Document:

exv10w1

 

EXHIBIT 10.1

Execution Version

SECOND AMENDED AND RESTATED SHAREHOLDER AGREEMENT

     This Second Amended and Restated Shareholder Agreement (this “Agreement”), dated March 5, 2008
(the “Effective Date”), is entered into by and between GenCorp Inc., an Ohio corporation (the
“Company”), and Steel Partners II, L.P., a Delaware limited partnership (“Steel”), for itself and
its Affiliates (as defined below) (collectively, “Shareholder”).

RECITALS

     A. The Company and Shareholder are parties to that certain Amended and Restated Shareholder
Agreement, dated February 16, 2007 (the “Original Agreement”), which provided for, among other
things, Shareholder to have certain observer rights with respect to meetings of the Company’s Board
of Directors.

     B. Shareholder has sought through a proxy contest representation on the Board (as defined
below), and Shareholder and the Company have determined that it is in the best interests of all
shareholders of the Company to come to an amicable agreement with respect to such matters.

     C. The Company and Shareholder desire to amend and restate the Original Agreement to, among
other things, provide for certain agreements with respect to the composition of the Board.

     D. As of the date of this Agreement, Shareholder Beneficially Owns 8,034,059 shares (the
“Owned Shares”) of Common Stock, par value $0.10 per share, of the Company (the “Common Shares”).

     NOW, THEREFORE, in consideration of the covenants herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and
Shareholder hereby agree as follows:

SECTION 1. DEFINITIONS

     1.1 Certain Definitions. In addition to any other terms defined in this Agreement,
for purposes of this Agreement, the following terms have the following meanings when used herein
with the initial capital letters:

          (a) “Affiliate” has the meaning ascribed thereto in Rule 12b-2 under the Exchange Act.

          (b) “Beneficial Owner” and “Beneficially Own” are defined in accordance with the term
“beneficial ownership” as defined in Rule 13d-3 under the Exchange Act, and a Person will also be
deemed to be the Beneficial Owner of, and to Beneficially Own, Common Shares that such Person or
any Affiliate of such Person 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 or upon the exercise
of conversion rights, exchange rights, warrants, options or otherwise.

          (c) “Board” means the Board of Directors of the Company, or the directors serving thereon in
their capacity as such.

          (d) “Continuing Directors” means all directors of the Company currently serving in such
capacity as of March 1, 2008 other than Terry L. Hall, Charles F. Bolden Jr., James J. Didion and
James M. Osterhoff.

          (e) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder.

          (f) “Holding Period” means the period beginning on the date of this Agreement and ending on
February 16, 2010; provided, however, that the Holding Period shall automatically
terminate upon the occurrence of a Standstill Exception Event (as defined below).

          (g) “Holding Period Meeting” means any meeting of the shareholders of the Company at which
directors are to be elected that is held during the Holding Period.

          (h) “New CEO” means that person appointed by the Board to serve as the permanent Chief
Executive Officer and President of the Company in accordance with Section 2.5.

          (i) “Person” has the meaning given to such term in Section 3(a)(9) of the Exchange Act, as
supplemented by the rules and regulations thereunder.

          (j) “Standstill Exception Event” means the first time at which (i) a person shall be appointed
the New CEO who was not either recommended to the Board as a candidate for appointment by the
Search Committee or otherwise approved in writing for such appointment by Shareholder, or (ii) a
New CEO has not been appointed by the Board prior to the New CEO Appointment Deadline.

          (k) “2008 Annual Meeting” means the annual meeting of the Company’s shareholders to be held
during the 2008 calendar year.

          (l) “2009 Annual Meeting” means the annual meeting of the Company’s shareholders to be held
during the 2009 calendar year.

          (m) “2010 Annual Meeting” means the annual meeting of the Company’s shareholders to be held
during the 2010 calendar year.

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SECTION 2. DIRECTORS; GOVERNANCE; VOTING

     2.1  Resignation of Terry L. Hall; Appointment of Interim CEO.

          (a) Resignation of Terry L. Hall. On the Effective Date, the Board shall procure the
resignation of Terry L. Hall as the Chief Executive Officer and President of the Company and as a
director of the Company and as an officer and director of the subsidiaries of the Company.

          (b) Appointment of Interim CEO. On the Effective Date, the Board shall take all
necessary action to appoint J. Scott Neish, currently Vice President and President, Aerojet-General
Corporation, as Interim Chief Executive Officer and Interim President upon the resignation of Terry
L. Hall until the positions can be filled on a permanent basis by the New CEO selected in the
manner provided in this Agreement. As a condition to such appointment, J. Scott Neish shall
acknowledge that the removal from the positions of Interim Chief Executive Officer and Interim
President in and of itself shall not give rise to the deemed occurrence of Constructive Termination
as defined in his Severance Agreement (as defined below) with the Company.

     2.2 Increase in Size of the Board; Appointments to the Board. As of the Effective
Date, the Board shall increase the size of the Board by two (2) additional directors (to a total of
eleven (11) directors) and immediately thereafter shall appoint Warren G. Lichtenstein, James R.
Henderson and Martin Turchin (collectively, the “New Directors”) to the Board to fill the vacancies
created by the resignation of Terry L. Hall as a director and such increase, with terms of the New
Directors from this appointment to expire at the 2008 Annual Meeting. Except as contemplated by
Section 2.3(b), the size of the Board shall be fixed at a maximum of eleven (11) directors until
the 2008 Annual Meeting.

     2.3 Board Composition for 2008-2009 Annual Meetings.

          (a) 2008 Annual Meeting. The Company shall cause to be nominated for election to the
Board at the 2008 Annual Meeting the Continuing Directors and the New Directors and shall recommend
the election and solicit proxies for the election of all such nominees at the 2008 Annual Meeting.
Prior to the 2008 Annual Meeting, the Board will take the appropriate action to decrease the size
of the Board to eight (8) directors effective as of the date of the 2008 Annual Meeting. Except as
contemplated Section 2.3(b), the size of the Board shall be fixed at a maximum of eight (8)
directors until the end of the Holding Period. The limitations regarding the size of the Board and
the nominations for election at the 2008 Annual Meeting set forth in this Section 2.3(a) shall be
subject to the increase in the size of the Board and appointment (and the subsequent nomination) of
the New CEO as contemplated by Section 2.3(b). The Company shall provide Shareholder with an
opportunity to review and comment on the portions of all proxy materials to be filed by the Company
in connection with the 2008 Annual Meeting from and after the date hereof containing statements
relating to Shareholder, the New Directors and this Agreement. Shareholder agrees to review such
materials promptly.

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          (b) Appointment of New CEO. Upon the appointment of the New CEO, the Board shall
increase the size of the Board by one (1) additional director (to a total of nine (9) directors for
periods at or following the 2008 Annual Meeting) and immediately thereafter the Company (including
the Board) shall take all actions required to appoint the New CEO to the Board to fill the vacancy
created by such increase, with the term of the New CEO as a director from this appointment to
expire at the then next annual meeting of the Company’s shareholders, and thereafter to nominate
the New CEO as a director as provided herein.

          (c) 2009 Annual Meeting. The Company shall cause to be nominated for election to the
Board at the 2009 Annual Meeting the Continuing Directors, the New Directors and, if applicable,
the New CEO and shall recommend the election and solicit proxies for the election of all such
nominees at the 2009 Annual Meeting. The Company shall provide Shareholder with an opportunity to
review and comment on the portions of all proxy materials to be filed by the Company in connection
with the 2009 Annual Meeting containing statements relating to Shareholder, the New Directors and
this Agreement. This Section 2.3(c) shall terminate and be of no further force and effect upon the
occurrence of a Standstill Exception Event.

          (d) Replacement of Continuing Directors. If any of the Continuing Directors resigns,
retires, dies or otherwise ceases to serve (or informs the Company that he or she shall cease as of
a future date to serve) as a director of the Company during the Holding Period, the Board and/or
Corporate Governance & Nominating Committee (in each case with the New Directors abstaining) shall
select a nominee who is deemed qualified in their reasonable business judgment to be appointed or
elected to fill the vacancy resulting therefrom, and the Company (including the Board) and
Shareholder shall take all actions required to cause such nominee to be appointed or elected to the
Board as promptly as practicable upon the time at which such Continuing Director ceases to serve as
a director for the unexpired term of the Continuing Director whose place will be vacant. Any
nominee selected as provided in this Section 2.3(d) shall be considered a Continuing Director upon
such appointment or election.

          (e) Replacement of New Directors. If any of the New Directors resigns, retires, dies
or otherwise ceases to serve (or informs the Company that he or she shall cease as of a future date
to serve) as a director of the Company during the Holding Period, the remaining New Directors shall
select a nominee to be appointed or elected to fill the vacancy resulting therefrom who is deemed
qualified in the reasonable business judgment of the Corporate Governance & Nominating Committee
(with the New Directors abstaining), and the Company (including the Board) and Shareholder shall
take all actions required to cause such nominee to be appointed or elected to the Board as promptly
as practicable upon the time at which such New Director ceases to serve as a director for the
unexpired term of the New Director whose place will be vacant. Any nominee selected as provided in
this Section 2.3(e) shall be considered a New Director upon such appointment or election.

          (f) Committees. During the Holding Period, subject to applicable laws, rules and
regulations (including any requirements under the Exchange Act or the rules

4

 

of the New York Stock Exchange or any other applicable securities exchange or automated
inter-dealer quotation system on which the Common Shares are then listed or quoted), the Company
(including the Board) shall take all actions required to cause each active committee of the Board
to consist of at least one (1) New Director. Immediately following the appointment of the New
Directors, the Board shall cause to be appointed Martin Turchin to the Audit Committee of the
Board, James R. Henderson to the Corporate Governance & Nominating Committee of the Board, Warren
G. Lichtenstein to the Organization & Compensation Committee of the Board, Warren G. Lichtenstein
to the Finance Committee of the Board, and those New Directors named in Section 2.5 to the Search
Committee (as defined below). Shareholder represents and warrants that the named New Directors
satisfy the requirements under applicable laws, rules and regulations for serving on such
committee.

          (g) Significant Shareholder. This Section 2.3 shall automatically terminate and be of
no further force and effect if at any time from and after the date hereof Shareholder Beneficially
Owns Common Shares equal to less than 3.0% of the total Common Shares currently outstanding
(determined without giving effect to any dilution resulting from the exercise or conversion of any
securities exerciseable for or convertible into Common Shares).

     2.4 Termination of Proxy Contest. Without limiting the generality of Section 3,
immediately following the execution and delivery hereof, Shareholder shall withdraw its nominations
of directors at the 2008 Annual Meeting and terminate its proxy contest with respect to the
election of directors at the 2008 Annual Meeting.

     2.5 Selection of New CEO. Promptly following the execution and delivery hereof and
the appointment of the New Directors, the Company agrees to take such steps as are necessary to
establish or designate a committee of the Board comprised of three (3) directors (the “Search
Committee”) to commence a search for a new permanent Chief Executive Officer and President and to
cause the Search Committee to be comprised of Warren G. Lichtenstein, Martin Turchin and one
director chosen by the Continuing Directors. The Chairman of the Search Committee shall initially
be Warren G. Lichtenstein and thereafter shall be such other member of the Search Committee as the
Search Committee shall determine from time to time. The Search Committee shall not be a standing
committee of the Board. Promptly following the formation thereof, the Search Committee will retain
a nationally-recognized search firm that is acceptable to each of a majority of the New Directors
and a majority of the Continuing Directors which firm will conduct a broad search to fill the
position; provided, however, that neither J. Scott Neish nor James Henderson will
be a candidate for the position during the first ninety (90) days of the search. The Search
Committee shall make recommendations to the Board and shall use commercially reasonable efforts to
cause the New CEO to be appointed by the six month anniversary of the date hereof (the “New CEO
Appointment Deadline”). Upon the selection of a New CEO selected based on the recommendation by
the Search Committee and approved by the Board, the size of the Board shall be increased by one (1)
director and the New CEO shall be appointed to the Board as provided in Section 2.3(b).

5

 

     2.6 Nonpublic Information. Shareholder (1) acknowledges that the U.S. securities laws
prohibit any person who has access to material nonpublic information from trading while in
possession of such information or providing that information to others in certain circumstances,
and agrees to comply with these requirements, and (2) will maintain in strict confidence all
nonpublic information it receives whether by virtue of this Section 2 or otherwise;
provided, however, that nothing in this clause (2) will prohibit Shareholder from
disclosing any such information to its attorneys, accountants or financial or other advisors in
connection with its assessment of its investment in the Company. Shareholder will cause all such
Persons to maintain the confidentiality of information as if they were direct parties hereto and be
responsible for any failure by any such Person to do so.

     2.7 Voting. At any Holding Period Meeting (including at the 2008 Annual Meeting and
the 2009 Annual Meeting, but not the 2010 Annual Meeting), Shareholder shall take such action as
may be required so that all Common Shares Beneficially Owned by Shareholder as of the record date
for such meeting are voted for the election of the slate of nominees for election to the Board
contemplated by Section 2.3, and Shareholder shall not revoke any such votes or fail to publicly
support such nominees in any manner. On all other matters, Shareholder may vote in its sole
discretion as it determines.

     2.8 Osterhoff Consultancy. The Company may engage James M. Osterhoff as a consultant
to the Company for the purpose of advising the Audit Committee for a term of up to three (3) months
from the date of the 2008 Annual Meeting (or such longer term as the Audit Committee determines is
necessary for the conduct of its functions without undue interruption).

