely to have a Material Adverse Effect and, to the
         knowledge of the Issuer, under applicable law, there are not past or
         present actions, activities, circumstances, events or incidents,
         including, without limitation, releases of any material into the
         environment, that are reasonably likely to form the basis of any
         Environmental Claim against the Issuer which would be reasonably likely
         to have a Material Adverse Effect.

                                       9

<PAGE>

                  (u) No statement, representation, warranty or covenant made by
         the Issuer in this Agreement, or made in any certificate or document
         required by this Agreement to be delivered to any Agent was or will be,
         when made, inaccurate, untrue or incorrect.

         2. Appointment of an Agent; Solicitation by an Agent of Offers to
Purchase; Sales of Notes to a Purchaser.

                  (a) (i) The Issuer shall deliver a Request for Bids with
         respect to a Tranche to each Agent via electronic transmission
         substantially in the form attached as Exhibit H hereto prior to 10:00
         a.m. on any Business Day. Each Agent interested in submitting a bid for
         a particular Tranche shall submit such bid to the Issuer by 2:00 p.m.
         on the date of receipt of the Request for Bids or such later deadline
         as may be specified in writing by the Issuer. The Issuer, in its sole
         discretion and subject to its right to reject any and all bids for any
         reason, shall select one or more Agents to participate in offering of
         each Tranche. Subject to the terms and conditions set forth herein,
         Agents are to be appointed, in accordance with the terms of a Notice or
         Notices of Appointment (in the form attached as Exhibit I hereto)
         executed by the Issuer, to act as the Issuer's agent to accept offers
         for the purchase of Notes from the Issuer. The appointment by the
         Issuer of an Agent shall not authorize such Agent to take any action on
         behalf of the Issuer other than as set forth in this Agreement and the
         Administrative Procedures. Other than Section 4(a)(v) of this
         Agreement, this Agreement shall not in any way restrict or limit the
         Issuer from selling, offering to sell or accepting offers to sell any
         debt securities other than the Notes.

                           (ii) On the basis of the representations and
         warranties and subject to the terms and conditions, set forth herein,
         upon appointment pursuant to Notice of Appointment each Agent agrees,
         as agent of the Issuer, to use its reasonable efforts (commensurate
         with those efforts customarily made in offerings of a similar nature)
         to place the Notes on behalf of the Issuer upon the terms and
         conditions described in the Notice of Appointment, the Offering
         Memorandum and in the Administrative Procedures. In soliciting offers
         as agent, each Agent is acting solely as agent of the Issuer and not as
         principal. Each Agent shall use its reasonable efforts to assist the
         Issuer in obtaining performance by each purchaser whose offer to
         purchase Notes has been solicited by such Agent and accepted by the
         Issuer, however such Agent shall not have any liability to the Issuer
         in the event any such purchase is not consummated for any reason;
         provided that the foregoing shall not operate to release the Agent from
         any liability it may otherwise have as a result of its failure to
         perform its obligations under this Agreement. Except as provided in
         Section 2(b), under no circumstances will any Agent be obligated to
         purchase any Notes for its own account. It is understood and agreed,
         however, that any Agent may purchase Notes for its own account as
         Purchaser pursuant to Section 2(b) or otherwise as may be agreed or
         permitted by the Issuer and such Agent.

                                       10

<PAGE>

                           (iii) The Issuer reserves the right, in its sole
         discretion, to instruct the Agents to suspend at any time, for any
         period of time or permanently, the solicitation of offers to purchase
         Notes. Within one business day of receipt of instructions to that
         effect from the Issuer, each Agent will forthwith suspend solicitation
         of offers to purchase Notes from the Issuer until such time as the
         Issuer has advised it that such solicitation may be resumed.

                           (iv) The Issuer agrees to pay each Agent a
         commission, upon closing, with respect to each sale of Notes by the
         Issuer as a result of a solicitation made by such Agent, including any
         sale for the account of any affiliate of such Agent, in an amount equal
         to that percentage of the aggregate principal amount of the Notes sold
         by the Issuer specified on Schedule II hereto for Notes with the
         relevant term. Such commission shall be payable as specified in the
         Administrative Procedures.

                           (v) Subject to the provisions of this Agreement, the
         Notice of Appointment and the Administrative Procedures, offers for the
         purchase of Notes may be solicited by the Agent, as agent for the
         Issuer, at such time and in such amounts as the Agent and the Issuer
         deem advisable. The Issuer may, subject to Sections 4(a)(v) and
         4(a)(xviii) of this Agreement, from time to time offer other debt
         obligations for sale on its own behalf directly to purchasers otherwise
         than through an Agent, in which case no commission would be payable
         with respect to such sale, provided such direct sales are made in
         compliance with all applicable law. As long as this Agreement shall be
         in effect, the Issuer shall not solicit or accept offers to purchase
         Notes through any agent other than Agents named on Schedule I hereto;
         provided, however, that the Issuer may amend Schedule I hereto from
         time to time to appoint additional Agents provided that the Issuer (i)
         has appointed such agent as an additional Agent hereunder on the same
         terms and conditions as provided herein for the Agents, and (ii) has
         caused such additional agent to execute this Agreement.

                                       11

<PAGE>

                           (vi) Each Agent may, in the exercise of its
         reasonable discretion, reject any offer to purchase Notes received by
         it as agent of the Issuer and not communicate such offer to the Issuer.
         Each Agent shall communicate to the Issuer, orally or in writing, each
         such offer that it does not reject and, if such Agent or any of its
         affiliates shall be the offeror, shall advise the Issuer of that fact.
         The Issuer shall have sole and absolute discretion to accept any offer,
         and may reject any offer to purchase Notes in whole or, if permitted by
         the terms of such offer, in part.

                           (vii) If the Issuer shall default in its obligations
         to deliver Notes to a purchaser whose offer it has accepted, the Issuer
         shall hold you harmless against any loss, claim or damage arising from
         or as a result of such default by the Issuer (except to the extent that
         such default by the Issuer shall result from the failure by you to
         perform your obligations hereunder).

                  (b) (i) Subject to the terms and conditions stated herein,
         whenever the Issuer and any one (or more) of you jointly determine that
         the Issuer shall sell Notes directly to any one (or more) of you as the
         Purchaser, each such sale of Notes shall be made in accordance with the
         terms of this Agreement and, unless specifically waived by the
         Purchaser, a supplemental agreement relating thereto between the Issuer
         and the Purchaser. Each such supplemental agreement (which shall be
         substantially in the form of Exhibit B) is herein referred to as a
         "Terms Agreement". A Purchaser's commitment to purchase Notes pursuant
         to any Terms Agreement shall be deemed to have been made on the basis
         of the representations and warranties of the Issuer contained herein or
         therein (if any) and shall be subject to the terms and conditions set
         forth herein and in such Terms Agreement. Unless the context otherwise
         requires, each reference contained herein to "this Agreement" shall be
         deemed to include any applicable Terms Agreement between any one (or
         more) of you and the Issuer. Each Terms Agreement shall describe the
         Notes to be purchased by the Purchaser pursuant thereto, specify the
         principal amount of such Notes, the price to be paid to the Issuer for
         such Notes specified by reference to the principal amount of the Notes
         and the discount to the Purchaser from the principal amount thereof,
         the rate at which interest will be paid on such Notes, the date of
         issuance of such Notes (the "Closing Date"), the place of delivery of
         the Notes and payment therefor, the method of payment, any modification
         of, or addition to, the requirements for the delivery of the opinions
         of counsel set forth in Section 6(a)(ii), the certificates from the
         Issuer or its officers and the letter from the Issuer's independent
         certified public accountants, and such other terms and conditions as
         may be specified therein from time to time. The discount to the
         Purchaser with respect to any Notes sold pursuant to this Section 2(b)
         shall be equal to that percentage of the principal amount thereof
         specified in Schedule II hereto for Notes with the relevant term,
         unless a higher percentage is specified in the applicable Terms
         Agreement.

                                       12

<PAGE>

                           (ii) The settlement details for Notes sold to a
         Purchaser pursuant to any Terms Agreement shall be agreed to between
         the Issuer and such Purchaser in the respective Terms Agreement. If
         there is no such Terms Agreement, the settlement details specified in
         the Administrative Procedures shall apply with the Purchaser filling
         the roles specified therein of the Agent and the beneficial owner.

                           (iii) Nothing contained in this Agreement shall
         obligate an Agent to enter into a Terms Agreement with the Issuer or to
         otherwise agree to purchase Notes for its own account.

         3. Offering and Sale of Notes.  Each party hereto agrees to perform the
respective duties and obligations specifically provided to be performed by it
in the Administrative Procedures.

         4. Agreements.

                  (a) The Issuer agrees with you that:

                           (i) If information that is material to an investment
         in a Note is not otherwise contained in the Offering Memorandum, or if
         at any time an event occurs as a result of which the Offering
         Memorandum as then amended or supplemented would include an untrue
         statement of a material fact or omit to state any material fact
         necessary in order to make the statements therein, in the light of the
         circumstances under which they were made, not misleading, or if it is
         necessary at such time to amend or supplement the Offering Memorandum
         to comply with any applicable law, the Issuer promptly will prepare an
         amendment or supplement which will correct such statement or omission
         or effect such compliance, and will not effect any amendment or
         supplement to the Offering Memorandum without your consent, which
         consent shall not be unreasonably withheld; provided, however, that the
         foregoing consent requirement shall not apply to periodic and other
         filings with the Commission by the Issuer under the federal securities
         laws including, without limitation, Current Reports on Form 8-K,
         Quarterly Reports on Form 10-Q, or Annual Reports on Form 10-K under
         the Securities Exchange Act of 1934, as amended (the "Exchange Act")
         ("Federal Securities Filings"). Neither your consent to, nor your
         delivery of, any such amendment or supplement shall constitute a waiver
         of any of the conditions set forth in Section 5 hereto.

                                       13

<PAGE>

                           (ii) The Issuer shall furnish to you such information
         and documents relating to the business, operations and affairs of the
         Issuer, the Offering Memorandum and any amendments thereof or
         supplements thereto, the Notes, the Supplemental Indenture, this
         Agreement, any Terms Agreement, the Administrative Procedures, the
         Paying Agency Agreement and the performance by the parties hereto of
         their respective obligations hereunder and thereunder as you may from
         time to time and at any time prior to the termination of this Agreement
         reasonably request in connection with soliciting offers to purchase
         Notes. The Issuer shall notify you promptly (1) if at any time any
         event occurs which constitutes (or after notice or lapse of time or
         both would constitute) a default or an event of default under the
         Notes, the Supplemental Indenture, the Paying Agency Agreement, this
         Agreement or any agreement evidencing additional indebtedness of the
         Issuer or (2) of any material adverse change, or to the knowledge of
         the Issuer any development involving a prospective material adverse
         change, in the financial condition, earnings, business or business
         prospects or properties of the Issuer and its subsidiaries considered
         as a single enterprise.

                           (iii) The Issuer shall, whether or not any sale of
         Notes is consummated, (1) pay, or reimburse if paid by any Agent, all
         reasonable costs and expenses incident to the performance of its
         obligations under this Agreement and any Terms Agreement, including,
         but not limited to, the cost of preparation, printing or other
         production and delivery of the Offering Memorandum, all amendments
         thereof and supplements thereto, the Supplemental Indenture, the Paying
         Agency Agreement, this Agreement, any Terms Agreement and all other
         documents relating to the offering of Notes pursuant hereto and
         thereto, the cost of preparing, printing, packaging and delivering the
         Notes, the fees and disbursements of counsel to and accountants for the
         Issuer, the fees and disbursements of the Trustee, the fees and
         disbursements of the Paying Agent, and the fees of any Rating Agency,
         (2) reimburse you on a quarterly basis for all reasonable out-of-pocket
         expenses incurred by you in connection with this Agreement and the
         transactions contemplated hereby and (3) pay the reasonable fees and
         expenses of your counsel incurred in connection with this Agreement and
         the transactions contemplated hereby.

                                       14

<PAGE>

                           (iv) On each date of settlement for any Tranche of
         Notes (a "Settlement Date"), or if at any time that the Offering
         Memorandum is amended or supplemented (excluding an amendment or
         supplement solely by reason of the incorporation of documents by
         reference), in the reasonable judgement of the Agent the information
         disclosed in such amendment or supplement is of such a nature that an
         officer's certificate and an opinion of counsel need be furnished, the
         Issuer shall deliver or cause to be delivered promptly to you an
         officer's certificate, an opinion of counsel and an opinion of its
         Senior Vice President-Law and Administration or General Counsel, dated
         the Settlement Date or the date of such amendment or supplement, as the
         case may be, in form reasonably satisfactory to the Agent, of the same
         tenor as the certificate and opinions referred to in Sections 5(a)(ii)
         and (iii), but modified to relate to the Offering Memorandum, this
         Agreement and the Paying Agency Agreement, each as then in effect.

                           (v) Unless otherwise specified in any Terms
         Agreement, the Issuer shall not, without the prior consent of the
         Purchaser thereunder, issue or announce the proposed issuance of any of
         its debt securities (including Notes), which are denominated in the
         same currency as, and have similar maturities, similar interest rates
         and other terms (including in respect of the method of computing
         interest) substantially similar to those of, the Notes being purchased
         pursuant to such Terms Agreement, during the period commencing on the
         date on which the Issuer accepts an offer to purchase any Note in
         accordance with such Terms Agreement and terminating on the Closing
         Date for the sale of such Note.

                           (vi) The Issuer shall furnish to you without charge,
         from time to time, as many copies of the following as you may
         reasonably request: (A) the Offering Memorandum and any amendment or
         supplement that has been prepared with respect thereto, (B) any Pricing
         Supplement, and (C) any financial statements and other periodic reports
         that the Issuer may furnish generally to holders of its debt
         securities.

                                       15

<PAGE>

                           (vii) The Issuer shall furnish to you in written form
         all quarterly financial statement information for the first three
         fiscal quarterly periods of the Issuer promptly upon publication of
         such quarterly information and, within two months of the end of each
         such quarterly period, cause the Offering Memorandum to be supplemented
         to include such financial information and corresponding information for
         the comparable period of the preceding fiscal year, as well as such
         other information and explanations as shall be necessary for an
         understanding of such financial information, which supplement may be in
         the form of a separate quarterly report, or a report filed by the
         Issuer under the Exchange Act.

                           (viii) The Issuer shall furnish to you the audited
         consolidated financial statements updating the audited consolidated
         financial statements and the financial information included in the
         Offering Memorandum for each corresponding fiscal year as promptly as
         practicable after the publication of such financial statements, but in
         any event not later than four months after the end of such fiscal year,
         and cause the Offering Memorandum to be supplemented to include such
         audited financial statements and the accountants' report with respect
         thereto, as well as such other information and explanations as shall be
         necessary for an understanding of such financial statements, which
         supplement may be in the form of a separate annual report or report
         filed by the Issuer under the Exchange Act.

                           (ix) The Issuer shall (1) furnish to you copies of
         any proposed supplement or amendment to the Offering Memorandum
         (including any document incorporated by reference therein) in advance
         of using such supplement or amendment, such copies, to the extent
         practicable, to be furnished to you five business days in advance of
         using such supplement or amendment, except for Federal Securities
         Filings, copies of which filings the Issuer will cause to be delivered
         to the Agent by facsimile or other means of delivery, on or prior to
         the date of filing with the Commission, and (2) permit you to review
         and comment as to the form and content thereof and, subject to the
         proviso in Section 4(a)(i), shall not use any such amendment or
         supplement to which you have reasonably objected in good faith;
         provided, however, that an amendment or supplement prepared to set
         forth terms and conditions of any Notes, including any Pricing
         Supplement, need not be furnished to or reviewed by those of you who
         are not named therein, who shall not have solicited offers for such
         Notes and who are not to be Purchasers of such Notes. Any Agent who
         shall have an objection in good faith to such proposed amendment or
         supplement may immediately terminate this Agreement as to such Agent by
         notice to the Issuer. At the request of any Agent so terminating, the
         Issuer shall promptly amend and supplement the Offering Memorandum and
         Schedule I hereto to indicate those firms that remain Agents.

                                       16

<PAGE>

                           (x) The Issuer shall not offer or sell any securities
         under circumstances which would require the registration of any of the
         Notes under the Securities Act.

                           (xi) The Issuer will take appropriate steps to ensure
         that the aggregate principal amount of Notes issued during the Offering
         Period does not exceed U.S. $300,000,000, will not issue any Notes if
         such issuance would cause such limit to be exceeded, will promptly
         notify you in the event that at any time such limit has been reached
         and will promptly notify you if such limit is increased pursuant to
         this Agreement.

                           (xii) The Issuer shall not, without having given
         prior written notice to you, consent to any amendment of the Paying
         Agency Agreement. The Issuer shall promptly notify you of any
         resignation or removal of the Paying Agent and the appointment of any
         successor thereto.

