Document:

Exhibit 10.23

                                 M O R T G A G E

                      TWENTY-EIGHTH SUPPLEMENTAL INDENTURE

                             MIDDLESEX WATER COMPANY

                                       TO

                            FIRST UNION NATIONAL BANK
                                     Trustee

                          Dated as of October 15, 2001

                                                     Record and Return to:

                                                     Peter D. Hutcheon, Esq.
                                                     Norris, McLaughlin & Marcus
                                                     721 Route 202/206
                                                     P.O. Box 1018
                                                     Somerville, NJ  08876
                                                     (908) 722-0700

Prepared By:________________________
                    Peter D. Hutcheon, Esq.

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          THIS TWENTY-EIGHTH  SUPPLEMENTAL INDENTURE,  dated as of the Fifteenth
day of October 2001,  between MIDDLESEX WATER COMPANY,  a corporation  organized
and  existing  under the laws of the State of New Jersey,  having its  principal
office  in the  Township  of  Iselin,  New  Jersey  (herein  called  the  "Water
Company"),  and FIRST UNION  NATIONAL  BANK, (as successor to Meridian Bank, the
successor to United  Counties  Trust  Company in turn the successor to the Union
County Trust  Company),  a corporation  organized and existing under the laws of
the United States, having its principal New Jersey corporate trust office in the
Town of  Morristown,  New Jersey,  as Trustee  under the  Indenture  of Mortgage
hereinafter mentioned (herein called the "Trustee"):

          WHEREAS, on April 1, 1927, Water Company executed and delivered to the
Trustee an Indenture of Mortgage  (herein  called the  "Mortgage") to secure its
First and  Refunding  Mortgage  Gold Bonds,  Series A, 5-1/2%,  which bonds have
since been redeemed by Water Company,  and which Mortgage provides that bonds of
other  series may be issued  under and  pursuant  to an  indenture  supplemental
thereto; and

          WHEREAS,  on May 14, 1935, Water Company executed and delivered to the
Trustee a  Supplemental  Indenture  to secure its First and  Refunding  Mortgage
Bonds, Series B, 4-1/2%,  which Supplemental  Indenture,  prior to the execution
and delivery  hereof,  was satisfied and  discharged of record,  no bonds having

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been issued thereunder; and

          WHEREAS,  as of October 1, 1939,  Water Company executed and delivered
to the Trustee a Second  Supplemental  Indenture of Mortgage  (herein called the
"Second  Supplemental  Indenture")  to secure its First and  Refunding  Mortgage
3-3/4% Bonds,  Series C (herein  called the "Series C Bonds"),  which bonds were
paid at  maturity  by Water  Company,  and  otherwise  modifying,  amending  and
supplementing the Mortgage; and

          WHEREAS,  as of April 1, 1946, Water Company executed and delivered to
the Trustee a Third Supplemental Indenture of Mortgage (herein called the "Third
Supplemental  Indenture")  to secure its First and Refunding  Mortgage 3% Bonds,
Series D (herein called the "Series D Bonds"), which bonds were paid at maturity
by Water  Company,  and  otherwise  modifying,  amending and  supplementing  the
Mortgage; and

          WHEREAS,  as of April 1, 1949, Water Company executed and delivered to
the  Trustee a Fourth  Supplemental  Indenture  of Mortgage  (herein  called the
"Fourth  Supplemental  Indenture")  to secure its First  Mortgage  3-1/2% Bonds,
Series E (herein called the "Series E Bonds"), which bonds were paid at maturity
by Water  Company,  and  otherwise  modifying,  amending and  supplementing  the
Mortgage; and

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          WHEREAS,  as of February 1, 1955, Water Company executed and delivered
to the Trustee a Fifth  Supplemental  Indenture of Mortgage  (herein  called the
"Fifth  Supplemental  Indenture")  to secure its First  Mortgage  3-5/8%  Bonds,
Series F (herein called the "Series F Bonds"), which bonds were paid at maturity
by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of December 1, 1959, Water Company executed and delivered
to the Trustee a Sixth  Supplemental  Indenture of Mortgage  (herein  called the
"Sixth  Supplemental  Indenture")  to secure its First  Mortgage  5-3/4%  Bonds,
Series G (herein  called  the  "Series G  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of January 15, 1963, Water Company executed and delivered
to the Trustee a Seventh  Supplemental  Indenture of Mortgage (herein called the
"Seventh  Supplemental  Indenture") to secure its First  Mortgage  4-1/2% Bonds,
Series H (herein called the "Series H Bonds"), which bonds were paid at maturity
by Water Company and otherwise supplementing the Mortgage; and

          WHEREAS,  as of July 1, 1964,  Water Company executed and delivered to
the Trustee,  an Eighth  Supplemental  Indenture of Mortgage  (herein called the
"Eighth  Supplemental  Indenture")  to secure its First  Mortgage 4 3/4%  Bonds,

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Series I (herein  called  the  "Series I  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of June 1, 1965,  Water Company executed and delivered to
the Trustee a Ninth Supplemental Indenture of Mortgage (herein called the "Ninth
Supplemental  Indenture")  to secure its First Mortgage  4-3/4% Bonds,  Series J
(herein  called the "Series J Bonds"),  which bonds have since been  redeemed by
Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of February 1, 1968, Water Company executed and delivered
to the Trustee a Tenth  Supplemental  Indenture of Mortgage  (herein  called the
"Tenth  Supplemental  Indenture")  to secure its First  Mortgage  6-3/4%  Bonds,
Series K (herein called the "Series K Bonds"),  and otherwise  supplementing the
Mortgage; and

          WHEREAS,  as of December 1, 1968, Water Company executed and delivered
to the Trustee an Eleventh Supplemental Indenture of Mortgage (herein called the
"Eleventh  Supplemental  Indenture") to secure its First Mortgage  6-7/8% Bonds,
Series L (herein  called  the  "Series L  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of December 1, 1970, Water Company executed and delivered
to the Trustee a Twelfth  Supplemental  Indenture of Mortgage (herein called the
"Twelfth Supplemental Indenture") to secure its First Mortgage 10% Bonds, Series

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M (herein called the "Series M Bonds"),  which bonds have since been redeemed by
Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of December 1, 1972, Water Company executed and delivered
to the Trustee a Thirteenth  Supplemental  Indenture of Mortgage  (herein called
the  "Thirteenth  Supplemental  Indenture") to secure its First Mortgage  8-1/8%
Bonds,  Series N (herein  called the  "Series N Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of April 1, 1979, Water Company executed and delivered to
the Trustee a Fourteenth  Supplemental  Indenture of Mortgage (herein called the
"Fourteenth  Supplemental  Indenture")  to secure its First  Mortgage  7% Bonds,
Series 0 (herein  called  the  "Series 0  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of April 1, 1983, Water Company executed and delivered to
the Trustee a Fifteenth  Supplemental  Indenture of Mortgage  (herein called the
"Fifteenth Supplemental  Indenture") to secure its First Mortgage 10-1/2% Bonds,
Series P (herein  called  the  "Series P  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

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          WHEREAS, as of August 1, 1988, Water Company executed and delivered to
the Trustee a Sixteenth  Supplemental  Indenture of Mortgage  (herein called the
"Sixteenth  Supplemental  Indenture")  to secure  its First  Mortgage  8% Bonds,
Series Q (herein  called  the  "Series Q  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of June 15, 1991, Water Company executed and delivered to
the Trustee a Seventeenth  Supplemental Indenture of Mortgage (herein called the
"Seventeenth  Supplemental Indenture") to secure its First Mortgage 7.25% Bonds,
Series R (herein  called the "Series R Bonds") and otherwise  supplementing  the
Mortgage; and

          WHEREAS,  as of March 1, 1993, Water Company executed and delivered to
the Trustee a Supplementary  Indenture of Mortgage to the Fifteenth Supplemental
Indenture  of  Mortgage  (herein  called  the  "Supplementary  Indenture  to the
Fifteenth  Supplemental  Indenture") to secure its First Mortgage 2 7/8%, Series
P-1 (herein called the "Series P-1 Bonds"), which bonds have since been redeemed
by Water Company, and otherwise supplementing the Mortgage.

          WHEREAS, as of September 1, 1993, Water Company executed and delivered
to the Trustee an Eighteenth  Supplemental  Indenture of Mortgage (herein called
the  "Eighteenth  Supplemental  Indenture")  to secure its First  Mortgage 5.20%
Bonds,   Series  S  (herein   called  the  "Series  S  Bonds"),   and  otherwise
supplementing the Mortgage; and

          WHEREAS, as of September 1, 1993, Water Company executed and delivered
to the Trustee a Nineteenth  Supplemental  Indenture of Mortgage  (herein called
the  "Nineteenth  Supplemental  Indenture")  to secure its First  Mortgage 5.25%
Bonds,   Series  T  (herein   called  the  "Series  T  Bonds"),   and  otherwise
supplementing the Mortgage; and

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          WHEREAS,  as of January 1, 1994,  Water Company executed and delivered
to Trustee a Twentieth  Supplemental  Indenture of Mortgage  (herein  called the
"Twentieth  Supplemental  Indenture")  to secure its First  Mortgage 6.4% Bonds,
Series U (herein called the "Series U Bonds"),  and otherwise  supplementing the
Mortgage; and

          WHEREAS,  as of January 1, 1994,  Water Company executed and delivered
to Trustee a Twenty-First  Supplemental Indenture of Mortgage (herein called the
"Twenty-First Supplemental Indenture") to secure its First Mortgage 5.25% Bonds,
Series V (herein called the "Series V Bonds"),  and otherwise  supplementing the
Mortgage; and

          WHEREAS,  as of March 1, 1998, Water Company executed and delivered to
Trustee a Twenty-Second  Supplemental  Indenture of Mortgage  (herein called the
"Twenty-Second  Supplemental  Indenture")  to secure  its First  Mortgage  5.35%

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Bonds,   Series  W  (herein   called  the  "Series  W  Bonds"),   and  otherwise
supplementing the Mortgage; and

          WHEREAS,  as of October 15, 1998, Water Company executed and delivered
to Trustee a Twenty-Third  Supplemental Indenture of Mortgage (herein called the
"Twenty-Third  Supplemental  Indenture")  to secure its First  Mortgage 0% Bond,
Series X (herein called the "Series X Bond"),  and otherwise  supplementing  the
Mortgage; and

          WHEREAS,  as of October 15, 1998, Water Company executed and delivered
to Trustee a Twenty-Fourth Supplemental Indenture of Mortgage (herein called the
"Twenty-Fourth  Supplemental  Indenture") to secure its First Mortgage Scheduled
Interest Rate Bond, Series Y (herein called the "Series Y Bond"),  and otherwise
supplementing the Mortgage; and

          WHEREAS,  as of October 15, 1999, Water Company executed and delivered
to Trustee a Twenty-Fifth  Supplemental Indenture of Mortgage (herein called the
"Twenty-Fifth  Supplemental  Indenture")  to secure its First  Mortgage 0% Bond,
Series Z (herein called the "Series Z Bond"),  and otherwise  supplementing  the
Mortgage; and

          WHEREAS,  as of October 15, 1999, Water Company executed and delivered
to Trustee a Twenty-Sixth  Supplemental Indenture of Mortgage (herein called the
"Twenty-Sixth  Supplemental  Indenture") to secure its First Mortgage  Scheduled
Interest  Rate Bond,  Series AA  (herein  called  the  "Series  AA  Bond"),  and

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otherwise supplementing the Mortgage; and

          WHEREAS,  as of October 15, 2001, Water Company executed and delivered
to Trustee a  Twenty-Seventh  Supplemental  Indenture of Mortgage (herein called
the  "Twenty-Seventh  Supplemental  Indenture")  to secure its First Mortgage 0%
Bond,   Series  BB  (herein   called  the  "Series  BB  Bond"),   and  otherwise
supplementing the Mortgage; and

          WHEREAS, Water Company deems it necessary to borrow money and to issue
its bonds  therefor,  to be secured  by the  Mortgage,  the Second  Supplemental
Indenture,  the Third Supplemental Indenture, the Fourth Supplemental Indenture,
the Fifth Supplemental Indenture,  the Sixth Supplemental Indenture, the Seventh
Supplemental   Indenture,   the  Eighth   Supplemental   Indenture,   the  Ninth
Supplemental  Indenture,   the  Tenth  Supplemental   Indenture,   the  Eleventh
Supplemental  Indenture,  the Twelfth  Supplemental  Indenture,  the  Thirteenth
Supplemental Indenture,  the Fourteenth  Supplemental  Indenture,  the Fifteenth
Supplemental Indenture,  the Sixteenth Supplemental  Indenture,  the Seventeenth
Supplemental   Indenture,   the   Supplementary   Indenture  to  the   Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the Twenty-Seventh Supplemental Indentures and

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by this Twenty-Eighth Supplemental Indenture;

          WHEREAS,  Water  Company  desires to authorize  and create a series of
bonds  under  which a  single  bond  shall be  issued  limited  to an  aggregate
principal  amount of $2,440,000.00  designated  Series CC and to be known as its
"First Mortgage  Scheduled  Interest Rates Bonds,  Series CC" (herein called the
"Series CC Bond"), it being the intention of the parties that the Series CC Bond
shall,  together  with  all  other  Bonds  issued  under  the  Mortgage  and all
indentures  supplemental  thereto,  be  entitled  to  priority  over  all  other
obligations  of the Water  Company and shall be secured by a prior first lien on
all the  mortgaged  property,  subject  only  to the  prior  liens  specifically
permitted under the Mortgage or under any indenture supplemental thereto; and

          WHEREAS, Water Company desires that the Series CC Bond shall be issued
to fund  payment  of the  principal  of  $2,440,000.00,  the  amount of the Loan
borrowed from the New Jersey  Environmental  Infrastructure  Trust (the "Trust")
under the Loan Agreement dated as of November 1, 2001 (the "Loan  Agreement") by
and between the Trust and the Water  Company,  or such lesser amount as shall be
determined in accordance with Section 3.01 of the Loan Agreement, plus any other
amounts due and owing under the Loan Agreement at the time and in the amounts as
provided  therein,  which principal amount is to be applied for the cleaning and
lining of  certain  pipes and mains  and the spot  replacement  of water  mains,

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hydrants,  service  lines and valves which are utilized by Water Company for the
furnishing of water in its New Jersey service area; and

          WHEREAS,  the  Trust  requires  as a  condition  of  making  the  loan
documented by the Loan Agreement,  that a single Series CC Bond be issued to the
Trust,  that such Bond  evidence the payment  obligations  of the Water  Company
under Section 2.02(m) of the Loan  Agreement,  that payments under the Series CC
Bond be made to the Loan  Servicer  (as defined in the Loan  Agreement)  for the
account of the  Trust,  that the  Series CC Bond be  subject  to  assignment  or
transfer in  accordance  with the terms of the Loan  Agreement,  that all of the
terms, conditions and provisions of the Loan Agreement be expressly incorporated
by reference into the Series CC Bond,  that the obligations of the Water Company
under the  Series CC Bond  shall be  absolute  and  unconditional,  without  any
defense or right of set-off,  counterclaim or recoupment by reason of default by
the Trust  under the Loan  Agreement  or under any other  agreement  between the
Water Company and the Trust or out of any  indebtedness or liability at any time
owing to the Water Company or for any other  reason,  that the Series CC Bond be
subject to optional prepayment under the terms and conditions and in the amounts
provided in Section 3.07 of the Loan Agreement,  and that the Series CC Bond may
be subject to  acceleration  under the terms and  conditions and in the amounts,
provided in Section 5.03 of the Loan Agreement; and

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          WHEREAS,  Water  Company  represents  that all  acts  and  proceedings
required  by law and by the Charter  and  By-Laws of Water  Company,  and by the
Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth,
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth  Supplemental  Indenture,  and the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,   the  Twenty-Fifth,  the  Twenty-Sixth  and  the  Twenty-Seventh
Supplemental  Indentures (to the extent applicable) necessary to make the Series
CC Bond,  when  executed by Water  Company,  authenticated  and delivered by the
Trustee,  and duly issued,  the valid,  binding and legal  obligations  of Water
Company and to constitute this Twenty-Eighth  Supplemental Indenture a valid and
binding supplement to the Mortgage and the Second,  Third, Fourth, Fifth, Sixth,
Seventh,  Eighth,  Ninth,  Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,
Fifteenth,  Sixteenth,  Seventeenth Supplemental  Indentures,  the Supplementary
Indenture  to the  Fifteenth  Supplemental  Indenture  and the  Eighteenth,  the
Nineteenth,   the  Twentieth,   the   Twenty-First,   the   Twenty-Second,   the
Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the Twenty-Sixth and the
Twenty-Seventh  Supplemental  Indentures in accordance with its and their terms,
for the security of all bonds issued and which may hereafter be issued  pursuant
to the  Mortgage and all  indentures  supplemental  thereto,  have been done and
performed;  and the  execution and delivery of this  Twenty-Eighth  Supplemental

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Indenture have been in all respects duly authorized;

          NOW   THEREFORE,   THIS   INDENTURE   WITNESSETH,   that  for  and  in
consideration  of the  premises,  and of the sum of One Dollar  ($1.00),  lawful
money of the United States of America, by each of the parties paid to the other,
at or before the delivery  hereof,  and for other  valuable  consideration,  the
receipt  and  sufficiency  whereof is hereby  acknowledged,  Water  Company  has
executed  and  delivered  this  Twenty-Eighth  Supplemental  Indenture,  and has
granted,  bargained,  sold, aliened,  enfeoffed,  conveyed and confirmed, and by
these presents does grant, bargain,  sell, alien,  enfeoff,  convey and confirm,
unto to the Trustee,  its successors and assigns  forever,  all real property of
Water  Company,   together  with  all  appurtenances   and  contracts,   rights,
privileges,  permits  and  franchises  used or  useful  in  connection  with the
business of the Water  Company as a water  company or as a water utility or used
directly for the purpose of supplying water, granted,  bargained, sold, aliened,
enfeoffed,  conveyed  and  confirmed  unto the Trustee by the  Mortgage  and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  and  the  Supplementary  Indenture  to the  Fifteenth  Supplemental
Indenture and the Eighteenth,  the Nineteenth,  the Twentieth, the Twenty-First,
the Twenty-Second,  the Twenty-Third,  the Twenty-Fourth,  the Twenty-Fifth, the

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Twenty-Sixth and the Twenty-Seventh  Supplemental Indentures,  or intended to be
(including  without limitation all such property acquired by Water Company since
October  15,  2001,  and all such  property  which Water  Company may  hereafter
acquire),  subject,  however,  to  Permissible  Encumbrances,  and excepting all
Property  heretofore  released from the lien of the Mortgage and the  indentures
supplemental  thereto,  and excepting all property of Water Company which is not
used or useful in connection  with its business as a water company or as a water
utility as well as all personal  property (both  tangible and  intangible) as to
which a security  interest  may not be  perfected  by a filing under the Uniform
Commercial Code as in effect in the State of New Jersey;

          TO HAVE AND TO HOLD all and singular the above granted property,  unto
the Trustee, its successors and assigns forever, IN TRUST, nevertheless, for the
equal and proportionate use, benefit,  security and protection of those who from
time to time  shall hold any bonds  which  have been or may be issued  under the
Mortgage or any  indenture  supplemental  thereto,  without any  discrimination,
preference  or  priority of any one bond over any other by reason of priority in
the time of issue, sale or negotiation thereof or otherwise, except as otherwise
in the Mortgage or in any indenture  supplemental thereto provided; and in trust
for  enforcing  the payment of the  principal of and the interest on such bonds,
according to the tenor,  purport and effect of the bonds and of the Mortgage and
all  indentures  supplemental  thereto and for enforcing the terms,  provisions,

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covenants  and  stipulations  therein  and in the bonds set forth;  and upon the
trust, uses and purposes and subject to the covenants, agreements and conditions
set forth and declared in the Mortgage as modified,  amended and supplemented by
all indentures supplemental thereto;

          AND the parties do hereby covenant and agree that the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth and the  Twenty-Seventh  Supplemental  Indentures be and hereby are
supplemented as hereinafter provided,  and that the above granted property is to
be held and applied  subject to the covenants,  conditions,  uses and trusts set
forth  in  the  Mortgage,   as  modified,   amended  and  supplemented  by  such
Supplemental Indentures and this Twenty-Eighth Supplemental Indenture; and Water
Company for itself and its successors does hereby covenant and agree to and with
the Trustee,  and its  successors  in said trust,  for the equal  benefit of all
present and future holders and  registered  owners of the bonds issued under the
Mortgage and all indentures supplemental thereto, as follows:

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                                    ARTICLE I

             First Mortgage Scheduled Interest Rates Bond, Series CC

          Section 1. Water Company hereby creates a series of bonds to be issued
under and secured by the Mortgage,  the Second,  Third,  Fourth,  Fifth,  Sixth,
Seventh,  Eighth,  Ninth,  Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,
Fifteenth, Sixteenth, and Seventeenth Supplemental Indentures, the Supplementary
Indenture  to  the  Fifteenth  Supplemental  Indenture,   the  Eighteenth,   the
Nineteenth,   the  Twentieth,   the   Twenty-First,   the   Twenty-Second,   the
Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the Twenty-Sixth and the
Twenty-Seventh  Supplemental  Indentures and by this Twenty-Eighth  Supplemental
Indenture,  and to be designated as, and to be  distinguished  from the bonds of
all other series by the title,  "First Mortgage  Scheduled  Interest Rates Bond,
Series CC". The Series CC Bond shall be issued only as a single  registered bond
without  coupons in the principal  amount of the Loan under the Loan  Agreement;
shall be dated as of  November  1, 2001;  and shall be issued in  non-negotiable
form to the  Trust.  The Series CC Bond  shall  bear  interest  from the date of
issuance of the Series CC Bond, computed on the basis of a 360-day year composed
of twelve 30-day months until the  obligations of the Water Company with respect
to the payment of principal shall be discharged,  in the dollar amount set forth
for each  respective  payment  period  under the column  heading  "Interest"  in
Exhibit A-2 to the Loan  Agreement,  shall be payable as set forth below,  shall

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state that,  subject to certain  limitations,  the Mortgage  and all  indentures
supplemental thereto may be modified, amended or supplemented as provided in the
Mortgage as heretofore  supplemented;  shall mature on September  15, 2021,  and
shall be  earlier  redeemable  (i) under the  terms  and  conditions  and in the
amounts  provided  in Section  3.07 of the Loan  Agreement  at the option of the
Water Company  with, to the extent  required by the August 1, 2001 Order (Docket
No.  WF01050336)  of the Board of Public  Utilities  of the State of New  Jersey
("BPU")  and/or  required  by then  applicable  law and  regulations,  the prior
approval  of the BPU,  (ii) as,  when and to the  extent  mandated  pursuant  to
subsection B of Section 4 of Article VIII of the Second Supplemental  Indenture;
and shall be subject to,  entitled to the benefit of, and expressly  incorporate
by reference, all of the terms, conditions and provisions of the Loan Agreement.

          The Series CC Bond shall  evidence the  obligation to pay to the order
of the Trust the principal amount of the Loan (as defined in the Loan Agreement)
made by the Trust under the Loan Agreement which shall be  $2,440,000.00 or such
lesser  amount  as  determined  in  accordance  with  Section  3.01 of the  Loan
Agreement,  at the times and in the amounts  determined  as provided in the Loan
Agreement,  plus any other amounts due and owing under the Loan Agreement at the
times and in the  amounts as  provided  therein.  The  obligations  of the Water
Company  to  make   payments   under  the  Series  CC  Bond  are   absolute  and
unconditional,  without  any  defense  or  right  of  set-off,  counterclaim  or

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recoupment  by reason of any  default by the Trust under the Loan  Agreement  or
under any other agreement  between the Water Company and the Trust or out of any
indebtedness or liability at any time owing to the Water Company by the Trust or
for any other reason. The Series CC Bond is subject to assignment or transfer in
accordance with the terms of the Loan  Agreement.  The Series CC Bond is subject
to acceleration under the terms and conditions,  and in the amounts, provided in
Section  5.03 of the Loan  Agreement.  Payments  under the Series CC Bond shall,
except as otherwise provided in the Loan Agreement, be made directly to the Loan
Servicer (as defined in the Loan Agreement), for the account of the Trust.

          In addition to any other  default  provided for under the Mortgage and
the  Second,  Third,  Fourth,  Fifth,  Sixth,  Seventh,  Eighth,  Ninth,  Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth,
Supplemental  Indentures  and  the  Supplementary  Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,   the   Twenty-Second,   the  Twenty-Third,   Twenty-Fourth,   the
Twenty-Fifth,  the Twenty-Sixth and the Twenty-Seventh  Supplemental Indentures,
it shall be a default under this Twenty-Eighth Supplemental Indenture if payment
of any of the principal or of the Interest on the Loan constituting the Interest
Portion,  the  Administrative  Fee and any late charges  incurred under the Loan
Agreement (as such terms are defined in the Loan Agreement) is not made when the

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same shall become due and payable in installments,  at maturity, upon redemption
or otherwise.

          Section 2.  Disbursements  of the  proceeds of the Loan from the Trust
under the Loan  Agreement  evidenced  by the Series CC Bond shall be made by the
Trust to the Water  Company upon receipt by the Trust of  requisitions  from the
Water Company  executed and delivered in accordance  with the  requirements  set
forth in Section 3.02 of the Loan Agreement.