     2.9 Quorum. A representative or representatives of Shareholder will be present, in
person or by proxy, at any meeting of shareholders of the Company during the Holding Period so that
all Common Shares Beneficially Owned by Shareholder may be counted for the purpose of determining
the existence of a quorum at such meeting.

     2.10 Benefit Arrangements. Each of the Company and Shareholder hereby acknowledges
and agrees that the actions contemplated hereby shall constitute a “change of control” pursuant to
each of the executive compensation arrangements and employee benefit plans with, or covering, its
officers, including the change in control severance agreements, dated on or about August 10, 2006,
between the Company and certain of its officers (the “Severance Agreements”), and other
similar agreements providing for benefits (including, but not limited to, acceleration of vesting
of equity grants) upon a “change in control” or upon a termination following a “change of control”
or other similar events. Each of the Company and Shareholder acknowledges that the resignation of
Terry L. Hall as provided in Section 2.1 shall constitute a termination of Mr. Hall without cause
following a change in control, and that the Company shall be required to pay the benefits
contemplated under the Severance Agreement with Mr. Hall. To the knowledge of the Board and the
Company’s General Counsel, as of the date hereof, none of the Company’s officers (other than Terry
L. Hall) is entitled to payment of severance benefits under the Severance Agreements solely as a
result of

6

 

the Company’s entering into or performing this Agreement. Such officers shall expressly be
deemed third party beneficiaries of this Section 2.10. The entitlement of members of the Board to
compensation and benefits shall be governed by the terms of the applicable plans, programs and/or
agreements as in effect on the date hereof or as amended from time to time in accordance with such
plans, programs or agreements.

SECTION 3. AGREEMENTS REGARDING VOTING AND SECURITIES

     During the Holding Period, other than in connection with the 2010 Annual Meeting:

     3.1 Proxy Solicitations. Subject to Section 3.4, Shareholder shall not (and shall not
encourage or assist any other Person to), directly or indirectly, solicit proxies or initiate,
propose or become a “participant” in a “solicitation” (as such terms are defined in Regulation 14A
under the Exchange Act) in any “election contest” with respect to the Company’s directors
(regardless of whether it involves the election or removal of directors of the Company).

     3.2 Group Participation. Subject to Section 3.4, Shareholder shall not (and shall not
assist or encourage any other Person to) form, join or in any way participate in a group (within
the meaning of Section 13(d)(3) of the Exchange Act) with respect to any securities of the Company
with respect to any matter covered in Section 3.1 hereof.

     3.3 Shareholder Meetings. Subject to Section 3.4, Shareholder shall not, directly or
indirectly, (or assist or encourage any other Person to,) call or seek to call any special meeting
of the Shareholders of the Company for the purpose of the election or of the removal of directors
of the Company.

     3.4 Permitted Activity. Nothing contained in this Agreement shall limit Shareholder
from taking any of the actions otherwise prohibited in Section 3.1 of this Agreement in connection
with any meeting of shareholders of the Company, other than the election of directors at a Holding
Period Meeting, including, without limitation, submitting business proposals, requesting a
shareholder list and related information, or taking any other action related to the solicitation of
proxies or written consents or making any public filings or announcements in furtherance thereof.
For the avoidance of doubt, nothing in this Agreement prohibits Shareholder from nominating prior
to the end of the Holding Period directors to be voted on at a shareholders meeting of the Company
that is to be held after the expiration of the Holding Period. The Company agrees that the 2010
Annual Meeting will be held no earlier than end of the Holding Period.

     3.5 Other Requirements. For the avoidance of doubt, the covenants in this Agreement,
including without limitation this Section 3, are not intended to be and will not be interpreted as
being an approval by the Board of any acquisition of stock by Steel Partners or its Affiliates for
purposes of any provision of Ohio law.

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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to Shareholder as follows:

     4.1 Corporate Existence of, and Due Authorization and Execution by, the Company. The
Company is a corporation duly organized, validly existing and in good standing under the laws of
the State of Ohio, with full corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder, and to consummate the transactions contemplated hereby. This
Agreement and the consummation of the transactions contemplated hereby have been duly authorized by
all necessary corporate action of the Company. This Agreement has been duly executed and delivered
by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.

     4.2 No Conflicts. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby do not conflict with, or result in any violation of or
default under, any provision of the Amended Articles of Incorporation or Amended Code of
Regulations of the Company.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER

     Shareholder represents and warrants to the Company as follows:

     5.1 Existence of, and Due Authorization and Execution by, Shareholder. Shareholder is
a limited partnership duly organized, validly existing, and in good standing under the laws of the
State of Delaware, with full power and authority to execute and deliver this Agreement, to perform
its obligations hereunder, and to consummate the transactions contemplated hereby. This Agreement
and the consummation of the transactions contemplated hereby have been duly authorized by all
necessary action of Shareholder. This Agreement has been duly executed and delivered by
Shareholder and constitutes a legal, valid and binding obligation of Shareholder, enforceable
against Shareholder in accordance with its terms.

     5.2 No Conflicts. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby do not conflict with, or result in any violation of or
default under, any provision of any partnership agreement or other constituent documents of
Shareholder or of any agreement or instrument binding upon Shareholder.

     5.3 Beneficial Ownership of Common Shares. As of the date of this Agreement, (a)
Shareholder Beneficially Owns the Owned Shares and no other securities of the Company, and (b) to
the actual knowledge of Shareholder, no Affiliate of Shareholder Beneficially Owns any securities
of the Company other than the Owned Shares.

     5.4 New Directors. Each of the New Directors has signed an agreement consenting to
being named as a nominee in the Company’s proxy statement and

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agreeing to serve as a director upon election or appointment to the Board and all information
set forth in Shareholder’s preliminary proxy statement regarding the qualifications of each of the
New Directors is true and complete in all material respects as of the date hereof.

SECTION 6. MISCELLANEOUS

     6.1 Specific Enforcement. The parties acknowledge that the Company would be
irreparably damaged in the event any provision of this Agreement were not performed in accordance
with its specific terms or were otherwise breached. It is accordingly agreed that the Company will
be entitled to an injunction or injunctions to prevent breaches of this Agreement and to
specifically enforce this Agreement and the terms and provisions thereof in any action instituted
in any court of the United States or any state thereof having subject matter jurisdiction, in
addition to any other remedy to which the Company may be entitled, at law or in equity.

     6.2 Modification; Waiver. (a) This Agreement may be modified in any manner and at any
time by written instrument executed by the parties and (b) any of the terms, covenants and
conditions of this Agreement may be waived at any time by the party entitled to the benefit of such
term, covenant or condition.

     6.3 Notices. All notices, requests, demands, claims, and other communications
hereunder will be in writing and will be delivered by electronic mail or facsimile transmission:

	 	(a)	 	if to the Company, to:

GenCorp Inc.

Highway 50 and Aerojet Road

Rancho Cordova, California 95670

Facsimile: (916) 351-8665

Attention: Mark A. Whitney, Senior Vice President, General Counsel and Secretary

Email: mark.whitney@gencorp.com

with a copy to:

Kirkland & Ellis LLP

153 East 53rd Street

New York, NY 10022-4675

Facsimile: (212) 446-4900

Attention: Stephen Fraidin, Esq.

Email: sfraidin@kirkland.com

	 	(b)	 	if to Shareholder, to:

Steel Partners II, L.P.

590 Madison Avenue

9

 

32nd Floor

New York, New York 10022

Facsimile: (212) 520-2321

Attention: Warren G. Lichtenstein

Email: warren@steelpartners.com

with a copy to:

Olshan Grundman Frome Rosenzweig & Wolosky LLP

Park Avenue Tower

65 East 55th Street

New York, New York 10022

Facsimile: (212) 451-2222

Attention: Steven Wolosky, Esq.

Email: swolosky@olshanlaw.com

or, in each case, at such other address or to such other Person as may be
specified in writing delivered in like manner to the other party.

     6.4 Parties in Interest; Assignment. Except as contemplated by Section 2.10 of this
Agreement, this Agreement and all the provisions hereof are binding upon and will inure to the
benefit of the parties and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests and obligations hereunder may be assigned or delegated
by either party without the prior written consent of the other party. Except as contemplated by
Section 2.10 of this Agreement, nothing in this Agreement, whether expressed or implied, may be
construed to give any Person other than the parties any legal or equitable right, remedy or claim
under or in respect of this Agreement.

     6.5 Counterparts. This Agreement may be executed in one or more counterparts, all of
which will constitute one and the same instrument.

     6.6 Headings; References. The section headings of this Agreement are for convenience
of reference only and will not be deemed to alter or affect the meaning or interpretation of any
provisions hereof. Unless otherwise specified, references to “Sections” are to Sections of this
Agreement.

     6.7 Governing Law, Etc. This Agreement is governed by and construed in accordance
with the internal laws of the State of New York applicable to contracts made and to be performed
therein, without regard to the conflict of laws principles. Each party submits to exclusive
jurisdiction and venue of federal or state courts in New York, New York and agrees not to institute
litigation in any other forums in respect of the interpretation or enforcement of this Agreement
(except for proceedings to obtain enforcement of an order of a New York, New York federal or state
court).

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     6.8 Severability. If one or more of the provisions of this Agreement are held by a
court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement will remain in full force and effect.

     6.9 Press Releases. The parties shall jointly announce the execution of this
Agreement by issuance of the press release attached hereto as Annex A, which shall be issued prior
to 9:00 a.m. (New York time) on the first business day following the execution and delivery hereof,
and which press release shall be filed by the Company as an exhibit to a Current Report on Form 8-K
and by Shareholder as an exhibit to an amendment to its Schedule 13D. Other than with respect to
the press release contemplated by the immediately preceding sentence, during the Holding Period,
Shareholder shall not issue or cause the publication of any press release or other public
announcement with respect to this Agreement without the prior written consent of the Company;
provided, however, that Shareholder may file an amendment to its Schedule 13D or
other filing required by applicable securities law or the rules of any stock exchange disclosing
the terms of this Agreement and including the Agreement as an exhibit thereto without the prior
written consent of the Company.

     6.10 Survival. The provisions of Section 2.6 and Section 2.10 and this Article VI
will survive the termination of this Agreement and/or the expiration of the Holding Period.

     6.11 Expenses. The Company will reimburse Shareholder for up to $350,000 in the
aggregate of its reasonable out-of-pocket fees and expenses incurred through the date of the
execution and delivery of this Agreement in connection with its activities relating to the
potential proxy contest with respect to the Company promptly following presentation thereof to the
Company.

     6.12 Original Agreement. The Original Agreement (and including the Shareholder
Agreement, dated February 15, 2005, by and between the Company and Shareholder, which was
superseded and replaced by the Original Agreement) is null and void and superseded and replaced in
its entirety by this Agreement.

{Signatures on following page}

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     IN WITNESS WHEREOF, each party has caused its respective duly authorized representative to
execute this Second Amended and Restated Shareholder Agreement as of the date first above written.

	 	 	 	 	 	 	 
	 	 	GENCORP INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Timothy A. Wicks
 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Its:
	 	Chairman of the Board	 	 
	 
	 	 	 	 	 	 
	 	 	STEEL PARTNERS II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Steel Partners II GP LLC	 	 
	 

	 	Its:
	 	General Partner	 	 

	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Warren G. Lichtenstein
 

Warren G. Lichtenstein, Managing Member
	 	 

12Unassociated Document

    
      
        

      

    

    Exhibit 10.32

     

    LOAN
AGREEMENT

    

    BY
AND BETWEEN

    

    NEW
JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST

    

    AND

    

    MIDDLESEX
WATER COMPANY

    

    

    DATED
AS OF NOVEMBER 1, 2007

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    TABLE
OF CONTENTS

    

    
      	 
      	 
      	 
      	 
      	
              Page

            
	 
      	 
      	 
      	 
      	 
      
	
              ARTICLE
      I

            
	 
      	 
      	 
      	 
      	 
      
	
              DEFINITIONS

            
	 
      	 
      	 
      	 
      	 
      
	
              SECTION
      1.01.

            	 
      	
              Definitions

            	 
      	
              2

            
	 
      	 
      	 
      	 
      	 
      
	
              ARTICLE
      II

            
	 
      	 
      	 
      	 
      	 
      
	
              REPRESENTATIONS
      AND COVENANTS OF BORROWER

            
	 
      	 
      	 
      	 
      	 
      
	
              SECTION
      2.01.

            	 
      	
              Representations
      of Borrower

            	 
      	
              6

            
	
              SECTION
      2.02.

            	 
      	
              Particular
      Covenants of Borrower

            	 
      	
              10

            
	 
      	 
      	 
      	 
      	 
      
	
              ARTICLE
      III

            
	 
      	 
      	 
      	 
      	 
      
	
              LOAN
      TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

            
	 
      	 
      	 
      	 
      	 
      
	
              SECTION
      3.01.

            	 
      	
              Loan;
      Loan Term

            	 
      	
              18

            
	
              SECTION
      3.02.

            	 
      	
              Disbursement
      of Loan Proceeds

            	 
      	
              18

            
	
              SECTION
      3.03.

            	 
      	
              Amounts
      Payable

            	 
      	
              19

            
	
              SECTION
      3.03A.

            	 
      	
              Amounts on Deposit in Project Loan
      Account after Completion of Draw Schedule

            	 
      	
              20

            
	
              SECTION
      3.04.

            	 
      	
              Unconditional
      Obligations

            	 
      	
              21

            
	
              SECTION
      3.05.