                           (xiii) For so long as any of the Notes are
         outstanding, the Issuer will provide to any holder of Notes that are
         "restricted securities" within the meaning of Rule 144(a)(3) under the
         Securities Act, and to any prospective purchaser of such Notes
         designated by a holder thereof, upon the request of such holder or
         prospective purchaser in connection with a transfer or proposed
         transfer pursuant to Rule 144A, any information required to be provided
         to such holder or prospective purchaser to comply with the conditions
         set forth in Rule 144A as in effect as of the date the Notes of the
         corresponding Tranche shall have been first issued (together with any
         such information added by an amendment to Rule 144A after such date, to
         the extent such information can be provided without unreasonable
         additional expense to the Issuer).

                           (xiv) You shall not be liable or responsible to the
         Issuer for any losses, damages or liabilities suffered or incurred by
         the Issuer, including any losses, damages or liabilities under the
         Securities Act, arising from or relating to any resale or transfer of a
         Note by a holder (other than yourself) in any manner that does not
         comply with the applicable restrictions on resale and transfer or the
         procedures required for resale and transfer set forth herein, in the
         Offering Memorandum and in the Notes; provided that each of you,
         severally and not jointly, shall remain liable for the performance of
         your own obligations under this Agreement.

                                       17

<PAGE>

                           (xv) The Issuer will at all times ensure that all
         approvals, authorizations, consents or other orders of, and all filings
         with, any governmental or other administrative agency or body will be,
         prior to the time required (taking into account any permitted
         extensions), obtained or made (1) so that the Issuer may lawfully
         perform its obligations under the Notes, the Supplemental Indenture,
         this Agreement, the Administrative Procedures and the Paying Agency
         Agreement and (2) so that performance of such obligations will, in all
         respects material to the Issuer and its subsidiaries considered as a
         single enterprise, or material to the Issuer's ability to perform its
         obligations under the Notes, the Supplemental Indenture, this
         Agreement, the Administrative Procedures and the Paying Agency
         Agreement, comply with any laws, decrees, regulations, judgments or
         orders of any court, government, governmental authority or agency to
         which the Issuer or any of its subsidiaries or any of their respective
         properties or assets is subject.

                           (xvi) During the Offering Period, the Issuer will
         send to you a copy of every notice of a meeting of the holders of the
         Notes (or any of them) that is sent by the Issuer or the Trustee to
         such holders at the same time it is sent to such holders and will
         promptly notify you immediately upon its becoming aware that a meeting
         of the holders of the Notes (or any of them) has been convened by any
         of such holders.

                           (xvii) During the Offering Period, the Issuer shall
         promptly notify you of any lowering in the ratings of any of the
         Issuer's securities by any Rating Agency, or of any notice given by any
         Rating Agency of any intended or possible decrease in any such rating
         or of any possible change in any such rating where such notice does not
         indicate the direction of the possible change.

                           (xviii) During the six-month period preceding and the
         six-month period following the issue date of any Note, neither the
         Issuer nor any affiliate of the Issuer will directly or indirectly,
         sell, offer for sale, solicit offers to buy or otherwise negotiate in
         respect of, any of the Notes or any other security (as defined in the
         Securities Act) which will be integrated with such sale of Notes in a
         manner that would require the registration of the Notes under the
         Securities Act.

                                       18

<PAGE>

                           (xix) Until the expiration of two years after the
         issuance of each Tranche of Notes, the Issuer will not, and will cause
         its affiliates not to resell any Notes which are "restricted
         securities" (as such term is defined under Rule 144(a)(3) of the Act)
         whether as beneficial owner or otherwise (except as agent acting as a
         securities broker on behalf of and for the account of customers in the
         ordinary course of business in unsolicited broker's transactions).

                           (xx) The Issuer will apply the net proceeds from the
         offering and sale of the Notes in the manner set forth in the Offering
         Memorandum under "Use of Proceeds".

                  (b) The obligations of the Issuer under Sections 4(a)(i),
         (ii), (iv), (vi), (vii), (viii) and (ix) shall be suspended during any
         period of time during which the Issuer shall have suspended the
         solicitation of offers to purchase Notes by written notice to each
         Agent; provided, however, that such obligations of the Issuer shall
         remain in effect (i) for a period of two years following the date of
         notice of such suspension if such Agent shall own any Notes with the
         intention of reselling them as contemplated by Section 2(b) or (ii) if
         the Issuer has accepted an offer to purchase Notes solicited by such
         Agent pursuant to this Agreement and the settlement for such sale shall
         not have occurred. At least one week prior to the end of any such
         period during which solicitations shall have been suspended, the Issuer
         shall notify you of any event or change contemplated by Section 4(a)(i)
         or by the last sentence of Section 4(a)(ii) of which the Issuer would
         have been obligated to notify you, and shall provide you all written
         information, documents and supplements referred to in Sections
         4(a)(ii), (iv), (vii), (viii) and (ix) that the Issuer would have been
         obligated to deliver to you, had the Issuer not so suspended the
         solicitation of offers.

         5. Conditions to the Obligations of the Agent.

                  (a) The obligations of each Agent to solicit offers to
         purchase any Notes shall be subject to the accuracy of the
         representations and warranties on the part of the Issuer contained
         herein as of the date hereof and as of each time the Issuer gives a
         notice requesting any Agent to solicit offers as Agent, at and as of
         each acceptance of an offer by the Issuer and upon delivery of any Note
         to the purchaser (or its agent) pursuant to such offer, to the accuracy
         of the statements of the Issuer made in any certificates delivered
         pursuant to the provisions hereof as of the respective dates of such
         certificates, to the performance and observance by the Issuer of all
         covenants and agreements herein contained on its part to be performed
         and observed and to the following additional conditions precedent:

                                       19

<PAGE>

                           (i) The Issuer shall have obtained all
         authorizations, consents and approvals of any court or governmental or
         other regulatory agency or body required in connection with the
         issuance and sale of the Notes and the performance of its obligations
         hereunder and under the Notes, the Notice of Appointment, the
         Supplemental Indenture and the Paying Agency Agreement.

                           (ii) The Issuer shall have furnished to you an
         accurate certificate dated as of the date thereof, signed by the Chief
         Executive Officer or the Chief Financial Officer of the Issuer, in form
         and substance satisfactory to you, to the effect that, to the best of
         his or her knowledge after reasonable inquiry:

                                         (1) the representations and warranties
                           of the Issuer in this Agreement are true and correct
                           in all material respects on and as of the date of the
                           certificate and the Issuer has performed in all
                           material respects all its obligations and satisfied
                           all the conditions on its part to be satisfied at or
                           prior to the date of the certificate;

                                         (2) since the date of the most recent
                           financial statements included in the current Offering
                           Memorandum, there has been no material adverse
                           change, or to the knowledge of the Issuer any
                           development involving a prospective material adverse
                           change, in the financial condition, earnings,
                           business or business prospects or properties of the
                           Issuer and its subsidiaries, considered as a single
                           enterprise, except as set forth in the Offering
                           Memorandum; and

                                         (3) the Offering Memorandum (other than
                           statements made therein in reliance upon and in
                           conformity with information furnished to the Issuer
                           in writing by any Agent specifically for use therein,
                           as to which no representation shall be made) does not
                           contain any untrue statement of a material fact or
                           omit to state any material fact necessary to make the
                           statements therein, in light of the circumstances
                           under which they were made, not misleading.

                           (iii) (A) The Issuer shall have furnished to each
         Agent the opinion of Dilworth Paxson LLP, counsel to the Issuer,
         substantially in the form of Exhibit C hereto, which may be subject to
         any assumptions, qualifications and limitations that are reasonably
         acceptable to each Agent.

                                       20

<PAGE>

                                 (B) The Issuer shall have furnished to each
         Agent and to Dilworth Paxson LLP the opinion of the Senior Vice
         President-Law and Administration or General Counsel of the Issuer
         substantially in the form of Exhibit D hereto, which may be subject to
         any assumptions, qualifications and limitations that are reasonably
         acceptable to each Agent.

                           (iv) Each Agent shall have received from Chase
         Manhattan Trust Company National Association, as Trustee under the
         Indenture of Mortgage and the Supplemental Indenture, a certificate
         substantially in the form of Exhibit E hereto, which may be subject to
         any assumptions, qualifications and limitations that are reasonably
         acceptable to each Agent.

                           (v) Each Agent shall have received from your counsel
         such opinion with respect to the proposed issue and sale of the Notes
         and other related matters as the Agent may reasonably require.

                           (vi) KPMG LLP, independent accountants for the
         Issuer, shall have furnished to the Agent an executed copy of a letter
         in the form attached hereto as Exhibit F.

                           (vii) The Issuer shall have furnished to each Agent
         such further information, certificates and documents as any Agent may
         reasonably request.

                           (viii) The documents required to be delivered by this
         Section 5 shall be delivered at, or transmitted by telecopy (with an
         undertaking promptly to forward the original copies thereof) to, the
         offices of Dilworth Paxson LLP, counsel for the Issuer, 3200 Mellon
         Bank Center, 1735 Market Street, Philadelphia, PA 19103, at 4:00 P.M.,
         Philadelphia time, on the date thereof, and an original of each such
         document will be sent to you.

                  (b) Each of the conditions precedent in clauses (i) through
         (viii) above shall be satisfied on each Settlement Date unless waived
         by the Agent or Agents appointed for the relevant Tranche, at the sole
         discretion of such Agent or Agents. Each of the items listed in clauses
         (ii), (iii) and (iv) above shall be dated the applicable Settlement
         Date. The items listed in clause (vi) shall be dated the applicable
         Settlement Date, if the Company shall have prepared updated quarterly
         or annual financial statements since the date of the last such letter
         delivered to you.

                                       21

<PAGE>

         6. Conditions to the Obligations of a Purchaser.

                  (a) The obligations of any Purchaser to purchase any Notes
         shall be subject to the accuracy of the representations and warranties
         on the part of the Issuer contained herein or in the corresponding
         Terms Agreement, if any, at and as of the date of the corresponding
         Terms Agreement and upon the delivery to any Purchaser of any Note
         pursuant to such Terms Agreement, to the performance and observance by
         the Issuer of all covenants and agreements herein or therein contained
         on its part to be performed and observed and to the following
         additional conditions precedent:

                           (i) The Issuer shall have obtained all
         authorizations, consents and approvals of any court or governmental or
         other regulatory agency or body required in connection with the
         issuance and sale of the Notes and the performance of its obligations
         hereunder and under the Notes, the Notice of Appointment, the
         Supplemental Indenture and the Paying Agency Agreement.

                           (ii) To the extent provided by such Terms Agreement,
         the Purchaser shall have received, appropriately updated, (1) a
         certificate of the Issuer dated as of the Closing Date to the effect
         set forth in Section 5(a)(ii), (2) the opinion of Dilworth Paxson LLP
         dated the Closing Date to the effect set forth in Section 5(a)(iii)(A),
         (3) the opinion of the Senior Vice President-Law and Administration or
         General Counsel, dated the Closing Date to the effect set forth in
         Section 5(a)(iii)(B), (4) the Trustee's certificate dated the Closing
         Date to the effect set forth in Section 5(a)(iv), (5) the opinion of
         your counsel dated the Closing Date to the effect set forth in Section
         5(a)(v) and (6) the letter of KPMG LLP dated the Closing Date to the
         effect set forth in Section 5(a)(vi).

                           (iii) Prior to the Closing Date, the Issuer shall
         have furnished to the Purchaser such further information, certificates
         and documents as the Purchaser may reasonably request.

                  (b) If any of the conditions specified in this Section 6 shall
         not have been fulfilled in all material respects when and as provided
         in this Agreement and any Terms Agreement, or if any other event occurs
         which permits cancellation under this Agreement, such Terms Agreement
         and all obligations of the Purchaser thereunder and with respect to the
         Notes subject thereto may be canceled at, or at any time prior to, the
         respective Closing Date by the Purchaser. Notice of such cancellation
         shall be given to the Issuer in writing or by telephone, promptly
         confirmed in writing, which confirmation may be made by telex or
         telecopy.

                                       22

<PAGE>

         7. Conditions to all Purchases. The consummation of the sale of any
Note pursuant to this Agreement shall be subject to the further condition that,
at the date of issuance thereof, in the reasonable judgment of the Purchaser or
the Agent that obtained the offer, (a) each condition set forth in Section 5 or
6, as applicable, shall have been satisfied and (b) subsequent to the respective
dates as of which information is given in the Offering Memorandum (current as of
the date of such agreement to purchase a Note), except as set forth therein or
contemplated thereby, there shall not have occurred any material adverse change,
or to the knowledge of the Issuer any development involving a prospective
material adverse change, in or affecting the financial condition, earnings,
business or business prospects or properties of the Issuer and its subsidiaries,
considered as a single enterprise, the effect of which makes it impracticable or
inadvisable to market the Notes or to proceed with completion of the sale and
payment for such Notes.

         8. Restrictions on Offers and Sales of the Notes. Each party hereto
represents, warrants and agrees, severally and not jointly, as follows:

                  (a) It will solicit offers to purchase Notes only from, and it
         will offer and sell Notes only to, (i) institutional purchasers that
         are, or that it reasonably believes are, "qualified institutional
         buyers" as such term is defined in paragraph (a)(1) of Rule 144A
         ("QIBs") or (ii) any Agent. If it is an Agent, any resales or transfers
         of Notes through, or arranged by, such Agent similarly will be made
         only to QIBS. Neither it, its affiliates, nor any person acting on its
         or their behalf (except that no representation is made with respect to
         any other party to this Agreement) has engaged or will engage in any
         form of general solicitation or general advertising (within the meaning
         of Rule 502(c) under the Securities Act) in the United States with
         respect to the Notes.

                  (b) It will make reasonable inquiry to determine whether a
         purchaser is purchasing for such purchaser's own account as a QIB or
         for the account of others and not with a view to, or for sale in
         connection with, the public distribution thereof in any transaction
         that would be in violation of Federal or state securities laws and, in
         the case of any purchaser acting on behalf of one or more third
         parties, it shall make reasonable inquiry to determine that each such
         third party is a QIB and that the amount being purchased on behalf of
         each such third party is not less than the authorized minimum
         denomination of such Notes; provided that the Issuer shall have no duty
         to make any such inquiry in connection with sales to any Agent or
         pursuant to offers transmitted to it by any Agent.

                                       23

<PAGE>

         9. Indemnification and Contribution.

                  (a) The Issuer agrees to indemnify and hold harmless each
         Agent and each person who controls any Agent within the meaning of
         either the Securities Act or Section 20 of the Exchange Act against any
         and all losses, claims, damages or liabilities, joint or several, to
         which any such person may become subject under the law of any
         jurisdiction insofar as such losses, claims, damages or liabilities (or
         actions in respect thereof) arise out of or are based upon any untrue
         statement of a material fact contained in the Offering Memorandum, in
         any amendment thereof or supplement thereto or in any information
         provided by the Issuer and furnished to any purchaser of the Notes
         pursuant to Section 4(a)(xiii), or arise out of or are based upon the
         omission to state therein a material fact required to be stated therein
         or necessary to make the statements therein not misleading, and agrees
         to reimburse each such indemnified party, as incurred, for any legal or
         other expenses reasonably incurred by it in connection with
         investigating or defending any such loss, claim, damage, liability or
         action; provided, however, that (i) the Issuer will not be liable in
         any such case to the extent that any such loss, claim, damage or
         liability arises out of or is based upon any such untrue statement or
         omission made in the Offering Memorandum or in any amendment thereof or
         supplement thereto in reliance upon and in conformity with written
         information furnished to the Issuer by the person seeking
         indemnification, or on behalf of another person authorized to do so,
         specifically for use in connection with the preparation thereof. This
         indemnity will be in addition to any liability which the Issuer may
         otherwise have.

                  (b) Each Agent, severally and not jointly, agrees to indemnify
         and hold harmless the Issuer and each person who controls the Issuer
         within the meaning of either the Securities Act or the Exchange Act, to
         the same extent as the foregoing indemnity from the Issuer, but only
         with reference to written information relating to the indemnifying
         party furnished to the Issuer by it, or on its behalf by a person
         authorized to do so, specifically for use, in the preparation of the
         Offering Memorandum or any amendment thereof or supplement thereto.
         This indemnity will be in addition to any liability which any Agent may
         otherwise have.