          Section 3. The Series CC Bond and the certificate of authentication of
the Trustee to be executed thereon shall be substantially in the form prescribed
for  registered  bonds  without  coupons  in the Second  Supplemental  Indenture
(except that there may be deleted  therefrom  all  references to the issuance of
coupon  bonds in  exchange  therefor);  shall be in the  form  attached  to this
Twenty-Eighth Supplemental Indenture as Exhibit A; and shall contain appropriate
references  to this  Twenty-Eighth  Supplemental  Indenture  in  addition to the
Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth  Supplemental  Indentures  and the  Supplementary  Indenture  to the
Fifteenth  Supplemental  Indenture  and  the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,   the   Twenty-Fifth,   the   Twenty-Sixth   and   Twenty-Seventh
Supplemental  Indentures and  appropriate  changes with respect to the aggregate
principal amount,  interest rate, redemption dates and provisions,  and maturity
date of the Series CC Bond, and with  appropriate  reference to the provision of
the Fourth  Supplemental  Indenture that,  subject to certain  limitations,  the

                                       19
<PAGE>

Mortgage and all  indentures  supplemental  thereto may be modified,  amended or
supplemented only as provided in the Mortgage and except that the Series CC Bond
shall not contain any references to a sinking fund.

          Section 4. Subject to the  provisions  of the Mortgage and the Second,
Third, Fourth, Fifth, Sixth, Seventh,  Eighth, Ninth, Tenth, Eleventh,  Twelfth,
Thirteenth,   Fourteenth,  Fifteenth,  Sixteenth  and  Seventeenth  Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth and the Twenty-Seventh Supplemental Indentures,  forthwith upon the
execution and delivery of this  Twenty-Eighth  Supplemental  Indenture,  or from
time to time  thereafter,  Series CC Bond in an  aggregate  principal  amount of
$2,440,000.00  may be executed by Water Company and delivered to the Trustee for
authentication and shall thereupon be authenticated and delivered by the Trustee
upon the  written  order of Water  Company,  signed by its  President  or a Vice
President and its Treasurer or Assistant  Treasurer,  in such  denominations and
registered in such name or names as may be specified in such written order.

                                       20
<PAGE>

          Section 5.  Sections  4(A)(iii) and (iv) of Article VIII of the Second
Supplemental  Indenture shall not be available to the Water Company with respect
to the Series CC Bond.  The Water  Company  shall issue its written  order under
Section 4(a)(i) or (ii), as the case may be,  reasonably  promptly after receipt
by the Trustee of proceeds of sale,  eminent  domain or insurance (not otherwise
to be paid  directly to the Company  under the Mortgage as  supplemented  by the
Supplemental Indentures including this Twenty-Eighth Supplemental Indenture).

                                   ARTICLE II
                                  Miscellaneous

          Section 1. The  provisions  of the Mortgage as  modified,  amended and
supplemented by the Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth  Supplemental  Indenture  and  the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,   the  Twenty-Fifth,  the  Twenty-Sixth  and  the  Twenty-Seventh
Supplemental  Indentures,  and as modified  and  extended by this  Twenty-Eighth
Supplemental  Indenture  are  hereby  reaffirmed.  Except  insofar  as they  are
inconsistent with the provisions  hereof, the provisions of the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,

                                       21
<PAGE>

Twelfth,   Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth  and   Seventeenth
Supplemental  Indentures  and  the  Supplementary  Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth and the Twenty-Seventh  Supplemental  Indentures
with  respect to the Series C, Series D, Series E, Series F, Series G, Series H,
Series I,  Series J, Series K, Series L, Series M, Series N, Series O, Series P,
Series Q, Series R,  Series P-1,  Series S, Series T, Series U, Series V, Series
W,  Series X,  Series Y,  Series Z, Series AA and Series BB Bonds shall apply to
the Series CC Bond to the same extent as if they were set forth  herein in full.
Unless  there  is  something  in  the  subject  or  context  repugnant  to  such
construction,  each  reference in the Mortgage  and the Second,  Third,  Fourth,
Fifth, Sixth, Seventh,  Eighth,  Ninth, Tenth,  Eleventh,  Twelfth,  Thirteenth,
Fourteenth,  Fifteenth,  Sixteenth and Seventeenth Supplemental Indentures,  the
Supplementary   Indenture  to  the  Fifteenth  Supplemental  Indenture  and  the
Eighteenth, the Nineteenth, the Twentieth, the Twenty-First,  the Twenty-Second,
the Twenty-Third, the Twenty-Fourth,  the Twenty-Fifth, the Twenty-Sixth and the
Twenty-Seventh   Supplemental   Indentures  to  the  Mortgage  or  any  of  such
Supplemental   Indentures   shall  be  construed  as  also   referring  to  this
Twenty-Eighth   Supplemental   Indenture.   The  Mortgage  and  all   indentures
supplemental  thereto may be modified,  amended or supplemented by Water Company

                                       22
<PAGE>

with prior notice by the Water  Company to but without the consent of any of the
bondholders to accomplish any more of the following:

               (1)  to cure  any  ambiguity,  supply  any  omission,  or cure or
                    correct any defect or inconsistent provision in the Mortgage
                    or any indenture supplemental thereto;

               (2)  to cure  any  ambiguity,  supply  any  omission,  or cure or
                    correct  any  defect  in any  description  of the  Mortgaged
                    Property,  if such action is not adverse to the interests of
                    the bondholder;

               (3)  to insert such  provisions  clarifying  matters or questions
                    arising  under the  Mortgage or any  indenture  supplemental
                    thereto as are  necessary or desirable  and are not contrary
                    to or  inconsistent  with  the  Mortgage  or  any  indenture
                    supplemental thereto as in effect; or

               (4)  to restate the Mortgage as supplemented by the  Supplemental
                    Indentures  as a single  integrated  document  which may add
                    headings,   an  index  and  other   provisions   aiding  the
                    convenience of use.

The terms and  provisions of the Series CC Bond shall not be amended by, and the
Series CC Bond shall not be  entitled to the  benefit of any  covenant,  term or

                                       23
<PAGE>

condition contained in any subsequent supplemental indenture without the express
written concurrence of the Water Company.

          Section  2.  The  Trustee  shall  not be  responsible  in  any  manner
whatsoever  for  or  in  respect  of  the  validity  and   sufficiency  of  this
Twenty-Eighth  Supplemental  Indenture  or the due  execution  hereof  by  Water
Company or for the recitals  contained herein, all of which recitals are made by
Water Company solely.

          Section 3. The Trustee hereby  accepts the trusts hereby  declared and
provided  and agrees to perform  the same upon the terms and  conditions  in the
Mortgage,  the Second,  Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth,  Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth Supplemental Indenture, the Eighteenth, the Nineteenth, Twentieth, the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh  and  this  Twenty-Eighth
Supplemental  Indenture set forth. The Trustee also hereby agrees to execute and
deliver the Escrow Agreement (as defined in the Loan Agreement).

          Section 4. The Trustee  hereby  authorizes the Loan Servicer to accept
payments  made by Water  Company  of  principal  of the  Series  CC Bond for the
account of the Trust.

                                       24
<PAGE>

          Section 5. This Twenty-Eighth Supplemental Indenture has been executed
simultaneously in several counterparts and all of said counterparts executed and
delivered, each as an original, shall constitute one and the same instrument.

          Section 6. Although this  Twenty-Eighth  Supplemental  Indenture,  for
convenience  and for the purpose of reference,  is dated as of October 15, 2001,
the actual  date of  execution  by Water  Company and the Trustee is as shown by
their respective acknowledgments hereto annexed, and the actual date of delivery
hereof by Water  Company  and the Trustee is the date of the closing of the sale
of the Series CC Bonds by Water Company.

          Section 7. In any case where the payment of principal of the Series CC
Bond or the date fixed for  redemption of any Series CC Bond shall be a Saturday
or Sunday or a legal holiday or a day on which banking  institutions in the City
of the  principal  corporate  trust  office of the Loan  Servicer is located are
authorized by law to close,  then payment of interest or principal or redemption
price  need  not be made on such  date  but may be made on the  next  proceeding
business  day with the same force and effect as if made on the date of  maturity
or the date fixed for  redemption,  and no interest on such payment shall accrue
after such date.

                                       25
<PAGE>

          THE MORTGAGOR HEREBY DECLARES AND  ACKNOWLEDGES  THAT IT HAS RECEIVED,
WITHOUT CHARGE, A TRUE COPY OF THIS MORTGAGE.

          IN WITNESS  WHEREOF  said  MIDDLESEX  WATER  COMPANY has caused  these
presents to be signed by its  President  and its  corporate  seal to be hereunto
affixed, and duly attested by its Secretary;  and in testimony of its acceptance
of the trusts  created,  FIRST UNION NATIONAL BANK, has caused these presents to
be signed by its thereto duly authorized  officer or corporate trust officer and
its corporate seal to be hereunto  affixed and duly attested by its thereto duly
authorized  officer or  corporate  trust  officer,  as of the day and year first
above written.

ATTEST:                                     MIDDLESEX WATER COMPANY

__s/MFR__________________        By:_s/DGS______________________
Marion F. Reynolds                             Dennis G. Sullivan
Vice President, Secretary                      President
  and Treasurer

ATTEST:                                     FIRST UNION NATIONAL BANK

--------------------------       By:__s/TJB______________________
Rick Barnes                                 Thomas J. Brett
Assistant Vice President                    Corporate Trust Officer

                                       26
<PAGE>

STATE OF NEW JERSEY:
                   :  ss:
COUNTY OF ESSEX    :

                  BE IT REMEMBERED,  that on this        day of                ,
2001, before me, the subscriber,  personally  appeared Marion F. Reynolds,  who,
being by me duly sworn  according to law, on her oath deposes and says and makes
proof to my satisfaction that she is the Vice President, Secretary and Treasurer
of Middlesex Water Company,  one of the corporations named in and which executed
the foregoing Twenty-Eighth  Supplemental  Indenture;  that she is the attesting
witness to said Twenty-Eighth  Supplemental  Indenture;  that she well knows the
seal of said  corporation and that the seal thereto affixed is the proper common
or  corporate  seal of  Middlesex  Water  Company;  that  Dennis G.  Sullivan is
President  of said  corporation;  that  this  deponent  saw the said  Dennis  G.
Sullivan as such President sign said Twenty-Eighth  Supplemental Indenture,  and
affix  said seal  thereto  and heard him  declare  that he  signed,  sealed  and
delivered the same as the voluntary  act and deed of the said  corporation,  for
the uses and purposes therein expressed,  he being duly authorized by resolution
of the Board of Directors of the said corporation.

                                                ___s/MFR________________________
                                                Marion F. Reynolds

Sworn and subscribed to
before me the day and year
aforesaid.

_s/PJH___________________________
Peter D. Hutcheon, Esq.
Attorney-At-Law, State of New Jersey

<PAGE>

STATE OF NEW JERSEY:
                   :  ss:
COUNTY OF ESSEX    :

                  BE IT REMEMBERED, that on this     day of                   ,
2001, before me, the subscriber,  personally appeared Rick Barnes, who, being by
me duly sworn  according to law, on his oath deposes and says and makes proof to
my satisfaction  that he is the Assistant Vice President of First Union National
Bank,  one  of the  corporations  named  in and  which  executed  the  foregoing
Twenty-Eighth  Supplemental Indenture;  that he is the attesting witness to said
Twenty-Eighth Supplemental Indenture; that he well knows the seal of First Union
National  Bank and that  the  seal  thereto  affixed  is the  proper  common  or
corporate  seal of First  Union  National  Bank;  that  Thomas  J.  Brett is the
Corporate  Trust  Officer of said  corporation;  that this deponent saw the said
Thomas J. Brett, as Corporate Trust Officer sign said Twenty-Eighth Supplemental
Indenture,  and affix said seal  thereto and heard him  declare  that he signed,
sealed  and  delivered  the  same  as the  voluntary  act and  deed of the  said
corporation,  for the  uses  and  purposes  therein  expressed,  he  being  duly
authorized by said corporation.

                                            __________________________
                                            Rick Barnes
                                            Assistant Vice President

Sworn and subscribed to
before me the day and year
aforesaid.

______________________________
<PAGE>

                                 LOAN AGREEMENT

                                 BY AND BETWEEN

                  NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST

                                       AND

                             MIDDLESEX WATER COMPANY

                          DATED AS OF NOVEMBER 1, 2001

<PAGE>

                                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...............................    7
SECTION 2.02.  Particular Covenants of Borrower..........................   11

                                   ARTICLE III

              LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

SECTION 3.01.  Loan; Loan Term...........................................   20
SECTION 3.02.  Disbursement of Loan Proceeds.............................   20
SECTION 3.03.  Amounts Payable...........................................   21
SECTION 3.04.  Unconditional Obligations.................................   22
SECTION 3.05.  Loan Agreement to Survive Loan............................   23
SECTION 3.06.  Disclaimer of Warranties and Indemnification..............   23
SECTION 3.07.  Option to Prepay Loan Repayments..........................   25
SECTION 3.08.  Priority of Loan and Trust Loan...........................   25

                                   ARTICLE IV

                 ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

SECTION 4.01.  Assignment and Transfer by State..........................   27
SECTION 4.02.  Assignment by Borrower....................................   27

                                    ARTICLE V

                         EVENTS OF DEFAULT AND REMEDIES

SECTION 5.01.  Events of Default.........................................   28
SECTION 5.02.  Notice of Default.........................................   29
SECTION 5.03.  Remedies on Default.......................................   29
SECTION 5.04.  Attorneys' Fees and Other Expenses........................   29
SECTION 5.05.  Applications of Moneys....................................   29
SECTION 5.06.  No Remedy Exclusive; Waiver; Notice.......................   29
SECTION 5.07.  Retention of State's Rights...............................   30

                                      -i-
<PAGE>

                                   ARTICLE VI

                                  MISCELLANEOUS

SECTION 6.01.  Notices.......................................................31
SECTION 6.02.  Binding Effect................................................31
SECTION 6.03.  Severability..................................................31
SECTION 6.04.  Amendments, Supplements and Modifications.....................31
SECTION 6.05.  Execution in Counterparts.....................................32
SECTION 6.06.  Applicable Law and Regulations................................32
SECTION 6.07.  Consents and Approvals........................................32
SECTION 6.08.  Captions......................................................32
SECTION 6.09.  Benefit of Loan Agreements; Compliance with Bond Resolution...32
SECTION 6.10.  Further Assurances............................................32

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-
<PAGE>

          NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST LOAN AGREEMENT

          THIS LOAN  AGREEMENT,  made and  entered  into as of this  November 1,
2001, by and between NEW JERSEY  ENVIRONMENTAL  INFRASTRUCTURE  TRUST,  a public
body  corporate  and politic with  corporate  succession,  and  MIDDLESEX  WATER
COMPANY,  a corporation  duly created and validly existing under the laws of the
State of New Jersey (the "State");

                                WITNESSETH THAT:

          WHEREAS,  the Trust,  in accordance  with the Act, the Bond Resolution
and a  financial  plan  approved by the State  Legislature  in  accordance  with
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
cost of Environmental  Infrastructure Facilities (as each of the foregoing terms
is defined in  Section  1.01  hereof;  all  capitalized  terms used in this Loan
Agreement shall have,  unless the context otherwise  requires,  the meanings set
forth in said Section 1.01);

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

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

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

          WHEREAS, in accordance with the 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 Cost of the Project; and

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

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

                                    ARTICLE I

                                   DEFINITIONS

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

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

          "Administrative  Fee" means that  portion of  Interest  on the Loan or
Interest  on the  Borrower  Bond  payable  hereunder  as an annual  fee of up to
three-tenths of one percent (.30%) of the initial  principal  amount of the Loan
or such  lesser  amount,  if any, as may be  authorized  by any act of the State
Legislature and as the Trust may approve from time to time.

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

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

          "Bond  Resolution"  means  the  "ENVIRONMENTAL   INFRASTRUCTURE   BOND
RESOLUTION,  SERIES 2001B", as adopted by the Board of Directors of the Trust on
or about September 17, 2001,  authorizing  the issuance of the Trust Bonds,  and
all further  amendments and  supplements  thereto adopted in accordance with the
provisions thereof.

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

          "Borrower Bond" means the general obligation bond, note,  debenture or
other evidence of indebtedness authorized,  executed,  attested and delivered by
the  Borrower  to the Trust and  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.

          "Borrower  Bond  Resolution"  means  the  indenture  of  the  Borrower
entitled  "INDENTURE  OF  MORTGAGE",   dated  April  1,  1927,  as  amended  and
supplemented  from  time to time,  in  particular  by a  supplemental  indenture

                                      -2-
<PAGE>

detailing  the terms of the  Borrower  Bond  dated as of  October  15,  2001 and
entitled "TWENTY-EIGHTH  SUPPLEMENTAL INDENTURE," pursuant to which the Borrower
Bond has been issued.

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

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

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

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

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

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

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

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

          "Fund Loan" means the loan made to the  Borrower by the State,  acting
by and through the New Jersey Department of Environmental  Protection,  pursuant
to the Fund Loan  Agreement  dated as of  November  1, 2001 by and  between  the
Borrower  and the State,  acting by and  through  the New Jersey  Department  of

                                      -3-
<PAGE>

Environmental  Protection,  to finance or refinance a portion of the Cost of the
Project.

          "Fund Loan Agreement" means the loan agreement dated as of November 1,
2001 by and between the  Borrower  and the State,  acting by and through the New
Jersey  Department  of  Environmental   Protection,   regarding  the  terms  and
conditions of the Fund Loan.

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

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

          "Loan"  means the loan made by the Trust to the Borrower to finance or
refinance a portion of the 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.

          "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

                                      -4-
<PAGE>

previously authorized, executed, attested and 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 Servicer" means, initially, Commerce Bank, National Association,
the loan servicer for the Loan and the Fund Loan,  duly appointed and designated
as "Loan  Servicer"  pursuant to the Loan  Servicing  and Trust  Bonds  Security
Agreement dated as of November 1, 2001 by and among the Trust, the State, acting
by and through the Treasurer of the State on behalf of the New Jersey Department
of Environmental  Protection,  and Commerce Bank, National Association,  and any
successors as "Loan Servicer" under such agreement, as the same may be modified,
amended or supplemented from time to time in accordance with its terms.

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

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

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

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

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

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

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

                                      -5-
<PAGE>

either  the   Drinking   Water  or  Clean   Water   Project   Lists  as  Project
#12250001-006/7.

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

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

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

         "State" means the State of New Jersey.

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

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

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

          "Trustee"  means,  initially,  The  Bank  of  New  York,  the  Trustee
appointed by the Trust and its successors as Trustee under the Bond  Resolution,
as provided in Article X of the Bond Resolution.

          Except as  otherwise  defined  herein or where the  context  otherwise
requires,  words  importing the singular  number shall include the plural number
and vice versa, and words importing  persons shall include firms,  associations,

                                      -6-
<PAGE>

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

                                      -7-
<PAGE>

                                   ARTICLE II

                    REPRESENTATIONS AND COVENANTS OF BORROWER

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

         (a) Organization and Authority.

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

                  (ii)  The   acting   officials   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
         officials 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 official no
         longer the duly acting  official  of such  Borrower,  all such  actions
         previously taken by such official are still in full force and effect.

                  (iii) The Borrower has full legal right and  authority and all
         necessary  licenses and permits  required as of the date hereof to own,
         operate and maintain its Environmental  Infrastructure System, to carry
         on its activities relating thereto, to execute, attest and deliver this
         Loan Agreement and the Borrower  Bond, to 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 applicable  State law 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
                                      -8-
<PAGE>

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

                  (vi) This Loan  Agreement and the Borrower Bond have each been
         duly  authorized  by the  Borrower  and  duly  executed,  attested  and
         delivered by Authorized Officers of the Borrower, and the Borrower Bond
         has been duly sold by the Borrower to the Trust, duly  authenticated by
         the trustee or paying agent 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

                                      -9-
<PAGE>

Environmental  Infrastructure System, or the ability of the Borrower to make all
Loan  Repayments  and any other  payments  required under this Loan Agreement or
otherwise  to  observe  and  perform  its  duties,  covenants,  obligations  and
agreements under this Loan Agreement and the Borrower Bond.

          (c) Pending  Litigation.  There are no proceedings  pending or, to the
knowledge of the Borrower,  threatened  against or affecting the Borrower in any
court or before any  governmental  authority  or  arbitration  board or tribunal
that,  if  adversely  determined,  would  materially  adversely  affect  (i) the
undertaking  or  completion  of the Project,  (ii) the  properties,  activities,
prospects  or  condition  (financial  or  otherwise)  of  the  Borrower  or  its
Environmental  Infrastructure  System, (iii) the ability of the Borrower to make
all Loan  Repayments or any other payments  required under this Loan  Agreement,
(iv)  the  authorization,  execution,  attestation  or  delivery  of  this  Loan
Agreement or the Borrower  Bond,  (v) the issuance of the Borrower  Bond and the
sale thereof to the Trust, (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

                                      -10-
<PAGE>

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.  Since  December 31, 1975 and as of the date of delivery of this Loan
Agreement,  the Borrower has not been, and is not now, in default in the payment
of the  principal  of or interest  on any of its bonds,  notes,  lease  purchase
agreements or other debt  obligations.  The Borrower is not in violation of, and
has not received  notice of any claimed  violation of, any term of any agreement
or other  instrument  to which it is a party or by which it,  its  Environmental
Infrastructure  System or its properties  may be bound,  which  violation  would
materially adversely affect the properties,  activities,  prospects or condition
(financial  or otherwise)  of the Borrower or its  Environmental  Infrastructure
System or the ability of the  Borrower to make all Loan  Repayments,  to pay all
other  amounts due  hereunder  or  otherwise  to observe and perform its duties,
covenants, obligations and agreements under this Loan Agreement and the Borrower
Bond.

          (f)  Governmental  Consent.  The Borrower has obtained all permits and
approvals  required  to  date  by any  governmental  body  or  officer  for  the
authorization,  execution,  attestation  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, 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.

                                      -11-
<PAGE>

         (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 Cost of the Borrower's Project; and
(ii) where  applicable,  to reimburse  the Borrower for a portion of the Cost of
the Borrower's  Project,  which portion was paid or incurred in  anticipation of
reimbursement  by the Trust and is  eligible  for such  reimbursement  under and
pursuant to the Regulations,  the Code and any other applicable law. All of such
costs  constitute  Costs for which the Trust is  authorized to make Loans to the
Borrower pursuant to the Act and the Regulations.

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

          (j) Preliminary Official Statement.  As of the date of the Preliminary
Official  Statement,  the descriptions and information set forth in the Borrower
Appendices,  if any, contained in the Preliminary Official Statement relating to
the Borrower,  its  operations  and the  transactions  contemplated  hereby were
"deemed  final" by the  Borrower for the purposes and within the meaning of Rule
15c2-12.

                                      -12-
<PAGE>

         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 at parity with the Borrower  Bond and  currently  outstanding  or
issued on the date hereof,  (iii) any future bonds of the Borrower  issued under
the Borrower  Bond  Resolution  at parity with the Borrower  Bond,  and (iv) any
Permitted Encumbrances (as defined in the Borrower Bond Resolution),  the assets
of the Borrower that are subject to the Borrower Bond Resolution are and will be
free and clear of any  pledge,  lien,  charge  or  encumbrance  thereon  or 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

                                      -13-
<PAGE>

provide from its own fiscal resources all moneys,  in excess of the total amount
of loan proceeds it receives under the Loan and Fund Loan,  required to complete
the Project.

          (e) Disposition of Environmental  Infrastructure  System. 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.

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

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

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

                  (iii) The  Borrower  shall not directly or  indirectly  use or
         permit the use of any proceeds of the Trust Bonds to pay the  principal
         of or the  interest  or  redemption  premium on or any other  amount in
         connection  with the  retirement or redemption of any issue of state or
         local governmental obligations ("refinancing of indebtedness"),  unless
         the  Borrower  shall (A)  establish to the  satisfaction  of the Trust,
         prior to the  issuance of the Trust  Bonds,  that such  refinancing  of

                                      -14-
<PAGE>
         indebtedness  will not adversely affect the exclusion from gross income
         of the  interest  on the Trust Bonds for  federal  income tax  purposes
         under Section 103 of the Code,  and (B) provide to the Trust an opinion
         of Bond Counsel to that effect in form and  substance  satisfactory  to
         the Trust.

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

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

                                      -15-
<PAGE>
         or  refinance  the Loan made to the  Borrower,  and (C) are  reasonably
         expected  to be paid out of  substantially  the same source of funds as
         the Trust Bonds and finance or refinance the Loan made to the Borrower.

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

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

                  (x) 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.

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

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

                  (xiii)  The  weighted  average  maturity  of the Loan does not
         exceed 120% of the average  reasonably  expected  economic  life of the
         Project  financed or refinanced  with the Loan,  determined in the same
         manner as under Section  147(b) of the Code.  Accordingly,  the term of
         the Loan  will  not be  longer  than is  reasonably  necessary  for the

                                      -16-
<PAGE>
         governmental  purposes  of the Loan  within  the  meaning  of  Treasury
         Regulations ss.1.148-1(c)(4).