            	 
      	
              Loan
      Agreement to Survive Bond Resolution and Trust Bonds

            	 
      	
              22

            
	
              SECTION
      3.06.

            	 
      	
              Disclaimer
      of Warranties and Indemnification

            	 
      	
              22

            
	
              SECTION
      3.07.

            	 
      	
              Option
      to Prepay Loan Repayments

            	 
      	
              23

            
	
              SECTION
      3.08.

            	 
      	
              Priority
      of Loan and Fund Loan

            	 
      	
              24

            
	
              SECTION
      3.09.

            	 
      	
              Approval
      of the New Jersey State Treasurer

            	 
      	
              24

            
	 
      	 
      	 
      	 
      	 
      
	
              ARTICLE
      IV

            
	 
      	 
      	 
      	 
      	 
      
	
              ASSIGNMENT
      OF LOAN AGREEMENT AND BORROWER BOND

            
	 
      	 
      	 
      	 
      	 
      
	
              SECTION
      4.01.

            	 
      	
              Assignment
      and Transfer by Trust

            	 
      	
              25

            
	
              SECTION
      4.02.

            	 
      	
              Assignment
      by Borrower

            	 
      	
              25

            
	 
      	 
      	 
      	 
      	 
      
	
              ARTICLE
      V

            
	 
      	 
      	 
      	 
      	 
      
	
              EVENTS
      OF DEFAULT AND REMEDIES

            
	 
      	 
      	 
      	 
      	 
      
	
              SECTION
      5.01.

            	 
      	
              Events
      of Default

            	 
      	
              26

            
	
              SECTION
      5.02.

            	 
      	
              Notice
      of Default

            	 
      	
              27

            
	
              SECTION
      5.03.

            	 
      	
              Remedies
      on Default

            	 
      	
              27

            

    

     

    
      
        
        

      

      
        - i
-

        
          

        

      

      
        
        

      

    

     

    
      	
              SECTION
      5.04.

            	 
      	
              Attorneys'
      Fees and Other Expenses

            	 
      	
              27

            
	
              SECTION
      5.05.

            	 
      	
              Application
      of Moneys

            	 
      	
              27

            
	
              SECTION
      5.06.

            	 
      	
              No
      Remedy Exclusive; Waiver; Notice

            	 
      	
              28

            
	
              SECTION
      5.07.

            	 
      	
              Retention
      of Trust's Rights

            	 
      	
              28

            
	 
      	 
      	 
      	 
      	 
      
	
              ARTICLE
      VI

            
	 
      	 
      	 
      	 
      	 
      
	
              MISCELLANEOUS

            
	 
      	 
      	 
      	 
      	 
      
	
              SECTION
      6.01.

            	 
      	
              Notices

            	 
      	
              29

            
	
              SECTION
      6.02.

            	 
      	
              Binding
      Effect

            	 
      	
              29

            
	
              SECTION
      6.03.

            	 
      	
              Severability

            	 
      	
              29

            
	
              SECTION
      6.04.

            	 
      	
              Amendments,
      Supplements and Modifications

            	 
      	
              29

            
	
              SECTION
      6.05.

            	 
      	
              Execution
      in Counterparts

            	 
      	
              30

            
	
              SECTION
      6.06.

            	 
      	
              Applicable
      Law and Regulations

            	 
      	
              30

            
	
              SECTION
      6.07.

            	 
      	
              Consents
      and Approvals

            	 
      	
              30

            
	
              SECTION
      6.08.

            	 
      	
              Captions

            	 
      	
              30

            
	
              SECTION
      6.09.

            	 
      	
              Benefit
      of Loan Agreement; Compliance with Bond Resolution

            	 
      	
              30

            
	
              SECTION
      6.10.

            	 
      	
              Further
      Assurances

            	 
      	
              30

            
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              SCHEDULE
      A

            	 
      	
              Certain
      Additional Loan Agreement Provisions

            	 
      	 
      S-1
	 
      	 
      	 
      	 
      	 
      
	
              EXHIBIT
      A

            	 
      	
              (1)
      Description of Project and Environmental Infrastructure
    System

            	 
      	
              A-1-1

            
	 
      	 
      	
              (2)
      Description of Loan

            	 
      	
              A-2-1

            
	 
      	 
      	 
      	 
      	 
      
	
              EXHIBIT
      B

            	 
      	
              Basis
      for Determination of Allowable Project Costs

            	 
      	
              B-1

            
	 
      	 
      	 
      	 
      	 
      
	
              EXHIBIT
      C

            	 
      	
              Estimated
      Disbursement Schedule

            	 
      	
              C-1

            
	 
      	 
      	 
      	 
      	 
      
	
              EXHIBIT
      D

            	 
      	
              Specimen
      Borrower Bond

            	 
      	
              D-1

            
	 
      	 
      	 
      	 
      	 
      
	
              EXHIBIT
      E

            	 
      	
              Opinions
      of Borrower's Bond and General Counsels

            	 
      	
              E-1

            
	 
      	 
      	 
      	 
      	 
      
	
              EXHIBIT
      F

            	 
      	
              Additional
      Covenants and Requirements

            	 
      	
              F-1

            
	 
      	 
      	 
      	 
      	 
      
	
              EXHIBIT
      G

            	 
      	
              General
      Administrative Requirements for the State

            	 
      	 
      
	 
      	 
      	
              Environmental
      Infrastructure Financing Program

            	 
      	
              G-1

            
	 
      	 
      	 
      	 
      	 
      
	
              EXHIBIT
      H

            	 
      	
              Form
      of Continuing Disclosure Agreement

            	 
      	
              H-1

            

    

     

    
      
        
           

        

        
          - ii
-

          
            

          

        

        
           

        

      

    

    

    NEW
JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST LOAN AGREEMENT

    

    THIS LOAN AGREEMENT, made and
entered into as of this November 1, 2007, by and between the NEW JERSEY
ENVIRONMENTAL INFRASTRUCTURE TRUST, a public body corporate and politic with
corporate succession, and the Borrower (capitalized terms used in this Loan
Agreement shall have, unless the context otherwise requires, the meanings set
forth in said Section 1.01);

    

    WITNESSETH
THAT:

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    ARTICLE
I

    

    DEFINITIONS

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      

    

    

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

    

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

    

    “Department” means the New
Jersey Department of Environmental Protection.

    

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

    

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

    

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

    

    “Excess Project Funds” shall
have the meaning set forth in Section 3.03A hereof.

    

    "Fund Loan" means the loan
made to the Borrower by the State, acting by and through the Department,
pursuant to the Fund Loan Agreement dated as of November 1, 2007 by and between
the Borrower and the State, acting by and through the Department, to finance or
refinance a portion of the Costs of the Project.

    

    "Fund Loan Agreement" means
the loan agreement dated as of November 1, 2007 by and between the Borrower and
the State, acting by and through the Department, regarding the terms and
conditions of the Fund Loan.

    

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

    

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

    

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

    

    
      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

    

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

        
          -4-

          
            

          

        

        
           

        

      

    

    

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

    

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

    

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

    

    "State" means the State of New
Jersey.

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

        
          -5-

          
            

          

        

        
           

        

      

    

    

    ARTICLE
II

    

    REPRESENTATIONS
AND COVENANTS OF BORROWER

    

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

    

    (a)           Organization and
Authority.

    

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

    

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

    

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

    

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

    

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

     

    
      
        
          
             

          

          
            -6-

            
              

            

          

          
             

          

        

      

    

     

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

     

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

    

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

    

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

    
      

      
        
          
             

          

          
            -7-

            
              

            

          

          
             

          

        

      

    

     

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

     

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

    

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

    

    
      
        
           

        

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

    

    (g)           Compliance with
Law.  The Borrower:

    

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

    

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

    

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

    

    
      
        
           

        

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

    

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

    

    SECTION
2.02.  Particular Covenants of Borrower.

    

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

    

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

    

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

    
       

      
        
          
             

          

          
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    Resolution
are and will be free and clear of any pledge, lien, charge or encumbrance
thereon or with respect thereto prior to, or of equal rank with, the Borrower
Bond, and all corporate or other action on the part of the Borrower to that end
has been and will be duly and validly taken.

     

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

    

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

    

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

    

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

    

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

    

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

    

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

    
      

      
        
          
             

          

          
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    inclusive,
of the Code, or (B) such proceeds of the Trust Bonds will be used for
refinancing of indebtedness that was used to pay Costs of the Borrower's Project
or to reimburse the Borrower for expenditures with respect to Costs of the
Borrower's Project paid by the Borrower prior to the issuance of such
indebtedness in accordance with a reimbursement allocation for such expenditures
that complies with the requirements of Treasury Regulations
§1.150-2.

     

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    (xii)           Based
upon all of the objective facts and circumstances in existence on the date of
issuance of the Trust Bonds used to finance the Project, (A) within six months
of the date of issuance of the Trust Bonds used to finance the Project, the
Borrower will 

    
      

      
        
          
             

          

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

     

    

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

    

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

    

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

    

    (h)           Records and
Accounts.

    

    (i)           
The Borrower shall keep accurate records and accounts for its Environmental
Infrastructure System (the "System Records") separate and distinct from its
other records and accounts (the "General Records").  Such System
Records shall be audited annually by an independent certified public accountant,
which may be part of the annual audit of the General Records of the
Borrower.  Such System Records and General 

    
      

      
        
          
             

          

          
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    Records
shall be made available for inspection by the Trust at any reasonable time upon
prior written notice, and a copy of such annual audit(s) therefor, including all
written comments and recommendations of such accountant, shall be furnished to
the Trust within 150 days of the close of the fiscal year being so audited or,
with the consent of the Trust, such additional period as may be provided by
law.

     

    

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

    

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

    
      

      
        
          
             

          

          
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    to the
Trust on account of rebate equals the "rebate amount", (2) the calculations
supporting the "rebate amount" attributable to any "nonpurpose investment" made
by the Borrower allocated to "gross proceeds" of the Trust Bonds, and (3) any
other information requested by the Trust relating to compliance with Section 148
of the Code (e.g., information related to any "nonpurpose investment" of the
Borrower for purposes of application of the "universal cap").

     

    

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

    

    (v)       
    From time to time as directed by the Trust, the Borrower
shall provide to the Trust a written report demonstrating compliance by the
Borrower with the provisions of Section 2.02(f) of this Loan Agreement, each
such written report to be submitted by the Borrower to the Trust in the form of
a full and complete written response to a questionnaire provided by the Trust to
the Borrower.  Each such questionnaire shall be provided by the Trust
to the Borrower not less than fourteen (14) days prior to the date established
by the Trust for receipt from the Borrower of the full and complete written
response to the questionnaire.

    

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

    

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

    

    
      
        
           

        

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

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

    

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

    

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

    

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

    

    (q)           Additional Covenants and
Requirements.  (i) No later than the Loan Closing and, if
necessary, in connection with the Trust's issuance of the Trust Bonds or the
making of the Loan, additional covenants and requirements have been included in
Exhibit F hereto and made a part hereof.  Such covenants and
requirements may include, but need not be limited to, the maintenance of
specified levels of Environmental Infrastructure System rates, the issuance of

    
      

      
        
          
             

          

          
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    additional
debt of the Borrower, the use by or on behalf of the Borrower of certain
proceeds of the Trust Bonds as such use relates to the exclusion from gross
income for federal income tax purposes of the interest on any Trust Bonds, the
transfer of revenues and receipts from the Borrower's Environmental
Infrastructure System, compliance with Rule 15c2-12, Rule 10b-5 and any other
applicable federal or State securities laws, and matters in connection with the
appointment of the Trustee under the Bond Resolution and any successors
thereto.  The Borrower hereby agrees to observe and comply with each
such additional covenant and requirement, if any, included in Exhibit F
hereto.  (ii) Additional defined terms, covenants, representations and
requirements have been included in Schedule A attached
hereto and made a part hereof.  Such additional defined terms,
covenants, representations and requirements are incorporated in this Loan
Agreement by reference thereto as if set forth in full herein and the Borrower
hereby agrees to observe and comply with each such additional term, covenant,
representation and requirement included in Schedule A as if the
same were set forth in its entirety where reference thereto is made in this Loan
Agreement.

     

    ARTICLE
III

    

    LOAN
TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

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

    

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

    

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

    

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

    

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

    

    SECTION 3.03A.  Amounts on
Deposit in Project Loan Account after Completion of Draw
Schedule.  (a) If, on the date which is one hundred eighty
(180) days following the final date for which a disbursement of Loan proceeds is
scheduled to be made pursuant to Exhibit C hereto, any amounts remain on deposit
in the Borrower’s Project Loan Account, the Borrower must provide to the Trust
and the Department a certificate of an Authorized Officer of the Borrower (i)
stating that the Borrower has not yet completed the Project, (ii) stating that
the Borrower intends to complete the Project, (iii) setting forth the amount of
remaining Loan Proceeds required to complete the Project, and (iv) providing a
revised draw schedule, in a form similar to Exhibit C hereto and approved by the
Department.

    

    (b)           If,
on the date which is one hundred eighty (180) days following the final date for
which a disbursement of Loan proceeds is scheduled to be made pursuant to a
revised draw schedule certified to the Trust and the Department in accordance
with Section 3.03A(a) hereof, any amounts remain on deposit in the Borrower’s
Project Loan Account, the Borrower must provide to the Trust and the Department
a certificate of an Authorized Officer of the Borrower (i) stating that the
Borrower has not yet completed the Project, (ii) stating that the Borrower
intends

    
      

      
        
          
             

          

          
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    to
complete the Project, (iii) setting forth the amount of remaining Loan Proceeds
required to complete the Project, and (iv) providing a revised draw schedule, in
a form similar to Exhibit C hereto and approved by the Department.