                                       24

<PAGE>

                  (c) Promptly after receipt by an indemnified party under this
         Section 9 of notice of the commencement of any action, such indemnified
         party will, if a claim in respect thereof is to be made against the
         indemnifying party under this Section 9, notify the indemnifying party
         in writing of the commencement thereof; however, the omission so to
         notify the indemnifying party (i) will not relieve it from any
         liability under paragraph (a) or (b) above unless and to the extent it
         did not otherwise learn of such action and such failure results in the
         forfeiture by the indemnifying party of any substantial rights and
         defenses and (ii) will not, in any event, relieve the indemnifying
         party from any obligations to any indemnified party other than the
         indemnification obligation provided in paragraph (a) or (b) above. In
         case any such action is brought against any indemnified party, and it
         notifies the indemnifying party of the commencement thereof, the
         indemnifying party will be entitled to participate therein, and to the
         extent that it may elect by written notice delivered to the indemnified
         party promptly after receiving the aforesaid notice from such
         indemnified party, to assume the defense thereof, with counsel
         satisfactory to such indemnified party; provided, however, that if the
         defendants in any such action include both the indemnified party and
         the indemnifying party and the indemnified party shall have reasonably
         concluded that there may be legal defenses available to it and/or other
         indemnified parties which are different from or additional to those
         available to the indemnifying party, the indemnified party or parties
         shall have the right to select separate counsel to assert such legal
         defenses and to otherwise participate in the defense of such action on
         behalf of such indemnified party or parties. Upon receipt of notice
         from the indemnifying party to such indemnified party of its election
         so to assume the defense of such action and approval by the indemnified
         party of counsel (which approval shall not be unreasonably withheld),
         the indemnifying party will not be liable to such indemnified party
         under this Section 9 for any legal or other expenses subsequently
         incurred by such indemnified party in connection with the defense
         thereof unless (i) the indemnified party shall have employed separate
         counsel in connection with the assertion of legal defenses in
         accordance with the proviso to the next preceding sentence (it being
         understood, however, that the indemnifying party shall not be liable
         for the expenses of more than one separate counsel (in addition to any
         local counsel), representing the indemnified parties under paragraph
         (a) of this Section 9 who are parties to such action), (ii) the
         indemnifying party shall not have employed counsel satisfactory to the
         indemnified party to represent the indemnified party within a
         reasonable time after notice of commencement of the action or (iii) the
         indemnifying party has authorized the employment of counsel for the
         indemnified party at the expense of the indemnifying party; and except
         that, if clause (i) or (iii) is applicable, such liability shall be
         only in respect of the counsel referred to in such clause (i) or (iii).
         The indemnifying party shall not be liable for any settlement of any
         action or claim effected without its consent, which consent shall not
         be unreasonably withheld.

                                       25

<PAGE>

                  (d) In order to provide for just and equitable contribution in
         circumstances in which the indemnification provided for in this Section
         9 is due in accordance with its terms but is for any reason held by a
         court to be unavailable on grounds of policy or otherwise, the Issuer
         and each Agent shall contribute to the aggregate losses, claims,
         damages and liabilities (including legal or other expenses reasonably
         incurred in connection with investigating or defending same) to which
         the Issuer and any Agent may be subject in such proportion so that each
         Agent is responsible only for that portion represented by the
         percentage that the aggregate commissions received by each such Agent
         pursuant to Section 2 in connection with the Notes from which such
         losses, claims, damages and liabilities arise (or, in the case of Notes
         sold to a Purchaser, the discount to such Purchaser), bears to the
         aggregate principal amount of such Notes sold, and the Issuer is
         responsible for the balance; provided, however, that in no case shall
         any Agent be responsible for any amount in excess of the commissions
         received by each such Agent in connection with the Notes from which
         such losses, claims, damages and liabilities arise (or, in the case of
         Notes sold to the Purchaser, the discount to such Purchaser). For
         purposes of this Section 9, each person who controls any Agent within
         the meaning of either the Securities Act or the Exchange Act shall have
         the same rights to contribution as such Agent and each person who
         controls the Issuer within the meaning of either the Securities Act or
         the Exchange Act shall have the same rights to contribution as the
         Issuer, subject in each case to the proviso to the preceding sentence.
         No person guilty of fraudulent misrepresentation (within the meaning of
         Section 11(f) of the Securities Act) shall be entitled to contribution
         hereunder from any person who was not guilty of such fraudulent
         misrepresentation. Any party entitled to contribution will, promptly
         after receipt of notice of commencement of any action, suit or
         proceeding against such party in respect of which a claim or
         contribution may be made against another party or parties under this
         paragraph (d), notify such party or parties from whom contribution may
         be sought (which obligation to give notice shall be deemed to be
         satisfied by the delivery of notice pursuant to paragraph (c) of this
         Section 9), but the omission so to notify such party or parties shall
         not relieve the party or parties from whom contribution may be sought
         from any other obligation it or they may have hereunder or otherwise
         than under this paragraph (d).

                                       26

<PAGE>

         10. Termination.

                  (a) This Agreement will continue in effect until terminated as
         provided in this Section 10 or Section 4(a)(ix). This Agreement may be
         terminated by the Issuer as to any Agent or, in the case of any Agent
         by such Agent, by giving at least 30 days' written notice of such
         termination to the other parties hereto, at which time the Issuer shall
         cause Schedule I hereto to be amended. Notwithstanding any such
         termination, the rights and liabilities of each party under Sections
         2(a)(iv) and (vii), Sections 4(a)(iii), (xiv) and (xvi), Sections 8(a)
         and (b) (with respect to resales and transfers of Notes), Section 9,
         Section 11 and any Terms Agreement executed prior to the date of
         termination hereof shall survive any termination of this Agreement, in
         whole or in part. In addition, if any termination shall occur either
         (i) at a time when any Purchaser shall own any Notes, purchased under
         this Agreement from the Issuer, with the intention of reselling them or
         (ii) after the Issuer has accepted an offer to purchase Notes and prior
         to the related settlement, all agreements, terms and conditions
         relating to the purchase and sale of such Notes shall also remain in
         effect.

                  (b) Each agreement to purchase Notes pursuant to a
         solicitation by an Agent hereunder, and each agreement by a Purchaser
         to purchase Notes hereunder, shall be subject to termination in the
         absolute discretion of such Agent or the Purchaser (as the case may
         be), by notice given to the Issuer prior to delivery of any payment for
         Notes to be purchased, if prior to such time (i) trading in any
         securities issued by the Issuer or by PSC shall have been suspended or
         halted on any exchange (whether U.S. or foreign), or trading in
         securities generally on the New York Stock Exchange shall have been
         suspended or limited or minimum or maximum prices shall have been
         generally established on such Exchange, or additional material
         government restrictions, not in force on the date of this Agreement or
         the date of any Terms Agreement with respect to such Notes, shall have
         been imposed upon trading in securities generally by such Exchange or
         by order of the Commission or any court or other governmental
         authority, (ii) a general banking moratorium shall have been declared
         by either U.S. Federal or New York State authorities, (iii) there shall
         have been a lowering in the ratings of any of the Issuer's securities
         by any Rating Agency or a notice given by any Rating Agency of any
         intended or potential decrease in any such rating or of any possible
         change in any such rating where such notice does not indicate the
         direction of the possible change, or (iv) there shall have occurred any
         material adverse changes in the financial markets, any outbreak of
         hostilities or escalation thereof or other calamity or crisis in
         national or international political, financial or economic conditions
         that makes it in the reasonable judgment of such Agent or Purchaser (as
         the case may be) impracticable or inadvisable to market the Notes or to
         proceed with completion of the sale of and payment for such Notes.

                                       27

<PAGE>

         11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Issuer or its officers and of the Agent set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Agent or by or on behalf of the Issuer or any of the
controlling persons referred to in Section 9, and will survive delivery of and
payment for the Notes.

         12. Increases in the Amount of the Notes; Extension of Offering Period.
The aggregate principal amount of Notes that may be sold by the Issuer may be
increased, or the Offering Period may be extended, if permitted under the
Indenture of Mortgage and pursuant to the laws of the Commonwealth of
Pennsylvania, pursuant to (x) a subsequent supplemental indenture to the
Indenture of Mortgage and (y) an amendment to this Agreement in the form
attached hereto as Exhibit G executed by the Issuer and the Agent named in
Schedule I hereto. Upon the execution and delivery of any such amendment, to the
extent agreed upon by the Issuer and the Agent, the Issuer shall deliver to such
Agent, appropriately updated, (a) a certificate of the Issuer dated as of the
date of such amendment to the effect set forth in Section 5(a)(ii), (b) the
opinion of Dilworth Paxson LLP dated the date of such amendment to the effect
set forth in Section 5(a)(iii)(A), (c) the opinion of its Senior Vice
President-Law and Administration or General Counsel, dated the Closing Date to
the effect set forth in Section 5(a)(iii)(B), (d) the certificate of the Trustee
dated the date of such amendment to the effect set forth in Section 5(a)(iv),
and (e) the letter of KPMG LLP dated the date of such amendment to the effect
set forth in Section 5(a)(vi), and the Issuer shall furnish to you such further
information, certificates and documents as you may reasonably request.

         13. Notices. All communications hereunder will be in writing, and
effective only on receipt, or (but only where specifically provided in the
Administrative Procedures) by telephone and, if sent to the Agent, will be
mailed, delivered, telecopied and confirmed or telexed and confirmed to the
Agent, at the address(es) specified in Schedule I hereto; or, if sent to the
Issuer, will be mailed, delivered, telecopied and confirmed or telexed and
confirmed to it at 762 Lancaster Avenue, Bryn Mawr, PA 19010, Attention:
Treasurer, (telephone: (215) 527-8000; telecopy: (215) 645-1141).

                                       28

<PAGE>

         14. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 9, and no other person will have any
right or obligation hereunder.

         15. Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE Commonwealth of Pennsylvania (EXCLUDING LAWS
GOVERNING CONFLICTS OF LAW).

         16. Counterparts. This Agreement may be signed in counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.

                                       29
<PAGE>

         If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement between the
Issuer and you.

                                                Very truly yours,

                                                PHILADELPHIA SUBURBAN WATER
                                                COMPANY,

                                                By: /s/ Kathy L. Pape
                                                    -------------------------
                                                    Name: Kathy L. Pape
                                                    Title: Vice President and
                                                    Treasurer

               [confirmations and acceptances on following pages]

                                       30

<PAGE>

The foregoing Placement Agency Agreement is hereby confirmed and accepted as of
the date hereof.

A.G. Edwards & Sons

By: /s/ Lester H. Krone
    ----------------------------
    Lester H. Krone:
    Managing Director
    Investment Banking

Janney Montgomery Scott, Inc.

By: /s/ Anthony J. Spatacco, Jr.
    ----------------------------
    Anthony J. Spatacco, Jr.
    Vice President

First Union Securities, Inc.

By: /s/ William Ingram
    ----------------------------
    William Ingram
    Managing Director

PaineWebber Incorporated

By: /s/ David Zahka
    ----------------------------
    Name:  David Zahka
    Title: Senior Vice President

PNC Capital Markets, Inc.

By: /s/ Robert W. Thomas
    ----------------------------
    Name:  Robert W. Thomas
    Title: Managing Director

                                       31

<PAGE>

Merrill, Lynch, Pierce, Fenner & Smith Incorporated

By: /s/ Scott Primrose
    ----------------------------
    Name: Scott Primrose
    Title: Authorized Signatory

                                       32

<PAGE>

                              INDEX OF DEFINITIONS

            Term                                           Section
            ----                                           -------
Accountants                                                  1(b)
Administrative Procedures                           Introductory Paragraph
Agent                                               Introductory Paragraph
Agreement                                           Introductory Paragraph
Closing Date                                                2(b)(i)
Commission                                                   1(a)
Exchange Act                                                4(a)(i)
Federal Securities Filings                                  4(a)(i)

Issuer                                              Introductory Paragraph
Material Adverse Effect                                      1(c)
Notes                                               Introductory Paragraph
Notice of Appointment                                       2(a)(i)
Offering Memorandum                                          1(a)
Offering Period                                     Introductory Paragraph
Paying Agency Agreement                             Introductory Paragraph
Pricing Supplement                                           1(a)
PSC                                                 Introductory Paragraph
Purchaser                                           Introductory Paragraph
QIBs                                                         8(a)
Rating Agency                                                1(c)
Request for Bids                                            2(a)(i)
Rule 144A                                                    1(m)
Securities Act                                      Introductory Paragraph
Settlement Date                                           4(a)(iv)(A)
Terms Agreement                                             2(b)(i)
Tranche                                             Introductory Paragraph
You                                                 Introductory Paragraph

                                       33

<PAGE>

                                   SCHEDULE I
Placement Agents:

A.G. Edwards & Sons
1 North Jefferson
St. Louis, MO  63103

Lester Krone                                   Phone:   (314) 955-2358
                                               Fax:     (314) 955-7387

Janney Montgomery Scott, Inc.
Times Bldg., Suite 400
Suburban Square
Ardmore, PA  19003-2415

Anthony Spatacco                               Phone:   (610) 896-2800
                                               Fax:     (610) 896-9943

PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY  10019

David Zahka                                    Phone:   (212) 713-2960
                                               Fax:     (212) 247-0371

First Union Securities, Inc.
One First Union Center
301 South College Street
Charlotte, NC 28288-0735

Jim Williams

PNC Capital Markets, Inc
One PNC Plaza
249 Fifth Avenue
26th Floor, Pittsburgh PA 15222

Robert Thomas

Merrill Lynch & Co.
World Financial Center
North Tower
New York, NY 10281-1311

Timothy Sheerer                                Phone:   (212) 449-1727
                                               Fax:     (212) 449-0599

                                       34

<PAGE>

                                   SCHEDULE II

         The Issuer agrees to pay each Agent a commission equal to the following
percentage of the principal amount of each Note sold by the Agent, and to pay
the Purchaser a commission in the form of a discount to the purchase price equal
to the following percentage of the principal amount of each Note purchased by a
Purchaser under Section 2(b):

Term                                                           Commission Rate
----                                                           ---------------
From 9 months to less than 1 year                                   .125%
From 1 year to less than 18 months                                  .150%
From 18 months to less than 2 years                                 .200%
From 2 years to less than 3 years                                   .250%
From 3 years to less than 4 years                                   .350%
From 4 years to less than 5 years                                   .450%
From 5 years to less than 6 years                                   .500%
From 6 years to less than 7 years                                   .550%
From 7 years to less than 10 years                                  .600%
From 10 years to less than 15 years                                 .625%
From 15 years to less than 20 years                                 .700%
From 20 years up to and including 35 years                          .750%

                                       35

<PAGE>

                                                                      EXHIBIT A

                   MEDIUM TERM NOTE ADMINISTRATIVE PROCEDURES

                                December 3, 1999

                  First Mortgage Bonds, 1999 Medium Term Notes Series (the
"Notes"), due from one year to thirty-five years, are to be offered on a
continuing basis during the five year period from November 18, 1999 through
November 17, 2004. The Agent or Agents listed on Schedule I to the Placement
Agency Agreement (collectively, the "Agent) have agreed to use reasonable
efforts to solicit offers to purchase Notes in fully registered form. The Agent
may also purchase Notes as principal for resale, but no Agent will be obligated
to purchase Notes for its own account. One or more of the Agents may participate
in the placement or purchase of the Notes of each Tranche upon their receipt of
a Notice of Appointment from the Issuer for said Tranche.

                  The Notes are being sold pursuant to a Placement Agency
Agreement between the Issuer and the Agent dated as of the date hereof (the
"Placement Agency Agreement"). The Notes will be issued under and secured in
accordance with the Thirty-Third Supplemental Indenture dated as of November 15,
1999 (the "Supplemental Indenture") to the Indenture of Mortgage dated as of
January 1, 1941 (the Indenture of Mortgage") between the Issuer and Chase
Manhattan Trust Company, National Association (as successor trustee to The
Pennsylvania Company for Insurance on Lives and Granting Annuities), as Trustee
(the "Trustee").

                  All Notes shall be represented by Global Securities (as
defined hereinafter) registered in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"), and beneficial ownership of such Notes will be
represented and maintained in book-entry form on the books of DTC (the
"Book-Entry Notes"). An owner of a Book-Entry Note will not be entitled to
receive a certificate representing such Note. However, if DTC is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the Issuer within 90 days, the Issuer will issue Notes in
definitive registered form (the "Certificated Notes") in exchange for the Global
Security or Securities representing such Notes. In addition, the Issuer may at
any time and in its sole discretion determine not to have some of or all the
Notes represented by one or more Global Securities and, in such event, will
issue certificated Notes in exchange for all of the Global Securities
representing such Notes. In any such instance, an owner of a beneficial interest
in a Global Security will be entitled to physical delivery of Certificated Notes
represented by such Global Security equal in amount to that represented by such
beneficial interest and to have such Certificated Notes registered in its name.