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

          (g) Operation and Maintenance of Environmental  Infrastructure System.
The Borrower  covenants  and agrees that it shall,  in  accordance  with prudent
environmental  infrastructure  utility  practice,  (i) at all times  operate the
properties  of its  Environmental  Infrastructure  System  and any  business  in
connection  therewith in an efficient  manner,  (ii) maintain its  Environmental
Infrastructure System in good repair, working order and operating condition, and
(iii)  from  time to time  make all  necessary  and  proper  repairs,  renewals,
replacements,  additions,  betterments  and  improvements  with  respect  to its
Environmental Infrastructure System so that at all times the business carried on
in  connection  therewith  shall  be  properly  and  advantageously   conducted;
provided,  that no provision of this subsection  shall prevent the sale,  lease,
abandonment  or other  disposition  of property that  comprises a portion of the
Borrower's  Environmental  Infrastructure  System,  so long as such sale, lease,
abandonment  or other  disposition  does not  materially  adversely  affect  the
Borrower's Environmental Infrastructure System.

          (h) Records and Accounts.

                  (i) The Borrower shall keep accurate  records and accounts for
         its Environmental  Infrastructure  System specifically  relating to the
         Project (the  "Project  Records")  separate and distinct from its other
         records and accounts  (the  "General  Records").  Such Project  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 Project Records and General Records shall
         be made available for  inspection by the Trust at any  reasonable  time
         upon prior written notice, and a copy of 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

                                      -17-
<PAGE>
         not held by the Trustee and each  "expenditure"  it makes  allocated to
         "gross  proceeds" of the Trust Bonds.  Such records  shall  include the
         purchase price,  including any constructive  "payments" (or in the case
         of a  "payment"  constituting  a deemed  acquisition  of a  "nonpurpose
         investment" (e.g., a "nonpurpose  investment" first allocated to "gross
         proceeds" of the Trust Bonds after it is actually  acquired  because it
         is deposited in a sinking fund for the Trust Bonds)),  the "fair market
         value" of the  "nonpurpose  investment" on the date first  allocated to
         the "gross  proceeds" of the Trust Bonds,  nominal interest rate, dated
         date, maturity date, type of property,  frequency of periodic payments,
         period  of   compounding,   yield  to  maturity,   amount  actually  or
         constructively  received on disposition  (or in the case of a "receipt"
         constituting a deemed disposition of a "nonpurpose investment" (e.g., a
         "nonpurpose  investment"  that  ceases to be  allocated  to the  "gross
         proceeds" of the Trust Bonds  because it is removed from a sinking fund
         for the Trust  Bonds)),  the  "fair  market  value" of the  "nonpurpose
         investment"  on the  date  it  ceases  to be  allocated  to the  "gross
         proceeds" of the Trust Bonds, the purchase date and disposition date of
         the "nonpurpose  investment" and evidence of the "fair market value" of
         such  property on the  purchase  date and  disposition  date (or deemed
         purchase or disposition  date) for each such  "nonpurpose  investment".
         The purchase date,  disposition  date and the date of  determination of
         "fair  market  value" shall be the date on which a contract to purchase
         or sell the "nonpurpose  investment"  becomes binding,  i.e., the trade
         date rather than the settlement  date. For purposes of the  calculation
         of  purchase  price  and  disposition   price,   brokerage  or  selling
         commissions,  administrative  expenses  or similar  expenses  shall not
         increase the purchase  price of an item and shall not reduce the amount
         actually or constructively received upon disposition of an item, except
         to the extent such costs constitute "qualified administrative costs".

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

                                      -18-
<PAGE>

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

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

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

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

          (k) Cost of Project.  The Borrower certifies that the building cost of
the  Project,  as  listed  in  Exhibit  B hereto  and made a part  hereof,  is a
reasonable and accurate  estimation  thereof,  and it will supply to the Trust a
certificate from a licensed  professional engineer authorized to practice in the

                                      -19-
<PAGE>

State stating that such building  cost is a reasonable  and accurate  estimation
and that the  useful  life of the  Project  exceeds  twenty  (20) years from the
expected date of the Loan Closing.

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

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

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

                  (iii) copies of those resolutions finally adopted by the board
         of directors of the  Borrower  and  requested by the Trust,  including,
         without limitation,  (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  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
         Cost 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, 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 of the  interest  on the Trust  Bonds for
         federal income tax purposes under Section 103 of the Code; and

                  (v)  the  certificates  of  insurance   coverage  as  required
         pursuant  to the  terms  of  Section  3.06(d)  hereof  and  such  other

                                      -20-
<PAGE>
         certificates,  documents,  opinions  and  information  as the Trust may
         require in Exhibit F hereto, if any.

          (m) Execution  and Delivery of Borrower  Bond.  Concurrently  with the
delivery of this Loan  Agreement at the Loan  Closing,  the Borrower  shall also
deliver to the Trust the Borrower  Bond,  as previously  executed,  attested and
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

                                      -21-
<PAGE>

satisfaction  of the  requirements  set forth in Rule  15c2-12  and Rule  10b-5,
including  the  provision of  certificates  and written  representations  of the
Borrower evidencing its compliance with Rule 15c2-12 and Rule 10b-5.

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

                                      -22-
<PAGE>

                                   ARTICLE III

              LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

          SECTION  3.01.  Loan;  Loan Term.  The Trust hereby agrees to make the
Loan as described in Exhibit A-2 hereof and to disburse  proceeds of the Loan to
the  Borrower in  accordance  with  Section  3.02 and Exhibit C hereof,  and the
Borrower  hereby  agrees to borrow  and  accept the Loan from the Trust upon the
terms set forth in Exhibit A-2 attached hereto and made a part hereof; provided,
however,  that the Trust shall be under no obligation to make the Loan if (a) at
the Loan Closing, the Borrower does not deliver to the Trust a Borrower Bond and
such other documents  required under Section 2.02(l) hereof,  or (b) an Event of
Default has occurred and is  continuing  under the Bond  Resolution or this Loan
Agreement.  Although the Trust  intends to disburse  proceeds of the Loan to the
Borrower  at the times  and up to the  amounts  set forth in  Exhibit C to pay a
portion of the Cost of the Project,  due to unforeseen  circumstances  there may
not be a  sufficient  amount on deposit in the Project  Fund on any date to make
the  disbursement  in such amount.  Nevertheless,  the Borrower  agrees that the
amount  actually  deposited in the Project Loan Account at the Loan Closing plus
the Borrower's  allocable  share of certain costs of issuance and  underwriter's
discount  for all Trust Bonds  issued to finance the Loan 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:

                                      -23-
<PAGE>

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

                  (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 covered 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 cost of the  Project  that is
         not  eligible to be funded from the Fund Loan or the Loan,  or (B) that
         portion  of the total  cost of the  Project  that  exceeds  the  actual
         amounts  of the  loan  commitments  made by the  State  and the  Trust,
         respectively, for the Fund Loan and the Loan; and

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

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

                  (i) the  principal  of the Loan  shall be repaid  annually  on
         August 1,  commencing  August 1, 2003, in accordance  with the schedule
         set forth in Exhibit A-2 attached hereto and made a part hereof, as the
         same may be  amended  or  modified  by any  credits  applicable  to the
         Borrower as set forth in the Bond Resolution;

                  (ii) the  Interest  Portion  described  in  clause  (i) of the
         definition  thereof shall be paid semiannually on February 1 and August
         1, commencing August 1, 2002, in accordance with the schedule set forth
         in Exhibit A-2 attached hereto and made a part hereof,  as the same may
         be amended or modified by any credits applicable to the Borrower as set
         forth in the Bond Resolution; and

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

          The  obligations  of the  Borrower  under the  Borrower  Bond shall be
deemed to be amounts  payable  under this  Section  3.03.  Each Loan  Repayment,
whether  satisfied through a direct payment by the Borrower to the Loan Servicer
or (with respect to the Interest Portion) through the use of Trust Bond proceeds
and income  thereon on deposit in the  Interest  Account (as defined in the Bond

                                      -24-
<PAGE>

Resolution)  to pay interest on the Trust Bonds,  shall be deemed to be a credit
against the corresponding obligation of the Borrower under this Section 3.03 and
shall fulfill the Borrower's  obligation to pay such amount  hereunder and under
the  Borrower  Bond.  Each payment  made to the Loan  Servicer  pursuant to this
Section  3.03  shall be  applied  first  to the  Interest  Portion  then due and
payable,  second to the principal of the Loan then due and payable, third to the
payment  of the  Administrative  Fee,  and  finally  to the  payment of any late
charges hereunder.

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

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

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

          (e)  The  Interest  on  the  Loan  described  in  clause  (ii)  of the
definition  thereof  shall be paid by the  Borrower in the amount of one-half of
the  Administrative  Fee,  if any,  to the Loan  Servicer  semiannually  on each
February 1 and August 1,  commencing  February  1, 2002,  during the term of the
Loan.

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

          SECTION  3.04.  Unconditional  Obligations.   The  obligation  of  the

                                      -25-
<PAGE>

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

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

          The Borrower  acknowledges that payment of the Trust Bonds from moneys
that were  originally  received  by the Loan  Servicer  from  repayments  by the
Borrowers of loans made to the Borrowers by the State, acting by and through the

                                      -26-
<PAGE>

New Jersey Department of Environmental  Protection,  pursuant to loan agreements
dated as of November 1, 2001 by and between the Borrowers and the State,  acting
by and through the New Jersey Department of Environmental Protection, to finance
or  refinance  a  portion  of  the  cost  of  the  Environmental  Infrastructure
Facilities of the Borrowers, and which moneys were upon such receipt by the Loan
Servicer  deposited in the Trust Bonds Security  Account (as defined in the Bond
Resolution),  does not  constitute  payment of the  amounts  due under this Loan
Agreement and the Borrower Bond.

          SECTION  3.05.  Loan  Agreement to Survive Bond  Resolution  and Trust
Bonds. The Borrower  acknowledges  that its duties,  covenants,  obligations and
agreements  hereunder  shall  survive  the  discharge  of  the  Bond  Resolution
applicable to the Trust Bonds and shall survive the payment of the principal and
redemption  premium,  if any,  of and the  interest on the Trust Bonds until the
Borrower  can take no action or fail to take any  action  that  could  adversely
affect the  exclusion  from gross  income of the interest on the Trust Bonds for
federal  income tax purposes  under  Section 103 of the Code, at which time such
duties, covenants,  obligations and agreements hereunder shall, except for those
set forth in Sections 3.06(a) and (b) hereof, terminate.

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

          (b) It is mutually  agreed by the Borrower,  the Trust and the Trustee
that the Trust and its  officers,  agents,  servants or  employees  shall not be
liable for, and shall be  indemnified  and saved harmless by the Borrower in any
event from, any action performed under this Loan Agreement and any claim or suit

                                      -27-
<PAGE>

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

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

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

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

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

                                      -28-
<PAGE>

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

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

          (b) The Borrower  hereby  acknowledges  that in the event the Borrower
fails or is unable  to pay  promptly  to the  Trust in full any Trust  Bond Loan
Repayments under this Loan Agreement when due, then any (i)  Administrative  Fee
paid hereunder, (ii) late charges paid hereunder, and (iii) loan repayments paid
by the Borrower on its Fund Loan under the related loan agreement therefor,  any
of which payments shall be received by the Loan Servicer  during the time of any
such Trust Bond Loan Repayment deficiency, shall be applied by the Loan Servicer
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 (i)  according to Section 3(c) of the Loan  Servicing and Trust
Bonds Security  Agreement (as defined in the definition of Loan Servicer herein)
and (ii) according to the provisions of the Master Program Trust Agreement.

                                      -29-
<PAGE>

                                   ARTICLE IV

                 ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

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

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

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

          SECTION 4.02. Assignment by Borrower.  Neither this Loan Agreement nor
the Borrower  Bond may be assigned by the  Borrower  for any reason,  unless the
following  conditions  shall be  satisfied:  (i) the Trust and the Trustee shall
have approved said assignment in writing; (ii) the assignee shall have expressly
assumed in writing  the full and  faithful  observance  and  performance  of the
Borrower's  duties,  covenants,  obligations  and  agreements  under  this  Loan
Agreement and, to the extent  permitted under applicable law, the Borrower Bond;
(iii) immediately after such assignment, the assignee shall not be in default in
the  observance  or  performance  of  any  duties,  covenants,   obligations  or
agreements of the Borrower  under this Loan  Agreement or the Borrower Bond; and

                                      -30-
<PAGE>

(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.

                                      -31-
<PAGE>

                                   ARTICLE V

                         EVENTS OF DEFAULT AND REMEDIES

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

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

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

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

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

          (e) a petition is filed by or against the  Borrower  under any federal
or state bankruptcy or insolvency law or other similar law in effect on the date
of this Loan  Agreement or  thereafter  enacted,  unless in the case of any such
petition  filed  against the Borrower such  petition  shall be dismissed  within
thirty  (30) days after such  filing and such  dismissal  shall be final and not
subject to appeal;  or the Borrower shall become  insolvent or bankrupt or shall
make an assignment for the benefit of its creditors;  or a custodian (including,

                                      -32-
<PAGE>

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

          (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

                                      -33-
<PAGE>

due hereunder or in the  enforcement  of the  observation  or performance of any
other duties, covenants, obligations or agreements of the Borrower upon an Event
of Default.

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

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

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

                                      -34-
<PAGE>

                                   ARTICLE VI

                                  MISCELLANEOUS

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

         (a)      Trust:

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

         (b)      Trustee:

                           The Bank of New York
                           385 Rifle Camp Road
                           West Paterson, New Jersey  07424
                           Attention:  Corporate Trust Department

         (c)      Loan Servicer:

                           Commerce Bank, National Association
                           1701 Route 70 East
                           Cherry Hill, New Jersey 08034
                           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

                                      -35-
<PAGE>

Borrower and without the  satisfaction  of all  conditions  set forth in Section
11.12  of the Bond  Resolution.  Notwithstanding  the  conditions  set  forth in
Section 11.12 of the Bond Resolution, (i) Section 2.02(p) hereof may be amended,
supplemented  or modified upon the written consent of the Trust and the Borrower
and without the consent of the  Trustee,  any Bond Insurer or any holders of the
Trust Bonds, and (ii) Exhibit H hereto may be amended,  supplemented or modified
prior  to the  execution  and  delivery  thereof  as  the  Trust,  in  its  sole
discretion,  shall  determine to be necessary,  desirable or convenient  for the
purpose of  satisfying  Rule 15c2-12 and the purpose and intent  thereof as Rule
15c2-12,  its purpose and intent may hereafter be interpreted  from time to time
by the  SEC  or  any  court  of  competent  jurisdiction,  and  such  amendment,
supplement or  modification  shall not require the consent of the Borrower,  the
Trustee, any Bond Insurer or any holders of the Trust Bonds.

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

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

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

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

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

          SECTION 6.10. Further  Assurances.  The Borrower shall, at the request

                                      -36-
<PAGE>

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.

                                      -37-
<PAGE>

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

                                                NEW JERSEY ENVIRONMENTAL
                                                  INFRASTRUCTURE TRUST

[SEAL]

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

_____________________________
Robert A. Briant
Secretary

                                                MIDDLESEX WATER COMPANY

[SEAL]

                                                By:_s/DGS__________________
ATTEST:                                               Authorized Officer

_s/MFR_______________________
Authorized Officer

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

                                                By:________________________
                                                      Peter Lawrance
                                                      Acting State Treasurer

                                [Signature Page]Exhibit 10.24

                                 M O R T G A G E

                       TWENTY-NINTH SUPPLEMENTAL INDENTURE

                             MIDDLESEX WATER COMPANY

                                       TO

                            FIRST UNION NATIONAL BANK
                                     Trustee

                          Dated as of January 15, 2002

                                                     Record and Return to:

                                                     Peter D. Hutcheon, Esq.
                                                     Norris, McLaughlin & Marcus
                                                     721 Route 202/206
                                                     P.O. Box 1018
                                                     Somerville, NJ  08876
                                                     (908) 722-0700

Prepared By:________________________
                    Peter D. Hutcheon, Esq.

<PAGE>

          THIS TWENTY-NINTH  SUPPLEMENTAL  INDENTURE,  dated as of the Fifteenth
day of January 2002,  between MIDDLESEX WATER COMPANY,  a corporation  organized
and  existing  under the laws of the State of New Jersey,  having its  principal
office  in the  Township  of  Iselin,  New  Jersey  (herein  called  the  "Water
Company"),  and FIRST UNION  NATIONAL  BANK, (as successor to Meridian Bank, the
successor to United  Counties  Trust  Company in turn the successor to the Union
County Trust  Company),  a corporation  organized and existing under the laws of
the United States, having its principal New Jersey corporate trust office in the
Town of  Morristown,  New Jersey,  as Trustee  under the  Indenture  of Mortgage
hereinafter mentioned (herein called the "Trustee"):

          WHEREAS, on April 1, 1927, Water Company executed and delivered to the
Trustee an Indenture of Mortgage  (herein  called the  "Mortgage") to secure its
First and  Refunding  Mortgage  Gold Bonds,  Series A, 5-1/2%,  which bonds have
since been redeemed by Water Company,  and which Mortgage provides that bonds of
other  series may be issued  under and  pursuant  to an  indenture  supplemental
thereto; and

          WHEREAS,  on May 14, 1935, Water Company executed and delivered to the
Trustee a  Supplemental  Indenture  to secure its First and  Refunding  Mortgage
Bonds, Series B, 4-1/2%,  which Supplemental  Indenture,  prior to the execution
and delivery  hereof,  was satisfied and  discharged of record,  no bonds having
been issued thereunder; and

          WHEREAS,  as of October 1, 1939,  Water Company executed and delivered
to the Trustee a Second  Supplemental  Indenture of Mortgage  (herein called the
"Second  Supplemental  Indenture")  to secure its First and  Refunding  Mortgage
3-3/4% Bonds,  Series C (herein  called the "Series C Bonds"),  which bonds were
paid at  maturity  by Water  Company,  and  otherwise  modifying,  amending  and
supplementing the Mortgage; and

          WHEREAS,  as of April 1, 1946, Water Company executed and delivered to
the Trustee a Third Supplemental Indenture of Mortgage (herein called the "Third
Supplemental  Indenture")  to secure its First and Refunding  Mortgage 3% Bonds,
Series D (herein called the "Series D Bonds"), which bonds were paid at maturity
by Water  Company,  and  otherwise  modifying,  amending and  supplementing  the
Mortgage; and

          WHEREAS,  as of April 1, 1949, Water Company executed and delivered to
the  Trustee a Fourth  Supplemental  Indenture  of Mortgage  (herein  called the
"Fourth  Supplemental  Indenture")  to secure its First  Mortgage  3-1/2% Bonds,
Series E (herein called the "Series E Bonds"), which bonds were paid at maturity
by Water  Company,  and  otherwise  modifying,  amending and  supplementing  the
Mortgage; and

                                       1
<PAGE>

          WHEREAS,  as of February 1, 1955, Water Company executed and delivered
to the Trustee a Fifth  Supplemental  Indenture of Mortgage  (herein  called the
"Fifth  Supplemental  Indenture")  to secure its First  Mortgage  3-5/8%  Bonds,
Series F (herein called the "Series F Bonds"), which bonds were paid at maturity
by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of December 1, 1959, Water Company executed and delivered
to the Trustee a Sixth  Supplemental  Indenture of Mortgage  (herein  called the
"Sixth  Supplemental  Indenture")  to secure its First  Mortgage  5-3/4%  Bonds,
Series G (herein  called  the  "Series G  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of January 15, 1963, Water Company executed and delivered
to the Trustee a Seventh  Supplemental  Indenture of Mortgage (herein called the
"Seventh  Supplemental  Indenture") to secure its First  Mortgage  4-1/2% Bonds,
Series H (herein called the "Series H Bonds"), which bonds were paid at maturity
by Water Company and otherwise supplementing the Mortgage; and

          WHEREAS,  as of July 1, 1964,  Water Company executed and delivered to
the Trustee,  an Eighth  Supplemental  Indenture of Mortgage  (herein called the
"Eighth  Supplemental  Indenture")  to secure its First  Mortgage 4 3/4%  Bonds,
Series I (herein  called  the  "Series I  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of June 1, 1965,  Water Company executed and delivered to
the Trustee a Ninth Supplemental Indenture of Mortgage (herein called the "Ninth
Supplemental  Indenture")  to secure its First Mortgage  4-3/4% Bonds,  Series J
(herein  called the "Series J Bonds"),  which bonds have since been  redeemed by
Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of February 1, 1968, Water Company executed and delivered
to the Trustee a Tenth  Supplemental  Indenture of Mortgage  (herein  called the
"Tenth  Supplemental  Indenture")  to secure its First  Mortgage  6-3/4%  Bonds,
Series K (herein called the "Series K Bonds"),  and otherwise  supplementing the
Mortgage; and

          WHEREAS,  as of December 1, 1968, Water Company executed and delivered
to the Trustee an Eleventh Supplemental Indenture of Mortgage (herein called the
"Eleventh  Supplemental  Indenture") to secure its First Mortgage  6-7/8% Bonds,
Series L (herein  called  the  "Series L  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of December 1, 1970, Water Company executed and delivered
to the Trustee a Twelfth  Supplemental  Indenture of Mortgage (herein called the

                                       2
<PAGE>

"Twelfth Supplemental Indenture") to secure its First Mortgage 10% Bonds, Series
M (herein called the "Series M Bonds"),  which bonds have since been redeemed by
Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of December 1, 1972, Water Company executed and delivered
to the Trustee a Thirteenth  Supplemental  Indenture of Mortgage  (herein called
the  "Thirteenth  Supplemental  Indenture") to secure its First Mortgage  8-1/8%
Bonds,  Series N (herein  called the  "Series N Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of April 1, 1979, Water Company executed and delivered to
the Trustee a Fourteenth  Supplemental  Indenture of Mortgage (herein called the
"Fourteenth  Supplemental  Indenture")  to secure its First  Mortgage  7% Bonds,
Series 0 (herein  called  the  "Series 0  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of April 1, 1983, Water Company executed and delivered to
the Trustee a Fifteenth  Supplemental  Indenture of Mortgage  (herein called the
"Fifteenth Supplemental  Indenture") to secure its First Mortgage 10-1/2% Bonds,
Series P (herein  called  the  "Series P  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS, as of August 1, 1988, Water Company executed and delivered to
the Trustee a Sixteenth  Supplemental  Indenture of Mortgage  (herein called the
"Sixteenth  Supplemental  Indenture")  to secure  its First  Mortgage  8% Bonds,
Series Q (herein  called  the  "Series Q  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

          WHEREAS,  as of June 15, 1991, Water Company executed and delivered to
the Trustee a Seventeenth  Supplemental Indenture of Mortgage (herein called the
"Seventeenth  Supplemental Indenture") to secure its First Mortgage 7.25% Bonds,
Series R (herein  called the "Series R Bonds") and otherwise  supplementing  the
Mortgage; and

          WHEREAS,  as of March 1, 1993, Water Company executed and delivered to
the Trustee a Supplementary  Indenture of Mortgage to the Fifteenth Supplemental
Indenture  of  Mortgage  (herein  called  the  "Supplementary  Indenture  to the
Fifteenth  Supplemental  Indenture") to secure its First Mortgage 2 7/8%, Series
P-1 (herein called the "Series P-1 Bonds"), which bonds have since been redeemed
by Water Company, and otherwise supplementing the Mortgage.