     

    (c)           If
the Borrower fails to provide the certificate described in paragraphs (a) or (b)
of this Section 3.03A, when due, or if such certificate states that the Borrower
does not require all or any portion of the amount on deposit in the Project Loan
Account to complete the Project, such amounts on deposit in the Project Loan
Account which are not certified by an Authorized Officer of the Borrower as
being required to complete the Project (“Excess Project Funds”) shall be applied
as follows:

    

    (i)          
  If the Excess Project Funds are less than or equal to the greater of
(A) $250,000 or (B) the amount of Loan Repayments due from the Borrower to the
Trust in the next succeeding calendar year, the Excess Project Funds shall be
applied by the Trust toward the Borrower’s obligation to make the Loan
Repayments next coming due; or

    

    (ii)       
    If the Excess Project Funds are greater than the greater
of (A) $250,000 or (B) the amount of Loan Repayments due from the Borrower to
the Trust in the next succeeding calendar year, the Excess Project Funds shall
be applied by the Trust as a prepayment of the Borrower’s Loan Repayments, and
shall be applied to the principal payments (including premium, if any) on the
Loan in inverse order of their maturity.

    

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

    

    The
Borrower acknowledges that payment of the Trust Bonds by the Trust, including
payment from moneys drawn by the Trustee from the Debt Service Reserve Fund (to
the extent the Trust establishes a Debt Service Reserve Fund pursuant to the
Bond Resolution), does not constitute payment of the amounts due under this Loan
Agreement and the Borrower Bond.  If at 

    
      

      
        
          
             

          

          
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    any time
the amount in the Debt Service Reserve Fund shall be less than the Debt Service
Reserve Requirement as the result of any transfer of moneys from the Debt
Service Reserve Fund to the Debt Service Fund (as all such terms are defined in
the Bond Resolution) as the result of a failure by the Borrower to make any
Trust Bond Loan Repayments required hereunder, the Borrower agrees to replenish
(i) such moneys so transferred and (ii) any deficiency arising from losses
incurred in making such transfer as the result of the liquidation by the Trust
of Investment Securities (as defined in the Bond Resolution) acquired as an
investment of moneys in the Debt Service Reserve Fund, by making payments to the
Trust in equal monthly installments for the lesser of six (6) months or the
remaining term of the Loan at an interest rate to be determined by the Trust
necessary to make up any loss caused by such deficiency.

     

    The
Borrower acknowledges that payment of the Trust Bonds from moneys that were
originally received by the Trustee from repayments by the Borrowers of loans
made to the Borrowers by the State, acting by and through the Department,
pursuant to loan agreements dated as of November 1, 2007 by and between the
Borrowers and the State, acting by and through the Department, to finance or
refinance a portion of the Costs of the Environmental Infrastructure Facilities
of the Borrowers, and which moneys were upon such receipt by the Trustee
deposited in the Trust Bonds Security Account (as defined in the Bond
Resolution), does not constitute payment of the amounts due under this Loan
Agreement and the Borrower Bond.

    

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

    

    SECTION 3.06.  Disclaimer
of Warranties and Indemnification.  (a) The Borrower
acknowledges and agrees that (i) neither the Trust nor the Trustee makes any
warranty or representation, either express or implied, as to the value, design,
condition, merchantability or fitness for particular purpose or fitness for any
use of the Environmental Infrastructure System or the Project or any portions
thereof or any other warranty or representation with respect thereto; (ii) in no
event shall the Trust or the Trustee or their respective agents be liable or
responsible for any incidental, indirect, special or consequential damages in
connection with or arising out of this Loan Agreement or the Project or the
existence, furnishing, functioning or use of the Environmental Infrastructure
System or the Project or any item or products or services provided for in this
Loan Agreement; and (iii) to the fullest extent permitted by law, the Borrower
shall indemnify and hold the Trust and the Trustee harmless against, and the
Borrower shall pay any and all, liability, loss, cost, damage, claim, judgment
or expense of any and all kinds or nature and however arising and imposed by
law, which the Trust and the Trustee may sustain, be subject to or be caused to
incur by reason of any claim, suit or action based upon personal injury, death
or damage to property, whether real, personal or mixed, or upon or arising out
of contracts entered into by the Borrower, the Borrower's ownership of the
Environmental Infrastructure System or the Project, or the acquisition,
construction or installation of the Project.

    

    
      
        
           

        

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

    

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

    

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

    

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

    

    SECTION 3.07.  Option to
Prepay Loan Repayments.  The Borrower may prepay the Trust Bond
Loan Repayments, in whole or in part (but if in part, in the amount of $100,000
or any integral multiple thereof), upon prior written notice to the Trust and
the Trustee not less than ninety (90) days in addition to the number of days'
advance notice to the Trustee required for any optional redemption of the Trust
Bonds, and upon payment by the Borrower to the Trustee of amounts that, together
with investment earnings thereon, will be sufficient to pay the principal amount
of the Trust Bond Loan Repayments to be prepaid plus the Interest Portion
described in clause (ii) of the definition thereof on any such date of
redemption; provided, however, that, with respect to any prepayment other than
those required by Section 3.03A hereof, any such full or partial prepayment may
only be made (i) if the Borrower is not then in arrears on its Fund Loan, (ii)
if the Borrower is contemporaneously making a full or partial prepayment of the
Fund Loan such that, after the prepayment of the Loan and the Fund Loan, the
Trust, in its sole discretion, 

    
      

      
        
          
             

          

          
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    determines
that the interests of the owners of the Trust Bonds are not adversely affected
by such prepayments, and (iii) upon the prior written approval of the
Trust.  In addition, if at the time of such prepayment the Trust Bonds
may only be redeemed at the option of the Trust upon payment of a premium, the
Borrower shall add to its prepayment of Trust Bond Loan Repayments an amount, as
determined by the Trust, equal to such premium allocable to the Trust Bonds to
be redeemed as a result of the Borrower's prepayment.  Prepayments
shall be applied first to the Interest Portion that accrues on the portion of
the Loan to be prepaid until such prepayment date as described in clause (ii) of
the definition thereof and then to principal payments (including premium, if
any) on the Loan in inverse order of their maturity.

     

    SECTION 3.08.  Priority of
Loan and Fund Loan.  (a) The Borrower hereby agrees that, to
the extent allowed by law or the Borrower Bond Resolution, any Loan Repayments
then due and payable on the Loan shall be satisfied by the Trustee before any
loan repayments on the Borrower's Fund Loan shall be satisfied by the
Trustee.  The Borrower agrees not to interfere with any such action by
the Trustee.

    

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

    

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

    

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

    

    
      
        
           

        

        
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    ARTICLE
IV

    

    ASSIGNMENT
OF LOAN AGREEMENT AND BORROWER BOND

    

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

    

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

    

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

    

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

    

    
      
        
           

        

        
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    ARTICLE
V

    

    EVENTS
OF DEFAULT AND REMEDIES

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

        
          -26-

          
            

          

        

        
           

        

      

    

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

        
          -27-

          
            

          

        

        
           

        

      

    

    

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

    

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

    

    
      
        
           

        

        
          -28-

          
            

          

        

        
           

        

      

    

    

    ARTICLE
VI

    

    MISCELLANEOUS

    

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

    

    (a)           Trust:

    

    New
Jersey Environmental Infrastructure Trust

    P.O. Box
440

    Trenton,
New Jersey  08625

    Attention:  Executive
Director

    

    
      	
               
      

            	
              (b)

            	
              Trustee:

            

    

    

    U.S. Bank
National Association

    21 South
Street, 3rd
Floor

    Morristown,
New Jersey  07960

    Attention:  Corporate
Trust Department

    

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

    

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

    

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

    

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

    
      

      
        
          
             

          

          
            -29-

            
              

            

          

          
             

          

        

      

    

     

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

     

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

        
          -30-

          
            

          

        

        
           

        

      

    

    

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

    

    
      	 
      	 
      	NEW
      JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	
              [SEAL]

            	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	
              By:

            	
              /s/ Robert A. Briant, Sr.

            	 
	
              ATTEST:

            	 
      	 
      	
                   
      Robert A. Briant, Sr.

            	 
	 
      	 
      	 
      	
                   
      Chairman

            	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	
              /s/ Gerald T. Keenan

            	 
      	 
      	 
      	 
	
              Gerald
      T. Keenan

            	 
      	 
      	 
      	 
	
              Secretary

            	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	
              MIDDLESEX
      WATER COMPANY

            	 
	
              [SEAL]

            	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	
              By:

            	
              /s/ Dennis W. Doll

            	 
	
              ATTEST:

            	 
      	 
      	
                   
      Dennis W. Doll

            	 
	 
      	 
      	 
      	
                   
      President and Chief Executive Officer

            	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	
              /s/ Kenneth J. Quinn

            	 
      	 
      	 
      	 
	
              Kenneth
      J. Quinn

            	 
      	 
      	 
      	 
	
              Vice
      President, General Counsel

            	 
      	 
      	 
      	 
	
              Secretary
      and Treasurer

            	 
      	 
      	 
      	 

    

     

    [Signature Page]

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    SCHEDULE
A

    

    Certain Additional Loan
Agreement Provisions

    

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

    

    Additional
Definitions:

    

    “Borrower” means Middlesex
Water Company, a corporation duly created and validly existing under the laws of
the State of New Jersey.

    

    “Bond Resolution” means the
“Environmental Infrastructure Trust Bond Resolution, Series 2007A”, as adopted
by the Board of Directors of the Trust on or about September 18, 2007,
authorizing the issuance of the Trust Bonds, and all further amendments and
supplements thereto adopted in accordance with the provisions
thereof.

    

    “Borrower Bond Resolution”
means the indenture of the Borrower entitled “INDENTURE OF MORTGAGE” dated as of
April 1, 1927, as amended and supplemented from time to time, in particular by a
supplemental indenture detailing the terms of the Borrower Bond dated as of
October 15, 2007 and entitled “THIRTY-FIFTH SUPPLEMENTAL INDENTURE”, pursuant to
which the Borrower Bond has been issued.

    

    “Interest Payment Dates” means
February 1 and August 1 of each year, commencing on August 1, 2008.

    

    “Loan” means the loan made by
the Trust to the Borrower to finance or refinance a portion of the Cost of the
Project pursuant to this Loan Agreement.  For all purposes of this
Loan Agreement, the amount of the Loan at any time shall be the initial
aggregate principal amount of the Borrower Bond (which amount equals the amount
actually deposited in the Project Loan Account at the Loan Closing plus the
Borrower's allocable share of certain costs of issuance and underwriter's
discount for all Trust Bonds issued to finance the Loan, less any amount of such
principal amount that has been repaid by the Borrower under this Loan Agreement
and less any adjustment made pursuant to the provisions of the Bond Resolution,
including, without limitation, Section 5.02(4) thereof, N.J.A.C. 7:22-4.26 and
the appropriations act of the State Legislature authorizing the expenditure of
Trust Bond proceeds to finance a portion of the Cost of the
Project.

    

    “Principal Payment Dates”
means August 1 of each year, commencing on August 1, 2009.

    

    
      
        
           

        

        
          S-1

          
            

          

        

        
           

        

      

    

    

    SECTION
2.02(e)

    

    Disposition of Environmental
Infrastructure System.  The Borrower shall not permit the
disposition of all or substantially all of its Environmental Infrastructure
System, directly or indirectly, including, without limitation, by means of sale,
lease, abandonment, sale of stock, statutory merger or otherwise (collectively,
a "Disposition"), except on ninety (90) days' prior written notice to the Trust,
and, in any event, shall not permit a Disposition unless the following
conditions are met:  (i) the Borrower shall, in accordance with
Section 4.02 hereof, assign this Loan Agreement and the Borrower Bond and its
rights and interests hereunder and thereunder to the purchaser or lessee of the
Environmental Infrastructure System, and such purchaser or lessee shall assume
all duties, covenants, obligations and agreements of the Borrower under this
Loan Agreement and the Borrower Bond; and (ii) the Trust shall by appropriate
action determine, in its sole discretion, that such sale, lease, abandonment or
other disposition will not adversely affect (A) the Trust's ability to meet its
duties, covenants, obligations and agreements under the Bond Resolution, (B) the
value of this Loan Agreement or the Borrower Bond as security for the payment of
Trust Bonds and the interest thereon, or (C) the excludability from gross income
for federal income tax purposes of the interest on Trust Bonds then outstanding
or that could be issued in the future.

    

    SECTION
2.02(f)(x)

    

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

    

    
      
        
           

        

        
          S-2

          
            

          

        

        
           

        

      

    

    

    Middlesex
Water Company

    1225001-010

    

    

    EXHIBIT
A-1

    

    Description of Project and
Environmental Infrastructure System

    

    
      	
              1)

            	
              Name
      and Address of Local Unit:

            

    

    

    Middlesex
Water Company

    1500
Ronson Road

    Iselin,
New Jersey 08830-0452

    

    Attention:
Ronald F. Williams P.E. Vice President - Operations

    

    
      	
              2)

            	
              Description
      of the Project:

            

    

    

    The
proposed project will involve cleaning/relining and spot replacement of water
mains, hydrants, service lines, and valves.  Approximately forty five
thousand  feet of 4, 6, 8, 10 and 12-inch diameter water mains will be
relined.  The project will occur in the City of South Amboy, and
Woodbridge Townships.