<PAGE>

                  The procedures to be followed during, and the specific terms
of, the solicitation of offers by each Agent and the sale as a result thereof by
the Issuer are explained below. Administrative and record-keeping
responsibilities will be handled for the Issuer by its Treasurer. The Issuer
will advise each Agent and the Trustee in writing of those persons handling
administrative responsibilities with whom the Agent and the Trustee are to
communicate regarding offers to purchase Notes and the details of their
delivery. The Issuer will promptly advise each Agent and the Trustee in writing
if any such person shall cease to handle such responsibilities or of the
authorization of any additional person to handle such responsibilities.

                  Administrative procedures and specific terms of the offering
are explained below. Book-Entry Notes will be issued in accordance with the
administrative procedures set forth in Part I hereof, as adjusted in accordance
with changes in DTC's operating requirements, and Certificated Notes will be
issued in accordance with the administrative procedures set forth in Part II
hereof. Capitalized terms not defined herein shall have the meanings assigned in
the Placement Agency Agreement or, if not defined therein, in the Supplemental
Indenture or the Offering Memorandum. To the extent the procedures set forth
below conflict with the provisions of the Notes, the Indenture of Mortgage, the
Supplemental Indenture, DTC's operating requirements or the Placement Agency
Agreement, the relevant provisions of the Notes, the Indenture of Mortgage, the
Supplemental Indenture, DTC's operating requirements and the Placement Agency
Agreement shall control.

                                     PART I

                          Administrative Procedures for
                                Book-Entry Notes

                  In connection with the qualification of the Book-Entry Notes
for eligibility in the book-entry system maintained by DTC, the Trustee will
perform the custodial, document control and administrative functions assigned to
it as described below, unless certain duties are otherwise designated to a duly
authorized paying agent, in accordance with its respective obligations under a
Letter of Representations from the Issuer and the Trustee to DTC dated as of the
date hereof and a Medium Term Note Certificate Agreement between The Chase
Manhattan Bank and DTC dated as of December 2, 1988, as amended, and its
obligations as a participant in DTC, including DTC's Same-Day Funds Settlement
system ("SDFS").

                                       2

<PAGE>

Issuance:                              On any date of settlement (as defined
                                       under "Settlement" below) for one or more
                                       Notes, the Issuer will issue a single
                                       global security in fully registered form
                                       without coupons (a "Global Security")
                                       representing all such Notes that have the
                                       same rank (senior or subordinated),
                                       original issue date, original issue
                                       discount provisions, if any, Interest
                                       Payment Dates, Record Dates, Interest
                                       Payment Period, redemption provisions, if
                                       any, tender provisions, if any, Maturity
                                       Date, and interest rate (collectively,
                                       the "Terms"). Each Global Security will
                                       be dated and issued as of the date of its
                                       authentication by the Trustee. Each
                                       Global Security will bear an original
                                       issue date, which will be (i) with
                                       respect to an original Global Security
                                       (or any portion thereof), the original
                                       issue date specified in such Global
                                       Security and (ii) following a
                                       consolidation of Global Securities, with
                                       respect to the Global Security resulting
                                       from such consolidation, the most recent
                                       Interest Payment Date to which interest
                                       has been paid or duly provided for on the
                                       predecessor Global Securities, regardless
                                       of the date of authentication of such
                                       resulting Global Security. No Global
                                       Security will represent any Certificated
                                       Note.

Identification                         The Issuer has arranged with the CUSIP
Numbers:                               Service Bureau of Standard & Poor's (the
                                       "CUSIP Service Bureau") for the
                                       reservation of one series of CUSIP
                                       numbers, which consists of approximately
                                       900 CUSIP numbers and relates to Global
                                       Securities representing Book-Entry Notes.
                                       The Issuer has obtained from the CUSIP
                                       Service Bureau a written list of such
                                       reserved CUSIP numbers, which the Issuer
                                       shall deliver to the Trustee and DTC. The
                                       Issuer will assign CUSIP numbers to
                                       Global Securities as described below
                                       under Settlement Procedure "B". DTC will
                                       notify the CUSIP Service Bureau
                                       periodically of the CUSIP numbers that
                                       the Issuer has assigned to Global
                                       Securities. At any time when fewer than
                                       100 of the reserved CUSIP numbers remain
                                       unassigned to Global Securities for
                                       either series, if it deems necessary, the
                                       Issuer will reserve additional CUSIP
                                       numbers for assignment to Global
                                       Securities. Upon obtaining such
                                       additional CUSIP numbers, the Issuer
                                       shall deliver a list of such additional
                                       CUSIP numbers to the Trustee and DTC.

                                       3

<PAGE>

Registration:                          Global Securities will be issued only in
                                       fully registered form without coupons.
                                       Each Global Security will be registered
                                       in the name of Cede & Co., as nominee for
                                       DTC, on the securities register for the
                                       Notes maintained under the Indenture of
                                       Mortgage. The beneficial owner of a
                                       Book-Entry Note (or one or more indirect
                                       participants in DTC designated by such
                                       owner) will designate one or more
                                       participants in DTC (with respect to such
                                       Book-Entry Note, the "Participants") to
                                       act as agent or agents for such owner in
                                       connection with the book-entry system
                                       maintained by DTC, and DTC will record in
                                       book-entry form, in accordance with
                                       instructions provided by such
                                       Participants, a credit balance with
                                       respect to such beneficial owner in such
                                       Book-Entry Note in the account of such
                                       Participants. The ownership interest of
                                       such beneficial owner (or such
                                       Participant) in such Book-Entry Note will
                                       be recorded through the records of such
                                       Participants or through the separate
                                       records of such Participants and one or
                                       more indirect participants in DTC.

Transfers:                             Transfers of a Book-Entry Note will be
                                       accomplished by book entries made by DTC
                                       and, in turn, by Participants (and, in
                                       certain cases, one or more indirect
                                       participants in DTC) acting on behalf of
                                       beneficial transferors and transferees of
                                       such Note.

Exchanges:                             The Trustee may deliver to DTC and the
                                       CUSIP Service Bureau at any time a
                                       written notice of consolidation (a copy
                                       of which shall be attached to the
                                       resulting Global Security described
                                       below) specifying (i) the CUSIP numbers
                                       of two or more Outstanding Global
                                       Securities that represent fixed rate
                                       Notes having the same Terms and for which
                                       interest has been paid to the same date,
                                       (ii) a date, occurring at least thirty
                                       (30) days after such written notice is
                                       delivered and at least thirty (30) days
                                       before the next Interest Payment Date for
                                       such Book-Entry Notes, on which such
                                       Global Securities shall be exchanged for
                                       a single replacement Global Security and
                                       (iii) the single CUSIP number to be
                                       assigned to such replacement Global

                                       4

<PAGE>

                                       Security (which shall be the CUSIP number
                                       previously assigned to the Global
                                       Security with the earliest date of
                                       issuance). Upon receipt of such a notice,
                                       DTC will send to its Participants
                                       (including the Trustee) a written
                                       reorganization notice to the effect that
                                       such exchange will occur on such date.
                                       Prior to the specified exchange date, the
                                       Trustee will deliver to the CUSIP Service
                                       Bureau a written notice setting forth
                                       such exchange date and such single CUSIP
                                       number and stating that, as of such
                                       exchange date, the CUSIP numbers of the
                                       individual Global Securities not assigned
                                       to the replacement Global Security will
                                       no longer be valid. On the specified
                                       exchange date, the Trustee will exchange
                                       such Global Securities for a single
                                       Global Security bearing the single CUSIP
                                       number and the CUSIP numbers of the
                                       individual Global Securities not assigned
                                       will, in accordance with CUSIP Service
                                       Bureau procedures, be retired and not
                                       reassigned. Each Book-Entry Note will
                                       mature on a date not less than one year
                                       nor more than thirty-five years after the
                                       settlement date for such Note.

Denomination:                          Book-Entry Notes will be issued in a
                                       minimum principal amount of $100,000 or
                                       an integral multiple of $1,000 in excess
                                       thereof. Global Securities will be
                                       denominated in principal amounts not in
                                       excess of $150,000,000. If one or more
                                       Book Entry Notes having an aggregate
                                       principal amount in excess of
                                       $150,000,000 would, but for the preceding
                                       sentence, be represented by a single
                                       Global Security, then one Global Security
                                       will be authenticated and issued to
                                       represent each $150,000,000 principal
                                       amount of such Book-Entry or Notes and an
                                       additional Global Security will be
                                       authenticated and issued to represent any
                                       remaining principal amount of such
                                       Book-Entry Note or Notes. In such a case,
                                       each of the Global Securities
                                       representing such Book-Entry Note or
                                       Notes shall be assigned the same CUSIP
                                       number.

                                       5
<PAGE>

Interest:                              General.  Interest, if any, on each
                                       Book-Entry Note will accrue from the
                                       original issue date for the first
                                       interest period or the last date to which
                                       interest has been paid, if any, for each
                                       subsequent interest period, on the Global
                                       Security representing such Book-Entry
                                       Note,and will be calculated and paid in
                                       the manner described in such Book-Entry
                                       Note and in the Offering Memorandum (as
                                       defined in the Placement Agency
                                       Agreement), as supplemented by the
                                       applicable Pricing Supplement thereto.
                                       Unless otherwise specified therein,
                                       eachpayment of interest on a Book-Entry
                                       Note will include interest accrued up to
                                       but excluding the Interest Payment Date
                                       or up to but excluding the Maturity Date.
                                       Interest payable upon Maturity of a
                                       Book-Entry Note will be payable to the
                                       Person to whom the principal of such Note
                                       is payable. Standard & Poor's Corporation
                                       will use the information received in the
                                       pending deposit message described under
                                       Settlement Procedure "C" below in order
                                       to include the amount of any interest
                                       payable and certain other information
                                       regarding the related Global Security in
                                       the appropriate (daily or weekly) bond
                                       report published by Standard & Poor's
                                       Corporation.

                                       Record Dates. The Record Date with
                                       respect to any Interest Payment Date
                                       shall be the December 15 or June 15
                                       immediately preceding such Interest
                                       Payment Date, whether or not such date
                                       shall be a Business Day.

                                       Interest Payment Dates. Interest payments
                                       will be made semiannually on January 1
                                       and July 1 of each year and at Maturity
                                       or earlier redemption or Tender;
                                       provided, however, that in the case of a
                                       Book-Entry Note issued between a Record
                                       Date and an Interest Payment Date, or on
                                       an Interest Payment Date, the first
                                       interest payment will be made on the
                                       Interest Payment Date following the next
                                       succeeding Record Date. If any Interest
                                       Payment Date for a Book-Entry Note is not
                                       a Business Day, the payment due on such
                                       day shall be made on the next succeeding
                                       Business Day and no interest shall accrue
                                       on such payment for the period from and
                                       after such Interest Payment Date.

                                       6
<PAGE>

Calculation of Interest:               Book-Entry Notes. Interest on Book-Entry
                                       Notes (including interest for partial
                                       periods) will be calculated on the basis
                                       of a 360-day year of twelve 30-day
                                       months.

Payments of Principal and Interest:    Payment of Interest Only. Promptly after
                                       each Record Date, the Trustee will
                                       deliver to the Issuer and DTC a written
                                       notice setting forth, by CUSIP number,
                                       the amount of interest to be paid on each
                                       Global Security on the following Interest
                                       Payment Date (other than an Interest
                                       Payment Date coinciding with Maturity or
                                       earlier redemption or Tender of such
                                       Global Security) and the total of such
                                       amounts. DTC will confirm the amount
                                       payable on each Global Security on such
                                       Interest Payment Date by reference to the
                                       appropriate (daily or weekly) bond
                                       reports published by Standard & Poor's
                                       Corporation. The Issuer will pay to the
                                       Trustee, as paying agent, the total
                                       amount of interest due on such Interest
                                       Payment Date (other than at Maturity or
                                       earlier redemption or Tender of such
                                       Global Security), and the Trustee will
                                       pay such amount to DTC, at the times and
                                       in the manner set forth below under
                                       "Manner of Payment".

                                       Payments at Maturity. On or about the
                                       last Business Day of each month, the
                                       Trustee will deliver to the Issuer and
                                       DTC a written list of principal, premium
                                       (if any) and interest to be paid on each
                                       Global Security maturing (on a Maturity
                                       or Redemption Date or otherwise) in the
                                       following month. The Trustee, the Issuer
                                       and DTC will confirm the amounts of such
                                       principal, premium (if any) and interest
                                       payments with respect to each such Global
                                       Security on or about the fifth Business
                                       Day preceding the Maturity of such Global
                                       Security. On or before the Maturity Date,
                                       the Issuer will pay to the Trustee, as
                                       paying agent, the principal amount of
                                       such Global Security, together with any

                                       7

<PAGE>

                                       premium and interest due at such
                                       Maturity. The Trustee will pay such
                                       amount to DTC at the times and in the
                                       manner set forth below under "Manner of
                                       Payment". If any Maturity of a Global
                                       Security representing Book Entry Notes is
                                       not a Business Day, the payment due on
                                       such day shall be made on the next
                                       succeeding Business Day and no interest
                                       shall accrue on such payment for the
                                       period from and after such Maturity.
                                       Promptly after payment to DTC of the
                                       principal, premium (if any) and interest
                                       due at Maturity, earlier redemption or
                                       Tender of such Global Security (the
                                       "Cancelled Security"), the Trustee will
                                       cancel such Global Security (the
                                       "Cancelled Security") in accordance with
                                       the Indenture of Mortgage and so advise
                                       the Issuer; provided, however, if such
                                       Global Security is not being redeemed or
                                       tendered in its entirety, the Trustee
                                       shall authenticate a new Global Security
                                       in an amount equal to the principal
                                       portion of the Cancelled Security not
                                       paid. On the first Business Day of each
                                       month, the Trustee will deliver to the
                                       Issuer a written statement indicating the
                                       total principal amount of Outstanding
                                       Global Securities as of the immediately
                                       preceding Business Day.

                                       Manner of Payment. The total amount of
                                       any principal, premium (if any) and
                                       interest due on Global Securities on any
                                       Interest Payment Date or at Maturity
                                       shall be paid by the Issuer to the
                                       Trustee in immediately available funds no
                                       later than 9:30 a.m. (New York City time)
                                       on such date. The Issuer will make such
                                       payment on such Global Securities by wire
                                       transfer of funds available for immediate
                                       use to the Trustee. The Issuer will
                                       confirm any such instructions in writing
                                       to the Trustee. Prior to 10:00 a.m. (New
                                       York City time) on the date of Maturity
                                       or as soon as possible thereafter, the
                                       Trustee will pay, from funds received
                                       from the Issuer, by separate wire
                                       transfer (using Fed wire message entry
                                       instructions in a form previously
                                       specified by DTC) to an account at the
                                       Federal Reserve Bank of New York
                                       previously specified by DTC, in funds
                                       available for immediate use by DTC, each
                                       payment of principal (together with any
                                       premium and interest thereon) due on a
                                       Global Security on such date. On each
                                       Interest Payment Date (other than at
                                       Maturity), interest payments shall be
                                       made to DTC, in funds available for
                                       immediate use by DTC, in accordance with
                                       existing arrangements between the Trustee
                                       and DTC. On each such date, DTC will pay,
                                       in accordance with its SDFS operating
                                       procedures then in effect,such amounts in
                                       funds available for immediate use to the
                                       respective Participants in whose names
                                       the Book-Entry Notes represented by such
                                       Global Securities are recorded in the
                                       book-entry system maintained by DTC.
                                       Neither the Issuer (as issuer or as
                                       paying agent) nor the Trustee shall have
                                       any direct responsibility or liability
                                       for the payment by DTC to such
                                       Participants of the principal of and
                                       interest on the Book-Entry Notes.

                                       8
<PAGE>

                                       Withholding Taxes. The amount of any
                                       taxes required under applicable law to be
                                       withheld from any interest payment on a
                                       Book-Entry Note will be determined and
                                       withheld by the Participant, indirect
                                       participant in DTC or other Person
                                       responsible for forwarding payments and
                                       materials directly to the beneficial
                                       owner of such Note.

Procedure for Rate Setting and         The Issuer and the Agent will discuss
Posting:                               from time to time the aggregate principal
                                       amount of, the issuance price of, and the
                                       interest rates to be borne by, Book-Entry
                                       Notes that may be sold as a result of the
                                       solicitation of orders by the Agent. If
                                       the Issuer decides to set prices of, and
                                       rates borne by, any Book-Entry Notes in
                                       respect of which the Agent is to solicit
                                       orders (the setting of such prices and
                                       rates to be referred to herein as
                                       "posting")or if the Issuer decides to
                                       change prices or rates previously posted
                                       by it, it will promptly advise the Agent
                                       of the prices and rates to be posted.

Acceptance and Rejection of Orders:    Unless otherwise instructed by the
                                       Issuer, each Agent will advise the Issuer
                                       promptly by telephone of all orders to
                                       purchase Book-Entry Notes received by
                                       such Agent, other than those rejected by
                                       it in whole or in part in the reasonable
                                       exercise of its discretion. The Issuer
                                       has the right to accept orders to
                                       purchase Book-Entry Notes and may reject
                                       any such orders in whole or in part.