          WHEREAS, as of September 1, 1993, Water Company executed and delivered
to the Trustee an Eighteenth  Supplemental  Indenture of Mortgage (herein called

                                       3
<PAGE>

the  "Eighteenth  Supplemental  Indenture")  to secure its First  Mortgage 5.20%
Bonds,   Series  S  (herein   called  the  "Series  S  Bonds"),   and  otherwise
supplementing the Mortgage; and

          WHEREAS, as of September 1, 1993, Water Company executed and delivered
to the Trustee a Nineteenth  Supplemental  Indenture of Mortgage  (herein called
the  "Nineteenth  Supplemental  Indenture")  to secure its First  Mortgage 5.25%
Bonds,   Series  T  (herein   called  the  "Series  T  Bonds"),   and  otherwise
supplementing the Mortgage; and

          WHEREAS,  as of January 1, 1994,  Water Company executed and delivered
to Trustee a Twentieth  Supplemental  Indenture of Mortgage  (herein  called the
"Twentieth  Supplemental  Indenture")  to secure its First  Mortgage 6.4% Bonds,
Series U (herein called the "Series U Bonds"),  and otherwise  supplementing the
Mortgage; and

          WHEREAS,  as of January 1, 1994,  Water Company executed and delivered
to Trustee a Twenty-First  Supplemental Indenture of Mortgage (herein called the
"Twenty-First Supplemental Indenture") to secure its First Mortgage 5.25% Bonds,
Series V (herein called the "Series V Bonds"),  and otherwise  supplementing the
Mortgage; and

          WHEREAS,  as of March 1, 1998, Water Company executed and delivered to
Trustee a Twenty-Second  Supplemental  Indenture of Mortgage  (herein called the
"Twenty-Second  Supplemental  Indenture")  to secure  its First  Mortgage  5.35%
Bonds,   Series  W  (herein   called  the  "Series  W  Bonds"),   and  otherwise
supplementing the Mortgage; and

          WHEREAS,  as of October 15, 1998, Water Company executed and delivered
to Trustee a Twenty-Third  Supplemental Indenture of Mortgage (herein called the
"Twenty-Third  Supplemental  Indenture")  to secure its First  Mortgage 0% Bond,
Series X (herein called the "Series X Bond"),  and otherwise  supplementing  the
Mortgage; and

          WHEREAS,  as of October 15, 1998, Water Company executed and delivered
to Trustee a Twenty-Fourth Supplemental Indenture of Mortgage (herein called the
"Twenty-Fourth  Supplemental  Indenture") to secure its First Mortgage Scheduled
Interest Rate Bond, Series Y (herein called the "Series Y Bond"),  and otherwise
supplementing the Mortgage; and

          WHEREAS,  as of October 15, 1999, Water Company executed and delivered
to Trustee a Twenty-Fifth  Supplemental Indenture of Mortgage (herein called the
"Twenty-Fifth  Supplemental  Indenture")  to secure its First  Mortgage 0% Bond,
Series Z (herein called the "Series Z Bond"),  and otherwise  supplementing  the
Mortgage; and

                                       4
<PAGE>

          WHEREAS,  as of October 15, 1999, Water Company executed and delivered
to Trustee a Twenty-Sixth  Supplemental Indenture of Mortgage (herein called the
"Twenty-Sixth  Supplemental  Indenture") to secure its First Mortgage  Scheduled
Interest  Rate Bond,  Series AA  (herein  called  the  "Series  AA  Bond"),  and
otherwise supplementing the Mortgage; and

          WHEREAS,  as of October 15, 2001, Water Company executed and delivered
to Trustee a  Twenty-Seventh  Supplemental  Indenture of Mortgage (herein called
the  "Twenty-Seventh  Supplemental  Indenture")  to secure its First Mortgage 0%
Bond,   Series  BB  (herein   called  the  "Series  BB  Bond"),   and  otherwise
supplementing the Mortgage; and

          WHEREAS,  as of October 15, 2001, Water Company executed and delivered
to Trustee a Twenty-Eighth Supplemental Indenture of Mortgage (herein called the
"Twenty-Eighth  Supplemental  Indenture") to secure its First Mortgage Scheduled
Interest  Rates  Bond,  Series CC  (herein  called the  "Series  CC Bond"),  and
otherwise supplementing the Mortgage; and

          WHEREAS, Water Company deems it necessary to borrow money and to issue
its bonds  therefor,  to be secured  by the  Mortgage,  the Second  Supplemental
Indenture,  the Third Supplemental Indenture, the Fourth Supplemental Indenture,
the Fifth Supplemental Indenture,  the Sixth Supplemental Indenture, the Seventh
Supplemental   Indenture,   the  Eighth   Supplemental   Indenture,   the  Ninth
Supplemental  Indenture,   the  Tenth  Supplemental   Indenture,   the  Eleventh
Supplemental  Indenture,  the Twelfth  Supplemental  Indenture,  the  Thirteenth
Supplemental Indenture,  the Fourteenth  Supplemental  Indenture,  the Fifteenth
Supplemental Indenture,  the Sixteenth Supplemental  Indenture,  the Seventeenth
Supplemental   Indenture,   the   Supplementary   Indenture  to  the   Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,   the   Twenty-Sixth,   the   Twenty-Seventh,   the  Twenty-Eighth
Supplemental Indentures and by this Twenty-Ninth Supplemental Indenture;

          WHEREAS,  Water  Company  desires to authorize  and create a series of
bonds  under  which a  single  bond  shall be  issued  limited  to an  aggregate
principal  amount of $6,000,000.00  designated  Series DD and to be known as its
"First Mortgage 5.10% Bonds, Series DD" (herein called the "Series DD Bond"), it
being the intention of the parties that the Series DD Bond shall,  together with
all other  Bonds  issued  under the  Mortgage  and all  indentures  supplemental
thereto, be entitled to priority over all other obligations of the Water Company
and  shall be  secured  by a prior  first  lien on all the  mortgaged  property,
subject  only to the prior liens  specifically  permitted  under the Mortgage or
under any indenture supplemental thereto; and

                                       5
<PAGE>

          WHEREAS,  Water  Company  desires  that the  Series DD Bonds  shall be
issued to refund the Company's  Series R Bonds,  the proceeds of which were used
to finance the construction  and installation of water and functionally  related
equipment, distribution, storage facilities and transmission main facilities and
the expansion of existing water treatment  facilities,  all of which was for the
purpose  of  supplying  water to the  Project  Municipalities  (as such  term is
defined in the below defined Authority Loan Agreement) located within the County
of Middlesex,  New Jersey (the "Project  Facilities" or the  "Project"),  and to
support  payment of principal of and  interest on the Water  Facilities  Revenue
Refunding Bonds, Series 2002 (Middlesex Water Company Project) issued by the New
Jersey Economic Development  Authority (herein the "Authority Bonds") and to pay
all other  amounts due under the Loan  Agreement  ("Authority  Loan  Agreement")
dated as of January 15, 2002, by and between the New Jersey Economic Development
Authority and Water Company; and

          WHEREAS,  Water  Company  represents  that all  acts  and  proceedings
required  by law and by the Charter  and  By-Laws of Water  Company,  and by the
Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth,
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth  Supplemental  Indenture,  and the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the Twenty-Sixth,  the Twenty-Seventh and the
Twenty-Eighth  Supplemental  Indentures (to the extent applicable)  necessary to
make the Series DD Bond,  when  executed  by Water  Company,  authenticated  and
delivered  by the  Trustee,  and duly  issued,  the  valid,  binding  and  legal
obligations of Water Company and to constitute  this  Twenty-Ninth  Supplemental
Indenture a valid and binding supplement to the Mortgage and the Second,  Third,
Fourth,  Fifth,  Sixth,  Seventh,  Eighth,  Ninth,  Tenth,  Eleventh,   Twelfth,
Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth,   Seventeenth   Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth,  the Twenty-Seventh and the Twenty-Eighth  Supplemental Indentures
in accordance with its and their terms, for the security of all bonds issued and
which may  hereafter  be issued  pursuant  to the  Mortgage  and all  indentures
supplemental  thereto,  have  been done and  performed;  and the  execution  and
delivery of this Twenty-Ninth  Supplemental  Indenture have been in all respects
duly authorized;

          NOW   THEREFORE,   THIS   INDENTURE   WITNESSETH,   that  for  and  in
consideration  of the  premises,  and of the sum of One Dollar  ($1.00),  lawful
money of the United States of America, by each of the parties paid to the other,

                                       6
<PAGE>

at or before the delivery  hereof,  and for other  valuable  consideration,  the
receipt  and  sufficiency  whereof is hereby  acknowledged,  Water  Company  has
executed  and  delivered  this  Twenty-Ninth  Supplemental  Indenture,  and  has
granted,  bargained,  sold, aliened,  enfeoffed,  conveyed and confirmed, and by
these presents does grant, bargain,  sell, alien,  enfeoff,  convey and confirm,
unto to the Trustee,  its successors and assigns  forever,  all real property of
Water  Company,   together  with  all  appurtenances   and  contracts,   rights,
privileges,  permits  and  franchises  used or  useful  in  connection  with the
business of the Water  Company as a water  company or as a water utility or used
directly for the purpose of supplying water, granted,  bargained, sold, aliened,
enfeoffed,  conveyed  and  confirmed  unto the Trustee by the  Mortgage  and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  and  the  Supplementary  Indenture  to the  Fifteenth  Supplemental
Indenture and the Eighteenth,  the Nineteenth,  the Twentieth, the Twenty-First,
the Twenty-Second,  the Twenty-Third,  the Twenty-Fourth,  the Twenty-Fifth, the
Twenty-Sixth,  the Twenty-Seventh and the Twenty-Eighth Supplemental Indentures,
or intended to be (including  without  limitation all such property  acquired by
Water Company since October 15, 2001,  and all such property which Water Company
may hereafter  acquire),  subject,  however,  to Permissible  Encumbrances,  and
excepting all Property heretofore released from the lien of the Mortgage and the
indentures  supplemental  thereto,  and  excepting all property of Water Company
which is not used or useful in  connection  with its business as a water company
or as a water  utility  as well as all  personal  property  (both  tangible  and
intangible)  as to which a security  interest  may not be  perfected by a filing
under the Uniform Commercial Code as in effect in the State of New Jersey;

          TO HAVE AND TO HOLD all and singular the above granted property,  unto
the Trustee, its successors and assigns forever, IN TRUST, nevertheless, for the
equal and proportionate use, benefit,  security and protection of those who from
time to time  shall hold any bonds  which  have been or may be issued  under the
Mortgage or any  indenture  supplemental  thereto,  without any  discrimination,
preference  or  priority of any one bond over any other by reason of priority in
the time of issue, sale or negotiation thereof or otherwise, except as otherwise
in the Mortgage or in any indenture  supplemental thereto provided; and in trust
for  enforcing  the payment of the  principal of and the interest on such bonds,
according to the tenor,  purport and effect of the bonds and of the Mortgage and
all  indentures  supplemental  thereto and for enforcing the terms,  provisions,
covenants  and  stipulations  therein  and in the bonds set forth;  and upon the
trust, uses and purposes and subject to the covenants, agreements and conditions
set forth and declared in the Mortgage as modified,  amended and supplemented by
all indentures supplemental thereto;

                                       7
<PAGE>

          AND the parties do hereby covenant and agree that the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth,  the Twenty-Seventh and the Twenty-Eighth  Supplemental Indentures
be and hereby  are  supplemented  as  hereinafter  provided,  and that the above
granted property is to be held and applied subject to the covenants, conditions,
uses and trusts set forth in the Mortgage, as modified, amended and supplemented
by such Supplemental  Indentures and this Twenty-Ninth  Supplemental  Indenture;
and Water Company for itself and its successors  does hereby  covenant and agree
to and with the Trustee, and its successors in said trust, for the equal benefit
of all present  and future  holders and  registered  owners of the bonds  issued
under the Mortgage and all indentures supplemental thereto, as follows:

                                    ARTICLE I
                      First Mortgage 5.10% Bonds, Series DD

          Section 1. Water Company hereby creates a series of bonds to be issued
under and secured by the Mortgage,  the Second,  Third,  Fourth,  Fifth,  Sixth,
Seventh,  Eighth,  Ninth,  Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,
Fifteenth, Sixteenth, and Seventeenth Supplemental Indentures, the Supplementary
Indenture  to  the  Fifteenth  Supplemental  Indenture,   the  Eighteenth,   the
Nineteenth,   the  Twentieth,   the   Twenty-First,   the   Twenty-Second,   the
Twenty-Third,  the  Twenty-Fourth,   the  Twenty-Fifth,  the  Twenty-Sixth,  the
Twenty-Seventh  and  the  Twenty-Eighth  Supplemental  Indentures  and  by  this
Twenty-Ninth  Supplemental  Indenture,  and  to  be  designated  as,  and  to be
distinguished  from the bonds of all other series by the title,  "First Mortgage
5.10% Bonds,  Series DD". The Series DD Bonds shall be issued only as registered
bonds  without  coupons in  denominations  of $5,000 and any  integral  multiple
thereof;  shall be dated January 15, 2002; and shall be issued in non-negotiable
form to THE BANK OF NEW YORK,  as trustee  under a Trust  Indenture  dated as of
January 15, 2002 (the "Trust  Indenture") by and between the New Jersey Economic
Development  Authority  (the  "Authority")  and THE BANK OF NEW YORK, as trustee
(the "Loan  Trustee") with respect to the Authority  Bonds.  The Series DD Bonds
shall bear interest  from the date of issuance of the Series DD Bonds,  computed
on the basis of a 360-day  year  composed  of twelve  30-day  months,  until the
obligations  of Water Company with respect to the payment of principal  shall be
discharged,  at the rate of five and ten  one-hundredths  per cent  (5_.10%) per

                                       8
<PAGE>

annum, payable  semi-annually on the Business Day prior to January 1 and July 1,
in each year,  commencing  the Business  Day prior to July 1, 2002;  shall state
that,  subject  to  certain   limitations,   the  Mortgage  and  all  indentures
supplemental thereto may be modified, amended or supplemented as provided in the
Mortgage as  heretofore  supplemented;  shall  mature on January 1, 2032,  which
payment shall be made on the business day prior to January 1, 2032, and shall be
redeemable  (i) at the option of the Water Company with, to the extent  required
by the November 20, 2001 Order of the Board of Public  Utilities of the State of
New Jersey ("BPU") and/or required by then applicable law and  regulations,  the
prior  approval of the BPU, at any time on and after  January 1, 2012 upon prior
written  notice to the holder of the bonds  given by the  Trustee  upon  written
request of the Water Company,  at the applicable  redemption  price shown in the
following table  expressed as a percentage of the principal  amount redeemed set
opposite the period during which such redemption  occurs,  plus interest accrued
to the redemption date:

                    Period
           (Both Dates Inclusive)             Redemption Price

Issue date - December 31, 2011              Not Optionally Redeemable
January 1, 2012 to December 31, 2012        101%
January 1, 2013 and thereafter              100%

          and (ii) at the principal  amount thereof plus accrued interest to the
date fixed for redemption pursuant to the provisions set forth hereinafter under
the captions "Mandatory Redemption" and "Special Mandatory  Redemption";  and at
the  principal  amount  thereof  plus  accrued  interest  to the date  fixed for
redemption,  pursuant to the provisions set forth hereinafter under the captions
"Extraordinary  Mandatory  Redemption" and "Extraordinary  Optional Redemption";
and at the redemption price for the Authority Bonds plus accrued interest to the
date fixed for redemption  pursuant to the provision set forth hereinafter under
the caption "Mandatory Redemption in the Event of Redemption of Authority Bonds"
(as  hereinafter  defined)  if  redeemed  pursuant  to the  provision  set forth
hereinafter under the caption  "Mandatory  Redemption in the Event of Redemption
of  Authority  Bonds."  The Series DD Bonds shall not be  transferrable  and the
Trustee  shall not effect a transfer  except as required to effect a transfer or
an  assignment  to a  successor  trustee  and  except to effect an  exchange  in
connection with a bankruptcy, reorganization,  insolvency, or similar proceeding
involving  Water  Company and except to effect an exchange  in  connection  with
prepayment by redemption or otherwise of the Series DD Bonds.

          In addition to any other  default  provided for under the Mortgage and
the  Second,  Third,  Fourth,  Fifth,  Sixth,  Seventh,  Eighth,  Ninth,  Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth,
Supplemental  Indentures  and  the  Supplementary  Indenture  to  the  Fifteenth

                                       9
<PAGE>

Supplemental Indenture and the Eighteenth,  Nineteenth, Twentieth, Twenty-First,
Twenty-Second,    Twenty-Third,   Twenty-Fourth,   Twenty-Fifth,   Twenty-Sixth,
Twenty-Seventh and Twenty-Eighth  Supplemental Indentures, it shall be a default
under this  Twenty-Ninth  Supplemental  Indenture if (a) payment of principal of
the Series DD Bond shall not be made when the same shall  become due and payable
at maturity,  upon redemption or otherwise;  or (b) payment of an installment of
interest on the Series DD Bond shall not be made when the same shall  become due
and payable and shall continue unpaid for a period of ten (10)  consecutive days
thereafter.

         Mandatory Redemption

          The Series DD Bonds are subject to mandatory redemption in whole or in
part at any time prior to  maturity  pursuant  to  subsection  B of Section 4 of
Article VIII of the Second Supplemental Indenture.

         Special Mandatory Redemption

          The  Series DD Bond is subject to  special  mandatory  redemption,  in
whole,  or in part as  described  below,  at any  time  prior to  maturity  at a
redemption  price equal to the  principal  amount  thereof to be  redeemed  plus
accrued interest to the redemption date, if (i) funds remain in the Project Fund
established under the Trust Indenture [hereinafter defined] after payment of all
costs of the  Project,  in which case the Series DD Bond is  redeemable  in part
from such funds or (ii) a final determination by the Internal Revenue Service or
a  final  judgment  is  rendered  by a  court  of  competent  jurisdiction  in a
proceeding,  which  determination  or  judgment  is not  being  contested  in an
appropriate proceeding brought directly by Water Company or by a holder of Water
Facilities  Revenue  Refunding  Bonds,  Series  2002  [Middlesex  Water  Company
Project] [the "Authority  Bonds"] issued by the New Jersey Economic  Development
Authority  [the  "Authority"]  to the effect that, as a result of the failure of
Water Company to perform and observe any covenant,  warranty,  representation or
agreement  contained in the Loan  Agreement  dated as of January 15, 2002 by and
between  Water Company and the Authority  (the "Loan  Agreement"),  the interest
payable on the Authority  Bonds is includable for Federal income tax purposes in
the gross  income of any holder of  Authority  Bonds  under  Section  103 of the
Internal  Revenue Code of 1986, as amended (the "Code") (other than a holder who
is a  "substantial  user" of the  Project  [as  defined  in the Trust  Indenture
hereinafter referred to] or a "related person" as provided for in Section 147(a)
of the  Code  and the  regulations  applicable  thereunder)  ("Determination  of
Taxability").  A Determination of Taxability will result only from the inclusion
of the interest paid or to be paid on any Authority Bond (except to a holder who

                                       10
<PAGE>

is a  "substantial  user" or a  "related  person")  in the gross  income of such
holder for Federal  income tax  purposes  under  Section 103 of the Code and not
from any other  federal tax  consequences  arising with respect to the Authority
Bonds.  Water  Company  shall  promptly  (1)  notify  the Loan  Trustee  of such
Determination  of Taxability and the date, which date must be within one hundred
eighty (180) days from the date of such determination of taxability but not less
than  sixty (60) days from the date the  notice  from Water  Company to the Loan
Trustee is mailed,  on which the Authority  Bonds shall be redeemed  pursuant to
the Trust  Indenture,  which date shall be the date for redemption of the Series
DD Bond;  and (2) on or prior to the date set for  redemption pay to the trustee
appointed  pursuant to the Trust  Indenture  dated as of January 15, 2002 by and
between the Authority and The Bank of New York, as trustee (the "Loan Trustee"),
a sum sufficient,  together with other funds deposited with the Loan Trustee and
available for such purpose,  to redeem all such Authority Bonds then outstanding
under the  Indenture  equal to the  principal  amount  thereof  plus the accrued
interest to the redemption date; provided, however, that if the Determination of
Taxability  shall  include the  determination  that the  interest on a principal
amount  which is less  than all of the  Authority  Bonds  then  outstanding,  is
includable  in the gross  income  of the  holders  thereof  and the loss of such
exemption can be cured by a partial redemption of the Authority Bonds, then only
such  principal  amount of the  Series DD Bonds  shall be  redeemed  as shall be
necessary to cure the loss of such exemption. No decree or judgment by any court
or action by the Internal  Revenue Service shall be considered  final unless the
holder of an Authority Bond involved in such  proceeding or action (1) has given
Water  Company  and  the  Loan  Trustee  prompt  written  notice  of  a  written
determination  by the Internal  Revenue Service (a 30-day or 90-day letter) that
interest on the Authority Bonds is includable in the gross income of such holder
under Section 103 of the Code,  and (2) offers Water Company the  opportunity to
contest the determination relating to the inclusion of interest on the Authority
Bonds in gross income;  provided,  however that Water Company shall be deemed to
have  waived its right to contest if it shall not agree to pay all  expenses  in
connection with such contest and to indemnify such holder against any additional
tax liability incurred as a result of such contest.

         Extraordinary Mandatory Redemption
         ----------------------------------

          The Series DD Bond is subject to extraordinary mandatory redemption in
whole prior to  maturity at a  redemption  price equal to the  principal  amount
thereof  outstanding  plus accrued  interest to the redemption date within sixty
(60) days of receipt by the Trustee of the  Authority's  written notice that any
one of the following events has occurred:

                                       11
<PAGE>

               (i) if Water Company ceases to operate the Project  Facilities or
causes the Project Facilities to cease to be operated as an authorized "project"
under the Act for twelve (12)  consecutive  months  without first  obtaining the
prior written consent of the Authority; or

               (ii) if any  representation or warranty made by the Water Company
in the Authority Loan Agreement or in any document  furnished in connection with
the  Authority  Loan  Agreement  shall  prove to be false or  misleading  in any
material respect when made.

         Extraordinary Optional Redemption
         ---------------------------------

          The Series DD Bonds may be redeemed at the option of Water  Company at
a redemption  price equal to the principal  amount thereof plus accrued interest
to the redemption date if any one of the following events has occurred:

               (i) as a result of any change in the  Constitution  of the United
States of America or of the State of New Jersey or of any final  legislative  or
executive  action of the United  States of America or of the State of New Jersey
or any political subdivision thereof or by final decree or judgment of any court
after the contest  thereof by Water Company,  the Authority Loan Agreement shall
have  become void or  unenforceable  or legally  impossible  of  performance  in
accordance  with the intent and purpose of the  Authority or Water  Company,  in
which case such redemption shall be in whole only at anytime and not in part, or

               (ii)  unreasonable  burdens or excessive  liabilities  shall have
been  imposed  upon Water  Company  by reason of the  operation  of the  Project
Facilities,  including, without limitation,  Federal, State or other ad valorem,
property,  income or other taxes,  not being imposed on the date of issuance and
delivery of the Authority  Bonds,  other than ad valorem taxes currently  levied
upon privately  owned property used for the same general  purpose as the Project
Facilities,  in which case such  redemption  shall be in whole at any time or in
part on any interest payment date.

         Mandatory Redemption in the Event of Redemption of Authority Bonds.
         -------------------------------------------------------------------

          In the event the Authority Bonds are called for redemption in whole or
in part in  accordance  with the terms  thereof,  the  Series DD Bonds  shall be
subject to mandatory  redemption  on the  redemption  date  established  for the
Authority Bonds in an aggregate  principal  amount equal to the principal amount
of Authority Bonds so called for redemption,  and at a redemption price equal to
the redemption price for the Authority Bonds.

                                       12
<PAGE>

          Section 2. The Series DD Bond and the certificate of authentication of
the Trustee to be executed thereon shall be substantially in the form prescribed
for  registered  bonds  without  coupons  in the Second  Supplemental  Indenture
(except that there may be deleted  therefrom  all  references to the issuance of
coupon  bonds in  exchange  therefor);  shall be in the  form  attached  to this
Twenty-Ninth  Supplemental Indenture as Exhibit A; and shall contain appropriate
references  to this  Twenty-Ninth  Supplemental  Indenture  in  addition  to the
Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth  Supplemental  Indentures  and the  Supplementary  Indenture  to the
Fifteenth  Supplemental  Indenture  and  the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the  Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh  and
Twenty-Eighth  Supplemental  Indentures and appropriate  changes with respect to
the aggregate principal amount,  interest rate, redemption dates and provisions,
and maturity date of the Series DD Bond, and with  appropriate  reference to the
provision  of  the  Fourth  Supplemental  Indenture  that,  subject  to  certain
limitations,  the  Mortgage  and  all  indentures  supplemental  thereto  may be
modified,  amended or  supplemented  only as provided in the Mortgage and except
that the Series DD Bond shall not contain any references to a sinking fund.

          Section 3. Subject to the  provisions  of the Mortgage and the Second,
Third, Fourth, Fifth, Sixth, Seventh,  Eighth, Ninth, Tenth, Eleventh,  Twelfth,
Thirteenth,   Fourteenth,  Fifteenth,  Sixteenth  and  Seventeenth  Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth,  the Twenty-Seventh and the Twenty-Eighth Supplemental Indentures,
forthwith  upon the  execution  and delivery of this  Twenty-Ninth  Supplemental
Indenture,  or from  time to time  thereafter,  Series  DD Bond in an  aggregate
principal amount of $6,000,000.00 may be executed by Water Company and delivered
to the Trustee for  authentication  and shall  thereupon  be  authenticated  and
delivered by the Trustee upon the written order of Water Company,  signed by its
President or a Vice President and its Treasurer or Assistant Treasurer,  in such
denominations  and  registered in such name or names as may be specified in such
written order.

          Section 4.  Sections  4(A)(iii) and (iv) of Article VIII of the Second
Supplemental  Indenture shall not be available to the Water Company with respect
to the Series DD Bond.  The Water  Company  shall issue its written  order under
Section 4(a)(i) or (ii), as the case may be,  reasonably  promptly after receipt
by the Trustee of proceeds of sale,  eminent  domain or insurance (not otherwise
to be paid  directly to the Company  under the Mortgage as  supplemented  by the

                                       13
<PAGE>

Supplemental Indentures including this Twenty-Ninth  Supplemental Indenture), so
as to avoid any risk that the Authority Bonds might be deemed  "arbitrage bonds"
under Section 148 of the Internal Revenue Code of 1986, as amended, or otherwise
adversely affect the tax treatment of the Authority Bonds.

          Section 5. The  obligations of Water Company under the Series DD Bonds
include the  payment of  sufficient  funds to permit the  payment of  reasonable
compensation  and expenses of the Loan Trustee under the Trust Indenture and all
other  amounts due under the Authority  Loan  Agreement and Section 10.04 of the
Trust Indenture.