    

    
      	
              3)

            	
              Description
      of the Water Supply System:

            

    

    

    The
Middlesex Water Company is an investor-owned water utility that provides water
service to retail customers primarily in eastern Middlesex
County.  Water services are now furnished to approximately 58,000
retail customers located in an area of approximately 55 square miles of New
Jersey in Woodbridge Township, the Boroughs of Metuchen and Carteret, portions
of Edison Township and the Borough of South Plainfield and the City of South
Amboy in Middlesex County, and a portion of the Township of Clark in Union
County.

    

    The
Middlesex Water Company obtains water from both surface and groundwater sources;
however, the principal source of supply is the Delaware and Raritan Canal, owned
by the State of New Jersey and operated as a water resource by the New Jersey
Water Supply Authority.

     

    
      
        
           

        

        
          A-1-1

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
A-2

    

    Description of
Loan

    

    See
Schedule A-2 to Specimen Borrower Bond (Exhibit D hereto)

     

    
      
        
           

        

        
          A-2-1

          
            

          

        

        
           

        

      

    

    

    Middlesex
Water Company

    1225001-010

    

    

    EXHIBIT
B

    

    Basis for Determination of
Allowable Project Costs

    

    The
determination of the costs allowable for assistance from the New Jersey
Environmental Infrastructure Financing Program is presented below.

    

    
      	
              Cost
      Classification

            	 	
              Application
      Amount

            	 	 	
              Allowable
      Costs

            	 
	
              1.  Administrative
      Expenses

            	 	$	89,100	 	 	$	89,100	 
	
              2.  Other
      Costs

            	 	 	0	 	 	 	0	 
	
              3.  Engineering
      Fees

            	 	 	160,000	 	 	 	160,000	 
	
              4.  Building
      Costs

            	 	 	2,970,000	 	 	 	2,970,000	 
	
              5.  Contingencies

            	 	 	148,500	 	 	 	148,500	 
	
              6.  Allowance
      for Planning   and design

            	 	 	132,400	 	 	 	132,400	 
	
              7.  Sub-total

            	 	 	3,500,000	 	 	 	3,500,000	 
	
              8.  DEP
      Fee

            	 	 	 	 	 	 	70,000	 
	
              9.  Total
      Project Costs

            	 	 	 	 	 	$	3,570,000	 

    

    

    As a
result of the review by the New Jersey Department of Environmental Protection,
various line items may have been revised resulting in a change of the allowable
costs for this project. The basis for the determination of the allowable costs
is as follows:

    

    
      	
              1.

            	
              Administrative
      Expenses

            

    

    

    The total
amount requested on the application was $89,100.  The amount requested
is for water main cleaning/relining.  The allowable administrative
expenses are authorized to be three percent of the allowable building costs.
Therefore, the total amount for this line item is $2,970,000 x 0.03 =
$89,100.

    

    Allowable
Administrative Expenses are $89,100.

    

    
      	
              3.

            	
              Engineering
      Fees

            

    

    

    The
amount requested for this line item on the application was
$160,000.

    This
amount is for engineering services for this project and the full amount
is

    allowable.

    

    Allowable
Engineering Fees are $160,000.

     

    
      
        
           

        

        
          B-1

          
            

          

        

        
           

        

      

    

     

    Middlesex
Water Company

    1225001-010

    
 

    
      	
              4.

            	
              Building
      Costs

            

    

     

    The total
amount requested for this line item was $2,970,000. The allowable cost analysis
(as per N.J.A.C. 7:22-5.8) has determined that the entire amount requested for
this line item is allowable. Therefore, the Allowable Cost Ratio (ACR) is one
(1.0). In addition the project does not provide any reserve capacity. Therefore,
the Reserve Capacity Cost Ratio (RCCR) is one (1.0). Thus, the entire requested
amount is allowable.

     

    Allowable Building Costs
are $2,970,000.

     

    
      	
              5.

            	
              Contingencies

            

    

     

    The total
amount requested on the application was $148,500. The allowable amount for this
line item is five percent of the allowable building costs. Therefore, the total
allowable cost for this line item is $2,970,000 x 0.05 = $148,500 .

     

    Allowable
Contingencies are $148,500.

     

    
      	
              6.

            	
              Allowance
      for Planning and Design

            

    

     

    The total
amount requested for this line item was $132,400 .  The allowable
amount for this line item based on an allowable building cost
is:  $250,000+($2,970,000 - $1,000,000) x 0.12= $486,400. However, the
applicant has requested  $132,400 for this line item.

     

    Allowance
for Planning and Design for this project is $132,400.

     

    
      	
              7.

            	
              Sub-total

            

    

     

    The
subtotal for project costs applied for is 3,500,000. The actual cost was
adjusted to  $3,500,000.

     

    Therefore, the Sub-total
is $3,500,000.

     

    
      	
              8.

            	
              DEP
      Fee

            

    

     

    DEP Fee = $3,500,000 x
2%
= $70,000

     

    This item
represents the DEP Loan Surcharge or Loan Origination Fee imposed by DEP as a
portion of the cost of the project of the borrower.  This DEP Loan
Surcharge or Loan Origination Fee is a portion of the cost of the project that
has been incurred for engineering and environmental services provided by DEP
for

     

    
      
        
           

        

        
          B-2

          
            

          

        

        
           

        

      

    

     

    Middlesex
Water Company

    1225001-010

    
 

    the
borrower in connection with, and as a condition precedent to, the inclusion
of

    the
project of the borrower in the 2007 Financing Program of the
Trust.  As a portion of the cost of the borrower’s project that
represents a condition precedent to the inclusion of the borrower’s project in
the 2007 Financing Program of the

    Trust,
the DEP Loan Surcharge or Loan Origination Fee represents a program expense of
the 2007 Financing Program of the Trust and will be financed for the borrower as
part of the Trust loan made by the Trust to the borrower from the proceeds of
the Trust bonds, the Trust shall direct the trustee for the Trust bonds to
transfer to DEP from the Project Fund the DEP Loan Surcharge or Loan Origination
Fee allocable to the borrower.  The DEP’s authority to assess
a  Loan Surcharge or Loan Origination Fee was established pursuant to
P.L. 2002, c.34 approved on July 1, 2002.

     

    
      	
              9.

            	
              Total
      Project Costs:

            

    

     

    The total
project costs are $3,570,000

     

    I.   Disbursement
to Borrower is: $3,500,000.

     

                         
Fund Share is $1,750,000.

     

                         
Trust Share is $1,750,000.

     

    II.  Disbursement
to DEP is $70,000.

     

    
      
        
           

        

        
          B-3

          
            

          

        

        
           

        

      

    

     

    Middlesex
Water Company

    1225001-010

    

    EXHIBIT
C

    

    Estimated Disbursement
Schedule

    

    The
following is a schedule of the estimated disbursements for this loan.
Disbursements to the project sponsor for any given month shall not exceed the
amounts indicated below plus any undisbursed amount from the previous
months.

    

    
      	
              Year

            	
              Month

            	 	
              Fund
      Share

              Borrower

              Disbursement

            	 	 	
              Trust
      Share

              Borrower

              Disbursement

            	 	 	
              Trust
      Share

              DEP

              Disbursement

            	 	 	
              Total

            	 
	
              2007

            	
              November

            	 	$	0	 	 	$	0	 	 	$	*70,000	 	 	$	*70,000	 
	 
      	
              November

            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
              December

            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              2008

            	
              January

            	 	 	0	 	 	 	0	 	 	 	 	 	 	 	0	 
	 
      	
              February

            	 	 	0	 	 	 	0	 	 	 	 	 	 	 	0	 
	 
      	
              March

            	 	 	262,500	 	 	 	262,500	 	 	 	 	 	 	 	525,000	 
	 
      	
              April

            	 	 	225,000	 	 	 	225,000	 	 	 	 	 	 	 	450,000	 
	 
      	
              May

            	 	 	275,000	 	 	 	275,000	 	 	 	 	 	 	 	550,000	 
	 
      	
              June

            	 	 	275,000	 	 	 	275,000	 	 	 	 	 	 	 	550,000	 
	 
      	
              July

            	 	 	225,000	 	 	 	225,000	 	 	 	 	 	 	 	450,000	 
	 
      	
              August

            	 	 	300,000	 	 	 	300,000	 	 	 	 	 	 	 	600,000	 
	 
      	
              September

            	 	 	187,500	 	 	 	187,500	 	 	 	 	 	 	 	375,000	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
              TOTAL

            	 	$	1,750,000	 	 	$	1,750,000	 	 	$	*70,000	 	 	$	3,570,000	 

    

     

    
 

    *This is
the DEP loan origination fee.  No action is required on the part of
the borrower.

    The trust
will make a single transfer to DEP, through the Trust’s Trustee, on behalf of
all of the Borrowers in 2007 Financing Program.

     

    
      
        
           

        

        
          C-1

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
D

    

    Specimen Borrower
Bond

    

    
      
        
           

        

        
          D-1

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
E

    

    Opinions of Borrower's Bond
and General Counsels

    

    
      
        
           

        

        
          E-1

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
F

    

    Additional Covenants and
Requirements

    

    None.

    

    
      
        
           

        

        
          F-1

          
            

          

        

        
           

        

      

    

    

    Middlesex
Water Company

    1225001-010

    

    EXHIBIT
G

    

    General
Administrative Requirements for the

    State Environmental
Infrastructure Financing Program

    

    

    General Administrative and
Special Requirements

    

    The
following General Administrative Requirements are applicable to this Loan. These
requirements do not limit, or otherwise alter, the project sponsor’s obligations
under the Safe Drinking Water Act and its amendments, the New Jersey Water
Pollution Control Act, the State rules under N.J.A.C. 7:22, the
Fund and Trust Loan Agreements, or the Special Requirements.  The
Special Requirements specific to this project are found in this Exhibit after
the listing of General Administrative Requirements.

    

    
      	
              1.

            	
              Operation and
      Maintenance Manual (O&M
Manual):

            

    

    

    During
construction (i.e., prior to initiation of operation), the project sponsor shall
certify to the Trust, in the case of a Trust Loan, and to the New Jersey
Department of Environmental Protection (Department), in the case of a Fund Loan,
that a final Plan of Operation, and an O&M Manual have been developed for
the project.

    

    
      	
              2.

            	
              Project
      Performance:

            

    

    

    The
project sponsor shall comply with the project performance provisions of N.J.A.C. 7:22-3.30
and 7:22-4.30.  As a minimum, unless further specified, the project
performance standards shall consist of the effluent discharge standards in the
NJPDES permit (if applicable) and the design criteria in the Department approved
Engineer’s Technical Design Report for the project.

    

    
      	
              3.

            	
              Flood
      Insurance:

            

    

    

    The
project sponsor shall acquire or have the construction contractor acquire, as
appropriate flood insurance made available under the National Flood
Insurance

    Act of
1968, as amended.  Insurance coverage shall begin with the period
of

    construction
and continue for the entire useful life of the facility.  The
insurance shall be in an amount at least equal to the allowable improvements or
the maximum limit of coverage made available to the project sponsor under the
National Flood Insurance Act, whichever is less.  The project sponsor
must comply with this requirement prior to the release of the initial payment
for construction work.

    

    
      
        
           

        

        
          G-1

          
            

          

        

        
           

        

      

    

    

    Middlesex
Water Company

    1225001-010

    

    
      	
              4.

            	
              Audit:

            

    

    

    The
project sponsor shall have an annual financial audit performed if the project
sponsor expended $500,000 or more in State and/or Federal financial assistance
during the project sponsor’s fiscal year. The audit shall be performed in
accordance with the Single Audit Act, Federal OMB Circular No. A-133, and State
Policy OMB Circular 04-04-OMB. Copies of all audit reports must be submitted to
the New Jersey Department of Environmental Protection, Office of Audit, P.O. Box
402, Trenton, New Jersey 08625.

    

    If the
project sponsor expended less than $500,000 in State and/or Federal financial
assistance within their fiscal year, but expend $100,000 or more in State and/or
Federal financial assistance within their fiscal year, the project sponsor shall
have either a financial statement audit performed in accordance with Government
Auditing Standards (Yellow Book) or a program-specific audit performed in
accordance with the Act, Amendments, OMB Circular No. A-133 Revised and State
policy.

    

    Program-specific
audits in accordance with OMB Circular No. A-133 Revised can be elected when a
project sponsor expends Federal or State financial assistance under only one
Federal or State program and the Federal or State program's laws, regulations,
or grant agreements do not require a financial statement audit of the
grantee.

    

    

    
      	
              5.

            	
              Socially and
      Economically Disadvantaged Individuals Utilization
      Plan:

            

    

    

    The
project sponsor shall ensure that the contractor provides a Socially and
Economically Disadvantaged Individuals (SED) Utilization Plan in accordance with
N.J.A.C.
7:22-9.1 et seq. which outlines the entire contract work, each significant
segment of the contract on which SEDs will or may participate and a description
of how SEDs will be contracted.  This plan shall be submitted no later
than 30 days after the contract award.