                                       9
<PAGE>

Preparation of Pricing Supplement:     If any order to purchase a Book-Entry
                                       Note is accepted by or on behalf of the
                                       Issuer, the Issuer, with the approval of
                                       the Presenting Agent (defined below) will
                                       prepare a supplement (a "Pricing
                                       Supplement") reflecting the terms of such
                                       Book-Entry Note and will supply at least
                                       ten copies thereof (and additional copies
                                       if requested) to the Agents which
                                       presented the order (the "Presenting
                                       Agent") at the address set forth on
                                       Schedule I to the Placement Agency
                                       Agreement, and one copy thereof to the
                                       Trustee, to be delivered by overnight
                                       courier or telecopy to arrive no later
                                       than 11:00 a.m., New York City time, on
                                       the Business Day following the date of
                                       acceptance.

                                       The Presenting Agent will cause an
                                       Offering Memorandum and Pricing
                                       Supplement to be delivered to the
                                       purchaser of such Book-Entry Note.

                                       Outdated Pricing Supplements (other than
                                       those retained for files), will be
                                       destroyed.

Suspension of Solicitation             The Issuer may instruct each Agent to
                                       suspend at any time, for any period of
                                       time or permanently, the solicitation of
                                       orders to purchase Book-Entry Notes. Upon
                                       receipt of such instructions, each Agent
                                       will forthwith suspend solicitation until
                                       such time as the Issuer has advised them
                                       that such solicitation may be resumed.

                                       In the event that at the time the Issuer
                                       suspends solicitation of purchases there
                                       shall be any orders outstanding for
                                       settlement, the Issuer will promptly
                                       advise each Agent and the Trustee whether
                                       such orders may be settled and whether
                                       copies of the Offering Memorandum as in
                                       effect at the time of the suspension,
                                       together with the appropriate Pricing
                                       Supplement, may be delivered in
                                       connection with the settlement of such
                                       orders. The Issuer will have the sole
                                       responsibility for such decision and for
                                       any arrangements that may be made in the
                                       event that the Issuer determines that
                                       such orders may not be settled or that
                                       copies of such Offering Memorandum or
                                       Pricing Supplement may not be so
                                       delivered.

                                       10
<PAGE>

Procedure For Rate Changes:            When the Issuer has determined to change
                                       the interest rates of Book Entry Notes
                                       being offered, it will promptly advise
                                       each Agent and each Agent will forthwith
                                       suspend solicitation of orders. Each
                                       Agent will telephone the Issuer with
                                       recommendations as to the changed
                                       interest rates. At such time as the
                                       Issuer has advised the Agent of the new
                                       interest rates, the Agent may resume
                                       solicitation of orders. Until such time
                                       only "indications of interest" may be
                                       recorded.

Delivery of Offering Memorandum:       A copy of the Offering Memorandum and
                                       Pricing Supplement relating to a
                                       Book-Entry Note must accompany or precede
                                       the earliest of any written offer of such
                                       Book-Entry Note, confirmation of the
                                       purchase of such Book-Entry Note and
                                       payment for such Book-Entry Note by its
                                       purchaser. If notice of a change in the
                                       terms of the Book-Entry Notes is received
                                       by the Agent between the time an order
                                       for a Book-Entry Note is placed and the
                                       time written confirmation thereof is sent
                                       by the Presenting Agent to a customer or
                                       his agent, such confirmation shall be
                                       accompanied by an Offering Memorandum and
                                       Pricing Supplement setting forth the
                                       terms in effect when the order was
                                       placed. Subject to "Suspension of
                                       Solicitation" above, the Presenting Agent
                                       will deliver an Offering Memorandum and
                                       Pricing Supplement as herein described
                                       with respect to each Book Entry Note sold
                                       by it. The Issuer will make such delivery
                                       if such Book-Entry Note is sold directly
                                       by the Issuer to a purchaser (other than
                                       an Agent).

Confirmation:                          For each order to purchase a Book Entry
                                       Note solicited by any Agent and accepted
                                       by or on behalf of the Issuer, the
                                       Presenting Agent will issue a
                                       confirmation to the purchaser, with a
                                       copy to the Issuer, setting forth the
                                       details set forth above and delivery and
                                       payment instructions.

                                       11
<PAGE>

Settlement:                            The receipt by the Issuer of immediately
                                       available funds in payment for a
                                       Book-Entry Note and the authentication
                                       and issuance of the Global Security
                                       representing such Book-Entry Note shall
                                       constitute "settlement" with respect to
                                       such Book-Entry Note. All orders accepted
                                       by the Issuer will be settled on the
                                       tenth Business Day following the date of
                                       sale of such Book-Entry Note pursuant to
                                       the timetable for settlement set forth
                                       below unless the Issuer and the purchaser
                                       agree to settlement on another day which
                                       shall be no earlier than one Business Day
                                       following the date of sale.

Settlement Procedures:                 Procedures with regard to each Book-Entry
                                       Note sold by the Issuer through any
                                       Agent, as agent, shall be as follows:

                                       A.    The Presenting Agent will advise
                                             the Issuer by telephone of the
                                             following settlement information:

                                             1.       Principal amount.

                                             2.       Maturity Date.

                                             3.       The interest rate.

                                             4.       Interest Payment Dates and
                                                      the Interest Payment
                                                      Period.

                                             5.       Redemption or repayment
                                                      provisions, if any.

                                             6.       Optional Tender
                                                      Provisions, if any

                                             7.       Settlement date.

                                             8.       Price.

                                             9.       The Presenting Agent's DTC
                                                      participant account number
                                                      and commission, determined
                                                      as provided in Section 2
                                                      of the Placement Agency
                                                      Agreement.

                                             10.      Whether such Book-Entry
                                                      Note is issued at an
                                                      original issue discount
                                                      ("OID") and, if so, the
                                                      total amount of OID, the
                                                      yield to maturity and the
                                                      initial accrual period
                                                      OID.

                                       12
<PAGE>

                                       B.    The Issuer will assign a CUSIP
                                             number to the Global Security
                                             representing such Book-Entry Note
                                             and then advise the Trustee and the
                                             Presenting Agent by telephone
                                             (confirmed in writing at any time
                                             on the same date) or electronic
                                             transmission of the information set
                                             forth in Settlement Procedure "A"
                                             above, such CUSIP number and the
                                             name of the Presenting Agent.

                                       C.    The Trustee will enter a pending
                                             deposit message through DTC's
                                             Participant Terminal System
                                             providing the settlement
                                             information to DTC specified in the
                                             Letter of Representations from the
                                             Issuer and the Trustee to DTC dated
                                             as of the date hereof.

                                       D.    To the extent the Issuer has not
                                             already done so, the Issuer will
                                             deliver to the Trustee a Global
                                             Security in a form that has been
                                             approved by the Issuer, the Agent
                                             and the Trustee.

                                       E.    The Trustee will complete such
                                             Global Security, stamp the
                                             appropriate legend, as instructed
                                             by DTC, if not already set forth
                                             thereon, and authenticate the
                                             Global Security representing such
                                             Book-Entry Note in accordance with
                                             the terms of the written order of
                                             the Issuer then in effect.

                                       F.    DTC will credit such Book-Entry
                                             Note to the Trustee's participant
                                             account at DTC.

                                       13
<PAGE>

                                       G.    Upon delivery of the pending
                                             deposit message referenced in "C"
                                             above, an SDFS deliver order
                                             through DTC's Participant Terminal
                                             System will be created instructing
                                             DTC to debit such Book-Entry Note
                                             to the Trustee's participant
                                             account and credit such Book-Entry
                                             Note to the Presenting Agent's
                                             participant account and debit the
                                             Presenting Agent's settlement
                                             account and credit the Trustee's
                                             settlement account for an amount
                                             equal to the price of such
                                             Book-Entry Note less the Presenting
                                             Agent's commission. The entry of
                                             such a pending deposit message by
                                             the Trustee shall constitute a
                                             representation and warranty by the
                                             Trustee to DTC that (i) the Global
                                             Security representing such
                                             Book-Entry Note has been issued and
                                             authenticated and (ii) the Trustee
                                             is holding such Global Security
                                             pursuant to the Medium Term Note
                                             Certificate Agreement between The
                                             Chase Manhattan Bank and DTC.

                                       H.    The Presenting Agent will enter :an
                                             SDFS deliver order through DTC's
                                             Participant Terminal System
                                             instructing DTC (i) to debit such
                                             Book-Entry Note to the Presenting
                                             Agent's participant account and
                                             credit such Book-Entry Note to the
                                             participant accounts of the
                                             Participants with respect to such
                                             Book-Entry Note and (ii) to debit
                                             the settlement accounts of such
                                             Participants and credit the
                                             settlement account of the
                                             Presenting Agent for an amount
                                             equal to the price of such
                                             Book-Entry Note.

                                       I.    Transfers of funds in accordance
                                             with SDFS deliver orders described
                                             in Settlement Procedures "G" and
                                             "H" will be settled in accordance
                                             with SDFS operating procedures in
                                             effect on the settlement date.

                                       J.    The Trustee will, upon receipt of
                                             funds from the Agent in accordance
                                             with Settlement Procedure "G",
                                             credit to an account of the Issuer
                                             maintained at Mellon Bank, N.A.,
                                             funds available for immediate use
                                             in the amount transferred to the
                                             Trustee in accordance with
                                             Settlement Procedure "G". However,
                                             the Trustee shall not credit the
                                             account of the Issuer unless and
                                             until the Trustee has confirmed
                                             receipt of the funds in the
                                             appropriate amount transferred in
                                             accordance with Settlement
                                             Procedure "G".

                                       14
<PAGE>

                                       K.    The Presenting Agent will confirm
                                             the purchase of such Book-Entry
                                             Note to the purchaser either by
                                             transmitting to the Participants
                                             with respect to such Book-Entry
                                             Note a confirmation order or orders
                                             through DTC's institutional
                                             delivery system or by mailing a
                                             written confirmation to such
                                             purchaser.

Settlement Procedures Timetable:       For orders of Book-Entry Notes solicited
                                       by any Agent and accepted by the Issuer
                                       for settlement on the Business Day after
                                       the sale date, Settlement Procedures "A"
                                       through "K" set forth above shall be
                                       completed as soon as possible but not
                                       later than the respective times (New York
                                       City time) set forth below:

                                         Settlement
                                         Procedure            Time
                                         ----------           ----

                                         A         11:00 a.m. on the sale date

                                         B         12:00 Noon on the sale date

                                         C         12:00 Noon on the Business
                                                   Day before settlement date

                                         D         3:00 p.m. on the day before
                                                   settlement

                                         E         9:00 a.m. on settlement date

                                         F         10:00 a.m. on settlement date

                                         G-H       2:00 p.m. on settlement date

                                         I         4:30 p.m. on settlement date

                                         J-K       5:00 p.m. on settlement date

                                       If a sale is to be settled more than one
                                       Business Day after the sale date,
                                       Settlement Procedures "A", "B" and "C"
                                       shall be completed as soon as practicable
                                       but no later than 11:00 a.m. and 12:00
                                       Noon on the first Business Day after the
                                       sale date and no later than 2:00 p.m. on
                                       the Business Day before the settlement
                                       date, respectively. Settlement Procedure
                                       "I" is subject to extension in accordance
                                       with any extension of Fed wire closing
                                       deadlines and in the other events
                                       specified in SDFS operating procedures in
                                       effect on the settlement date.

                                       15
<PAGE>

                                       If settlement of a Book-Entry Note is
                                       rescheduled or canceled, the Trustee, to
                                       the extent it has received written notice
                                       of such rescheduling or cancellation,
                                       will deliver to DTC, through DTC's
                                       Participant Terminal System, a
                                       cancellation, message to such effect by
                                       no later than 2:00 p.m. on the Business
                                       Day immediately preceding the scheduled
                                       settlement date.

Failure to Settle:                     If the Trustee has not entered an SDFS
                                       deliver order with respect to a
                                       Book-Entry Note pursuant to Settlement
                                       Procedure "G", then, upon written request
                                       (which may be by telecopy) of the Issuer,
                                       the Trustee shall deliver to DTC, through
                                       DTC's Participant Terminal System, as
                                       soon as practicable, a withdrawal message
                                       instructing DTC to debit such Book Entry
                                       Note to the Trustee's participant
                                       account. DTC will process the withdrawal
                                       message, provided that the Trustee's
                                       participant account contains a principal
                                       amount of the Global Security
                                       representing such Book-Entry Note that is
                                       at least equal to the principal amount to
                                       be debited. If a withdrawal message is
                                       processed with respect to all the
                                       Book-Entry Notes represented by a Global
                                       Security, the Trustee will cancel such
                                       Global Security in accordance with the
                                       Indenture of Mortgage and so advise the
                                       Issuer, and will make appropriate entries
                                       in its records. The CUSIP number assigned
                                       to such Global Security shall, in
                                       accordance with CUSIP Service Bureau
                                       procedures, be canceled and not
                                       immediately reassigned. If a withdrawal
                                       message is processed with respect to one
                                       or more, but not all, of the Book-Entry
                                       Notes represented by a Global Security,
                                       the Trustee will exchange such Book-Entry
                                       Note for two Global Securities, one of
                                       which shall represent such Book Entry
                                       Notes and shall be canceled immediately
                                       after issuance and the other of which
                                       shall represent the other Book-Entry
                                       Notes previously represented by the
                                       surrendered Global Security and shall
                                       bear the CUSIP number of the surrendered
                                       Global Security.

                                       16
<PAGE>

                                       If the purchase price for any Book Entry
                                       Note is not timely paid to the
                                       Participants with respect to such Note by
                                       the beneficial purchaser thereof (or a
                                       Person, including an indirect participant
                                       in DTC, acting on behalf of such
                                       purchaser), such Participants and, in
                                       turn, the Presenting Agent may enter SDFS
                                       deliver orders through DTC's Participant
                                       Terminal System debiting such Note to
                                       such Presenting Agent's participant
                                       account and crediting such Note free to
                                       the participant account of the Trustee
                                       and shall notify the Trustee and the
                                       Issuer thereof. Thereafter, the Trustee
                                       (i) will promptly notify the Issuer
                                       thereof, once the Trustee has confirmed
                                       that such Note has been credited to its
                                       participant account, and the Issuer shall
                                       immediately transfer by Fed wire (in
                                       immediately available funds) to such
                                       Agent an amount equal to the price of
                                       such Note which was previously credited
                                       to the account of the Issuer maintained
                                       at Mellon Bank, N.A., or wire transferred
                                       at the Issuer's direction in accordance
                                       with Settlement Procedure J and (ii) the
                                       Trustee will deliver the withdrawal
                                       message and take the related actions
                                       described in the preceding paragraph. If
                                       such failure shall have occurred for any
                                       reason other than a default by the
                                       Presenting Agent in the performance of
                                       its obligations hereunder and under the
                                       Placement Agency Agreement, then the
                                       Issuer will reimburse the Presenting
                                       Agent or the Trustee, as applicable, on
                                       an equitable basis for the loss of the
                                       use of the funds during the period when
                                       they were credited to the account of the
                                       Issuer.

                                       Notwithstanding the foregoing, upon any
                                       failure to settle with respect to a
                                       Book-Entry Note, DTC may take any actions
                                       in accordance with its SDFS operating
                                       procedures then in effect. In the event
                                       of a failure to settle with respect to
                                       one or more, but not all, of the
                                       Book-Entry Notes to have been represented
                                       by a Global Security, the Trustee will
                                       provide, in accordance with Settlement
                                       Procedure "E", for the authentication and
                                       issuance of a Global Security
                                       representing the other Book-Entry Notes
                                       to have been represented by such Global
                                       Security and will make appropriate
                                       entries in its records.

                                       17

<PAGE>

Trustee Not to Risk Funds:             Nothing herein shall be deemed to require
                                       the Trustee to risk or expend its own
                                       funds in connection with any payment to
                                       the Issuer, DTC, the Agent or the
                                       purchaser, it being understood by all
                                       parties that payments made by the Trustee
                                       to the Issuer, DTC, the Agent or the
                                       purchaser shall be made only to the
                                       extent that funds are provided to the
                                       Trustee for such purpose.

Authenticity of Signatures:            The Issuer will cause the Trustee to
                                       furnish the Agent from time to time with
                                       the specimen signatures of each of the
                                       Trustee's officers, employees or agents
                                       who have been authorized by the Trustee
                                       to authenticate Book-Entry Notes, but no
                                       Agent will have any obligation or
                                       liability to the Issuer or the Trustee in
                                       respect of the authenticity of the
                                       signature of any officer, employee or
                                       agent of the Issuer or the Trustee on any
                                       Book-Entry Note.