                                   ARTICLE II
                                  Miscellaneous
                                  -------------

          Section 1. The  provisions  of the Mortgage as  modified,  amended and
supplemented by the Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth  Supplemental  Indenture  and  the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the Twenty-Sixth,  the Twenty-Seventh and the
Twenty-Eighth  Supplemental  Indentures,  and as modified  and  extended by this
Twenty-Ninth  Supplemental  Indenture are hereby  reaffirmed.  Except insofar as
they are inconsistent with the provisions hereof, the provisions of the Mortgage
and the Second,  Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth,  Ninth, Tenth,
Eleventh, Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth and Seventeenth
Supplemental  Indentures  and  the  Supplementary  Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,   the  Twenty-Sixth,  the  Twenty-Seventh  and  the  Twenty-Eighth

                                       14
<PAGE>

Supplemental Indentures with respect to the Series C, Series D, Series E, Series
F,  Series G, Series H, Series I, Series J, Series K, Series L, Series M, Series
N, Series O,  Series P,  Series Q,  Series R,  Series  P-1,  Series S, Series T,
Series U, Series V, Series W, Series X, Series Y, Series Z, Series AA, Series BB
and Series CC Bonds  shall  apply to the Series DD Bond to the same extent as if
they were set forth herein in full.  Unless there is something in the subject or
context repugnant to such  construction,  each reference in the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth,   Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth  and   Seventeenth
Supplemental   Indentures,   the   Supplementary   Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,   the  Twenty-Sixth,  the  Twenty-Seventh  and  the  Twenty-Eighth
Supplemental  Indentures to the Mortgage or any of such Supplemental  Indentures
shall  be  construed  as  also  referring  to  this  Twenty-Ninth   Supplemental
Indenture. The Mortgage and all indentures supplemental thereto may be modified,
amended or  supplemented by Water Company with prior notice by the Water Company
to but without the consent of any of the  bondholders  to accomplish any more of
the following:

                   (1)     to cure any ambiguity,  supply any omission,  or cure
                           or correct any defect or  inconsistent  provision  in
                           the Mortgage or any indenture supplemental thereto;

                   (2)     to cure any ambiguity,  supply any omission,  or cure
                           or  correct  any  defect  in any  description  of the
                           Mortgaged Property,  if such action is not adverse to
                           the interests of the bondholder;

                   (3)     to  insert  such  provisions  clarifying  matters  or
                           questions arising under the Mortgage or any indenture
                           supplemental  thereto as are  necessary  or desirable
                           and are not  contrary  to or  inconsistent  with  the
                           Mortgage or any indenture  supplemental thereto as in
                           effect; or

                   (4)     to  restate  the  Mortgage  as  supplemented  by  the
                           Supplemental   Indentures  as  a  single   integrated
                           document  which may add headings,  an index and other
                           provisions aiding the convenience of use.

The terms and  provisions of the Series DD Bond shall not be amended by, and the
Series DD Bond shall not be  entitled to the  benefit of any  covenant,  term or
condition contained in any subsequent supplemental indenture without the express
written concurrence of the Water Company.

          Section  2.  The  Trustee  shall  not be  responsible  in  any  manner
whatsoever  for  or  in  respect  of  the  validity  and   sufficiency  of  this
Twenty-Ninth Supplemental Indenture or the due execution hereof by Water Company
or for the recitals  contained  herein,  all of which recitals are made by Water
Company solely.

          Section 3. The Trustee hereby  accepts the trusts hereby  declared and
provided  and agrees to perform  the same upon the terms and  conditions  in the
Mortgage,  the Second,  Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth,  Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth Supplemental Indenture, the Eighteenth, the Nineteenth, Twentieth, the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the

                                       15
<PAGE>

Twenty-Fifth, the Twenty-Sixth,  the Twenty-Seventh,  the Twenty-Eighth and this
Twenty-Ninth Supplemental Indenture set forth.

          Section 4. The Trustee  hereby  authorizes  the Loan Trustee to accept
payments made by Water Company of principal of, premium, if any, and interest on
the Series DD Bonds.

          Section 5. This Twenty-Ninth  Supplemental Indenture has been executed
simultaneously in several counterparts and all of said counterparts executed and
delivered, each as an original, shall constitute one and the same instrument.

          Section 6.  Although this  Twenty-Ninth  Supplemental  Indenture,  for
convenience  and for the purpose of reference,  is dated as of January 15, 2002,
the actual  date of  execution  by Water  Company and the Trustee is as shown by
their respective acknowledgments hereto annexed, and the actual date of delivery
hereof by Water  Company  and the Trustee is the date of the closing of the sale
of the Series DD Bonds by Water Company.

          Section 7. In any case where the payment of principal of the Series DD
Bond or the date fixed for  redemption of any Series DD Bond shall be a Saturday
or Sunday or a legal holiday or a day on which banking  institutions in the City
of the  principal  corporate  trust  office of the Loan  Trustee is located  are
authorized by law to close,  then payment of interest or principal or redemption
price  need  not be made on such  date  but may be made on the  next  proceeding
business  day with the same force and effect as if made on the date of  maturity
or the date fixed for  redemption,  and no interest on such payment shall accrue
after such date.

                                       16
<PAGE>

          THE MORTGAGOR HEREBY DECLARES AND  ACKNOWLEDGES  THAT IT HAS RECEIVED,
WITHOUT CHARGE, A TRUE COPY OF THIS MORTGAGE.

          IN WITNESS  WHEREOF  said  MIDDLESEX  WATER  COMPANY has caused  these
presents to be signed by its  President  and its  corporate  seal to be hereunto
affixed, and duly attested by its Secretary;  and in testimony of its acceptance
of the trusts  created,  FIRST UNION NATIONAL BANK, has caused these presents to
be signed by its thereto duly authorized  officer or corporate trust officer and
its corporate seal to be hereunto  affixed and duly attested by its thereto duly
authorized  officer or  corporate  trust  officer,  as of the day and year first
above written.
ATTEST:                           MIDDLESEX WATER COMPANY

_________________________     By:_____________________________
Marion F. Reynolds                Dennis G. Sullivan
Vice President, Secretary         President
  and Treasurer

ATTEST:                           FIRST UNION NATIONAL BANK

----------------              By:_____________________________
Rick Barnes                       Thomas J. Brett
Assistant Vice President          Corporate Trust Officer

                                       17
<PAGE>

STATE OF NEW JERSEY:
                   :  ss:
COUNTY OF ESSEX    :

                  BE IT  REMEMBERED,  that on this  6th day of  February,  2002,
before me, the subscriber, personally appeared Marion F. Reynolds, who, being by
me duly sworn  according to law, on her oath deposes and says and makes proof to
my  satisfaction  that she is the Vice  President,  Secretary  and  Treasurer of
Middlesex Water Company, one of the corporations named in and which executed the
foregoing Twenty-Ninth Supplemental Indenture; that she is the attesting witness
to said  Twenty-Ninth  Supplemental  Indenture;  that she well knows the seal of
said  corporation  and that the seal  thereto  affixed is the  proper  common or
corporate seal of Middlesex Water Company;  that Dennis G. Sullivan is President
of said corporation;  that this deponent saw the said Dennis G. Sullivan as such
President sign said  Twenty-Ninth  Supplemental  Indenture,  and affix said seal
thereto and heard him declare that he signed,  sealed and  delivered the same as
the  voluntary act and deed of the said  corporation,  for the uses and purposes
therein  expressed,  he being  duly  authorized  by  resolution  of the Board of
Directors of the said corporation.

                                                    ____________________________
                                                    Marion F. Reynolds

Sworn and subscribed to
before me the day and year
aforesaid.

____________________________
Peter D. Hutcheon, Esq.
Attorney-At-Law, State of New Jersey

                                       18
<PAGE>

STATE OF NEW JERSEY:
                   :  ss:
COUNTY OF ESSEX    :

                  BE IT  REMEMBERED,  that on this  4th day of  February,  2002,
before me, the  subscriber,  personally  appeared Rick Barnes,  who, being by me
duly sworn  according to law, on his oath deposes and says and makes proof to my
satisfaction  that he is the Assistant  Vice  President of First Union  National
Bank,  one  of the  corporations  named  in and  which  executed  the  foregoing
Twenty-Ninth  Supplemental  Indenture;  that he is the attesting witness to said
Twenty-Ninth  Supplemental Indenture; that he well knows the seal of First Union
National  Bank and that  the  seal  thereto  affixed  is the  proper  common  or
corporate  seal of First  Union  National  Bank;  that  Thomas  J.  Brett is the
Corporate  Trust  Officer of said  corporation;  that this deponent saw the said
Thomas J. Brett, as Corporate Trust Officer sign said Twenty-Ninth  Supplemental
Indenture,  and affix said seal  thereto and heard him  declare  that he signed,
sealed  and  delivered  the  same  as the  voluntary  act and  deed of the  said
corporation,  for the  uses  and  purposes  therein  expressed,  he  being  duly
authorized by said corporation.

                                            __________________________
                                            Rick Barnes
                                            Assistant Vice President

Sworn and subscribed to
before me the day and year
aforesaid.

______________________________

                                 LOAN AGREEMENT
                                 --------------

          THIS LOAN AGREEMENT dated as of the first day of January, 2002, by and
between the NEW JERSEY  ECONOMIC  DEVELOPMENT  AUTHORITY  (the  "Authority"),  a
public body corporate and politic  constituting an  instrumentality of the State
of New Jersey and MIDDLESEX WATER COMPANY (the "Company").

          WHEREAS,   the  New  Jersey   Economic   Development   Authority  Act,
constituting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey,
approved on August 7, 1974, as amended and supplemented, (the "Act") declares it
to be in the  public  interest  and to be the  policy of the State of New Jersey

                                       19
<PAGE>

(the  "State")  to  foster  and  promote  the  economy  of the  State,  increase
opportunities for gainful  employment and improve living  conditions,  assist in
the economic  development or redevelopment of political  subdivisions within the
State, and otherwise contribute to the prosperity, health and general welfare of
the State and its inhabitants by inducing manufacturing, industrial, commercial,
recreational,  retail,  service and other  employment  promoting  enterprises to
locate,  remain  or  expand  within  the  State by  making  available  financial
assistance; and

          WHEREAS,  the  Authority,  to  accomplish  the purposes of the Act, is
empowered to extend credit to such employment promoting  enterprises in the name
of the Authority on such terms and  conditions and in such manner as it may deem
proper  for such  consideration  and  upon  such  terms  and  conditions  as the
Authority may determine to be reasonable; and

          WHEREAS,  the  Company  has  applied to the  Authority  for  financial
assistance in the aggregate  principal amount of $6,000,000,  the proceeds to be
used to refund the Authority's  Water Facilities  Revenue Bonds (Middlesex Water
Company  Project),  Series 1991 (the "Prior Bonds"),  the proceeds of which were
used to finance the  construction  and  installation  of water and  functionally
related equipment,  distribution facilities, storage facilities and transmission
main  facilities and the expansion of existing water treatment  facilities,  all
for the purpose of  supplying  water to the Project  Municipalities  (as defined
herein)  located  within  the County of  Middlesex,  New  Jersey  (the  "Project
Facilities" or the "Project"); and

          WHEREAS,  the Authority has by resolution,  duly adopted in accordance
with the Act on December 11, 2001, (the "Resolution") authorized the issuance of
$6,000,000  aggregate principal amount of its Water Facilities Revenue Refunding
Bonds (Middlesex Water Company Project), Series 2002 for the purpose of making a
loan to the Company to refinance the costs of the Project; and

          WHEREAS,  the  Authority  contemporaneously  with  the  execution  and
delivery of this Loan Agreement  shall enter into a Trust  Indenture dated as of
January 15, 2002 (the "Indenture") wherein the Authority has assigned certain of
its rights under this Loan  Agreement to the Trustee under the Indenture for the
benefit of the Holders from time to time of the Bonds; and

          WHEREAS,  the execution and delivery of this Loan  Agreement have been
duly  authorized  by the  parties  hereto  and all  conditions,  acts and things
necessary  and  required  by the  Constitution  or  statutes of the State of New
Jersey  or  otherwise  to exist,  to have  happened,  or to have been  performed
precedent to or in the execution  and delivery of this Loan  Agreement do exist,
have happened and have been performed.

          NOW,  THEREFORE,  in  consideration  of the  premises  and the  mutual
covenants  and  representations  herein,  and  intending to be legally bound the
parties hereto hereby mutually agree as follows:

                                       20
<PAGE>

                                    ARTICLE I

                                   DEFINITIONS
                                   -----------

          Section 1.01.  Definitions.  As used herein, the following terms shall
have the following  meanings unless a different meaning clearly appears from the
context and terms not otherwise  defined herein shall have the meaning  provided
in the Indenture:

          "Act" shall mean the New Jersey  Economic  Development  Authority Act,
constituting  Chapter 80 of the Pamphlet Laws of 1974 of the State,  approved on
August 7, 1974, as amended and supplemented;

          "AMT" shall mean the  alternative  minimum tax imposed on  individuals
and corporations by the Code;

          "Application" shall mean the Company's Application for Refunding NJEDA
Bonds to the Authority,  dated August 29, 2001, seeking financial assistance for
the Project,  and all attachments,  exhibits,  correspondence  and modifications
submitted in writing to the Authority in connection with said application;

          "Article"  shall mean a specified  article  hereof,  unless  otherwise
indicated;

          "Authority" shall mean the New Jersey Economic Development  Authority,
a public body  corporate  and politic  constituting  an  instrumentality  of the
State, exercising public and essential governmental functions and its successors
and assigns;

          "Authorized  Authority  Representative"  shall  mean  any  officer  or
officers  duly  authorized by the Authority to act on its behalf as set forth in
the definition of Authority Officer in the Indenture;

          "Authorized  Company  Representative"  shall  mean  any  officer  duly
authorized  by the  Company  in  writing  to act on its  behalf,  including  the
President,  any Vice President,  the Secretary, the Treasurer, and any Assistant
Treasurer of the Company;

          "Bond" or "Bonds" means the Authority's $6,000,000 aggregate principal
amount of Water  Facilities  Revenue  Refunding Bonds  (Middlesex  Water Company
Project), Series 2002 authenticated and delivered pursuant to the Indenture;

          "Bond Counsel" means St. John & Wayne,  L.L.C.,  or any other attorney
or firm of  attorneys  of  nationally  recognized  standing  on the  subject  of
municipal bonds;

          "Bondholder"  or the term "Holder" or any similar term, when used with
reference to a Bond or Bonds, means any person who shall be the registered owner
of any Bond or Bonds, respectively;

                                       21
<PAGE>

          "Bond Insurance Policy" means the financial  guaranty insurance policy
issued by the Bond Insurer insuring  payment,  when due, of the principal of and
interest on the Bonds, as provided therein;

          "Bond  Insurer"  means  AMBAC  Indemnity   Corporation,   a  Wisconsin
domiciled stock insurance company, or any successor thereto;

          "Bond  Proceeds"  shall mean the amount paid to the  Authority  by the
Underwriter as the purchase price of the Bonds, and accrued interest;

          "Bond Purchase Agreement" shall mean the bond purchase agreement dated
January 16, 2002 between the Underwriter, the Authority and the Company;

          "Bond Redemption Fund" shall mean the bond redemption fund established
under Section 5.05 of the Indenture;

          "Bond Year" when used in the context of the rebate requirement imposed
under Section 148(f) of the Code means, with respect to the first Bond Year, the
period beginning on the date of issuance of the Bonds, i.e., the date of initial
delivery of the Bonds in exchange for the issue price from the Underwriter,  and
ending on the date one (1) year later or the close of business  of such  earlier
date selected by the Authority at the direction of the Company which is the last
day of a compounding  interval  used in computing  the Yield on the Bonds.  Each
subsequent  Bond Year begins on the day after the  expiration  of the  preceding
Bond Year;

          "Business Day" means any day upon which either the Trustee or the Bond
Insurer is not authorized or required by law or executive order to remain closed
and on which the New York Stock Exchange remains open;

          "Code" shall mean the Internal  Revenue Code of 1986, as amended,  and
the regulations promulgated thereunder from time to time in effect;

          "Company" shall mean Middlesex Water Company, a corporation  organized
and in  good  standing  under  the  laws  of the  State  of New  Jersey  and its
successors or assigns;

          "Counsel  for  the  Company"  shall  mean  the  law  firm  of  Norris,
McLaughlin & Marcus, P.A., Somerville, New Jersey;

          "Debt  Service"  shall  mean the  scheduled  amount  of  interest  and
amortization of principal payable for any Bond Year with respect to the Bonds as
defined in Section 148(d)(3)(D) of the Code;

          "Event of  Default"  shall  mean any event of  default  as  defined in
Section 8.01;

                                       22
<PAGE>

          "First  Mortgage  Bonds"  shall  mean any of the bonds of the  Company
issued under the Mortgage  Indenture and designated  First Mortgage 5.10% Bonds,
Series DD in the aggregate principal amount of $6,000,000, attached as Exhibit A
hereto;

          "Fiscal  Year" shall mean (12)  months  ending  December  31st or such
other twelve month period as the Company should determine;

          "Funds"  shall mean the  Revenue  Fund,  Bond  Redemption  Fund,  Debt
Service Fund, Rebate Fund and the Project Fund;

          "General   Certificate  of  the  Authority"  shall  mean  the  General
Certificate of the Authority which is made a part of the Record of Proceedings;

          "Gross   Proceeds"   shall  have  the  meaning  given  it  in  Section
148(f)(6)(B) of the Code, presently including,  without limitation, the original
proceeds of the Bonds,  investment  proceeds,  amounts  held in a sinking  fund,
amounts  invested  in a  Reasonably  Required  Reserve or  Replacement  Fund (as
defined in Section 148(d) of the Code),  any amounts used to pay Debt Service on
the  Bonds  and  any  amounts  received  as a  result  of  investing  any of the
foregoing.  Gross  proceeds shall not include Gross Proceeds held in a bona fide
debt  service  fund to the extent  that the  earnings on such fund do not exceed
$100,000 in any one Bond Year;

          The terms "herein", "hereunder", "hereby", "hereto", "hereof", and any
similar terms, refer to this Loan Agreement;  the term "heretofore" means before
the date of execution of this Loan  Agreement;  and the term  "hereafter"  means
after the date of execution of this Loan Agreement;

          "Indemnified  Parties"  shall  mean  the  State,  the  Authority,  the
Underwriter, the Trustee, the Paying Agent, any Person who "controls" the State,
the  Authority,  the Paying Agent,  the  Underwriter  or the Trustee  within the
meaning of Section 15 of the Securities Act of 1933, as amended, and any member,
officer,   official,   employee,   agent  or  attorney  of  the  Authority,  the
Underwriter, the State, the Paying Agent or the Trustee;

          "Indenture"  shall mean the trust  indenture  dated as of January  15,
2002 by and between the Authority and the Trustee with respect to the Bonds;

          "Investment   Obligations"   shall  have  the  meaning  given  in  the
Indenture;

         "Issue Date" shall mean February 6, 2002;

          "Loan"  or  "Loans"  shall  mean the loan  from the  Authority  to the
Company in the aggregate  principal  amount of  $6,000,000,  under the terms and
conditions provided for herein;

          "Loan Agreement" or "Agreement" shall mean this Loan Agreement;

                                       23
<PAGE>

          "Loan  Documents"  shall mean any or all of this Loan  Agreement,  the
Indenture,  the Twenty Ninth Supplemental  Indenture,  the First Mortgage Bonds,
the Bond  Purchase  Agreement  and all  documents  and  instruments  executed in
connection therewith;

          "Mortgage  Indenture" shall mean the Indenture of Mortgage dated as of
April 1, 1927,  by and between the Company  and First Union  National  Bank,  as
successor trustee, as supplemented by the Supplemental Mortgage Indenture;

          "Mortgage  Trustee" shall mean First Union National Bank, as successor
trustee under the Mortgage Indenture, or any successor thereto;

          "Net Proceeds" shall mean the Bond Proceeds less any amounts placed in
a Reasonably  Required Reserve or Replacement Fund (as defined in Section 148(d)
of the Code);

          "Non-Purpose Obligations" shall mean any "investment property" (within
the meaning of Section  148(b)(2)  of the Code) which is (i)  acquired  with the
Gross  Proceeds  of the  Bonds and (ii) not  acquired  in order to carry out the
governmental purpose of the Bonds;

          "Obligations"  shall  mean  the  obligations  of the  Company  created
pursuant to the Loan Documents and secured by the Loan Documents;

          "Official  Statement" shall collectively mean the Preliminary Official
Statement of the  Authority  relating to the Bonds dated January 9, 2002 and the
final  Official  Statement of the Authority  relating to the Bonds dated January
16, 2002;

          "Paragraph"  shall mean a  specified  paragraph  of a Section,  unless
otherwise indicated;

          "Person"  or  "Persons"  shall  mean  any   individual,   corporation,
partnership,   joint  venture,  trust,  or  unincorporated  organization,  or  a
governmental agency or any political subdivision thereof;

          "Principal  User" shall mean any principal  user within the meaning of
the proposed  amendments to Treas. Reg. Sec. 1.103-10  published by the Internal
Revenue  Service in the Federal  Register  on  February  21, 1986 or any Related
Person to a Principal User within the meaning of Section 144(a) of the Code;

         "Prior Bonds" shall mean the Bonds referenced in the recitals hereto;

          "Project" shall have the meaning set forth in the recitals hereto;

          "Project  Facilities"  shall  mean have the  meaning  set forth in the
recitals hereto;

          "Project  Fund"  shall  mean the fund so  designated  and  established
pursuant to Section 4.01 of the Indenture;

                                       24
<PAGE>

          "Project  Municipality"  shall  collectively mean Borough of Carteret,
Township of Edison,  Borough of Highland Park, Borough of Metuchen,  City of New
Brunswick,  Township  of Old  Bridge,  Borough of  Sayreville,  Borough of South
Plainfield, Township of Woodbridge, Middlesex County, New Jersey;

          "Qualified   Administrative   Costs"  means  all  reasonable,   direct
administrative  costs  (other than  carrying  costs) such as  separately  stated
brokerage or selling  commissions,  but not legal and  accounting  fees,  record
keeping,  custody and similar costs. General overhead costs and similar indirect
costs of the Company  such as employee  salaries  and office  expenses and costs
associated  with  computing the Rebate  Amount are not Qualified  Administrative
Costs.  In  general,  administrative  costs are not  reasonable  unless they are
comparable to administrative costs that would be charged for the same Investment
or a reasonably  comparable  Investment if acquired with a source of funds other
than gross proceeds of Tax-Exempt bonds;

          "Rebate Expert" means any of the following chosen by the Company:  (a)
Bond  Counsel,   (b)  any  nationally   recognized  firm  of  certified   public
accountants, (c) any reputable firm which offers to the tax-exempt bond industry
rebate  calculation  services and holds  itself out as having  expertise in that
area, or (d) such other personal as is approved by Bond Counsel;

          "Rebate Fund" shall mean the special fund maintained by the Trustee at
its  offices  and  established  for the deposit of the amounts to be paid to the
United  States on behalf of the  Authority  pursuant to Section  3.06 hereof and
described in Section 5.09 of the Indenture;

          "Record of Proceedings"  shall mean the Loan Documents,  certificates,
affidavits,  opinions and other  documentation  executed in connection  with the
sale of the Bonds and the making of the Loan;

          "Regulations"  shall  mean  the  regulations   (whether  permanent  or
temporary) promulgated by the Internal
Revenue Service and Department of the Treasury pursuant to the Code;

          "Related Bonds" shall have the meaning given in Section 2.02 hereof;

          "Related  Person"  shall mean a related  person  within the meaning of
Section 144(a)(3) or Section 147(a) of the Code, as is applicable;

          "Reserved  Rights"  means  the  rights  of the  Authority  to  receive
payments and notices under this Loan  Agreement or any other Loan  Document,  to
consent to any amendments,  modifications  or supplements to this Loan Agreement
or any other Loan  Document,  to enforce  pursuant  to Article  VIII  hereof the
Defaults and Remedies herein and the covenants or other  provisions in this Loan
Agreement under the following  Sections of this Loan Agreement:  5.06 (Important

                                       25
<PAGE>

Inducement),  5.07 (No  Untrue  Statements),  6.01  (Access to the  Project  and
Inspection),   6.02  (Further  Assurance  and  Corrective   Instruments),   6.03
(Recording and Filing; Other Instruments), 6.04 (Compliance with Code, Arbitrage
and Rebate Regulations), 6.05 (Administrative Expenses), 6.06 (Indemnity Against
Claims),  6.07  (Indemnification  of Authority  and Trustee),  6.08  (Additional
Information),  6.09 (Maintain  Existence),  6.10 (Use of Project),  Section 6.11
(Change in Location),  6.12 (Additional Reporting  Requirements),  6.13 (Observe
Laws), 6.14 (Number of Employees),  6.15 (Authority  Consent to Sale of Assets),
6.16  (Approval of  Tenants),  6.18  (Continuing  Disclosure),  7.02  (Insurance
Required), 7.03 (General Requirements Applicable to Insurance), 7.04 (Payment of
Taxes),  7.05  (Compliance  with  Applicable  Laws),  7.09  (Assignment  of Loan
Agreement),  7.10  (Transfer of Project  Facilities),  8.01 (Events of Default),
8.02  (Remedies),  8.05  (Agreement to Pay Attorney's  Fees and Expenses),  8.08
(Authority May File Claim in  Bankruptcy),  9.01  (Notices),  9.03 (Expenses and
Fees),  9.07  (Assignment  of Loan  Documents),  9.08  (Further  Assurances  and
Corrective Instruments). These Reserved Rights have been assigned to the Trustee
but are also held and retained by the  Authority  concurrently  with the Trustee
and may be  exercised  and  enforced  whether  or not  the  Trustee  shall  have
exercised or shall have purported to exercise such rights and remedies,  without
limiting the obligation of the Trustee to do so;

          "Resolution"  shall  collectively mean the resolution of the Authority
dated  December  11,  2001,  authorizing  the issuance and sale of the Bonds and
determining other matters in connection therewith;

          "Revenue  Fund"  shall  mean the fund so  designated  and  established
pursuant to Section 5.01 of the Indenture;

          "Section"  shall mean a specified  section  hereof,  unless  otherwise
indicated;

         "State" shall mean the State of New Jersey;

                                       26
<PAGE>

          "Substantial User" shall mean a substantial user of the Project or any
Related Person to a Substantial User within the meaning of Section 147(a) of the
Code;

          "Supplemental  Mortgage Indenture" means the Twenty Ninth Supplemental
Mortgage Indenture;

          "Tax Certificate"  shall mean the certificate  executed by the Company
in form and substance acceptable to the Authority, wherein the Company certifies
as to such matters as the Authority shall require;

          "Trustee"  shall  mean The Bank of New  York,  in West  Paterson,  New
Jersey, or any successor thereto appointed under the terms of the Indenture;

          "Twenty  Ninth   Supplemental   Indenture"   means  the  twenty  ninth
supplement to the Mortgage Indenture,  dated as of April 1, 1927, by and between
the Company and First Union  National  Bank, as successor  trustee,  dated as of
January 15, 2002;

         "Underwriter" shall mean Commerce Capital Markets, Inc.;

          "Yield"  shall  mean a yield  as  shall be  determined  under  Section
1.148-4 of the Treasury Regulations;

          "Yield  Reduction  Payments"  means payments made to the United States
with respect to any  Nonpurpose  Investment  allocated to the Bonds that (i) are
paid at the same time and the same manner as Rebate  Amounts are  required to be
paid and (ii) are paid with respect to  Investments  that are allocable to Gross
Proceeds that previously  qualified for a temporary  investment  period that has
since expired.