    

    
      
        
           

        

        
          G-2

          
            

          

        

        
           

        

      

    

    

    Middlesex
Water Company

    1225001-010

    

    SPECIAL
REQUIREMENTS

    Project
Schedule:

     

    The
project sponsor unit shall expeditiously initiate and complete the project in
accordance with the project schedule, which was submitted as part of the loan
application and is repeated below.  Failure to promptly initiate and
complete the project may result in the imposition of sanctions under N.J.A.C.  7:22-3.40
through 3.44 and N.J.A.C.  7:22-4.40 through 4.44.  In
addition, failure to promptly award all sub agreement(s) for building the
project within 12 months of the date of this loan may result in limitation of
allowable costs as provided by N.J.A.C.
7:22-5.4(d) 5.This limitation on allowable costs incurred under contracts
awarded after 12 months from the date of this loan are unallowable unless a
special extension has been granted by the Department, in the case of a Fund
Loan, and the Trust, in the case of a Trust Loan.

     

    
      	
               EVENT

            	
              DATE

            
	
               
      

            	 
      
	
              ADVERTISEMENT:

            	 
      
	
               
      

            	 
      
	
              Clean
      and Line Water Mains

            	
              December
      19, 2007

            
	 	 
	
              BID
      RECEIPT:

            	 
      
	
               
      

            	
               
      

            
	
              Clean
      and Line Water Mains

            	
              January
      19, 2008

            
	
               
      

            	
               
      

            
	
              AWARD:

            	
               
      

            
	
               
      

            	
               
      

            
	
              Clean
      and Line Water Mains

            	
              February
      19, 2008

            
	
               
      

            	
               
      

            
	
              ISSUANCE
      OF NOTICE TO PROCCED:

            	
               
      

            
	
               
      

            	
               
      

            
	
              Clean
      and Line Water Mains

            	
              March
      27, 2008

            
	
               
      

            	
               
      

            
	
              COMPLETION
      OF CONSTRUCTION:

            	
               
      

            
	
               
      

            	
               
      

            
	
               Clean
      and Line Water Mains

            	
              September
      27, 2008

            
	
               
      

            	
               
      

            
	
              INITATION
      OF OPERATION:

            	
               
      

            
	
               
      

            	
               
      

            
	
               Clean
      and Line Water Mains

            	
              September
      27, 2008

            
	
               
      

            	
               
      

            
	
              CERTIFICATION
      OF PROJECT:

            	
               
      

            
	
               
      

            	
               
      

            
	
              Clean
      and Line Water Mains

            	
              September
      27, 2009

            

    

     

    
      
        
           

        

        
          G-3

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
H

    

    Form of Continuing
Disclosure Agreement

    

    
      
        
           

        

        
          H-1

          
            

          

        

        
           

        

      

    

    

    
      
        

      
CONTINUING DISCLOSURE AGREEMENT

    

    BY
AND AMONG

    

    [NAME
OF BORROWER]

    

    AND

    

    [NAME
OF TRUSTEE], as Trustee

    

    AND

    

    NEW
JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST

    

    

    Dated
as of [DATE] 

      
        

      

    

     

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    CONTINUING
DISCLOSURE AGREEMENT

    

    

    THIS CONTINUING DISCLOSURE
AGREEMENT (this "Agreement"), made and entered into as of [DATE], by and
among [NAME OF BORROWER] (the "Borrower"), a corporation duly created and
validly existing under the laws of the State of New Jersey (the "State"), [NAME
OF TRUSTEE] (the "Trustee"), a [national] [state] banking association duly
organized and validly existing under the laws of the [United States of America]
[State], and NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST (the "Trust"), a
public body corporate and politic with corporate succession duly created and
validly existing under the laws of the State.

    

    W
I T N E S S E T H:

    

    WHEREAS, the Trust, duly
created and validly existing under and by virtue of the "New Jersey
Environmental Infrastructure Trust Act", constituting Chapter 334 of the
Pamphlet Laws of 1985 of the State (codified at N.J.S.A. 58:11B-1 et seq.), as the same may
from time to time be amended and supplemented (the "Act"), in accordance with
and pursuant to (i) the Act, (ii) the "Environmental Infrastructure Bond
Resolution, Series ____", as adopted by the Board of Directors of the Trust on
[DATE] (the "Resolution"), and (iii) a financial plan approved by the State
Legislature in accordance with Section 23 of the Act, will issue its
Environmental Infrastructure Bonds, Series ____ (together with certain
additional series of bonds to be issued by the Trust for future programs in
which the Borrower participates (as set forth in Schedule A to be attached
hereto by the Trustee (or any other fiduciary acting in such capacity) in the
year of such issuance), the "Bonds") for the purpose of, inter alia, making a loan to
the Borrower from the proceeds of the Bonds to finance a portion of the cost of
an environmental infrastructure system project (the "Loan"), pursuant to the
terms and provisions of that certain Loan Agreement by and between the Trust and
the Borrower dated as of [DATE] (the "Trust Loan Agreement") (all capitalized
terms used in this Agreement but not defined herein shall, unless the context
otherwise requires, have the meanings ascribed to such terms in the Trust Loan
Agreement);

    

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

    

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

    

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

    

    WHEREAS, in accordance with
the Wastewater Treatment Bond Act of 1985, P.L. 1985, c. 329, and the
regulations promulgated thereunder, the Borrower has been awarded a Fund Loan
for a portion of the Cost of the Project;

    

    
      
        
           

        

        
          - i
-

          
            

          

        

        
           

        

      

    

     

    WHEREAS, the Borrower, in
accordance with, as applicable, the Act, the Regulations and the "New Jersey
Business Corporation Act", constituting Chapter 263 of the Pamphlet Laws of 1968
of the State (codified at N.J.S.A. 14A:1-1 et seq.), as the same may
from time to time be amended and supplemented, will issue a borrower bond to the
Trust evidencing the Loan (together with certain additional series of bonds to
be issued by the Borrower for future programs in which the Borrower participates
(as set forth in Schedule B to be attached hereto by the Trustee (or any other
fiduciary acting in such capacity) in the year of such issuance), the "Borrower
Bond") on the date of issuance of the Bonds;

    

    WHEREAS, the Trustee has duly
accepted, as Trustee for the Holders from time to time of the Bonds, the trusts
imposed upon it by the Resolution in connection with the issuance of the
Bonds;

    

    WHEREAS, the Securities and
Exchange Commission (the "SEC"), pursuant to the Securities Exchange Act of
1934, as amended and supplemented (codified as of the date hereof at 15 U.S.C.
77 et seq.) (the
"Securities Exchange Act"), has adopted amendments effective July 3, 1995 to its
Rule 15c2-12 (codified at 17 C.F.R. §240.15c2-12), as the same may be further
amended, supplemented and officially interpreted from time to time or any
successor provision thereto ("Rule 15c2-12"), generally prohibiting a broker,
dealer or municipal securities dealer from purchasing or selling municipal
securities, such as the Bonds, unless such broker, dealer or municipal
securities dealer has reasonably determined that an issuer of municipal
securities or an obligated person has undertaken in a written agreement or
contract for the benefit of holders of such securities to provide certain annual
financial information and operating data and notices of the occurrence of
certain material events to various information repositories;

    

    WHEREAS, the Trust has
determined, in its sole discretion, pursuant to criteria set forth in the
Resolution, the Notice of Sale dated [DATE] (the "Notice of Sale"), the
Preliminary Official Statement dated [DATE] (the "Preliminary Official
Statement") and the Final Official Statement dated [DATE] (the "Final Official
Statement"), that the Borrower is a material "obligated person" with respect to
the Bonds within the meaning and for the purposes of Rule 15c2-12 and, in order
to enable a "participating underwriter" (as such term is defined in Rule
15c2-12) to purchase the Bonds, is therefore required to cause the delivery of
the information described in this Agreement to the municipal securities
marketplace for the period of time specified in this Agreement;

    

    WHEREAS, on [DATE], the Trust
accepted the bid of [NAME OF PURCHASER], on behalf of itself and each of the
original underwriters for the Bonds (each a "Participating Underwriter"), for
the purchase of the Bonds;

    

    WHEREAS, the execution and
delivery of this Agreement have been duly authorized by the Borrower, the
Trustee and the Trust, respectively, and all conditions, acts and things
necessary and required to exist, to have happened or to have been performed
precedent to and in the execution and delivery of this Agreement do exist, have
happened and have been performed in regular form, time and manner;
and

    

    
      
        
           

        

        
          - ii
-

          
            

          

        

        
           

        

      

    

    

    WHEREAS, the Borrower, the
Trustee and the Trust are entering into this Agreement for the benefit of the
Holders of the Bonds.

    

    NOW, THEREFORE, for and in
consideration of the premises and of the mutual representations, covenants and
agreements herein set forth, the Borrower, the Trustee and the Trust, each
binding itself, its successors and its assigns, do mutually promise, covenant
and agree as follows:

    

    
      
        
           

        

        
          - iii
-

          
            

          

        

        
           

        

      

    

    

    ARTICLE
1

    

    DEFINITIONS

    

    Section 1.1.            Terms Defined in
Recitals.  All of the terms defined in the preambles hereof
shall have the respective meanings set forth therein for all purposes of this
Agreement.

    

    Section 1.2.            Additional
Definitions.  The following additional terms shall have the
meanings specified below:

    

    "Annual
Report" means Financial Statements and Operating Data provided at least annually
with respect to the Borrower.

    

    "Bond
Disclosure Event" means any event described in Section 2.6(a) of this
Agreement.

    

    "Bond
Disclosure Event Notice" means the notice to each National Repository or to the
MSRB and the State Depository, if any, as provided in Section 2.6(b) of this
Agreement.

    

    "Bondholder"
or "Holder" or any similar term, when used with reference to the Bonds, means
any person who shall be the registered owner of any outstanding Bonds, including
holders of beneficial interests in the Bonds.

    

    "Borrower
Bond Disclosure Event" means any event described in Section 2.1(c) of this
Agreement.

    

    "Borrower
Bond Disclosure Event Notice" means the notice to the Trust as provided in
Section 2.4(c) of this Agreement.

    

    "Dissemination
Agent" means an entity acting in its capacity as Dissemination Agent under this
Agreement or any successor Dissemination Agent designated in writing by the
Borrower that has filed a written acceptance of such designation.

    

    "Financial
Statements" means the audited financial statements of the Borrower for each
Fiscal Year, including, without limitation, balance sheets, statements of
changes in fund balances and statements of current funds, revenues, expenditures
and other charges or statements that convey similar information.

    

    "Fiscal
Year" means the fiscal year of the Borrower as determined by the Borrower from
time to time pursuant to State law.  As of the date of this Agreement,
the Fiscal Year of the Borrower begins on [MONTH] of each calendar year and
closes on the following [MONTH].

    

    "GAAP"
means generally accepted accounting principles as in effect from time to time in
the United States of America, consistently applied.

    

    "GAAS"
means generally accepted auditing standards as in effect from time to time in
the United States of America, consistently applied.

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    "MSRB"
means the Municipal Securities Rulemaking Board.  The address of the
MSRB as of the date of this Agreement is 1150 18th Street NW, Suite 400,
Washington, DC  20036.

    

    "National
Repository" means a "nationally recognized municipal securities information
repository" within the meaning of Rule 15c2-12.  As of the date of
this Agreement, the National Repositories designated by the SEC in accordance
with Rule 15c2-12 are:

    

    Bloomberg
Municipal Repository

    100
Business Park Drive

    Skillman,
NJ 08558

    Phone:
(609) 279-3225

    Fax:
(609) 279-5962

    http://www.bloomberg.com/markets/municontacts.html

    Email:  Munis@Bloomberg.com

    

    DPC Data
Inc.

    One
Executive Drive

    Fort Lee,
NJ 07024

    Phone:
(201) 346-0701

    Fax:
(201) 947-0107

    http://www.dpcdata.com

    Email:  nrmsir@dpcdata.com

    

    FT
Interactive Data

    Attn:
NRMSIR

    100
William Street, 15th
Floor

    New York,
NY 10038

    Phone:
(212) 771-6999; (800) 689-8466

    Fax:
(212) 771-7390

    http://www.ftid.com

    Email:  NRMSIR@interactivedata.com

    

    Standard
& Poor’s Securities Evaluations, Inc.

    55 Water
Street

    45th
Floor

    New York,
NY 10041

    Phone:
(212) 438-4595

    Fax:
(212) 438-3975

    http://www.jjkenny.com/jjkenny/pser_descrip_data_rep.html

    Email:  nrmsir_repository@sandp.com

    

    "Operating
Data" means certain financial and statistical information of the Borrower, which
for purposes of this Agreement shall include the financial and statistical
information under the headings [TITLES] in Appendix B of the Final Official
Statement, a copy of which Appendix B is attached hereto as Exhibit A.

    

    
      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      

    

    

    "Repository"
means each National Repository and each State Depository, if any.

    

    "State
Depository" means any public or private repository or entity designated by the
State as a state information depository for purposes of Rule
15c2-12.  [As of the date of this Agreement, there is no State
Depository.]

    

    Section 1.3.            Interpretation.  Words
of masculine gender include correlative words of the feminine and neuter
genders.  Unless the context shall otherwise indicate, words importing
the singular include the plural and vice versa, and words importing persons
include corporations, associations, partnerships (including limited
partnerships), trusts, firms and other legal entities, including public bodies,
as well as natural persons.  Articles and Sections referred to by
number mean the corresponding Articles and Sections of this
Agreement.  The terms "hereby", "hereof", "hereto", "herein",
"hereunder" and any similar terms as used in this Agreement refer to this
Agreement as a whole unless otherwise expressly stated.  The headings
of this Agreement are for convenience only and shall not define or limit the
provisions hereof.