Payment of Expenses:                   Each Agent shall forward to the Issuer,
                                       on a monthly basis, a statement of the
                                       out-of-pocket expenses incurred by such
                                       Agent during that month that are
                                       reimbursable to it pursuant to the terms
                                       of the Placement Agency Agreement. The
                                       Issuer will remit payment to each Agent
                                       currently on a monthly basis.

Advertising Costs:                     The Issuer will determine with the Agent
                                       the amount of advertising that may be
                                       appropriate in soliciting offers to
                                       purchase the Book-Entry Notes.
                                       Advertising expenses will be paid by the
                                       Issuer.

Periodic Statements from the           Periodically, upon written request, the
Trustee:                               Trustee will send to the Issuer a
                                       statement setting forth the principal
                                       amount of Book-Entry Notes outstanding as
                                       of that date and setting forth a brief
                                       description of any sales of Book-Entry
                                       Notes of which the Issuer has advised the
                                       Trustee but which have not yet been
                                       settled.

Restrictions on Transfers:             No Note may be resold or transferred in
                                       any manner that does not comply with the
                                       applicable restrictions on resale or
                                       transfer or the procedures required for
                                       resale or transfer set forth in the
                                       Offering Memorandum, the Placement Agency
                                       Agreement and on the Note certificate.

                                       18
<PAGE>

Business Day:                          As used herein, "Business Day" means any
                                       day other than a Saturday or Sunday or a
                                       day on which the Trustee or banks in New
                                       York, New York are generally authorized
                                       or obligated by law or executive order to
                                       close.

                                     PART II

                Administrative Procedures for Certificated Notes

                  The Trustee will serve as registrar and transfer agent,
authenticating agent and paying agent in connection with the Certificated Notes,
unless a different paying agent is duly appointed by the Issuer to carry out
certain duties.

Issuance:                              Each Certificated Note will be dated and
                                       issued as of the date of its
                                       authentication by the Trustee. Each
                                       Certificated Note will bear an Original
                                       Issue Date, which will be (i) with
                                       respect to an original Certificated Note
                                       (or any portion thereof), its original
                                       issuance date (which will be the
                                       settlement date) and (ii) with respect to
                                       any Certificated Note (or portion
                                       thereof) issued subsequently upon
                                       transfer or exchange of a Certificated
                                       Note or in lieu of a destroyed, lost or
                                       stolen Certificated Note, the Original
                                       Issue Date of the predecessor
                                       Certificated Note, regardless of the date
                                       of authentication of such subsequently
                                       issued Certificated Note.

Registration:                          Certificated Notes will be issued only in
                                       fully registered form without coupons.

Transfers and Exchanges:               A Certificated Note may be presented for
                                       transfer or exchange at the office
                                       designated by the Trustee located in
                                       Dallas, Texas or at such other office as
                                       the Issuer may designate. Certificated
                                       Notes will be exchangeable for other
                                       Certificated Notes having identical terms
                                       but different authorized denominations
                                       without service charge. Certificated
                                       Notes will not be exchangeable for
                                       Book-Entry Notes.

                                       19

<PAGE>

Maturities:                            Each Certificated Note will mature on a
                                       date not less than one year nor more than
                                       thirty-five years after the Original
                                       Issue Date (the settlement date) for such
                                       Note.

Denominations:                         The denomination of any Certificated Note
                                       denominated in U.S. dollars will be a
                                       minimum of $100,000 or any amount in
                                       excess thereof that is an integral
                                       multiple of $1,000.

Interest:                              General. Interest, if any, on each
                                       Certificated Note will accrue from the
                                       Original Issue Date for the first
                                       interest period or the last date to which
                                       interest has been paid, if any, for each
                                       subsequent interest period, and will be
                                       calculated and paid in the manner
                                       described in such Note and in the
                                       Offering Memorandum, as supplemented by
                                       the applicable Pricing Supplement. Unless
                                       otherwise specified therein, each payment
                                       of interest on a Certificated Note will
                                       include interest accrued up to but
                                       excluding the Interest Payment Date or up
                                       to but excluding the Maturity Date.

                                       Record Dates. The Record Date with
                                       respect to any Interest Payment Date
                                       shall be the December 15 or June 15
                                       immediately preceding such Interest
                                       Payment Date, whether or not such date
                                       shall be a Business Day.

                                       Interest Payment. Unless otherwise
                                       specified pursuant to Settlement
                                       Procedure "A" below, interest payments
                                       will be made semiannually on on January 1
                                       and July 1 of each year and at Maturity,
                                       or earlier redemption or Tender;
                                       provided, however, that in the case of a
                                       Certificated Note issued between a Record
                                       Date and an Interest Payment Date, or on
                                       an Interest Payment Date, the first
                                       interest payment will be made on the
                                       Interest Payment Date following the next
                                       succeeding Record Date. If any Interest
                                       Payment Date for, or the Maturity of, a
                                       Certificated Note is not a Business Day,
                                       the payment due on such day shall be made
                                       on the next succeeding Business Day and
                                       no interest shall accrue on such payment
                                       for the period from and after such
                                       Interest Payment Date or Maturity, as the
                                       case may be.

                                       20
<PAGE>

Calculation                            Interest on Certificated Notes (including
of Interest:                           interest for partial periods) will be
                                       calculated on the basis of a 360 day year
                                       of twelve 30-day months.

Payments of                            No later than 11:00 a.m. on the due date
Principal and Interest:                for any payment of principal, premium (if
                                       any) or interest on each Certificated
                                       Note, the Issuer will pay to the Trustee,
                                       as paying agent, the amount of principal,
                                       premium (if any) and/or interest then
                                       due. The Trustee will pay the principal
                                       amount of each Certificated Note at
                                       Maturity or earlier redemption or Tender
                                       upon presentation of such Certificated
                                       Note to the Trustee. Such payment,
                                       together with payment of any premium and
                                       interest due at Maturity or earlier
                                       redemption or Tender of such Certificated
                                       Note, will be paid to an account at a
                                       bank in New York, New York (or other bank
                                       consented to by the Issuer) as the
                                       registered holder of the Notes shall
                                       designate to the Trustee not less than
                                       ten (10) days prior to the Record Date
                                       for such payment, in funds available for
                                       immediate use by the Trustee and in turn
                                       by the Holder of such Certificated Note.
                                       Certificated Notes presented and
                                       surrendered to the Trustee at Maturity or
                                       earlier redemption or Tender for payment
                                       will be cancelled by the Trustee in
                                       accordance with the Indenture of
                                       Mortgage. All interest payments on a
                                       Certificated Note (other than interest
                                       due at Maturity or earlier redemption or
                                       Tender) and any other payments for which
                                       appropriate instructions for payment
                                       shall not have been received by the
                                       Trustee not less than ten (10) days prior
                                       to the Record Date for such payment will
                                       be made by check drawn on the Trustee or
                                       another Person appointed by the Trustee
                                       mailed by the Trustee to the Person
                                       entitled thereto as provided in such
                                       Note; provided, however, that the holder

                                       21

<PAGE>

                                       of $10,000,000 or more of Certificated
                                       Notes with similar tenor and terms will
                                       be entitled to receive payment by wire
                                       transfer in U.S. dollars upon receipt of
                                       written instructions by the Trustee not
                                       less than ten (10) days prior to the
                                       Record Date for such payment. Within five
                                       Business Days after each Record Date, the
                                       Trustee will furnish the Issuer with a
                                       list of interest payments to be made on
                                       the following Interest Payment Date for
                                       each group of Certificated Notes bearing
                                       interest at a particular rate and in
                                       total for all Certificated Notes.
                                       Interest at Maturity or earlier
                                       redemption or Tender will be payable to
                                       the Person to whom the payment of
                                       principal is payable. The Trustee will
                                       provide, on or about the last Business
                                       Day of each month, to the Issuer lists of
                                       principal and interest, to the extent
                                       ascertainable, to be paid on Certificated
                                       Notes maturing (on a Maturity or
                                       Redemption Date or otherwise) in the next
                                       succeeding month.

                                       The Issuer will be responsible for
                                       withholding taxes on interest paid on
                                       Certificated Notes as required by
                                       applicable law.

Procedure for Rate Setting and         The Issuer and the Agent will discuss
Posting:                               from time to time the aggregate principle
                                       amount of, the issuance price of, and the
                                       interest rates to be borne by, Notes that
                                       may be sold as a result of the
                                       solicitation of orders by any Agent. If
                                       the Issuer decides to set prices of, and
                                       rates borne by, any Notes in respect of
                                       which any Agent are to solicit orders
                                       (the setting of such prices and rates to
                                       be referred to herein as "posting") or if
                                       the Issuer decides to change prices or
                                       rates previously posted by it, it will
                                       promptly advise each Agent of the prices
                                       and rates to be posted.

Acceptance and Rejection of Orders:    Unless otherwise instructed by the
                                       Issuer, each Agent will advise the Issuer
                                       promptly by telephone of all orders to
                                       purchase Certificated Notes received by
                                       such Agent, other than those rejected by
                                       it in whole or in part in the reasonable
                                       exercise of its discretion and, if such
                                       Agent or any of its affiliates shall be
                                       the offeror, shall advise the Issuer of
                                       that fact. Unless otherwise agreed by the
                                       Issuer and each Agent, the Issuer has the
                                       sole right to accept orders to purchase
                                       Certificated Notes and may reject any
                                       such orders in whole or in part. The
                                       Issuer will forthwith advise such
                                       Presenting Agent of the acceptance or
                                       rejection of any offer received through
                                       such Agent who shall then so advise the
                                       offeror.

                                       22
<PAGE>

Preparation of Pricing Supplement:     If any order to purchase a Certificated
                                       Note is accepted by or on behalf of the
                                       Issuer, and if so required by Section
                                       4(a)(i) of the Placement Agency
                                       Agreement, the Issuer, with the approval
                                       of the Presenting Agent, will prepare a
                                       Pricing Supplement reflecting the terms
                                       of such Certificated Note and will supply
                                       at least ten copies thereof (and
                                       additional copies if requested) to the
                                       Presenting Agent at the address set forth
                                       on Schedule I to the Placement Agency
                                       Agreement, and one copy thereof to the
                                       Trustee, to be delivered by overnight
                                       courier or telecopy to arrive no late
                                       than 11:00 a.m., New York City time, on
                                       the Business Day following the sale date.
                                       The Presenting Agent will cause an
                                       Offering Memorandum and Pricing
                                       Supplement to be delivered to the
                                       purchaser of such Certificated Note.
                                       Outdated Pricing Supplements (other than
                                       those-retained for files), will be
                                       destroyed.

Suspension  of Solicitation:           Subject to the Issuer's representations,
                                       warranties and covenants contained in the
                                       Placement Agency Agreement, the Issuer
                                       may instruct the Agent to suspend at any
                                       time for any period of time or
                                       permanently, the solicitation of orders
                                       to purchase Certificated Notes. Upon
                                       receipt of such instructions, each Agent
                                       will forthwith suspend solicitation until
                                       such time as the Issuer has advised each
                                       Agent that such solicitation may be
                                       resumed.

                                       In the event that at the time the Issuer
                                       suspends solicitation of Purchases there
                                       shall be any orders outstanding for
                                       settlement, the Issuer will promptly
                                       advise each Agent and the Trustee whether
                                       such orders may be settled and whether
                                       copies of the Offering Memorandum as in
                                       effect at the time of the suspension,
                                       together with the appropriate Pricing
                                       Supplement, may be delivered in
                                       connection with the settlement of such
                                       orders. The Issuer will have the sole
                                       responsibility for such decision and for
                                       any arrangements that may be made in the
                                       event that the Issuer determines that
                                       such orders may not be settled or that
                                       copies of such Offering Memorandum may
                                       not be so delivered. No such suspension
                                       shall excuse any failure by the Issuer to
                                       fulfill a contractual obligation to
                                       deliver any Certificated Notes.

                                       23
<PAGE>

Procedure for Rate Changes:            When the Issuer has determined to change
                                       the interest rates of Certificated Notes
                                       being offered, it will promptly advise
                                       the Agent and each Agent will forthwith
                                       suspend solicitation of orders. Each
                                       Agent will telephone the Issuer with
                                       recommendations as to the changed
                                       interest rates. At such time as the
                                       Issuer has advised the Agent of the new
                                       interest rates, the Agent may resume
                                       solicitation of orders. Until such time
                                       only "indications of interest" may be
                                       recorded.

Delivery of Offering Memorandum:       A copy of the Offering Memorandum and any
                                       Pricing Supplement relating to a
                                       Certificated Note must accompany or
                                       precede the earliest of any written offer
                                       of such Certificated Note, confirmation
                                       of the purchase of such Certificated Note
                                       and payment for such Certificated Note by
                                       its purchaser. If notice of a change in
                                       the terms of the Certificated Notes is
                                       received by the Agent between the time an
                                       order for a Certificated Note is placed
                                       and the time written confirmation thereof
                                       is sent by the Presenting Agent to a
                                       customer or his agent, such confirmation
                                       shall be accompanied by an Offering
                                       Memorandum and Pricing Supplement setting
                                       forth the terms in effect when the order
                                       was placed. Subject to "Suspension of
                                       Solicitation" above, the Presenting Agent
                                       will deliver an Offering Memorandum and
                                       Pricing Supplement as herein described
                                       with respect to each Certificated Note
                                       sold by it. The Issuer will make such
                                       delivery if such Certificated Note is
                                       sold directly by the Issuer to a
                                       purchaser (other than any Agent).

Confirmation:                          For each order to purchase a Certificated
                                       Note solicited by any Agent and accepted
                                       by or on behalf of the Issuer, the
                                       Presenting Agent will issue a
                                       confirmation to the purchaser, with a
                                       copy to the Issuer, setting forth the
                                       information specified in paragraph A
                                       under "Settlement Procedures" and
                                       delivery and payment instructions.

                                       24
<PAGE>

Settlement:                            The receipt by the Issuer of immediately
                                       available funds in exchange for an
                                       authenticated Certificated Note delivered
                                       to the Presenting Agent and the
                                       Presenting Agent's delivery of such
                                       Certificated Note against receipt of
                                       immediately available funds shall, with
                                       respect to such Certificated Note,
                                       constitute "settlement". All orders
                                       accepted by the Issuer will be settled on
                                       the tenth Business Day following the date
                                       of sale pursuant to the timetable for
                                       settlement set forth below, unless the
                                       Issuer and the Purchaser agree to
                                       settlement on another day which shall be
                                       no earlier than one Business Day
                                       following the date of sale.

Settlement Procedures:                 Settlement Procedures with regard to each
                                       Certificated Note sold by the Issuer
                                       through any Agent, as agent, shall be as
                                       follows:

                                       A.    The Presenting Agent will advise
                                             the Issuer by telephone of the
                                             following settlement information:

                                             1.       Name in which such
                                                      Certificated Note is to be
                                                      registered ("Registered
                                                      Owner").

                                             2.       Address of the Registered
                                                      Owner and address for
                                                      payment of principal and
                                                      interest.

                                             3.       Taxpayer identification
                                                      number of the Registered
                                                      Owner (if available).

                                             4.       Rank (senior or
                                                      subordinated).

                                             5        Principal amount.

                                             6.       Maturity Date.

                                       25

<PAGE>

                                             7.       Interest Payment Dates and
                                                      the Interest Payment
                                                      Period.

                                             8.       Redemption or repayment
                                                      provisions, if any.

                                             9.       Optional Tender
                                                      Provisions, if any.

                                             10.      The settlement date.

                                             11.      Price (including
                                                      currency).

                                             12.      Presenting Agent's
                                                      commission, determined as
                                                      provided in Section 2 of
                                                      the Placement Agency
                                                      Agreement.

                                             13.      Whether such Certificated
                                                      Note is issued at an
                                                      original issue discount
                                                      ("OID"), and, if so, the
                                                      total amount of OID, the
                                                      yield to maturity and the
                                                      initial accrual period
                                                      OID.

                                       B.    The Issuer will advise the Trustee
                                             by telephone (confirmed in writing
                                             at any time on the sale date) or
                                             electronic transmission of the
                                             information set forth in Settlement
                                             Procedure "A" above and the name of
                                             the Presenting Agent.

                                       C.    The Issuer will deliver to the
                                             Trustee an original Certificated
                                             Note with customer confirmation in
                                             triplicate in forms that have been
                                             approved by Issuer, the Agent and
                                             the Trustee.