          Capitalized  terms used herein and not defined  herein  shall have the
same meanings ascribed to them in the Indenture.

                                       27
<PAGE>

                                   ARTICLE II

                                    THE LOAN

          Section  2.01.  The Loan.  The  Authority  agrees,  upon the terms and
subject to the conditions hereinafter set forth, to make the Loan to the Company
for the purposes set forth in the recitals hereinabove:

                    (i) Opinion of Counsel for the Company.  The Authority,  the
Underwriter  and the Bond Insurer shall have received the opinion of Counsel for
the Company,  substantially in the form required by the Bond Purchase Agreement,
dated  the  date  of  issuance  and  delivery  of the  Bonds,  addressed  to the
Authority,  the Bond Insurer and the  Underwriter,  and satisfactory in form and
substance to Bond Counsel.

                    (ii)   Opinion  of  Bond   Counsel.   The   Authority,   the
Underwriter, the Company and the Bond Insurer shall have received the opinion of
Bond Counsel,  substantially in the form required by the Bond Purchase Agreement
that interest income on the Bonds is exempt from inclusion as gross income under
the Code  (except  that  interest  on the  Bonds is  subject  to AMT);  that the
offering  of the Bonds  and the First  Mortgage  Bonds  are not  required  to be
registered under the Securities Act of 1933, as amended,  or under the rules and
regulations promulgated thereunder; and that the Bonds have been duly authorized
and issued under the provisions of the Act.

                    (iii)  Opinion of Bond  Insurer.  The  Authority  shall have
received  the opinion of counsel to the Bond Insurer  substantially  in the form
required by the Bond Purchase Agreement.

                    (iv) Loan and Other  Documents.  The  Authority  shall  have
received:

                           (a) the Loan  Documents  duly executed by all parties
                    thereto;

                           (b) an  order  of the  New  Jersey  Board  of  Public
                    Utilities evidencing approval of the financing;

                           (c) certificates, in form and substance acceptable to
                    the  Authority,   the  Bond  Insurer  and  the  Underwriter,
                    evidencing  the insurance  required to be maintained by this
                    Loan Agreement;

                           (d)  the  Tax  Certificate,  in  form  and  substance
                    satisfactory to Bond Counsel;

                           (e)  $474,066.19  from the Company for deposit in the
                    Project  Fund for  payment  of the  redemption  price of the
                    Prior Bonds; and

                                       28
<PAGE>

                           (f)  $89,075.65  from the  Company for deposit in the
                    Project Fund for the payment of the costs of issuance of the
                    Bonds; and

                           (g) all other  documents  required by Section 3.02 of
                    the Indenture.

                    (v) Legal  Matters.  Legal  matters in  connection  with the
making of the Loan shall be  satisfactory  to the  Authority,  the Trustee,  the
Underwriter, the Company and their respective counsel.

                    (vi) Bond Issuance  Fee. The  Authority  shall have received
from the Company the bond issuance fee of $15,000.

          Section  2.02.  First  Mortgage  Bonds.  To  evidence  the Loan to the
Company,  the Company  shall  execute and deliver to the Trustee  Non-Negotiable
First Mortgage 5.10% Bonds,  Series DD in the principal  amount of $6,000,000 in
order to secure the  repayment  of the  Bonds.  The form and nature of the First
Mortgage  Bonds to be  delivered  by the Company is set forth and  described  in
Exhibit A attached hereto and the First Mortgage Bonds shall be in substantially
such form, with such variations in principal amounts,  interest rates,  interest
payment and maturity  dates and  prepayment or  redemption  provisions as may be
necessary to correspond to such provisions of the Bonds issued by the Authority.

         Each First Mortgage Bond shall:

                    (a) be payable to the Trustee, registered in the name of the
Trustee and be non-transferable except to a successor Trustee;

                    (b) be issued in the principal amount equal to the aggregate
principal amount of the Bonds;

                    (c) provide for  payments of interest  equal to the payments
of interest on the Bonds  except  that the Company  shall  receive a cash credit
against its  interest  obligations  equal to (i)  accrued  interest on the Bonds
deposited  with the Trustee at the time of issuance  of the Bonds,  if any,  and
(ii) such other  moneys held at the time of such  interest  payment  date by the
Trustee in the Debt  Service Fund and  available  for the payment of interest on
such Bonds;

                    (d)  require  payments of  principal,  or  principal  plus a
premium,  equal to the  stated  maturities  on the Bonds and the  payment of all
other amounts due under the Agreement;

                    (e) contain redemption provisions,  or provisions in respect
of the acceleration or prepayment of principal and premium,  if any,  equivalent
to the redemption provisions of the Bonds; and

                    (f) require all payments on such First  Mortgage Bonds to be
made one Business Day prior to the due date for the corresponding  payment to be
made on the Bonds.

                                       29
<PAGE>

          Section   2.03.   Prepayment  of  Redeemed   Bonds.   An  optional  or
extraordinary redemption of the Bonds shall only be effected upon written notice
given by the Company to the Authority and the Trustee at least fifteen (15) days
before  the date upon  which  the  Trustee  is  required  to give  notice to the
Bondholders  under the Indenture.  The notice given by the Company shall specify
the type of redemption,  redemption  price and date of redemption for the Bonds.
On or before the date set for redemption in the Company's  notice of redemption,
the  Company  shall pay to the  Trustee an amount  equal to the then  applicable
redemption  price for the First  Mortgage  Bonds  relating to such Bonds or as a
prepayment of the First  Mortgage  Bonds  relating to such Bonds,  plus interest
accrued to the redemption date. Otherwise,  the Authority will redeem any or all
Bonds  upon  the  occurrence  of an  event  which  gives  rise to any  mandatory
redemption  thereof upon notice given to the Trustee at least  fifteen (15) days
before  the date upon  which  the  Trustee  is  required  to give  notice to the
Bondholders  under the  Indenture.  In such event,  the Company  will pay to the
Trustee,  on or  before  the  redemption  date,  an  amount  equal  to the  then
applicable redemption price for the First Mortgage Bonds relating to such Bonds,
or as a prepayment of the First Mortgage Bonds relating to such Bonds,  an equal
amount of principal and redemption  premium, if any, of the First Mortgage Bonds
relating to such Bonds, plus interest accrued to the redemption date.

          Section 2.04. No Defense or Set-Off.  The obligation of the Company to
make the  payments  required  under  the  First  Mortgage  Bonds  and this  Loan
Agreement  shall be absolute  and  unconditional  without  defense or set-off by
reason of any default by the Authority under this Loan  Agreement,  or under any
other agreement between the Company and the Authority,  or for any other reason,
it being the  intention of the parties  that the payments  required by the First
Mortgage Bonds and this Loan Agreement will be paid in full when due without any
delay or diminution whatsoever.

          Section 2.05.  Deficiencies in Revenues.  If, for any reason,  amounts
paid to the Trustee on the First Mortgage Bonds, together with other moneys held
by the Trustee and then  available,  would not be sufficient to make payments of
principal  or  redemption  price of,  and  interest  on, the Bonds and all other
amounts  due and owing  under the  Indenture  when such  payments  are due,  the
Company will,  immediately upon notice thereof, pay the amounts required to make
up any such deficiency.

          Section  2.06.  Manner of Payment.  The  payments  provided for herein
shall be paid in immediately available funds, free of deductions and without any
abatement,  recoupment,  diminution or set-off whatsoever,  on the date on which
such  payment is due,  directly to the Trustee for the account of the  Authority
and shall be deposited in the Revenue  Fund,  except that payments made pursuant
to Sections 6.05,  6.06,  6.07,  8.05 and 9.03 hereof and Section 5.04(f) of the
Indenture  shall be made  directly to the party to whom such  payment is due and
owing.

          Section  2.07.  Repayment of Loan.  The Company will repay the Loan as
provided for by the First Mortgage Bonds, as provided herein below.  Before 3:00
p.m.  (local time at the  principal  corporate  trust office of the Trustee) one
Business  Day prior to each day on which any  payment  of  either  principal  or
redemption  price of and  interest  on the  Bonds,  or both,  shall  become  due
(whether at maturity,  or upon  redemption or  acceleration  or otherwise),  the
Company will pay, in immediately available funds, an amount which, together with

                                       30
<PAGE>

other moneys held by the Trustee and available therefor, will enable the Trustee
to make such payment of debt service on the Bonds in full in a timely manner. It
is intended  that payments  made with respect to First  Mortgage  Bonds shall be
made at such time and in such  amounts  as shall be  sufficient  to  enable  the
Trustee to make timely payment of principal or redemption  price and interest on
the Bonds.  In order to effect the  repayment of the Loan with  payments made on
the  First  Mortgage  Bonds  the  Company  will  cause  payments  of  principal,
redemption  price,  premium  (if any) and  interest  to be made  directly to the
Trustee  without  surrender or  presentation of such First Mortgage Bonds to the
Mortgage Trustee under the Supplemental Mortgage Indenture.  Such payments shall
be made by bank wire transfer of federal or other immediately available funds to
the following  address or in such other manner or to such other  accounts as the
Trustee may from time to time direct in writing:

The Bank of New York
ABA 021000018
GLA #111-565
A/C #247047
Ref:  Middlesex Water Company 2002 Series DD Mortgage Bond
Attn: Sharon Jaffe-Goser
Phone:   (973) 357-7833
Fax:     (973) 357-7840

                                       31
<PAGE>

                                   ARTICLE III

                                  PROJECT FUND
                                  ------------

          Section 3.01.  Application of Bond Proceeds. In order to provide funds
to make the Loan, the Authority  concurrently with the execution and delivery of
this Loan Agreement,  will sell,  issue and deliver the Bonds to the Underwriter
and transfer the proceeds of the Bonds to the Trustee for deposit in the Project
Fund, as provided in Article IV of the Indenture, to be disbursed as hereinafter
provided and as provided in the Indenture.  The Authority  reserves the right to
request a record of all  disbursements  from and/or  investments  of the Project
Fund.

          Section  3.02.  Disbursement  from the  Project  Fund.  The  Authority
authorizes and directs the Trustee to make  disbursement of the $5,722,058.81 of
net proceeds of the Bonds and  $474,066.19 of the funds deposited by the Company
in the Project Fund to JPMorgan  Chase Bank,  the Trustee for the holders of the
Prior Bonds.  The remainder of the funds deposited by the Company in the Project
Fund shall be used to pay the costs of issuance of the Bonds in accordance  with
the written directions given by the Company to the Trustee.

          The Authority is hereby granted a security  interest in the amounts on
deposit in the Project  Fund as security  for the payment of the Bonds.  Upon an
Event  of  Default  and  the  acceleration  of the  obligations  of the  Company
hereunder, the Trustee shall apply any amounts on deposit in the Project Fund to
the prepayment of the principal of and interest on the Loan,  and, hence, to the
payment of the Bonds, in accordance with Section 9.10 of the Indenture.

          Section 3.03. Company Required to Pay if Project Fund Insufficient. In
the event the moneys in the Project Fund  available  for payment of the costs of
refunding the Prior Bonds and the costs related to the issuance of the Bonds are
not  sufficient  to pay all such costs in full,  the Company  agrees to pay that
portion of the cost in excess of the moneys  available  therefor  in the Project
Fund. The Authority and the Trustee make no warranty, either express or implied,
that the moneys  paid into the  Project  Fund and  available  for payment of the
costs of the Project will be  sufficient  to pay all of such costs.  The Company
agrees  that  if,  after  disbursement  of all the  money  in the  Project  Fund
available for payment of costs of the refunding of the Prior bonds,  the Company
should pay any portion of such costs pursuant to the provisions of this Section,
it shall not be entitled to any reimbursement therefor from the Authority or the
Trustee.

          Section  3.04.  Rebate  Fund.  The  Indenture  requires the Trustee to
deposit all moneys paid by the  Company  pursuant to Section  6.04 hereof in the
Rebate Fund.  Investment earnings on all amounts so deposited in the Rebate Fund
shall also be deposited in the Rebate Fund immediately upon receipt.

          The  Indenture  provides that the Trustee shall make payments from the
Rebate  Fund to the United  States on behalf of the  Authority  upon the written

                                       32
<PAGE>

direction of the Company in  accordance  with Section 6.04.  The Company  hereby
confirms  its  covenant  in Section  6.04  hereof to give the  Trustee  all such
required written directions.

          Section 3.05.  Investment  of the Funds.  Any moneys held as a part of
the Funds shall be invested and  reinvested by the Trustee,  only as directed in
writing by the Company, in Investment Obligations;  provided that in the absence
of investment  instructions  to the contrary,  the Trustee is hereby directed to
invest  such  moneys  in  Goldman  Sachs  Treasury  Obligations  Portfolio,   an
Investment  Obligation  described in clause (v) of the  definition of Investment
Obligations..  The Trustee may make any and all such investments through its own
investment department.

          The  Company  shall  direct  investments  of  amounts  in the Funds as
provided in Section 6.02 of the  Indenture so that such  Investment  Obligations
shall  mature in such  amounts and at such times or shall be  redeemable  by the
Trustee at such times as may be necessary to provide  funds when, at the time of
the investment,  it is anticipated the same will be needed to make payments from
the Funds in accordance  with the provisions of Section 4.02 of the Indenture or
to make  payments  from the Rebate Fund in  accordance  with the  provisions  of
Section 3.04 hereof and Section 5.09 of the  Indenture.  To the extent  required
for  payments  from the Funds,  the Trustee  may, at any time,  sell any of such
Investment Obligations.  The proceeds of any such sale, all payments at maturity
and all payments upon redemption of such Investment Obligations shall be held in
the respective Funds in which such investments income was derived and, as to the
Project  Fund,  accounted for separate and apart from the proceeds from the sale
of the Bonds.

          Interest and other income  received on Investment  Obligations  in the
Project  Fund  shall,  within  the later of (i) three (3) years from the date of
issuance  of the Bonds or (ii) one (1) year  after  receipt  of such  investment
income,  be used to pay  interest  accruing on the Bonds or  otherwise  spent on
other costs of refunding the Prior Bonds by the Company. In the event the moneys
in the  Project  Fund are not spent  within  three  (3)  years  from the date of
issuance  of the Bonds,  the Company  shall  cause the Trustee to transfer  such
moneys  to the Bond  Redemption  Fund and to invest  such  moneys at a Yield not
materially higher than the Yield on the Bonds.

          In making such  investments as described in this Section,  the Trustee
may rely upon (i) the  written  direction  of the  Company as to the  investment
purchased  and  (ii) the  direction  contained  herein  that in the  absence  of
investment instructions to the contrary, the Trustee shall invest such moneys in
Investment  Obligations  described in clause (v) of the definition of Investment
Obligations;  and the Trustee  shall be and hereby is relieved of all  liability
with respect to making,  redeeming and selling such investments,  so long as the
Trustee has acted in accordance with the foregoing directions. In the absence of
investment  instructions,  the Trustee  shall  invest such moneys in  Investment
Obligations described in clause (vii) thereof.

          The Company shall be entitled to receive from the Trustee  monthly and
at such other times as the  Company  may  reasonably  request,  a  statement  of
account of any moneys held in the Funds by the Trustee.

                                       33
<PAGE>

          Section  3.06.  The  Trustee.  The Trustee  shall act on behalf of the
Bondholders under the Indenture and this Loan Agreement as specifically provided
for herein and in the  Indenture  only insofar as its duties are  expressly  set
forth and shall not have any implied  duties but may  exercise  such  additional
powers as are reasonably incidental thereto.  Neither the Trustee nor any of its
officers, directors or employees shall be liable for any action taken or omitted
to be taken by it hereunder or in  connection  herewith  except for its or their
own gross  negligence  or willful  misconduct.  The Trustee shall not be under a
duty to examine or pass upon the validity,  effectiveness  or genuineness of any
Loan Document or any direction, report, affidavit, certificate, opinion or other
instrument,  document or  agreement  related  thereto,  and shall be entitled to
assume that the same are valid, effective,  genuine and what they purport to be.
The Trustee may consult with legal counsel  selected by it, and any action taken
or suffered by it in  accordance  with the opinion of such counsel shall be full
justification  and  protection to it. The Trustee shall have the same rights and
powers as any other bank or lender and may  exercise  the same as though it were
not the Trustee;  and it may accept  deposits from,  lend money to and generally
engage  in any kind of  business  with the  Company  as  though  it were not the
Trustee.

                                       34
<PAGE>

                                   ARTICLE IV

                        REPRESENTATIONS OF THE AUTHORITY
                        --------------------------------

          Section 4.01.  Representations.  The Authority  hereby  represents and
agrees that:

          (a) The  Authority is a duly  constituted  public body  corporate  and
politic,  duly created and existing as an  instrumentality of the State with the
power and authority  set forth in the Act,  including the power and authority to
authorize the issuance of the Bonds under the Act.

          (b) Under the provisions of the Act, the Authority is duly  authorized
to enter into, execute and deliver the Loan Documents to which it is a party, to
undertake the  transactions  contemplated by the Loan Documents to which it is a
party and to carry out its obligations hereunder and thereunder.

          (c) The Authority  proposes to issue the Bonds in the total  aggregate
principal amount of $6,000,000 to finance all or a portion of the Project.

          (d) By duly adopted resolution,  the Authority has duly authorized the
execution,  delivery  and  sale of the  Loan  Documents  to which it is a party,
including the borrowing  under,  issuance and sale of the Bonds and (as security
for the Bonds) the  pledge of the First  Mortgage  Bonds,  to the  Trustee.  The
Authority also has duly  authorized the execution,  delivery and  performance of
the Placement  Agreement and has approved the section  entitled the  "Authority"
and the Section  entitled  "Litigation" (as it pertains to the Authority) in the
Official Statement.

          (e) The Bonds will be issued under and pursuant to the  Indenture  and
will mature,  bear interest and have the other terms and provisions set forth or
provided for in the Indenture.

          (f) To the best knowledge of the Authority, the execution and delivery
of and performance by the Authority of the Loan Documents to which the Authority
is a party,  including  the Bond  Purchase  Agreement,  under the  circumstances
contemplated  thereby  and  hereby,  do not  and  will  not  conflict  with,  or
constitute a breach of or default under any indenture,  deed of trust, mortgage,
agreement or other  instrument  to which the  Authority is a party,  or conflict
with,   violate  or  result  in  a  breach  of,  any   existing  law  or  public
administrative  rule or  regulation,  judgment,  court  order or consent  decree
presently applicable to the Authority (except for such consents and approvals as
have heretofore been obtained).

          (g) To the best knowledge of the Authority, no legislation, ordinance,
rule or regulation  has been enacted or  introduced or formally  reported by any
governmental body,  department or agency of the State, nor any decision rendered
by any court of competent jurisdiction of the State which would adversely affect
the excludability of the interest on tax-exempt bonds and obligations  issued by
the Authority from the gross income of any holder thereof for Federal income tax
purposes.

                                       35
<PAGE>

          (h) When duly executed and delivered on behalf of the  Authority,  and
assuming the due  authorization,  execution  and delivery by the Company of this
Loan Agreement,  and assuming the due  authorization,  execution and delivery by
the Trustee of the Indenture, and assuming the due authorization,  execution and
delivery by the Company and the Underwriter of the Bond Purchase Agreement, each
of the Loan  Documents to which the  Authority is a party and the Bond  Purchase
Agreement  shall  constitute  a valid and binding  obligation  of the  Authority
enforceable  against the Authority in accordance  with its terms,  provided that
the  enforceability of the Loan Documents and the Bond Purchase Agreement may be
limited by  bankruptcy,  insolvency,  reorganization,  moratorium  or other laws
relating to or limiting  creditors'  rights  generally  and the  application  of
general principles of equity.

                                       36
<PAGE>

                                    ARTICLE V

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY
                  ---------------------------------------------

          The Company hereby represents, covenants and warrants to the Authority
that:

          Section 5.01.  Organization,  Powers,  etc. It is a  corporation  duly
organized validly existing and in good standing under the laws of the State, has
the power and  authority  to own its  properties  and assets and to carry on its
business as now being conducted (and as now contemplated by the Company) and has
the power to  perform  all the  undertakings  of the Loan  Documents,  to borrow
hereunder and to execute and deliver the Loan Documents.

          Section 5.02. Execution of Loan Documents. The execution, delivery and
performance by the Company of the Loan Documents and other instruments  required
by this Loan Agreement:

                  (a) have  been  duly  authorized  by all  requisite  corporate
action;

                  (b) do not and will not conflict with or violate any provision
of law,  rule  or  regulation,  any  order  of any  court  or  other  agency  of
government;

                  (c) do not and will not conflict with or violate any provision
of any charter document or by-laws of the Company;

                  (d) do not and will not  violate or result in a default  under
any provision of the Mortgage Indenture or, result in any material default under
any other indenture, agreement or other instrument;

                  (e) do not and will not result in the  creation or  imposition
of any lien,  charge or  encumbrance of any nature on the assets of the Company,
other than the liens created by the Loan Documents;

                  (f) have been duly  executed and  delivered by the Company and
are enforceable  against the Company in accordance with their terms,  subject to
the  limitation  that the  enforceability  of such  documents  may be limited by
bankruptcy or other laws relating to or limiting creditors' rights generally and
the application of general principles of equity.

          Section  5.03.  Litigation.  Except as disclosed by the Company in the
Official  Statement,  there is no action, suit or proceeding at law or in equity
or by or before any governmental instrumentality or other agency now pending or,
to the  knowledge of the Company,  threatened  against or affecting it or any of
its properties or rights which,  if adversely  determined,  would (i) materially
affect the  transactions  contemplated  by the Loan  Documents,  (ii) affect the
validity or  enforceability  of the Loan Documents,  (iii) affect the ability of
the Company to perform its obligations under the Loan Documents, (iv) materially
impair the value of the Project  Facilities  or the First  Mortgage  Bonds,  (v)

                                       37
<PAGE>

materially impair the Company's right to carry on its business  substantially as
now conducted (and as now  contemplated  by the Company) or (vi) have a material
adverse effect on the Company's financial condition.

          Section 5.04. No Defaults.  The Company, to the best of its knowledge,
is not in default in any  material  respect in the  performance,  observance  or
fulfillment of any of the obligations,  covenants or conditions contained in any
material agreement or instrument to which it is a party or by which it is bound.

          Section 5.05. No Material  Adverse Change.  There has been no material
adverse  change in the financial  condition of the Company since the date of the
Company's  audited  financial  statements  for the year ended  December 31, 2000
contained in the Official Statement.

          Section 5.06. Important Inducement.  The availability of the financial
assistance by the Authority as provided herein has been an important  inducement
to the Company to engage in the Project and to locate the Project in the State.