    

    
      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

    

    

    ARTICLE
2

    

    CONTINUING
DISCLOSURE COVENANTS AND REPRESENTATIONS

    

    Section 2.1.            Continuing Disclosure Covenants of
Borrower.  The Borrower agrees that it will provide or, if the
Borrower has appointed or engaged a Dissemination Agent, shall cause the
Dissemination Agent to provide:

    

    (a)           Not
later than two hundred twenty-five (225) days after the end of each Fiscal Year,
commencing with the first Fiscal Year of the Borrower ending after January 1,
[YEAR] (which is currently scheduled to end on [DATE]), an Annual Report to each
Repository and to the Trust; provided, that the Financial
Statements of the Borrower may be submitted separately from the balance of the
Annual Report and later than the date required herein for the filing of the
Annual Report if the Financial Statements of the Borrower are not available by
that date, but only if the unaudited financial statements of the Borrower are
included in the Annual Report.

    

    (b)           Not
later than fifteen (15) days prior to the date of each Fiscal Year specified in
Section 2.1(a) hereof, a copy of the Annual Report, complete to the extent
required in Section 2.1(a) hereof, to the Trustee and the Dissemination Agent
(if the Borrower has appointed or engaged a Dissemination Agent).

    

    (c)           In
a timely manner, to the Trust, notice of any of the following events with
respect to the Borrower Bond (each a "Borrower Bond Disclosure Event"), if
material:

    

    
      	
               
      

            	
              (i)

            	
              Principal
      and interest payment delinquencies;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              Non-payment
      related defaults;

            

    

    

    
      	
               
      

            	
              (iii)

            	
              Unscheduled
      draws on debt service reserves reflecting financial
      difficulties;

            

    

    

    
      	
               
      

            	
              (iv)

            	
              Unscheduled
      draws on credit enhancements reflecting financial
      difficulties;

            

    

    

    
      	
               
      

            	
              (v)

            	
              Substitution
      of credit or liquidity providers or their failure to
    perform;

            

    

    

    
      	
               
      

            	
              (vi)

            	
              Adverse
      tax opinions or events affecting the tax-exempt status of the Borrower
      Bond;

            

    

    

    
      	
               
      

            	
              (vii)

            	
              Modifications
      to the rights of the holders of the Borrower
  Bond;

            

    

    

    
      	
               
      

            	
              (viii)

            	
              Borrower
      Bond calls (other than regularly scheduled mandatory sinking fund
      redemptions for which notice of redemption has been given to the holders
      of the Borrower Bond as required pursuant to the provisions of the
      resolution, ordinance or agreement of the Borrower pursuant to which the
      Borrower Bond was issued);

            

    

    

    
      
        
           

        

        
          -4-

          
            

          

        

        
           

        

      

    

    

    
      	
               
      

            	
              (ix)

            	
              Defeasances;

            

    

    

    
      	
               
      

            	
              (x)

            	
              Release,
      substitution or sale of property securing repayment of the Borrower Bond;
      and

            

    

    

    
      	
               
      

            	
              (xi)

            	
              Rating
      changes.

            

    

    

    Section 2.2.            Continuing Disclosure Representations
of Borrower.  The Borrower represents and warrants
that:

    

    (a)           Financial
Statements shall be prepared in accordance with GAAP.

    

    (b)           Financial
Statements shall be audited by an independent certified public accountant in
accordance with GAAS.

    

    Section 2.3.            Form of Annual
Report.  (a) The Annual Report may be submitted by the
Borrower, or on behalf thereof, as a single document or as separate documents
comprising a package.

    

    (b)           Any
or all of the items that must be included in the Annual Report may be
incorporated by reference from other documents, including official statements
delivered in connection with other financings issued on behalf of the Borrower
or related public entities thereof, that have been submitted to each of the
Repositories or filed with the SEC.  If the document incorporated by
reference is a final official statement, it must be available from the
MSRB.  The Borrower shall clearly identify each such other document so
incorporated by reference.

    

    (c)           The
Annual Report for any Fiscal Year containing any modified operating data or
financial information (as contemplated by Sections 4.9 and 4.10 hereof) for such
Fiscal Year shall explain, in narrative form, the reasons for such modification
and the effect of such modification on the Annual Report being provided for such
Fiscal Year.

    

    Section 2.4.            Responsibilities and Duties of
Borrower, Dissemination Agent and Trustee.  (a) If fifteen (15)
days prior to the date specified in Section 2.1(a) hereof the Trustee has not
received a copy of the Annual Report, complete to the extent required in Section
2.1(a) hereof, the Trustee shall contact the Borrower to provide notice of the
Borrower's obligations pursuant to Sections 2.1(a), 2.1(b) and 2.4(d)(ii)
hereof.

    

    (b)           If
the Trustee, by the date specified in Section 2.1(a) hereof, has not received a
written report from the Borrower, as required by Section 2.4(d)(ii) hereof,
indicating that an Annual Report, complete to the extent required in Section
2.1(a) hereof, has been provided to the Repositories and the Trust by the date
specified in Section 2.1(a) hereof, the Trustee shall send a notice to each
National Repository or to the MSRB and the State Depository, if any, in
substantially the form attached hereto as Exhibit B together with any
standard forms or cover sheets that may be required by the MSRB as of the date
thereof, with a copy thereof to the Trust and the Borrower.

    

    
      
        
           

        

        
          -5-

          
            

          

        

        
           

        

      

    

    

    (c)           If
the Borrower has determined that the occurrence of a Borrower Bond Disclosure
Event would be material, the Borrower or the Dissemination Agent (if one has
been appointed or engaged by the Borrower) shall file promptly a notice of such
occurrence with the Trust (the "Borrower Bond Disclosure Event Notice") in a
form determined by the Borrower; provided, that the Borrower
Bond Disclosure Event Notice pertaining to the occurrence of a Borrower Bond
Disclosure Event described in Section 2.1(c)(viii) (Borrower Bond calls) or
2.1(c)(ix) (defeasances) hereof need not be given under this Section 2.4(c) any
earlier than the time when the notice (if any) of such Borrower Bond Disclosure
Event shall otherwise be required to be given to the holder of the Borrower Bond
as provided in any resolution, ordinance or agreement of the
Borrower.

    

    (d)           The
Borrower shall or, if the Borrower has appointed or engaged a Dissemination
Agent, shall cause the Dissemination Agent to:

    

    (i)           determine
each year, prior to the date for providing the Annual Report, the name and
address of each National Repository and each State Depository, if any;
and

    

    (ii)           by
the date specified in Section 2.1(a) hereof, provide a written report to the
Trustee and the Trust (and, if a Dissemination Agent has been appointed, to the
Borrower), upon which said parties may rely, certifying that the Annual Report,
complete to the extent required in Section 2.1(a) hereof, has been provided
pursuant to this Agreement, stating the date it was provided and listing all of
the Repositories to which it was provided.

    

    Section 2.5.            Appointment, Removal and Resignation
of Dissemination Agent.  (a) The Borrower may, from time to
time, appoint or engage a Dissemination Agent to assist it in carrying out its
obligations under this Agreement, and shall provide notice of such appointment
to the Trustee and the Trust.  Thereafter, the Borrower may discharge
any such Dissemination Agent and satisfy its obligations under this Agreement
without the assistance of a Dissemination Agent, or the Borrower may discharge a
Dissemination Agent and appoint a successor Dissemination Agent, such discharge
to be effective on the date of the appointment of a successor Dissemination
Agent.  The Borrower shall provide notice of the discharge of a
Dissemination Agent to the Trustee and the Trust and shall further indicate
either the decision of the Borrower to satisfy its obligations under this
Agreement without the assistance of a Dissemination Agent or the identity of the
new Dissemination Agent.

    

    (b)           The
Dissemination Agent shall have only such duties as are specifically set forth in
this Agreement.

    

    (c)           The
Dissemination Agent, or any successor thereto, may at any time resign and be
discharged of its duties and obligations under this Agreement by giving not less
than thirty (30) days' written notice to the Borrower.  Such
resignation shall take effect on the date specified in such notice.

    

    
      
        
           

        

        
          -6-

          
            

          

        

        
           

        

      

    

    

    

    Section 2.6.            Responsibilities and Duties of
Trust.  (a) The Trust agrees that it will
provide, in a timely manner, to each National Repository or to the MSRB and the
State Depository, if any, notice of any of the following events with respect to
the Bonds (each a "Bond Disclosure Event"), if material, with a copy of such
notice to the Trustee and the Borrower (for informational purposes
only):

    

    
      	
               
      

            	
              (i)

            	
              Principal
      and interest payment delinquencies;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              Non-payment
      related defaults;

            

    

    

    
      	
               
      

            	
              (iii)

            	
              Unscheduled
      draws on debt service reserves reflecting financial
      difficulties;

            

    

    

    
      	
               
      

            	
              (iv)

            	
              Unscheduled
      draws on credit enhancements reflecting financial
      difficulties;

            

    

    

    
      	
               
      

            	
              (v)

            	
              Substitution
      of credit or liquidity providers or their failure to
    perform;

            

    

    

    
      	
               
      

            	
              (vi)

            	
              Adverse
      tax opinions or events affecting the tax-exempt status of the
      Bonds;

            

    

    

    
      	
               
      

            	
              (vii)

            	
              Modifications
      to the rights of the Holders of the
Bonds;

            

    

    

    
      	
               
      

            	
              (viii)

            	
              Bond
      calls (other than regularly scheduled mandatory sinking fund redemptions
      for which notice of redemption has been given to the Bondholders as
      required pursuant to the provisions of the
  Resolution);

            

    

    

    
      	
               
      

            	
              (ix)

            	
              Defeasances;

            

    

    

    
      	
               
      

            	
              (x)

            	
              Release,
      substitution or sale of property securing repayment of the Bonds;
      and

            

    

    

    
      	
               
      

            	
              (xi)

            	
              Rating
      changes.

            

    

    

    (b)           If
the Trust has determined that the occurrence of a Bond Disclosure Event would be
material, the Trust shall file promptly a notice of such occurrence with each
National Repository or with the MSRB and the State Depository, if any (the "Bond
Disclosure Event Notice"), in a form determined by the Trust together with any
standard forms or cover sheets that may be required by the MSRB as of the date
thereof; provided, that
the Bond Disclosure Event Notice pertaining to the occurrence of a Bond
Disclosure Event described in Section 2.6(a)(viii) (Bond calls) or 2.6(a)(ix)
(defeasances) hereof need not be given under this Section 2.6(b) any earlier
than the time when the notice (if any) of such Bond Disclosure Event shall be
given to Holders of affected Bonds as provided in Sections 4.05 and 12.01 of the
Resolution, respectively.  The obligations of the Trust to provide the
notices required under this Agreement are in addition to, and not in
substitution of, any of the obligations (if any) of the Trustee to provide
notices of events of default to Holders under Article IX of the
Resolution.  The Trust shall file a copy of 

    
      

      
        
          
             

          

          
            -7-

            
              

            

          

          
             

          

        

      

    

     

    each Bond
Disclosure Event Notice with the Trustee and the Borrower (for informational
purposes only).

     

    Section 2.7.            Immunities and Liabilities of
Trustee.  Article X of the Resolution, as it relates to the
immunities and liabilities of the Trustee, is hereby made applicable to the
Trustee's responsibilities under this Agreement.

    

    
      
        
           

        

        
          -8-

          
            

          

        

        
           

        

      

    

    

    ARTICLE
3

    

    REMEDIES

    

    Section
3.1.           Remedies.  (a) The Trustee may, in reliance upon the advice of counsel (and at the
request of the Holders of at least twenty-five percent (25%) in aggregate
principal amount of outstanding Bonds, after the provision of indemnity in
accordance with Section 10.05 of the Resolution, shall), or any Bondholder may,
for the equal benefit and protection of all Bondholders similarly situated, take
whatever action at law or in equity against the Borrower or the Trust or any of
their respective officers, agents and employees necessary or desirable to
enforce the specific performance and observance of any obligation, agreement or
covenant of the Borrower and the Trust under this Agreement, and may compel the
Borrower or the Trust or any of their respective officers, agents or employees
(except for the Dissemination Agent with respect to the obligations, agreements
and covenants of the Borrower) to perform and carry out their duties under this
Agreement; provided,
that no person or entity shall be entitled to recover monetary damages hereunder
under any circumstances; and provided, further, that any Bondholder,
acting for the equal benefit and protection of all Bondholders similarly
situated, may pursue specific performance only with respect to the failure to
file Annual Reports, Borrower Bond Disclosure Event Notices and Bond Disclosure
Event Notices required by this Agreement and may not pursue specific performance
in challenging the adequacy of Annual Reports that have been filed pursuant to
the provisions hereof.

    

    (b)           In
case the Trustee or any Bondholder shall have proceeded to enforce its rights
under this Agreement and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Trustee
or any Bondholder, as the case may be, then and in every such case the Borrower,
the Trust, the Trustee and any Bondholder, as the case may be, shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Borrower, the Trust, the Trustee and any Bondholder
shall continue as though no such proceeding had been taken.

    

    (c)           Any
failure by the Trust or the Borrower to perform its respective obligations under
this Agreement shall not be deemed an event of default under either the
Resolution or the Trust Loan Agreement, as the case may be, and the sole remedy
under this Agreement in the event of any failure by the Trust or the Borrower to
comply with this Agreement shall be as set forth in Section 3.1(a)
hereof.