                                       D.    The Trustee will complete such
                                             Certificated Note and will
                                             authenticate such Certificated Note
                                             and deliver it (with the
                                             confirmation) and two copies
                                             thereof (clearly marked as such) to
                                             the Presenting Agent, and the
                                             Presenting Agent will acknowledge
                                             receipt of the Note by stamping or
                                             otherwise marking the first copy
                                             and returning it to the Trustee.
                                             Such delivery will be made only
                                             against such acknowledgment of
                                             receipt. In the event that the
                                             instructions given by the
                                             Presenting Agent for payment to the
                                             account of the Issuer are revoked,
                                             the Issuer will as promptly as
                                             possible wire transfer to the
                                             account of the Presenting Agent an
                                             amount of immediately available
                                             funds equal to the amount of such
                                             payment made.

                                       26
<PAGE>

                                       E.    The Presenting Agent will deliver
                                             such Certificated Note (with the
                                             confirmation) to the customer
                                             against payment in immediately
                                             payable funds. The Presenting Agent
                                             will obtain the acknowledgement of
                                             receipt of such Certificated Note
                                             by retaining the second copy
                                             thereof.

                                       F.    Upon verification by the Presenting
                                             Agent that a Note has been prepared
                                             and properly authenticated by the
                                             Trustee and registered in the name
                                             of the purchaser in the proper
                                             principal amount, payment will be
                                             made to the Issuer by the
                                             Presenting Agent the same day in
                                             immediately available funds. Such
                                             payment shall be made only upon
                                             prior receipt by the Presenting
                                             Agent of immediately available
                                             funds from or on behalf of the
                                             purchaser unless the Presenting
                                             Agent decides, at its option,
                                             exercised in its sole discretion,
                                             to advance its own funds for such
                                             payment against subsequent receipt
                                             of funds from the purchaser. The
                                             Presenting Agent shall immediately
                                             notify the Issuer of its decision
                                             to advance its own funds for
                                             payment against subsequent receipt
                                             of funds from a purchaser.

                                       G.    The Trustee will send a third copy
                                             of the Certificated Note (clearly
                                             marked as such) to the Issuer by
                                             first-class mail.

Settlement Procedures Timetable:       For orders of Certificated Notes
                                       solicited by any Agent, as agent, and
                                       accepted by the Issuer, Settlement
                                       Procedures "A" through "G" set forth
                                       above shall be -completed on or before
                                       the respective times (New York City time)
                                       set forth below:

                                       27
<PAGE>

                                       Settlement
                                       Procedure               Time
                                       ----------              ----
                                             A        2:00 p.m. on the day
                                                      before settlement

                                             B-C      3:00 p.m. on the day
                                                      before settlement

                                             D        2:15 p.m. on settlement
                                                      date

                                             E        3:00 p.m. on settlement
                                                      date

                                             F-G      5:00 p.m. on settlement
                                                      date

Failure to Settle:                     If a purchaser fails to accept delivery
                                       of and make payment for any Certificated
                                       Note, the Presenting Agent will notify
                                       the Issuer and the Trustee by telephone
                                       and return such Certificated Note to the
                                       Trustee. Upon receipt of such notice, the
                                       Issuer will immediately wire transfer to
                                       the account of the Presenting Agent an
                                       amount equal to the amount previously
                                       credited to the account of Issuer in
                                       respect of such Certificated Note. Such
                                       wire transfer will be made on the
                                       settlement date, if possible, and in any
                                       event not later than the Business Day
                                       following the settlement date. If the
                                       failure shall have occurred for any
                                       reason other than a default by the
                                       Presenting Agent in the performance of
                                       its obligations hereunder and under the
                                       Placement Agency Agreement, then the
                                       Issuer will reimburse the Presenting
                                       Agent on an equitable basis for its loss
                                       of the use of the funds during the period
                                       when they were credited to the account of
                                       the Issuer. Immediately upon receipt of
                                       the Certificated Note in respect of which
                                       such failure occurred, the Trustee will
                                       cancel such Certificated Note in
                                       accordance with the Indenture of
                                       Mortgage, as supplemented, and so advise
                                       the Issuer and will make appropriate
                                       entries in its records.

Trustee Not to Risk Funds:             Nothing herein shall be deemed to require
                                       the Trustee to risk or expend its own
                                       funds in connection with any payment to
                                       the Issuer, the Agent or the purchaser,
                                       it being understood by all parties that
                                       payments made by the Trustee to the
                                       Issuer, the Agent or the purchaser shall
                                       be made only to the extent that funds are
                                       provided to the Trustee for such purpose.

                                       28
<PAGE>

Authenticity of Signatures:            The Issuer will cause the Trustee to
                                       furnish the Agent from time to time with
                                       the specimen signatures of each of the
                                       Trustee's officers, employees or agents
                                       who has been authorized by the Trustee to
                                       authenticate Certificated Notes, but no
                                       Agent will have any obligation or
                                       liability to the Issuer or the Trustee in
                                       respect of the authenticity of the
                                       signature of any officer, employee or
                                       agent of the Issuer or the Trustee on any
                                       Certificated Note.

Payment of Expenses:                   Each Agent shall forward to the Issuer,
                                       on a monthly basis, a statement of the
                                       out-of-pocket expenses incurred by such
                                       Agent during that month that are
                                       reimbursable to it pursuant to the terms
                                       of the Placement Agency Agreement. The
                                       Issuer will remit payment to each Agent
                                       currently on a monthly basis.

Advertising Costs:                     The Issuer will determine with the Agent
                                       the amount of advertising that may be
                                       appropriate in soliciting orders to
                                       purchase the Certificated Notes.
                                       Advertising expenses will be paid by the
                                       Issuer.

Periodic  Statements from the          Periodically, upon written request, the
Trustee:                               Trustee will send to the Issuer a
                                       statement setting forth the principal
                                       amount of Certificated Notes outstanding
                                       as of that date and setting forth a brief
                                       description of any sales of Certificated
                                       Notes of which the Issuer has advised the
                                       Trustee but which have not yet been
                                       settled.

Restrictions of Transfer:              No Note may be resold or transferred in
                                       any manner that does not comply with the
                                       applicable restrictions on resale or
                                       transfer or the procedures required for
                                       resale or transfer set forth on the Note
                                       certificate.

Business Day:                          As used herein, "Business Day" means
                                       any day other than a Saturday or Sunday
                                       or a day on which the Trustee or banks in
                                       New York, New York are generally
                                       authorized or obligated by law or
                                       executive order to close.

                                       29

<PAGE>

                                                                      EXHIBIT B

                                 TERMS AGREEMENT

                                                                         [Date]

To: PHILADELPHIA SUBURBAN WATER COMPANY

                  Subject in all respects to the terms and conditions of the
Placement Agency Agreement (the "Agreement") dated December 3, 1999 between the
Placement Agents and you, the undersigned agrees to purchase the following Notes
of Philadelphia Suburban Water Company:

                  Principal Amount:
                  Interest Rate:
                  Maturity Date:
                  Discount to the Purchaser: ___% of Principal Amount
                  Purchase Price:
                  Commission:
                  Agent DTC No.:
                  CUSIP No.:
                  Closing Date and Time:
                  Initial Redemption Date:
                  Initial Redemption Percentage:
                  Annual Redemption Reduction Percentage:
                  Optional Tender Date
                  Requirements to deliver the
                    documents specified in
                    Section 6(a)(ii) of the Agreement:
                           Certificate contemplated by
                             clause (1): [Required/Not Required]
                           Opinion contemplated by
                             clause (2): [Required/Not Required]
                           Opinion contemplated by
                             clause (3): [Required/Not Required]
                           Certificate contemplated by
                             clause (4): [Required/Not Required]
                           Opinion contemplated by
                             clause (5): [Required/Not Required]
                           Letter contemplated by
                             clause (6): [Required/Not Required]
                           Period during which additional Notes may not be sold
                             if not period between trade date and Closing Date
                             as specified in Section 4(a)(v) of the Agreement:

<PAGE>

Other Provisions:

                                               ________________________________
                                               By

                                               ________________________________
                                               Name:
                                               Title:

Accepted:

PHILADELPHIA SUBURBAN WATER COMPANY

by____________________________
  Name:
  Title:

                                       2
<PAGE>

                                                                      EXHIBIT C

(215) 575-7000

                                                              _______, 20__

To each of the Addressees on Schedule 1 of the Placement Agency Agreement Acting
Severally and Not Jointly in the Capacities of Agent or Purchaser or in Either
such Capacity

         Re: Philadelphia Suburban Water Company
             $300,000,000 First Mortgage Bonds,
             1999 Medium Term Note Series, Subseries _

Ladies and Gentlemen:

         We have acted as special counsel to Philadelphia Suburban Water
Company, a Pennsylvania corporation (the "Company"), in connection with the
transactions contemplated by (i) the Placement Agency Agreement dated December
3, 1999 (the "Placement Agency Agreement") between the Company and the Agents
identified therein (the "Agents"); (ii) the Paying Agency Agreement dated
December 3, 1999 (the "Paying Agency Agreement"), among the Company, Chase
Manhattan Trust Company, National Association, as paying agent and the Agents;
(iii) the Indenture of Mortgage dated as of January 1, 1941 (the "Original
Indenture"), between the Company, and Chase Manhattan Trust Company, National
Association (as successor in interest to The Philadelphia Company for Insurance
on Lives and Exacting Annuities), as trustee (the "Trustee"), as amended and
supplemented by thirty-three supplements thereto (the Original Indenture, as so
amended and supplemented, the "Indenture"); (iv) the Thirty-Third Supplemental
Indenture dated as of November 15, 1999 (the "Thirty-Third Supplemental
Indenture") between the Company and the Trustee; (v) the First Mortgage Bonds,
1999 Medium Term Note Series to be issued in one or more subseries pursuant to
the Thirty-Third Supplemental Indenture (the "Notes"); (vi) the Confidential
Offering Memorandum, dated December 3, 1999 relating to the offering of the
Notes, including the exhibits thereto (the "Offering Memorandum") and including
any quarterly or annual reports, if any, incorporated therein by reference (such
quarterly and annual reports referred to as "Incorporated Documents") and (vii)
the issuance of $___,000,000 aggregate principal amount of the Company's First
Mortgage Bonds, 1999 Medium Term Note Series, Subseries __ (the "Global Bond").
This opinion is being rendered to you pursuant to Section 4(a)(iv)(A) of the
Placement Agency Agreement. Unless otherwise specified, capitalized terms not
otherwise defined herein shall have the meanings specified in the Placement
Agency Agreement, the Original Indenture or the Thirty-Third Supplemental
Indenture.

                                       2

<PAGE>

         In connection with this opinion, we have examined the following
documents:

         (a) the Placement Agency Agreement;

         (b) the Paying Agency Agreement;

         (c) the Indenture (including the Thirty-Third Supplemental Indenture);

         (d) the Global Bond;

         (e) the Offering Memorandum;

         (f) a copy of the Articles of Incorporation of the Company, as amended
and restated and now in effect;

         (g) a copy of the Bylaws of the Company as now in effect;

         (h) the Securities Certificate relating to the issuance and sale of the
Notes, filed by the Company with the Pennsylvania Public Utility Commission (the
"PUC") pursuant to the provisions of Chapter 19 of the Pennsylvania Public
Utility Code and a copy of the Order of the PUC dated November 18, 1999
registering said Securities Certificate, and certified by the Secretary of the
PUC;

         (i) evidence satisfactory to us of the due recordation of the Original
Indenture and the Thirty-Third Supplemental Indenture in the Counties of Berks,
Bucks, Chester, Delaware and Montgomery in the Commonwealth of Pennsylvania;

         (j) the resolutions of the Executive Committee of the Board of
Directors of the Company dated October 15, 1999 authorizing the issuance of up
to $300,000,000 aggregate principal amount of Notes and the execution of the
Thirty-Third Supplemental Indenture, the Placement Agency Agreement and the
Paying Agency Agreement;

                                       3

<PAGE>

         (k) the certificates of the Company and other documents delivered at
the Closing and in connection with the issuance of the Global Bond; and

         (l)  public records and other publicly available documents.

         In rendering the opinions set forth below, we have assumed the
genuineness of all signatures on documents and instruments examined by us
(except signatures of the Company on the Placement Agency Agreement, the
Thirty-Third Supplemental Indenture, the Paying Agency Agreement and the Global
Bond) and that all documents submitted to us as copies conform with the
originals thereof. We have also relied, to the extent we have deemed such
reliance to be necessary and proper, on the factual matters contained in
certificates of public officials and officers of the Company.

         To the extent any opinion below is made to our knowledge, such
knowledge shall mean the actual knowledge of attorneys within our firm who have
provided substantive representation to the Company, based solely upon such
limited investigation and inquiry as is set forth herein, and does not include
matters of which such attorneys could be deemed to have constructive knowledge.

         Based upon the foregoing and such other examination of fact and law as
we have deemed necessary for purposes of this opinion, and subject to the
assumptions and qualifications set forth herein, we are of the opinion that:

         1. The Company is duly incorporated and subsisting under the laws of
the Commonwealth of Pennsylvania. The Company has full corporate power and
authority to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described in the
Offering Memorandum.

         2. The Company, on December 3, 1999, had full corporate power and
authority to enter into the Placement Agency Agreement and the Paying Agency
Agreement, to issue an aggregate principal amount of $300,000,000 of the Notes,
and to perform its obligations under the Placement Agency Agreement, the Paying
Agency Agreement and the Notes. The Placement Agency Agreement was duly
authorized, executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties thereto, did, on the
date of execution and delivery thereof, and does, on the date hereof, constitute
a legal, valid and binding agreement of the Company. The Paying Agency Agreement
was duly authorized, executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties thereto, did, on the
date of execution and delivery thereof, and does, on the date hereof, constitute
a legal, valid and binding agreement of the Company and is enforceable against
the Company in accordance with its terms (subject to applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws relating to creditors' rights generally from time to time in effect, and
subject, as to enforceability, to general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or at law).

                                       4
<PAGE>

         3. An aggregate principal amount of $300,000,000 of the Notes was duly
authorized for issuance and sale pursuant to the Indenture (including the
Thirty-Third Supplemental Indenture) and the Placement Agency Agreement, and the
Global Bond when executed by the Company and authenticated by the Trustee and
delivered pursuant to the provisions of the Indenture (including the
Thirty-Third Supplemental Indenture) and the Placement Agency Agreement against
payment of the consideration therefor specified in the Placement Agency
Agreement, will constitute the legal, valid and binding obligations of the
Company, entitled to the benefits and security of the Indenture (including,
without limitation, the Thirty-Third Supplemental Indenture) in accordance with
its terms, secured thereby equally and ratably with all First Mortgage Bonds of
the Company outstanding under the Indenture, and enforceable against the Company
in accordance with its terms (subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws relating
to creditors' rights generally from time to time in effect, and subject, as to
enforceability, to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law).

         4. The Company had full corporate power and authority to enter into the
Thirty-Third Supplemental Indenture on the date of execution and delivery
thereof. The Thirty-Third Supplemental Indenture was duly authorized, executed
and delivered by the Company and, assuming the due authorization, execution and
delivery by the other parties thereto, the Indenture, as supplemented by the
Thirty-Third Supplemental Indenture, did, on the date of execution and delivery
thereof and does, on the date hereof constitute a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms (subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws relating to creditors' rights
generally from time to time in effect, and subject, as to enforceability, to
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law). The Original Indenture and the
Thirty-Third Supplemental Indenture were properly recorded in the Counties of
Berks, Bucks, Chester, Delaware and Montgomery in the Commonwealth of
Pennsylvania and such recordations are the only recordations and filings
necessary in order to establish, preserve, protect and perfect the lien of the
Indenture on all real estate and fixed property of the Company (excluding
easements and other similar rights) described in the Indenture as subject to the
lien thereof. The Indenture creates the valid, binding and direct lien which it
purports to create upon the interest of the Company in the real estate and fixed
property of the Company specifically described therein as subject to the lien
thereof.

                                       5

<PAGE>

         5. The execution, delivery and performance of the Thirty-Third
Supplemental Indenture, the Placement Agency Agreement, the Paying Agency
Agreement and the Notes and the consummation of the transactions contemplated
thereby did not, on the date of execution and delivery thereof, does not, on the
date hereof, and will not (with or without the giving of notice or lapse of
time) conflict with or result in a breach of or default under the Articles of
Incorporation or Bylaws of the Company or the Indenture.

         6. The Indenture (including, without limitation, the Thirty-Third
Supplemental Indenture) and the Global Bond conform in all material respects as
to legal matters to the descriptions thereof in the Offering Memorandum. The
descriptions in the Offering Memorandum (but not including Incorporated
Documents) of statutes, regulations or legal or governmental proceedings
accurately summarize the information purported to be summarized therein.

         7. The authorization, execution and delivery of the Thirty-Third
Supplemental Indenture and the issuance and sale of the Global Bond is not,
under the circumstances described in the Placement Agency Agreement, subject to
the provisions of the Public Utility Holding Company Act of 1935 in any respect,
and, as to the Thirty-Third Supplemental Indenture did not and, as to the Global
Bonds, does not require that (a) a declaration with respect thereto shall have
become effective under Section 7 of the Public Utility Holding Company Act of
1935 or (b) other authorization or approval of the Securities and Exchange
Commission shall have become effective under the provisions of said Act.