          Section  5.07.  No  Untrue   Statements.   The  Loan  Documents,   the
Application,  or any other document,  certificate or statement  furnished to the
Trustee or the  Authority  by or on behalf of the Company are true,  correct and
complete and do not contain any untrue  statement of a material  fact or omit to
state a material  fact  necessary  in order to make the  statements,  when made,
contained  herein and therein not misleading or incomplete.  It is  specifically
represented  that the Company is not a party to any litigation  nor, to the best
of  its  knowledge,  is  the  subject  of any  investigation  or  administrative
proceeding except as disclosed in the Application and the Official Statement. It
is   specifically   understood   by  the  Company  that  all  such   statements,
representations  and warranties  shall be deemed to have been relied upon by the
Authority  as an  inducement  to make the Loan and that if any such  statements,
representations  and  warranties  were  false at the time  they were  made,  the
Authority may, in its sole discretion,  consider any such  misrepresentation  or
breach of  warranty  an Event of  Default as  defined  in  Section  8.01(a)  and
exercise the remedies provided for in this Loan Agreement.

          Section 5.08.  No Action.  The Company has not taken and will not take
any action and knows of no action that any other  Person has taken or intends to
take,  which would cause  interest  income on the Bonds to be  includable in the
gross income of the recipients thereof under the Code.

          Section 5.09. Design of the Project  Facilities.  The operation of the
Project Facilities in the manner presently  contemplated and as described in the
Application  will not conflict in any material  respect with any current zoning,
water, air pollution or other ordinances, orders, laws or regulations applicable
thereto.   The  Company  has  caused  the  Project  Facilities  to  be  designed
substantially in compliance with all Federal, State and local laws or ordinances
(including  rules and  regulations)  relating  to zoning,  building,  safety and
environmental  quality. The Company will complete the Project in accordance with
this Loan Agreement.

                                       38
<PAGE>

          Section 5.10.  Commencement of Project.  Except as otherwise disclosed
in the  Application,  the  constituent  parts of the Project as described in the
Application were not commenced prior to December 1, 1987.

          Section  5.11.  Substantial  Users.  No Person (or any Related  Person
within the meaning of Section  144(a)(3) of the Code) who was a substantial user
of the respective  Project  Facilities,  within the meaning of Treas.  Reg. Sec.
1.142-4(c),  at any time during the five (5) year period  immediately  preceding
the date of  issue of the  Bonds,  as the  case  may be,  and who will  receive,
directly or indirectly, Bond Proceeds in an amount equal to five per centum (5%)
or more of the face  amount  of the Bonds in  payment  for his  interest  in the
Projects,  will be a  Substantial  User of the Project  Facilities  or a Related
Person at any time  during  the five (5) year  period  beginning  on the date of
issuance of the Bonds.

          Section 5.12.  Placement in Service.  The Project  Facilities were not
acquired or placed in service by the Company  (determined in accordance with the
provisions  of  Sections  103 and 142 of the  Code  and  applicable  regulations
thereunder)  more than one (1) year prior to the date of  issuance  of the Prior
Bonds.

          Section 5.13. No Common Plan of Financing.  Except as disclosed in the
Tax  Certificate  subsequent  to the date  fifteen  (15) days  prior to the date
hereof,  the Company or any Related  Person (or group of Related  Persons  which
includes the  Company)  has not  borrowed the proceeds of, or leased  facilities
financed by  obligations  issued  under  Section 103 of the Code by any state or
local  governmental  unit  or  any  constituted  authority  empowered  to  issue
obligations by or on behalf of any state or local  governmental unit, other than
the Authority, pursuant to a common plan of financing and which will be paid out
of substantially the same source of funds (or which will have  substantially the
same  claim to be paid out of the same  source of funds) as the Bonds or will be
paid  directly or indirectly  from the proceeds of the Bonds.  During the period
commencing  on the date of  issuance of the Bonds and ending  fifteen  (15) days
thereafter,  there will be no  obligations  issued under Section 103 of the Code
which are payable or guarantied  by the Company or any Related  Person (or group
of Related  Persons which includes the Company) and which are issued pursuant to
a common plan of financing and will be paid out of substantially the same source
of funds (or which will have  substantially the same claim to be paid out of the
same source of funds) as the Bonds or will be paid directly or  indirectly  from
the  proceeds  of the Bonds  without  the  written  opinion of St. John & Wayne,
L.L.C.,  Esqs.  or other Bond Counsel  acceptable  to St. John & Wayne,  L.L.C.,
Esqs.,  to the effect that the issuance of such  obligation  will not  adversely
affect the exemption from present Federal income taxes of interest on the Bonds.

          Section 5.14.  Use of Proceeds.  (a) At least  ninety-five  per centum
(95%) of the Net  Proceeds of the Prior  Bonds were used to provide  "facilities
for the  furnishing  of water"  within the meaning of Section  142(a)(4)  of the
Code.

                  (b) No portion of the Prior Bond Proceeds were used to provide
any airplane, skybox or other private luxury box, health club facility, facility
primarily  used for gambling,  or store the  principal  business of which is the
sale of alcoholic beverages for consumption off premises.

                                       39
<PAGE>

                  (c) Less than twenty-five per centum (25%) of the Net Proceeds
of the Prior Bonds were used  (directly or  indirectly)  for the  acquisition of
land (or an interest therein).

                  (d) No portion of the Prior Bond Proceeds was or is to be used
(directly or indirectly) for the acquisition of land (or an interest therein) to
be used for farming purposes.

                  (e) With respect to any used  property  acquired or refinanced
with the Bond Proceeds,  if any, the Company will comply with the rehabilitation
requirements contained in Section 147(d) of the Code.

          Section 5.15.  Economic  Life.  The  information  contained in the Tax
Certificate,  setting forth the  respective  cost,  economic  life, ADR midpoint
life, if any, under Rev. Proc.  87-56,  Rev.  Proc.  72-10,  1972-1 C.B. 721, as
supplemented  and amended from time to time,  and guideline  life, if any, under
Rev.  Proc.  62-21,  1962-2 C.B. 118, as  supplemented  and amended from time to
time, of each asset constituting the Project Facilities  financed with the Prior
Bond Proceeds is true, accurate and complete.

                                       40
<PAGE>

                                   ARTICLE VI

                                SPECIAL COVENANTS

          Section 6.01. Access to the Project and Inspection.  The Trustee,  the
Bond Insurer and the  Authority  and its duly  authorized  agents shall have the
right, at all reasonable  times upon the furnishing of reasonable  notice to the
Company under the  circumstances,  to enter upon the Project  Facilities  and to
examine and inspect the Project  Facilities.  The Trustee,  the Bond Insurer and
the  Authority  and their duly  authorized  agents shall also have such right of
access to the Project  Facilities as may be reasonably  necessary for the proper
maintenance of the Project Facilities, in the event of failure by the Company to
perform its  obligations  relating  to  maintenance  under this Loan  Agreement,
provided that the  foregoing  rights shall not be deemed to create an obligation
on the  Trustee,  the Bond  Insurer or the  Authority  to  maintain  the Project
Facilities. The Company hereby covenants to execute, acknowledge and deliver all
such  further  documents,  and do all  such  other  acts  and  things  as may be
necessary  to grant to the  Authority  Representative,  the Bond Insurer and the
Trustee such right of entry. Until payment of the Bonds shall have occurred, the
Company  shall  promptly,  from  time to time,  deliver  to the  Authority  such
information and materials  relating to the Project and information and materials
required under the Continuing  Disclosure  Agreement  relating to the Company as
the Authority  may  reasonably  request.  An  authorized  representative  of the
Authority,  the Bond  Insurer and the Trustee  shall also be  permitted,  at all
reasonable  times,  to examine the books and records of the Company with respect
to the Project Facilities and the obligations of the Company hereunder, but none
of them  shall be  entitled  to access  to trade  secrets  or other  proprietary
information (other than financial information) of the Company.

          Section 6.02. Further Assurances and Corrective  Instruments.  Subject
to the  provisions of the  Indenture,  the Authority and the Company each agrees
that it will, from time to time,  execute,  acknowledge and deliver, or cause to
be executed,  acknowledged and delivered, such supplements and amendments hereto
and such further  instruments as may reasonably be required for carrying out the
intention or  facilitating  the  performance  of this Loan  Agreement.  All such
supplements,  amendments and further  instruments  shall require the approval of
the Authority.

          Section 6.03. Recording and Filing; Other Instruments.

                  (a) The Company  covenants that it will, at its expense,  take
all steps as are reasonably necessary to provide that all financing  statements,
continuation  statements,  notices and other instruments  required by applicable
law shall be recorded or filed or  re-recorded or re-filed in such manner and in
such places required by law in order fully to preserve and protect the rights of

                                       41
<PAGE>

the Trustee in the granting by the Authority of certain rights of the Authority,
pursuant to the Indenture, under this Loan Agreement and the Note.

                  (b) The Company and the  Authority  shall  execute and deliver
all instruments and shall furnish all information and evidence deemed  necessary
by the  Company or  advisable  by its  counsel  and the  Company  shall file and
re-file and record and  re-record or cause to be filed and re-filed and recorded
and re-recorded  all instruments  required to be filed and re-filed and recorded
or re-recorded pursuant to the opinion of its Counsel or Counsel employed by the
Authority or the Trustee to perfect all security  interests  created pursuant to
the terms of this Loan  Agreement and the Indenture and shall  continue or cause
to be continued the liens of such  instruments for so long as the Bonds shall be
outstanding, except as otherwise required by this Agreement. The Authority shall
have no  responsibility  for such  filings or refilings  whatsoever,  other than
executing and delivering the documents requested by the Company.

          Section 6.04.  Compliance with Code, Arbitrage and Rebate Regulations.
(a) The Company shall at all times do and perform all acts and things  necessary
or desirable in order to assure that interest  paid on the Bonds shall,  for the
purposes of Federal  income  taxation  (except that the interest on the Bonds is
subject to AMT), be excludable  from the gross income of the recipients  thereof
and exempt  from such  taxation,  except in the event that such  recipient  is a
Substantial  User or Related  Person to a  Substantial  User.  The Company shall
direct all  investments  of the Gross  Proceeds of the Bonds.  The Company shall
direct the Trustee to make  investments  of amounts in the Project  Fund only at
market prices within the meaning of Treasury  Regulations  Section 1.148-1.  For
purposes  of this  Section,  any and all  actions of any  Principal  User of the
Project or any Related  Person to any such  Principal User shall be deemed to be
actions of the Company. In addition, any and all actions to be undertaken by the
Company or by any other Person as to which the  Authority  or the Trustee  must,
pursuant to the terms hereof,  consent or approve in advance, shall be deemed to
be the actions of the  Company or such other  Person (and not the actions of the
Authority or the Trustee).

                  (b) The  Company  shall not permit at any time or times any of
the Gross  Proceeds from the sale of the Bonds or other of its funds to be used,
directly or indirectly,  to acquire any Investment  Property (within the meaning
of Section 148(b)(2) of the Code) the acquisition of which would cause the Bonds
to be "arbitrage bonds" for the purposes of Section 148 of the Code. The Company
shall  utilize the Bond Proceeds from the sale of the Bonds so as to satisfy the
reasonable  expectations  of the Company set forth in the Tax Certificate of the
Company furnished to Bond Counsel and the Authority.

                  (c) The  Company  shall use the Net  Proceeds  of the Bonds to
refund the Prior  Bonds in the manner and as  specifically  set forth in the Tax
Certificate  furnished to Bond Counsel and the Authority.  The Company shall not
expend  the  Bond  Proceeds  on  assets  other  than  those  listed  in the  Tax
Certificate without the express written consent of Bond Counsel.

                                       42
<PAGE>

                  (d) The Company  will provide a written  certification  to the
Authority  and the Trustee  indicating  whether the  Company  complied  with the
six-month or eighteen month exceptions to the arbitrage  rebate  requirement set
forth in  Section  148(f)(4)(B)  of the Code as are set forth in  paragraph  (o)
below.

                  (e) Unless the Company has complied with the six-month  rebate
exception or the eighteen month  exception to the rebate  requirement in Section
148(f)(4)(B)  of the Code, as are set forth in paragraph (o) below,  the Company
will retain (i) Bond Counsel,  (ii) any nationally  recognized firm of certified
public accountants, (iii) any reputable firm which offers to the tax-exempt bond
industry rebate calculation services and holds itself out as having expertise in
that  area,  or (iv) a Person  or firm  approved  by Bond  Counsel,  in order to
calculate  the amount of rebate,  if any, due to the United  States  pursuant to
Section  148(f) of the Code,  as set forth in  paragraph  (f) below (the "Rebate
Expert"), on or no later than 30 days before the Initial Rebate Computation Date
(as  defined  below) and on each  rebate  Computation  Date  thereafter,  (A) to
compute  the Rebate  Amount with  respect to the Bonds for the period  ending on
such rebate  Computation  Date,  (B) to deliver an opinion to the  Authority and
Trustee  concerning its conclusions  with respect to the amount (if any) of such
Rebate  Amount  together  with a  written  report  providing  a  summary  of the
calculations relating thereto and (C) to deliver an opinion to the Authority and
Trustee  that all of the Gross  Proceeds  of the Bonds  (within  the  meaning of
Section  148(f) of the Code),  other than Gross Proceeds of the Bonds on deposit
in a Bona Fide Debt Service Fund (within the meaning of Section 148(F)(4) of the
Code),  have been expended on or prior to the initial rebate  Computation  Date.
The Computation Date shall include (i) maturity of the Bonds,  (ii) if the Bonds
are redeemed prior to maturity, the date on which the Bonds are redeemed,  (iii)
on the first day of the fifth  anniversary  date of the Bond Year (the  "Initial
Rebate  Computation Date") and each fifth anniversary  thereafter,  and (iv) any
other date that may be required by the Code.

                  (f) The Company  shall direct the Trustee in writing to rebate
the Rebate  Amount to the United States on behalf of the  Authority.  The Rebate
Amount  as of any  Computation  Date is the  excess of the  Future  Value of all
receipts on Nonpurpose Investments ("Nonpurpose Receipts") over the Future Value
of all payments on Nonpurpose Investments ("Nonpurpose Payments"). To the extent
amounts received from Nonpurpose  Investments are reinvested,  these amounts may
be netted  against each other and not taken into account in the  computation  of
the  Rebate  Amount.  Nonpurpose  Receipts  and  Nonpurpose  Payments  shall  be
determined as described below.

                    (1)    Nonpurpose  Payments.   Nonpurpose  Payments  include
                           actual payments  (amounts of Gross Proceeds  actually
                           or  constructively   paid  to  acquire  a  Nonpurpose
                           Investment including Qualified Administrative Costs);
                           "allocation"  payments  (for a Nonpurpose  Investment
                           that is allocated to the Bonds after  already  having
                           been  acquired by the  Company  (e.g.,  sinking  fund
                           proceeds),  an  amount  equal  to  the  Value  of the
                           Investment on the allocation date);  Computation Date
                           payments  (for a Nonpurpose  Investment  allocated to
                           the  Bonds  at the end of the  preceding  Computation

                                       43
<PAGE>

                           Period,  the Value of the Investment at the beginning
                           of the Computation Period); Yield Reduction Payments,
                           if any;  and the  Computation  Date  credit  equal to
                           $1,000.

                    (2)    Nonpurpose  Receipts.   Nonpurpose  Receipts  include
                           actual receipts  (amounts  actually or constructively
                           received  with  respect to a  Nonpurpose  Investment,
                           such as earnings and return of principal,  reduced by
                           Qualified   Administrative   Costs);   "deallocation"
                           receipts (for a Nonpurpose  Investment that ceases to
                           be allocated  to the Bonds or subject to rebate,  the
                           Value of the Investment on the "deallocation"  date);
                           Computation   Date   receipts   (the   Value  of  any
                           Nonpurpose   Investment   held  at  the  end  of  any
                           Computation   Period);   and  rebate   receipts  (any
                           recovery of an overpayment of rebate).

          Investments  of amounts  held in a Bona Fide Debt Service Fund for the
Bonds  will be  excepted  from the  rebate  requirement  but  only if the  gross
earnings on such fund for such Bond Year do not exceed $100,000.

          (g) For each investment of Gross Proceeds in a Non-Purpose Investment,
the  Company  shall  direct  the  Trustee  to record,  without  limitation,  the
following  information:  purchase  date,  purchase  price,  face amount,  stated
interest rate, any accrued interest due on its purchase date,  disposition date,
disposition  price and any accrued  interest due on the  disposition  date.  The
Yield to maturity for an investment presently means that discount rate, based on
a  compounding  frequency  the  same as the  Bonds  (or such  other  compounding
permitted by the Code),  which when used to determine the present worth,  on the
purchase date of such  investment or the date on which the investment  becomes a
Non-Purpose  Investment,  whichever is later,  of all payments of principal  and
interest on such  investment  gives an amount  equal to the fair market value of
such investment including accrued interest due on such date.

          (h) On each  Computation  Date, if such Rebate Amount payable  exceeds
the amount then on deposit in the Rebate  Account,  the Company shall within ten
(10) days of the receipt of the report  furnished by the Rebate Expert  pursuant
to paragraph (e) of this Section,  pay to the Trustee,  the amount  necessary to
make up such  deficiency  and direct  the  Trustee to pay the same to the United
States within sixty (60) days of the  Computation  Date. The Company shall, in a
timely  fashion,  give all written  notices and directions to the Trustee as are
called for under  Section  5.09 of the  Indenture  for the payment of the Rebate
Amount.  Any sums remaining in the Rebate Account  following such payments shall
be returned to the Company.  When due, the Authority  shall have the right,  but
shall not be  required,  to make such  payment  to the  Trustee on behalf of the
Company.  Any amount  advanced by the Authority  pursuant to this  paragraph (h)
shall be added to the moneys owing by the Company under this Loan  Agreement and
shall be payable on demand with interest at the rate of twelve percent (12%) per
annum.

          (i) The rebate  shall be paid in  installments  which shall be made at
least once every fifth Bond Year. The first such installment shall be due to the
United  States on behalf of the  Authority  not later than sixty (60) days after
the end of the fifth (5th) Rebate Year and shall be in an amount  which  ensures

                                       44
<PAGE>

that at least one hundred  percent (100%) of the Rebate Amount  described  above
with respect to the Bonds is paid.  Each  subsequent  payment  shall be made not
later than five (5) years after the date the preceding  payment was due.  Within
sixty (60) days after the  retirement  of the Bonds at maturity or upon  earlier
redemption,  the Company shall direct the Trustee to pay to the United States on
behalf of the  Authority  one hundred  percent  (100%) of the  aggregate  Rebate
Amount due with respect to the Bonds not theretofore paid.

          (j) Each payment of the Rebate  Amount to be paid to the United States
shall be filed with the Internal Revenue Service Center,  Ogden,  Utah 84201, or
such other address that may be specified by the Internal Revenue  Service.  Each
payment shall be  accompanied by Form 8038-T (or such other form required by the
Internal Revenue Service) and a statement identifying the Authority, the date of
the issue, the CUSIP number for the Bond with the longest maturity and a copy of
the applicable Form 8038-G.

          (k) The Company  acknowledges  that the Authority shall have the right
at any time and in the sole and absolute  discretion  of the Authority to obtain
from the Company and the Trustee the  information  necessary  to  determine  the
Rebate  Amount  required  to be paid to the United  States  pursuant  to Section
148(f) of the Code. Additionally,  the Authority may, with reasonable cause, (i)
review or cause to be reviewed any determination of the amount to be paid to the
United  States  made by or on  behalf of the  Company  and (ii) make or retain a
Rebate Expert to make the  determination  of the amount to be paid to the United
States.   The  Company  hereby  agrees  to  be  bound  by  any  such  review  or
determination, absent manifest error, to pay the costs of such review, including
without  limitation  the  reasonable  fees and  expenses  of counsel or a Rebate
Expert  retained by the  Authority,  and to pay to the  Trustee  any  additional
amounts  for  deposit in the Rebate  Account  required as the result of any such
review or determination.

          (l) Except as may be permitted  pursuant to Section 148(c) of the Code
(relating to certain  temporary  periods for investment),  at no time during the
term of the Bonds  shall the  amount  invested  by the  Company  in  Non-Purpose
Investments  with a Yield  higher than the Yield on the Bonds  exceed 10% of the
then outstanding principal amount of the Bonds. The aggregate amount invested in
Non-Purpose  Investments  shall be  promptly  and  appropriately  reduced as the
outstanding principal of the Bonds is reduced.

          (m) Notwithstanding any provision of this Section to the contrary, the
Company  shall be liable,  and shall  indemnify  and hold the  Authority and the
Trustee  harmless  against any liability,  for payments due to the United States
pursuant to Section 148(f) of the Code. Further, the Company specifically agrees
that neither the Authority  nor the Trustee shall be held liable,  or in any way
responsible,  and the Company shall  indemnify and hold harmless the Trustee and
the Authority  against any liability,  for any mistake or error in the filing of
the payment or the  determination  of the Rebate Amount due to the United States
or for any consequences resulting from any such mistake or error. The provisions
of this paragraph shall survive termination of this Agreement.

          (n) The Authority,  the Trustee and the Company  acknowledge  that the
provisions  of this Section  6.04 are intended to comply with Section  148(f) of
the Code and the  regulations  promulgated  thereunder  and if as a result  of a
change in such Section of the Code or the promulgated  regulations thereunder or

                                       45
<PAGE>

in the interpretation  thereof, a change in this Section 6.04 shall be permitted
or necessary to assure continued  compliance with Section 148(f) of the Code and
the promulgated regulations thereunder, then with written notice to the Trustee,
the  Authority and the Company shall be empowered to amend this Section 6.04 and
the Authority may require, by written notice to the Company and the Trustee, the
Company to amend this  Section  6.04 to the extent  necessary  or  desirable  to
assure  compliance  with  the  provisions  of  Section  148 of the  Code and the
regulations  promulgated  thereunder;  provided that either the Authority or the
Trustee shall require,  prior to any such amendment becoming  effective,  at the
sole cost and expense of the Company, an opinion of Bond Counsel satisfactory to
the  Authority  to the effect  that  either (i) such  amendment  is  required to
maintain  the  exclusion  from gross  income  under  Section  103 of the Code of
interest  paid  and  payable  on the  Bonds or (ii)  such  amendment  shall  not
adversely  affect the exclusion  from gross income under Section 103 of the Code
of the interest paid or payable on the Bonds.

                    (o) (i) The obligation to pay any Rebate Amount with respect
to the Bonds shall be treated as satisfied if the following requirements are met
(the "six month exception"):

                           (A) Gross  Proceeds of the Bonds (as modified  below)
                    are  expended  by no later  than  the date  which is six (6)
                    months after the Issue Date; and

                           (B) the rebate  requirement  is met for  amounts  not
                    required  to be  spent  within  the  six  (6)  month  period
                    (excluding earnings on a bona fide debt service fund).

                           The  requirement  described  above will be treated as
satisfied  if no more than the  lesser of 5% of the Issue  Price of the Bonds or
$100,000 are  unexpended  at the end of the six (6) month period after the Issue
Date and such  amount is expended no later than the date which is one year after
the Issue Date.

                           (ii) The  obligation  to pay any Rebate  Amount  with
respect  to the Bonds  shall be  treated as  satisfied  if all of the  following
requirements are satisfied (the "eighteen month exception"):

                           (A) Gross  Proceeds of the Bonds (as modified  below)
                    are expended in accordance with the following schedule:

                                    (1) At least 15%  within  six (6)  months of
                           the Issue Date,

                                    (2) At least 60% within  twelve  (12) months
                           of the Issue Date, and

                                    (3) 100% within  eighteen (18) months of the
                           Issue  Date;  provided,  however,  the Bonds will not
                           fail to  satisfy  this  requirement  as a  result  of
                           unspent proceeds for reasonable retainage (as defined
                           below),  if the reasonable  retainage is spent within
                           thirty (30) months of the Issue Date;

                                       46
<PAGE>

                           (B) The rebate requirement is met with respect to all
                    amounts  not  required  to be spent in  accordance  with the
                    foregoing  schedule (other than earnings in a bona fide debt
                    service fund); and

                           (C) The Gross  Proceeds  of the Bonds  qualify for an
                    initial three (3) year (or five (5) year) temporary period.

                           (iii) For purposes of subsections (i) and (ii), Gross
Proceeds do not include (A) amounts held in a bona fide debt service  fund,  (B)
amounts held in a reasonably  required reserve or replacement  fund, (C) amounts
that, as of the Issue Date, are not reasonably expected to be Gross Proceeds but
that become Gross Proceeds after the end of the applicable  (i.e., 6 month or 18
month) spending period,  (D) sales or investment  proceeds derived from payments
under  any  purpose  investment  of  the  Issue  and  (E)  amounts  representing
repayments of grants.

                    (p) The  Company  shall give  immediate  telephonic  notice,
promptly  confirmed  in  writing,  to  the  Authority  and  the  Trustee  of any
Determination  of Taxability  (as defined in the Bond) whether the Company is on
Notice of such  Event of  Taxability  by its own  filing of any  statement,  tax
schedule,  return or document with the Internal  Revenue Service which discloses
that an Event of Taxability  shall have occurred,  by its receipt of any oral or
written  advice from the Internal  Revenue  Service that an Event of  Taxability
shall have occurred, or otherwise.