    

    
      
        
           

        

        
          -9-

          
            

          

        

        
           

        

      

    

    

    ARTICLE
4

    

    MISCELLANEOUS

    

    Section 4.1.            Purposes of
Agreement.  This Agreement is being executed and delivered by
the Borrower, the Trustee and the Trust for the benefit of the Bondholders and
in order to assist the Participating Underwriter in complying with clause (b)(5)
of Rule 15c2-12.

    

    Section 4.2.            Trust and
Bondholders.  (a) The Trust may enforce any such right, remedy
or claim conferred, given or granted hereunder in favor of the Trustee or the
Holders of the Bonds.

    

    (b)           Each
Bondholder is hereby recognized as being a third-party beneficiary hereunder,
and each may enforce, for the equal benefit and protection of all Bondholders
similarly situated, any such right, remedy or claim conferred, given or granted
hereunder in favor of the Trustee to the extent permitted in Section 3.1(a)
hereof.

    

    Section 4.3.            Obligations of Trust Hereunder;
Indemnified Parties.  Neither the Trust or any member, officer,
employee, counsel, consultant or agent thereof nor any person executing the
Bonds shall bear any obligation for the performance of any duty, agreement or
covenant of the Borrower or the Trustee under this Agreement.  The
obligations of the Trust under this Agreement are expressly limited to the
duties set forth in Sections 2.6, 4.9(c), 4.10 and 4.12 hereof.

    

    The
Borrower agrees to indemnify and hold harmless the Trust and any member,
officer, employee, counsel, consultant or agent thereof, including the Trustee
and any of its members, officers, employees or agents (collectively, the
"Indemnified Parties"), against any and all losses, claims, damages, liabilities
or expenses whatsoever caused by the Borrower's failure, or a Dissemination
Agent's failure, to perform or observe any of the Borrower's obligations,
agreements or covenants under the terms of this Agreement, but only if and
insofar as such losses, claims, damages, liabilities or expenses are caused
directly or indirectly by any such failure of the Borrower or the Dissemination
Agent to perform.  In case any action shall be brought against the
Indemnified Parties based upon this Agreement and in respect of which indemnity
may be sought against the Borrower, the Indemnified Parties shall promptly
notify the Borrower in writing.  Upon receipt of such notification,
the Borrower shall promptly assume the defense of such action, including the
retention of counsel, the payment of all expenses in connection with such action
and the right to negotiate and settle any such action on behalf of such party to
the extent allowed by law.  Any Indemnified Party shall have the right
to employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party, unless the employment of such counsel has been
specifically authorized by the Borrower or unless by reason of conflict of
interest (determined by the written opinion of counsel to any Indemnified Party)
it is advisable for such Indemnified Party to be represented by separate counsel
to be retained by the Borrower, in which case the fees and expenses of such
separate counsel shall be borne by the Borrower.  The Borrower shall
not be liable for any settlement of any such action effected without its written
consent, but if settled with the written consent of the Borrower or if

    
      

      
        
          
             

          

          
            -10-

            
              

            

          

          
             

          

        

      

    

     

    there be
a final judgment for the plaintiff in any such action with or without written
consent, the Borrower agrees to indemnify and hold harmless the Indemnified
Parties from and against any loss or liability by reason of such settlement or
judgment.  Nothing in this Section 4.3 shall require or obligate the
Borrower to indemnify or hold harmless the Indemnified Parties from or against
any loss, claim, damage, liability or expense caused by any negligence,
recklessness or intentional misconduct of the Indemnified Parties in connection
with the Borrower's performance of its obligations, agreements and covenants
under this Agreement.
    

    Section 4.4.            Additional
Information.  Nothing in this Agreement shall be deemed to
prevent the Borrower or the Trust from (a) disseminating any other information
using the means of dissemination set forth in this Agreement or any other means
of communication, or (b) including, in addition to that which is required by
this Agreement, in the case of the Borrower, any other information in any Annual
Report or any Borrower Bond Disclosure Event Notice and, in the case of the
Trust, any other information in any Bond Disclosure Event Notice.  If
the Borrower chooses to include any information in any Annual Report or any
Borrower Bond Disclosure Event Notice, or if the Trust chooses to include any
information in any Bond Disclosure Event Notice, in addition to that which is
specifically required by this Agreement, neither the Borrower nor the Trust
shall have any obligation under this Agreement to update such information or to
include it in any future Annual Report, Borrower Bond Disclosure Event Notice or
Bond Disclosure Event Notice, as the case may be.

    

    Section 4.5.            Notices.  All
notices required to be given or authorized to be given by each party pursuant to
this Agreement shall be in writing and shall be sent by registered or certified
mail (as well as by facsimile, in the case of the Trustee) addressed to, in the
case of the Borrower, [Borrower Address] (Attention:  [Title]); in the
case of the Trustee, its principal corporate trust office at [Trustee Address]
(facsimile:  [Number]); and in the case of the Trust, P.O. Box 440,
Trenton, New Jersey 08625 (Attention:  Executive
Director).

    

    Section 4.6.            Assignments.  This
Agreement may not be assigned by any party hereto without the written consent of
the others and, as a condition to any such assignment, only upon the assumption
in writing of all of the obligations imposed upon such party by this
Agreement.

    

    Section 4.7.            Severability.  If
any provision of this Agreement shall be held or deemed to be or shall, in fact,
be illegal, inoperative or unenforceable, the same shall not affect any other
provision or provisions herein contained or render the same invalid, inoperative
or unenforceable to any extent whatsoever.

    

    Section 4.8.            Execution in
Counterparts.  This Agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.  Each party hereto may
sign the same or a separate counterpart.

    

    
      
        
           

        

        
          -11-

          
            

          

        

        
           

        

      

    

    

    Section 4.9.            Amendments, Changes and
Modifications.  (a) Except as otherwise provided in this
Agreement, subsequent to the initial issuance of the Bonds and prior to their
payment in full (or provision for payment thereof having been made in accordance
with the provisions of the Resolution), this Agreement may not be effectively
amended, changed, modified, altered or terminated without the written consent of
the parties hereto.

    

    (b)           Without
the consent of any Bondholders, the Borrower, the Trustee and the Trust at any
time and from time to time may enter into any amendments or modifications to
this Agreement for any of the following purposes:

    

    (i)            
to add to the covenants and agreements of the Borrower or the Trust hereunder
for the benefit of the Bondholders or to surrender any right or power conferred
upon the Borrower or the Trust by this Agreement;

    

    (ii)            to
modify the contents, presentation and format of the Annual Report from time to
time to conform to changes in accounting or disclosure principles or practices
or legal requirements followed by or applicable to the Borrower, to reflect
changes in the identity, nature or status of the Borrower or in the business,
structure or operations of the Borrower or to reflect any mergers,
consolidations, acquisitions or dispositions made by or affecting the Borrower;
provided, that any such
modification shall not be in contravention of Rule 15c2-12 as then in effect at
the time of such modification; or

    

    (iii)           to
cure any ambiguity herein, to correct or supplement any provision hereof that
may be inconsistent with any other provision hereof or to include any other
provisions with respect to matters or questions arising under this Agreement,
any of which, in each case, would have complied with the requirements of Rule
15c2-12 at the time of the primary offering, after taking into account any
amendments or interpretations of Rule 15c2-12 as well as any changes in
circumstances;

    

    provided, that prior to
approving any such amendment or modification, the Trustee determines, in
reliance upon an opinion of Bond Counsel (as defined in the Resolution) to the
Trust, that such amendment or modification does not adversely affect the
interests of the Holders of the Bonds in any material respect.

    

    (c)           Upon
entering into any amendment or modification required or permitted by this
Agreement that materially affects the interests of the Holders of the Bonds, the
Trust shall deliver to each of the Repositories written notice of any such
amendment or modification.

    

    (d)           The
Borrower, the Trustee and the Trust shall be entitled to rely exclusively upon
an opinion of Bond Counsel to the Trust to the effect that such amendments or
modifications comply with the conditions and provisions of this Section
4.9.

    

    Section 4.10.         Amendments Required by Rule
15c2-12.  The Borrower, the Trustee and the Trust each
recognize that the provisions of this Agreement are intended to enable
compliance with Rule 15c2-12.  If, as a result of a change in Rule
15c2-12 or in the interpretation thereof or the promulgation of a successor
rule, statute or regulation thereto, a change in this 

    
      

      
        
          
             

          

          
            -12-

            
              

            

          

          
             

          

        

      

    

     

    Agreement
shall be permitted or necessary to assure continued compliance with Rule
15c2-12, upon delivery of an opinion of Bond Counsel to the Trust to the effect
that such amendments shall be permitted or necessary to assure continued
compliance with Rule 15c2-12 as so amended or interpreted, then the Borrower,
the Trustee and the Trust shall amend this Agreement to comply with and be bound
by any such amendment to the extent necessary or desirable to assure compliance
with the provisions of Rule 15c2-12, and shall provide written notice of such
amendment as required by Section 4.9(c) hereof.

     

    Section 4.11.          Governing Law.  This
Agreement shall be governed exclusively by and construed in accordance with the
laws of the State and the laws of the United States of America, as
applicable.

    

    Section 4.12.         Termination of Continuing Disclosure
Obligations.  (a) The obligations of the Borrower hereunder
shall be in full force and effect from the date of issuance of the Bonds, and
shall continue in effect until the date either (i) the Borrower Bond is no
longer outstanding in accordance with the terms of the documents under which it
was issued, or (ii) the Borrower no longer remains a material "obligated person"
(as the term "obligated person" is defined in Rule 15c2-12, with materiality
being determined by the Trust in its sole discretion pursuant to criteria set
forth in the Resolution, the Notice of Sale, the Preliminary Official Statement
and the Final Official Statement) with respect to the Bonds, and, in either
event, only after the Trust delivers written notice to such effect to each
National Repository or to the MSRB and the State Depository, if
any.

    

    (b)           The
obligations of the Trust hereunder shall be in full force and effect from the
date hereof and shall continue in effect until the date the Bonds are no longer
outstanding in accordance with the terms of the Resolution, and only after the
Trust delivers written notice to such effect to each National Repository or to
the MSRB and the State Depository, if any.

    

    Section 4.13.         Prior
Undertakings.  The Borrower has not failed to comply in any
material respect with any prior continuing disclosure undertaking made by the
Borrower in accordance with Rule 15c2-12.

    

    Section 4.14.         Binding
Effect.  This Agreement shall inure to the benefit of and shall
be binding upon the Borrower, the Trustee and the Trust and their respective
successors and assigns.

    

    
      
        
           

        

        
          -13-

          
            

          

        

        
           

        

      

    

    

    IN WITNESS WHEREOF, [NAME OF
BORROWER], [NAME OF TRUSTEE] and NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST
have caused this Agreement to be executed in their respective names and their
corporate seals to be hereunto affixed and attested by their duly authorized
officers, all as of the date first above written.

    

    

    
      	
              [SEAL]

            	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	
              ATTEST:

            	 
      	
              [NAME
      OF BORROWER]

            	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	
              By:

            	 
      	 
	
              Name:

            	 
      	 
      	
              Name:

            	 
	
              Title:

            	 
      	 
      	
              Title:

            	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	
              [SEAL]

            	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	
              ATTEST:

            	 
      	
              [NAME
      OF TRUSTEE],

            	 
	 
      	 
      	
              as
      Trustee

            	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	
              By:

            	 
      	 
	
              Name:

            	 
      	 
      	
              Name:

            	 
	
              Title:

            	 
      	 
      	
              Title:

            	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	
              [SEAL]

            	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	
              ATTEST:

            	 
      	
              NEW
      JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST

            	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	
              By:

            	 
      	 
	
              Name:

            	 
      	 
      	
              Name:

            	 
	
              Title:

            	 
      	 
      	
              Title:

            	 

    

     

    [Signature Page]

     

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
A

    

    

    EXCERPT
OF FINAL OFFICIAL STATEMENT

    

    
      
        
           

        

        
          A-1

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
B

    

    

    FORM
OF NOTICE TO REPOSITORIES OF

    FAILURE
TO FILE ANNUAL REPORT

    

    

    
      	
              Name
      of Obligated Person:

            	 
      	
              [NAME
      OF BORROWER]

            
	 
      	 
      	 
      
	
              Name
      of Bond Issue:

            	 
      	
              New
      Jersey Environmental Infrastructure Trust

            
	 
      	 
      	
              Environmental
      Infrastructure Bonds, Series ____,

            
	 
      	 
      	
              dated
      [DATE]

            
	 
      	 
      	 
      
	
              Date
      of Issuance:

            	 
      	
              [DATE]

            
	 
      	 
      	 
      
	
              CUSIP
      Numbers:

            	 
      	 
      

    

    

    

    NOTICE IS
HEREBY GIVEN that [Name of Borrower] (the "Borrower") has not provided an Annual
Report with respect to the above-named bonds (the "Bonds") as required by the
Continuing Disclosure Agreement relating to the Bonds dated [DATE] by and among
the Borrower, [Name of Trustee], as Trustee, and New Jersey Environmental
Infrastructure Trust.  [The Borrower anticipates that the Annual
Report will be filed by ___________.]

    

    
      	 
      	 
      	 
      	[NAME
      OF TRUSTEE],	 
	 
      	 
      	 
      	as
      Trustee	 
	 
      	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
      	 
	 
      	 
      	 
      	
              By:

            	 
      	 
	 
      	 
      	 
      	 
      	
              Name:

            	 
	 
      	 
      	 
      	 
      	
              Title:

            	 
	 
      	 
      	 
      	 
      	 
      	 
	
              Dated:

            	 
      	 
      	 
      	 
      	 

    

     

     

    B-1

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