         8. To the best of our knowledge, there are no actions, suits or
proceedings, pending or threatened, relating to the Notes, their offering, or
the Offering Memorandum.

         9. The PUC has entered an Order dated November 18, 1999 (the "PUC
Order"), registering the Securities Certificate filed by the Company with
respect to the issuance and sale of the Notes, which order, on the date hereof,
is in effect and is final and nonappealable. Except for the PUC Order and the
recording of the Thirty-Third Supplemental Indenture as described in paragraph 4
hereof, no other consent, approval, authorization or order of, or any filing
with, any government, governmental or other administrative agency or body is
required as of the date hereof in connection with the execution and delivery by
the Company of the Placement Agency Agreement, the Paying Agency Agreement and
the Thirty-Third Supplemental Indenture, the solicitation of offers for the
Global Bond, the issuance of the Global Bond or the performance by the Company
of any of its obligations thereunder, except such as may be required under the
blue sky laws of any jurisdiction in connection with the issuance and sale of
the Global Bond.

                                       6

<PAGE>

         10. The Global Bond may be offered, issued, sold and delivered to the
Agents and the first subsequent purchaser(s), in the manner contemplated by the
Placement Agency Agreement, the Thirty-Third Supplemental Indenture and the
Offering Memorandum without registration thereof under the Securities Act of
1933, as amended, and without qualification of an indenture in respect of the
Notes under the Trust Indenture Act of 1939, as amended, it being understood
that no opinion is expressed as to any subsequent resale of any Notes by any
Person or any other person. In rendering this opinion, we have assumed that the
first subsequent purchaser(s) is a Qualified Institutional Buyer or an offeree
that you reasonably believe is a Qualified Institutional Buyer, and we have
further assumed the accuracy of (i) your representations in the Placement
Agreement and (ii) those of the Company in the Placement Agreement regarding the
absence of any general solicitation in connection with the sale of the Notes.

         11. Upon the issuance of the Global Bond and the payment of the
consideration therefor, the Trustee will have a valid and perfected security
interest, for the benefit of the Trustee and the holders of the Global Bond, to
secure the full and punctual performance of the Global Bond and all obligations
of the Company under the Indenture (including the Thirty-Third Supplemental
Indenture), in all real estate and fixed property (excluding easements and other
similar rights) specifically described in the Indenture (other than properties
released from the Indenture in accordance with the terms thereof).

         12. We have not independently verified the accuracy, completeness or
fairness of the statements made or included in the Offering Memorandum and take
no responsibility therefor, except to the extent referred to in paragraph 6
hereof and in this paragraph. In the course of the preparation by the Company of
the Offering Memorandum, we participated in conferences with certain officers
and employees of the Company, examined the Offering Memorandum and made certain
inquiries in connection with the preparation of the Offering Memorandum. We took
no part in the preparation of any of the Incorporated Documents and we did not
conduct any independent investigation or make any inquiries with regard to the
Incorporated Documents and the information contained therein. Subject to the
foregoing, we have no reason to believe that the Offering Memorandum contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that we express
no opinion with respect to the financial statements and the notes thereto,
schedules and other financial, statistical data or operating information
included or incorporated by reference therein).

                                       7

<PAGE>

         The foregoing opinions are subject to the following qualifications:

                           a. We express no opinion as to the adequacy of any
notice with respect to the disposition of any collateral. We also express no
opinion as to the effectiveness or enforceability of provisions relating to
waivers of notice or waivers of other rights, severability, prepayment fees or
penalties, choice of law, or any provisions which release or limit the Company's
liability or relate to cumulative remedies or, to the extent they purport to or
would have the effect of compensating the Company in amounts in excess of any
actual loss suffered by the Company, provisions relating to the payment of a
default rate of interest.

                           b. We express no opinion as to the enforceability
with respect to any provisions in the Indenture executed by the Company
purporting to waive the effect of applicable laws and remedies and any
provisions releasing any party from, or requiring indemnification for, liability
for gross negligence, recklessness or wilful misconduct.

                           c. Any requirements in the Indenture specifying that
provisions of the Indenture may only be waived in writing may not be enforced to
the extent that an oral agreement or an implied agreement by trade practice or
course of conduct has been created modifying any provision of the Indenture.

                           d. This opinion is limited to the matters set forth
herein, no opinion may be inferred or implied beyond the matters expressly
stated herein, and our statements contained in the opinion portion of this
letter must be read in conjunction with the assumptions, limitations, exceptions
and qualifications set forth in this letter.

                                       8

<PAGE>

                           e. The opinions herein are expressed as of the date
hereof only and not as of some future date. We undertake no responsibility to
advise you of any change in law or new laws, regulations or judicial decisions
in the future. Nor do we assume any obligation to update or supplement this
opinion to reflect any facts or circumstances which may hereafter come to our
attention. References to "laws," "regulations" and "judicial decisions" herein
shall include only officially published federal laws and regulations of the
United States of America and the officially published laws and regulations of
the Commonwealth of Pennsylvania.

         Our opinions expressed above are limited to the laws of the
Commonwealth of Pennsylvania and the federal law of the United States of
America.

         This opinion is furnished by us solely for your benefit and the
purchasers of the Global Bond and may not be relied upon by any other person
without the express written consent of our firm.

                                                     Very truly yours,

                                       9
<PAGE>

                                                                      EXHIBIT D

                              [Letterhead of PSWC]

                                                            _____________, 1999

To Each of the Addresses Named
on Schedule I of the Placement Agency
Agreement Acting Severally and Not
Jointly in the Capacities of Agent
and Purchaser or in Either Such Capacity

Dilworth Paxson LLP
1735 Market Street
3200 Mellon Bank Center
Philadelphia, PA 19103

                  RE: $300,000,000 First Mortgage Bonds,
                      1998 Medium Term Note Series ("Notes")
                      --------------------------------------

Ladies and Gentlemen:

         I am Senior Vice President-Law and Administration for Philadelphia
Suburban Water Company (the "Company").

         Pursuant to Section 5(a)(iii)(B) of the Placement Agency Agreement
between you and the Company of December 3, 1999 relating to the $300,000,000
First Mortgage Bonds, 1999 Medium Term Note Series, I have been asked to render
an opinion to you regarding certain matters involving the Company.

         In my opinion:

         (i) To the best of my knowledge, the Company has all governmental
licenses, permits, consents, orders, approvals and other authorizations
necessary to carry on its business as described in the Confidential Offering
Memorandum dated December 3, 1999 with respect to the Notes, except where the
failure to do so would not have a material adverse effect on the financial
condition of the Company.

         (ii) Except as set forth in the Confidential Offering Memorandum, there
are no actions, suits or proceedings pending (and of which the Company has
received notice) or, to the best of my knowledge, threatened against or
affecting the Company or any of its officers in their capacity as such, before
or by any Federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, wherein an unfavorable
ruling, decision or finding is likely that would materially and adversely affect
(i) the financial condition of the Company, or (ii) the ability of the Company
to perform its obligations under the Placement Agency Agreement, the Paying
Agency Agreement, the Original Indenture (as supplemented by the Thirty-Third
Supplemental Indenture) or the Notes.

<PAGE>

         (iii) The Company (a) is not in violation of its Articles of
Incorporation, by-laws or other charter documents, (b) to the best of my
knowledge, is not in default in the performance of any obligation, agreement or
condition contained in any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, note, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument known to me to
which the Company is a party or by which it or its properties is bound or
affected where such default would likely have a material adverse effect on the
financial condition of the Company, and (c) to the best of my knowledge the
Company is not in violation of any judgment, ruling, decree, order, franchise,
license or permit known to me or any statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company, where such violation would likely have a material adverse effect on
the financial condition of the Company.

         (iv) The execution, delivery and performance of the Placement Agency
Agreement, the Thirty-Third Supplemental Indenture, the Paying Agency Agreement
and the consummation of the transactions therein contemplated will not, of
themselves, or upon notice, lapse of time, or both, conflict with or result in a
breach of any of the terms, conditions, or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of the Company (except as
contemplated by the Indenture) pursuant to the terms of the charter or bylaws of
the Company, or, to the best of my knowledge, any indenture, mortgage, deed of
trust or other agreement or instrument known to me to which the Company is a
party or by which the Company may be bound and, to the best of my knowledge,
will not materially violate any judgment, ruling, decree, order, franchise,
license or permit known to me or any statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company.

                                       2

<PAGE>

         (v) Each of the Indenture of Mortgage dated as of January 1, 1941 (the
"Original Indenture"), between the Company and The Philadelphia Company for
Insurance on Lives and Exacting Annuities (now Chase Manhattan Trust Company,
National Association, as successor in interest), as trustee (the "Trustee") and
the thirty-three indentures supplemental thereto, including the Thirty-Third
Supplemental Indenture dated as of November 15, 1999 between the Company and the
Trustee (the Original Indenture as so supplemented and amended, the "Indenture")
was duly authorized, executed and delivered by the Company and the Indenture
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws relating to creditors' rights generally from time to time in
effect, and subject, as to enforceability, to general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law).

         The information set forth herein is as of the date set forth above and
the Company and I disclaim any undertaking to provide any updates or changes
which thereafter may be brought to our attention.

         This opinion is solely for your benefit and may not be relied upon by
any other person or for any other purpose.

                                                          Very truly yours,

                                                          Roy H. Stahl
/sw

                                       3
<PAGE>

                                                                      EXHIBIT E

                              TRUSTEE'S CERTIFICATE

         The undersigned, Chase Manhattan Trust Company, National Association
(hereinafter referred to as the "Bank"), does hereby certify that:

         1. It is Trustee under the Indenture of Mortgage dated as of January 1,
1941, of Philadelphia Suburban Water Company (the "Company"), as supplemented
and amended by thirty two supplemental indentures and by a Thirty-Third
Supplemental Indenture dated as of November 15, 1999 (the "Thirty-Third
Supplemental Indenture") between the Company and the Bank relating to the
authentication and delivery of a global bond representing the aggregate
principal amount of $__________ of the Company's First Mortgage Bonds, 1999
Medium Term Note Series (Subseries "_")(the "Global Bond")

         2. The Thirty-Third Supplemental Indenture has been duly executed on
behalf of the Bank by__________, its Vice President; the corporate seal of the
Bank has been duly affixed thereto and attested by , its ___________________;
and the Thirty-Third Supplemental Indenture has been duly delivered on behalf of
the Bank.

         3. The Bank, as Trustee, has:

                  a. pursuant to Section 5 of Article I of the ThirtyThird
Supplemental Indenture, authenticated the Global Bond, which consist of a fully
registered Bond as set forth in Exhibit "A" hereto, in the aggregate principal
amount of $________, bearing the interest rate and maturity date as set forth in
Section I of Article 1 of the Thirty-Third Supplemental Indenture, by the
execution of the Trustee's Certificate of Authentication thereon by , its
____________________; and

                  b. registered said Global Bond in the name of Cede & Co,
nominee of the Depository Trust Company ("DTC"), as the registered owner of the
Global Bond, which Global Bond is to be held by The Chase Manhattan Bank as so
authenticated and registered on behalf of DTC pursuant to the Medium Term Note
Certificate Agreement dated as of December 2, 1988.

         4. Set forth below, opposite the names and titles of the above
mentioned officers of the Bank, are specimens of their respective signatures.

<PAGE>

       Name                          Title                   Specimen Signatures
       ----                          -----                   -------------------

_________________                                            ___________________

_________________                                            ___________________

         5. and were, at the time of the acts referred to in paragraph 2 above,
and are at the date hereof, duly elected or appointed, qualified and acting
officers of the Bank, holding the offices indicated above and were duly
authorized to perform such acts, and the signatures appearing on the
Thirty-Third Supplemental Indenture are their genuine signatures; and was at the
time of the acts referred to in paragraph 3(a) above, and is at the date hereof,
a duly elected or appointed, qualified and acting Corporate Trust Officer of the
Bank duly authorized to perform such acts, and the signature appearing on said
Bonds is her genuine signature.

         6. Attached hereto as Exhibit "B" is a true and correct copy of
resolutions as adopted by the Board of Directors of the Bank which, at the date
hereof, are still in full force and effect, giving requisite authority to such
officers to execute and deliver the Thirty-Third Supplemental Indenture and to
authenticate the Bonds.

         IN WITNESS WHEREOF, Chase Manhattan Trust Company, National Association
has caused this Trustee's Certificate to be executed by its duly authorized
officer, this _____ day of__________, ______.

                                                 Chase Manhattan Trust Company,
                                                 National Association

                                                 ______________________________
                                                             Title:

                                       2

<PAGE>

                                   EXHIBIT "A"

<TABLE>
<CAPTION>

                                                                                               Maturity
Cert.       Registered                             Principal             Interest              Date
No.         Owner                                  Amount                Rate                  (       1)
---         -----                                  ------                ----                  ----------

<S>         <C>                                    <C>                   <C>                   <C>
R-1         Cede & Co., as nominee of the
            Depository Trust Company

</TABLE>

                                       3

<PAGE>

                                                                      EXHIBIT F

                             Form of KPMG LLP Letter

<PAGE>

                                                                      EXHIBIT G

                       PHILADELPHIA SUBURBAN WATER COMPANY

                                     U.S. $

                              First Mortgage Bonds
                          1999 Medium Term Note Series

                           Maturities From One Year to
                      Thirty-Five Years From Date of Issue

                     Amendment to Placement Agency Agreement

                                                             New York, New York
                                                                         [Date]

To Each of the Addressees Named
on Schedule I of the Placement Agency
Agreement Acting Severally and Not
Jointly in the Capacities of Agent and
Purchaser or in Either Such Capacity

Ladies and Gentlemen:

         The Placement Agency Agreement dated December 3, 1999 (the
"Agreement"), between you and Philadelphia Suburban Water Company, a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania (the
"Issuer"), is hereby amended to increase the aggregate principal amount of Notes
(as defined in the Agreement) at any time outstanding to up to U.S. $ .

         [The documents referred to in the second sentence of Section 12 of the
Agreement shall be delivered simultaneously herewith.]

         In all other respects the Agreement shall remain in full force and
effect.

         This amendment to the Agreement may be executed in counterparts, and
the executed counterparts shall together constitute a single instrument.

                                       3

<PAGE>

If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter shall represent a binding agreement between the Issuer and each of you.
This letter shall not constitute a binding agreement unless and until it is
executed by the Issuer and each of you.

                                Very truly yours,

                                PHILADELPHIA SUBURBAN WATER
                                COMPANY,

                                  by _________________________
                                     Name:
                                     Title:

The foregoing Agreement is
hereby confirmed and accepted
as of the date hereof.

by _________________________
   Name:
   Title:

                                       4
<PAGE>

                                                                      EXHIBIT H

                       PHILADELPHIA SUBURBAN WATER COMPANY
                              FIRST MORTGAGE BONDS
                          1999 MEDIUM TERM NOTE SERIES

                                REQUEST FOR BIDS

         Pursuant to Paragraph 2(a)(i) of the Placement Agency Agreement between
PSWC ("PSWC") and the agents listed on Schedule I attached thereto dated
December 3, 1999 (the "Agreement"), PSWC is requesting bids for Subseries ______
of the above-referenced notes (the "Subseries") to be issued by PSWC on or about
________, ____, subject to the terms set forth in the Agreement including
Exhibit A thereto.

         The Subseries is to be structured based on the following:

         1.       Principal Amount of Notes $___________________
         2.       Maturity _______________________
         3.       [Optional Tender Provision ___________________]

                                         PHILADELPHIA SUBURBAN WATER COMPANY

DATE: ____________                       BY:_____________________

                                         TITLE:__________________

                                       3
<PAGE>

                                                                      EXHIBIT I

                       PHILADELPHIA SUBURBAN WATER COMPANY
                              FIRST MORTGAGE BONDS
                          1999 MEDIUM TERM NOTE SERIES

                              NOTICE OF APPOINTMENT

         Pursuant to Paragraph 2 of the Placement Agency Agreement between PSWC
("PSWC") and the Agents listed on Schedule I attached thereto dated December 3,
1999 (the "Agreement"), ________________________ is hereby appointed as
Placement Agent for the issuance of $___________ of Subseries ______ of the
above-referenced notes to be issued by PSWC on or about _____________________,
____, subject to the terms set forth on the attached Exhibit A [to be furnished
by Issuer at issuance of Notice of Appointment] and further subject to the terms
and conditions of the Agreement.

                                         PHILADELPHIA SUBURBAN WATER COMPANY

DATE:______________                      BY:________________________________

                                         TITLE:_____________________________

                                       4

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