          Section 6.05. Administrative Expenses. The Company shall pay to or for
the account of the Authority and the Trustee within 30 days after notice thereof
all reasonable  costs and expenses  incurred by the Authority and the Trustee in
connection  with the financing  and  administration  of the Project,  including,
without limitation,  any fees associated with the calculation of rebate,  except
such  as may be  paid  out of the  proceeds  of the  Bonds,  including,  without
limitation,  the costs of  administering  this Loan  Agreement  and the fees and
expenses of attorneys, consultants and others.

          Section  6.06.  Indemnity  Against  Claims.  The Company  will pay and
discharge  and will  indemnify  and hold  harmless the Authority and the Trustee
from (a) any lien or charge upon amounts payable hereunder by the Company to the
Authority  or the  Trustee,  as the  case  may  be,(other  than  the lien of the
Indenture),  and (b) any taxes,  assessments,  impositions  and other charges in
respect of the Project  Facilities,  other than Permitted Liens. If any claim of
any  such  lien  or  charge  upon  payments,  or any  such  taxes,  assessments,
impositions  or other  charges,  are sought to be imposed,  the Authority or the
Trustee,  as the case may be, will give prompt  notice to the  Company,  and the
Company  shall  have the sole right and duty to assume,  and shall  assume,  the
defense thereof,  with full power to litigate,  compromise or settle the same in
its sole discretion.

          Section 6.07.  Indemnification  of the Authority and the Trustee.  The
Company agrees, whether or not the transactions  contemplated by this Agreement,
the Indenture and the Credit Facility Agreement shall be consummated:

                                       47
<PAGE>

                    (a) to pay, and save the Authority and the Trustee  harmless
against  liability  for the  payment of all  out-of-pocket  expenses  arising in
connection with said  contemplated  transactions,  including the reasonable fees
and expenses of the Authority's Counsel and the Trustee's Counsel; and

                    (b) to protect, indemnify and save the Authority, any person
who "controls" the Authority (within the meaning of Section 15 of the Securities
Act of 1933, as amended) and members, officers, directors,  officials, employees
and  attorneys of the  Authority,  the State,  the Trustee and their  respective
members, officers, directors,  officials, attorneys and employees (collectively,
the "Indemnified  Parties")  harmless from and against all liabilities,  losses,
damages, costs, expenses,  (including reasonable attorneys' fees), taxes, causes
of  action,  suits,  claims,  demands  and  judgments  of any  nature  or  form,
(including  all  costs,   expenses  and  reasonable  counsel  fees  incurred  in
investigating or defending such claim) by or on behalf of any person, arising in
any manner from the transactions of which this Agreement is a part or arising in
any manner in  connection  with the  Project  or the  financing  of the  Project
including, without limiting the generality of the foregoing, caused by, relating
to,  arising  out of,  resulting  from,  or in any way  connected  with  (1) the
condition, use, possession, conduct, management,  planning, design, acquisition,
construction,  installation,  financing  or  sale  of the  project  or any  part
thereof,  including the obligation to pay rebate to the Federal  government;  or
(2) any untrue  statement of a material fact contained in information  submitted
or to be submitted by the Company with respect to the transactions  contemplated
hereby; or (3) any omission of a material fact necessary to be stated therein in
order to make such statement not misleading or incomplete;  or (4) any breach or
default by the  Company  of or in any of its  obligations  hereunder,  under the
Indenture or any other Loan Document;  or (5) the acceptance,  administration or
performance  of any of the  duties  of any  said  Indemnified  Party  under  the
Indenture,  this Agreement or any related document; or (6) any accident,  injury
or damage  whatsoever to any person  occurring in or about the Project.  In case
any action shall be brought against one or more of the Indemnified Parties based
upon any of the above and in respect to which  indemnity  may be sought  against
the Company,  such  Indemnified  Parties  shall  promptly  notify the Company in
writing,  and the  Company  shall  assume the  defense  thereof,  including  the
employment of counsel  satisfactory to the Indemnified  Parties,  the payment of
all costs and expenses and the right to negotiate and consent to settlement. Any
one or more of the  Indemnified  Parties shall have the right to employ separate
counsel at the Company's  expense in any such action and to  participate  in the
defense  thereof  if, in the  opinion of the  Indemnified  Party,  a conflict of
interest could arise out of the  representation  of the separate  parties by one
counsel.  The Company shall not be liable for any  settlement of any such action
effected  without  Company's  consent,  but if settled  with the  consent of the
Company,  or if there is a final  judgment  for the claimant on any such action,
the Company agrees to indemnify and hold harmless the  Indemnified  Parties from
and against any loss or liability by reason of such settlement or judgment.

          The Company agrees to and does hereby  indemnify and hold harmless the
Indemnified Parties against any and all losses,  claims,  damages or liabilities
(including  all  costs,  expenses,  and  reasonable  counsel  fees  incurred  in
investigating  or  defending  such  claim)  suffered  by any of the  Indemnified
Parties and caused by relating to, arising out of, resulting from, or in any way
connected to an examination, investigation or audit of the Bonds by the Internal
Revenue Service (IRS). In the event of such examination, investigation or audit,
the Indemnified  Parties shall have the right to employ counsel at the Company's

                                       48
<PAGE>

expense.  In such event, the Company shall assume the primary role in responding
to and negotiating with the IRS, but shall inform the Indemnified Parties of the
status of the  investigation.  In the event Company fails to respond  adequately
and  promptly  to the IRS,  the  Authority  shall  have the right to assume  the
primary  role in  responding  to and  negotiating  with the IRS and,  upon prior
written  notice to the  Company,  shall  have the right to enter  into a closing
agreement, for which the Company shall be liable.

          (c)  Notwithstanding  anything in this Agreement to the contrary which
may  limit  recourse  to the  Company  or may  otherwise  purport  to limit  the
Company's liability,  the provisions of this Section shall control the Company's
obligations  and  shall  survive  the  termination  of  this  Agreement  and the
repayment of the Bonds.

          The   provisions   of  this  Section  6.07  shall  not  apply  to  any
liabilities,  losses, damages, costs, expenses,  taxes, causes of action, suits,
claims, demands or judgments resulting from the Authority's or the Trustee's own
gross negligence, willful misconduct or fraudulent actions.

          Notwithstanding  the fact that it is the intention of the parties that
the Authority shall not incur pecuniary liability by reason of the terms of this
Agreement, or the undertakings required of the Authority hereunder, by reason of
the  issuance of the Bonds,  by reason of the  execution  of the  Indenture,  by
reason of the  performance  of any act  requested  of it by the  Company,  or by
reason of the  operation  of the Project by the Company,  including  all claims,
liabilities or losses  arising in connection  with the violation of any statutes
or  regulations  pertaining  to the  foregoing,  nevertheless,  if the Authority
should incur any such pecuniary  liability (except liability  resulting from the
Authority's gross negligence,  willful misconduct or fraudulent actions) then in
such event the Company shall  indemnify and hold harmless the Authority  against
all claims by or on behalf of any person,  firm or  corporation,  arising out of
the same, and all costs and expenses  incurred in connection with any such claim
or in connection with any action or proceeding brought thereon,  and upon notice
from the Authority, the Company shall defend the Authority in any such action or
proceeding.

          Section 6.08.  Additional  Information.  Until payment of the Bonds in
full shall have occurred the Company shall promptly,  from time to time, deliver
to the Trustee and upon the request of the  Authority,  to the  Authority,  such
information  regarding the operations,  business affairs and financial condition
of the Company as the Trustee (or the  Authority) may  reasonably  request.  The
Trustee is hereby authorized to deliver a copy of any such financial information
delivered hereunder,  or otherwise obtained by the Trustee, to any Bondholder or
prospective Bondholder, to any regulatory authority having jurisdiction over the
Trustee and to any other Person as may be required by law. The Authority and the
Trustee  are  authorized  to  provide  information  concerning  the  outstanding
principal  amount and payment history of, and other  information  pertaining to,
the Bonds or the First Mortgage  Bonds to any agency or regulatory  authority of
the State requesting such information.

          Section 6.09. Maintain  Existence.  The Company covenants that it will
maintain its existence  and the location of the Project  within the State of New
Jersey, will preserve and maintain its existence as a corporation under the laws

                                       49
<PAGE>

of the State,  and  preserve  and  maintain  its  authority  to operate and will
operate the Project  Facilities as an authorized  project  within the meaning of
the Act and as local facilities for the furnishing of water. The Company will at
all times  preserve  and protect the Project in good repair,  working  order and
safe  condition,  and from time to time will make, or will cause to be made, all
needed and proper repairs, renewals, replacements,  betterments and improvements
thereto  including  those  required after a casualty loss. The Company shall pay
all operating costs, utility charges and other costs and expenses arising out of
ownership, possession, use or operation of the Project. The Authority shall have
no obligation  and makes no warranties  respecting the condition or operation of
the Project.

          The Company  will not use the  financing  under this  Agreement or the
issuance of the Bonds by the Authority as a basis for  contesting any assessment
or levy of any tax  and,  if any  administrative  body  or  court  of  competent
jurisdiction  shall hold for any reason that the Project  Facilities  are exempt
from taxation by reason of the financing under this Agreement or the issuance of
the Bonds by the Authority or other  Authority  action in respect  thereto,  the
Company  covenants to make payments in lieu of all such taxes in an amount equal
to such taxes, and, if applicable, interest and penalties.

          Section  6.10.  Use of  Project.  The  Company  shall use or cause the
Project to be used as an  authorized  project  for a purpose and use as provided
for under the Act and for the use set forth in the  Application to the Authority
until  Payment of the Bonds.  The Company  shall not relocate the Project or any
part thereof within the State or out of the State. The Project is of a character
included  within the  definition of "project" in the Act, and its estimated cost
was at least $6,000,000.  The Company will operate the Project  substantially in
the form  represented in the Application  and will neither (a) materially  alter
the operation of the Project without the prior written consent of the Authority,
nor (b) cause a change in the use of the Project such that the Bonds would cease
to be a qualified  small issue bond (within the meaning of Section 144(a) of the
Code).

          Section 6.11.  Change in Location.  The Company shall not relocate the
Project or any part thereof out of the State. The Company shall not relocate the
project  within the State  without the prior  written  consent of an  authorized
Authority Representative and an opinion of Bond Counsel that the relocation will
not affect the  tax-exempt  status of  interest  on the Bonds  (except  that the
interest on the Bonds is subject to AMT).

          Section  6.12.   Additional  Reporting   Requirements.   (i)  On  each
anniversary hereof, the Company shall furnish to the Authority the following:

                           (a) a  certification  indicating  whether  or not the
                    Company  is  aware  of any  condition,  event  or act  which
                    constitutes an Event of Default,  or which would  constitute
                    an Event of Default  with the giving of notice or passage of
                    time, or both, under any of the Loan Documents;

                                       50
<PAGE>

                           (b) a written  description  of the present use of the
                    Project and a description of any anticipated material change
                    in the use of the  Project  or in the  number  of  employees
                    employed at the Project, and

                           (c)  a  report  from  every  entity  that  leases  or
                    occupies space at the Project location indicating the number
                    of persons the entity employs at the Project location.

                    (ii) Upon the request of the  Authority,  the Company  shall
furnish  to the  Authority  such  financial  information  as the  Authority  may
reasonably request.

          Section 6.13.  Observe Laws.  The Company shall observe all applicable
laws,  regulations and other valid requirements of any regulatory authority with
respect to its operations at the Project Facilities and the Project Site.

          Section  6.14.  Number of  Employees.  The Company  shall  maintain or
increase  the number of  employees  employed  by the Company as set forth in the
Application to the Authority.

          Section 6.15.  Authority Consent to Sale of Assets.  The Company shall
maintain its existence as a legal entity and shall not sell, assign, transfer or
otherwise  dispose of the Project or substantially all of its assets without the
consent of the  Authority;  provided  however that the Company may merge with or
into or consolidate  with another entity,  and the Project or this Agreement may
be transferred  pursuant to such merger or consolidation  without violating this
Section 6.15 provided: (1) the Company causes the proposed surviving,  resulting
or  transferee  company  to furnish  the  Authority  with a Change of  Ownership
Information  Form  then  in use by the  Authority;  (2)  the  net  worth  of the
surviving,  resulting or transferee company following the merger,  consolidation
or transfer is equal to or greater than the net worth of the Company immediately
preceding the merger,  consolidation  or transfer as verified by the independent
auditors of the  Company;  (3) any  litigation  or  investigations  in which the
surviving,  resulting  or  transferee  company or its  principals,  officers and
directors are involved at the time of such merger, and any court, administrative
or other orders to which the surviving  resulting or  transferee  company or its
officers and  directors are subject,  relate to matters  arising in the ordinary
course of business;  (4) the surviving,  resulting or transferee company assumes
in writing the  obligations  of the Company  under this Loan  Agreement  and the
other Loan  Documents;  (5) after the merger,  consolidation  or  transfer,  the
Project shall  continue to be operated as an  authorized  project under the Act;
and (6) the merger, consolidation or transfer shall not impair the excludability
of  interest  paid on the Bonds from  gross  income of the  Owners  thereof  for
federal  income  taxation  (except  that the interest on the Bonds is subject to
AMT) or cause a reissuance  pursuant to an opinion of Bond Counsel.  The Company
shall, prior to the taking of any of the foregoing proposed actions,  deliver to
the  Authority and the Trustee an opinion of Bond Counsel to the effect that the
proposed action will not cause the interest on the Bonds to become includable in
the gross income of the  registered  owners of the Bonds for Federal  income tax
purposes  (except that the  interest on the Bonds is subject to AMT),  except in
the event such Holder is a Substantial User or a Related Person thereto.

                                       51
<PAGE>

          Section 6.16. Approval of Tenants by the Authority.  Prior to leasing,
subleasing or  consenting to the  subleasing or assigning of any lease of all or
any  part of the  Project,  the  Company  shall  cause  to be  furnished  to the
Authority,  a Project Occupant  Information Form then in use by the Authority at
such time,  completed  and  executed  by the  proposed  tenant and a copy of the
proposed  lease.  In any event,  the Company  shall not permit any such leasing,
subleasing  or  assigning  of leases  that  would  impair the  excludability  of
interest  paid on any  tax-exempt  Bonds  from the gross  income of the  holders
thereof for purposes of federal income taxation (except that the interest on the
Bonds is subject to AMT), or that would impair ability of the Company to operate
the Project or cause the Project  not to be  operated as an  authorized  project
under the Act.

          Section  6.17.  Continuing  Disclosure.  The Bonds are  subject to the
continuing  disclosure  requirements  of  Section  (b)(5) of Rule  15c2-12  (the
"Rule") adopted by the Securities and Exchange  Commission  under the Securities
Exchange Act of 1934, as amended and  supplemented.  To that end, the Company is
entering into a continuing  disclosure  agreement with the Trustee.  The Company
hereby  covenants and agrees with the  Bondholders  that it will comply with and
carry out all of the  provisions of such  continuing  disclosure  agreement,  as
amended from time to time, applicable to it. Notwithstanding any other provision
of this Loan  Agreement,  failure of the Company to comply with such  continuing
disclosure  agreement  shall not be  considered a default or an event of default
under this Loan  Agreement  and the rights and  remedies  provided  by this Loan
Agreement upon the occurrence of an Event of Default shall not apply to any such
failure,  but  the  continuing  disclosure  agreement  may be  enforced  only as
provided therein.

          Section 6.18.  Brokerage Fee. The Authority shall not be liable to the
Company  for any  brokerage  fee,  finders  fee, or loan  servicing  fee and the
Company shall hold the Authority harmless from any such fees or claims.

                                       52
<PAGE>

                                   ARTICLE VII

                            COVENANTS OF THE COMPANY
                            ------------------------

          The Company covenants and agrees, so long as this Loan Agreement shall
remain in effect or the Bonds shall be Outstanding, as follows:

          Section  7.01.  Preservation  of  Corporate  Existence,  Business  and
Property.  The Company will at all times  preserve  and  maintain its  corporate
existence, rights, privileges and franchises,  necessary to conduct its existing
line of business as a water  utility and will  preserve and protect its property
used or useful in the  conduct of its  business  and will keep such  property in
good repair,  working order and  condition,  and from time to time will make, or
will cause to be made, all needed and proper  repairs,  renewals,  replacements,
betterments and improvements thereto.

          Section 7.02. Insurance Required.  Until payment of the Bonds shall be
made in full, the Company will keep the Project Facilities  continuously insured
against  such risks as are  required by the  Authority  and  including,  without
limiting the generality of the foregoing:

          (a) casualty insurance on the Project Facilities in an amount not less
than the full insurable value of all property  located at, and all  improvements
to, the Project  Facilities,  against loss or damage by fire and  lightning  and
other hazards  ordinarily  included  under uniform broad form extended  coverage
policies,  limited only as may be provided in the uniform broad form of extended
coverage  endorsement,  at the time in use in the  State,  which  shall name the
Trustee as mortgagee, loss payee and additional insured;

          (b)  general  comprehensive  liability  insurance  against  claims for
bodily injury,  death or property  damage  occurring on, in or about the Project
Facilities (such coverage to include provisions waiving  subrogation against the
Authority and the Trustee) in amounts not less than  $1,000,000  with respect to
bodily injury to any one person, $1,000,000 with respect to bodily injury to two
or more  persons in any one accident  and  $1,000,000,  with respect to property
damage resulting from any one occurrence naming the Authority and the Trustee as
additional insureds;

          (c) liability  insurance with respect to the Project  Facilities under
the  workers'  compensation  laws of the  State;  provided,  however,  that  the
insurance  so  required  may be provided by blanket  policies  now or  hereafter
maintained by the Company; and

          (d) if at any time any portion of the Project  Site is in an area that
has been identified by the Secretary of Housing and Urban  Development as having
special  flood  and mud slide  hazards,  a policy  of flood  insurance  covering
improvements  located  on such  portion of the  Project  Site with  amounts  and
coverage satisfactory to the Authority.

                                       53
<PAGE>

         Section 7.03.     General Requirements Applicable to Insurance.

          (a) Each insurance policy obtained in satisfaction of the requirements
of Section 7.02 hereof:

                    (i)  shall  be by such  insurer  (or  insurers)  as shall be
          financially responsible,  qualified to do business in the State and of
          recognized standing;

                    (ii)  shall  be  in  such  form  and  have  such  provisions
          (including,  without  limitation,  the lenders  long-form loss payable
          clause,  the waiver of subrogation  clause,  the deductible amount, if
          any, and the standard mortgagee  endorsement clause), as are generally
          considered  standard provisions for the type of insurance involved and
          have been accepted in all respects by the Authority;

                    (iii)   shall   prohibit    cancellation    or   substantial
          modification,  termination or lapse in coverage by the insurer without
          at  least 30 days'  prior  written  notice  to the  Authority  and the
          Trustee;

                    (iv) shall provide that losses  thereunder shall be adjusted
          with the insurer by the Company, with the consent of the Authority, at
          the  Company's  expense  on  behalf  of the  insured  parties  and the
          decision  of the  Company  as to any  adjustment  shall be  final  and
          conclusive; and

                    (v) without  limiting the generality of the  foregoing,  all
          insurance  policies  carried on the Project  Facilities shall name the
          Company,  the Authority and the Trustee as parties insured  thereunder
          as  the  respective  interests  of  each  may  appear,  and  any  loss
          thereunder  shall be made  payable and shall be applied as provided in
          the Mortgage  Indenture  and all  liability  insurance  shall name the
          Authority and the Trustee as additional insureds.

          (b) Prior to expiration of any such policy,  the Company shall furnish
the Authority and the Trustee with  evidence  satisfactory  to the Authority and
the  Trustee  that the policy or  certificate  has been  renewed or  replaced in
compliance  with  this Loan  Agreement  or is no  longer  required  by this Loan
Agreement.

          (c) In addition to the  provisions  of Section  7.03(a) and (b) above,
the Company shall also comply with any insurance  requirements  set forth in the
Mortgage Indenture.

          (d) Upon request therefor, the Company shall furnish the Authority and
the  Trustee  with  copies of any policy  requested  and proof of the  coverages
required under Section 7.02 above.

          (e) In the event the  Company  shall fail to  maintain  the  insurance
coverage required by this Loan Agreement,  the Authority or the Trustee may (but

                                       54
<PAGE>

shall be under no  obligation  to),  after ten (10) days  written  notice to the
Company  unless  cured  within  such ten (10) days,  contract  for the  required
policies of insurance and pay the premiums on the same and the Company agrees to
reimburse  the Authority or the Trustee to the extent of the amounts so advanced
with interest thereon at the maximum rate permitted by law.

          Section 7.04. Payment of Taxes, etc. The Company will promptly pay and
discharge or cause to be promptly paid and discharged all taxes, assessments and
governmental  charges  or levies  imposed  upon it or in  respect  of any of its
property and assets as provided in, and except as permitted  under, the Mortgage
Indenture.

          The Company agrees to cause any order,  writ or warrant of attachment,
garnishment,  execution,  replevin or similar  process filed against any part of
the funds or accounts held by the Trustee under the Indenture to be  discharged,
vacated,  bonded or stayed  within  ninety  (90) days after such filing (or such
longer period if the Company is contesting  such process in good faith),  but in
any event  not  later  than five (5) days  prior to any  proposed  execution  or
enforcement with respect to such filing or any transfer of moneys or investments
pursuant to such filing.

          Section 7.05.  Compliance with Applicable  Laws. The Company agrees to
construct,  operate and maintain the Project in accordance  with all  applicable
Federal, State, county and municipal laws, ordinances, rules and regulations now
in force or that may be enacted  hereafter  including,  but not  limited to such
environmental    protection,    workers'   compensation,    sanitary,    safety,
non-discrimination and zoning laws,  ordinances,  rules and regulations as shall
be binding upon the Company, except where the failure to so comply will not have
a  material  adverse  effect  upon the  Company's  operations  or the  Company's
financial condition.

          Section 7.06.  Covenant with Respect to the Bond Insurer.  The Company
agrees that, so long as any of the Bonds remain Outstanding,  it will deliver to
the Bond Insurer,  as soon as  practicable,  and in any event within one hundred
twenty  (120)  days  after  the end of each  fiscal  year,  its  annual  audited
financial statements,  prepared in accordance with generally accepted accounting
principles,  consistently  applied. In addition,  from time to time (a) official
statement or other disclosure material,  if any, prepared in connection with the
issuance of additional First Mortgage Bonds or debt, whether or not such debt is
on parity  with the Bonds,  in case within 30 days after the sale  thereof;  (b)
notice of the redemption,  other than mandatory sinking fund redemption,  of any
of the Bonds,  including  the  principal  amount,  maturities  and CUSIP numbers
thereof;  and (c) any  additional  information  the Bond Insurer may  reasonably
request from time to time.

          Section 7.07. Financial  Statements.  The Company agrees that, so long
as any of the Bonds remain Outstanding, it will deliver, as soon as practicable,
and in any event  within  one  hundred  twenty  (120) days after the end of each
fiscal year, (a) to the Trustee and, upon the request of the  Authority,  to the

                                       55
<PAGE>

Authority a copy of its balance  sheet as at the end of such year and its income
and retained  earnings  statement  and statement of cash flows for such year, in
reasonable detail,  certified by independent  accountants of recognized national
standing  selected  by the Company as having been  prepared in  accordance  with
generally accepted accounting  principles,  and the New Jersey Uniform System of
Accounts to the extent not inconsistent  therewith,  consistently applied except
as otherwise  stated;  and (b) to the Trustee and to the Authority a certificate
signed  by the  President  or any  Vice  President  and by the  Secretary  or an
Assistant  Secretary or the  Treasurer or an Assistant  Treasurer or a principal
accounting  officer of the Company which shall state whether or not, to the best
of the  knowledge of the signers,  any  condition has occurred and is continuing
which  constitutes  an "event of default" as defined in this Loan  Agreement  or
which, after notice or lapse of time, or both, would constitute such an event of
default,  and, if any such condition or event exists,  specifying the nature and
period of existence thereof,  and what action the Company is taking and proposes
to take with respect thereto.

          Section 7.08.  Mergers,  etc. The Company shall maintain its existence
as a legal  entity and its  qualification  to do business in the State and shall
not sell,  assign,  transfer or otherwise  dispose of  substantially  all of the
Project  Facilities  or  substantially  all  of  its  assets,   except  for  any
disposition  as may be required by a condemnation  by a proper  authority and as
may be permitted by the Mortgage Indenture.

          Section 7.09. Assignment of Loan Agreement.  Subject to the provisions
of Section 6.15, the Company may not assign or transfer the whole or any part of
this Loan Agreement  without the prior express written consent of the Authority.
Any assignment of this Loan  Agreement by the Company  without the prior express
written consent of the Authority shall be null and void.

          Section 7.10.  Transfer of Project  Facilities.  The Company shall not
sell or  otherwise  dispose of any  possessory  interest in whole or part of the
Project Facilities without complying with the provisions of Section 6.15, except
in the ordinary course of its business.

          Section  7.11.  Cost  Recovery.  To the extent  that any  property  is
financed by the Bond  Proceeds,  the cost  recovery  deduction  allowed for such
property  shall be  determined  by using  the  alternative  depreciation  system
determined in accordance with Section 168(g) of the Code.

          Section 7.12. Covenant by Company as to Compliance with Indenture. The
Company covenants and agrees that it will not interfere with the exercise of the
power and authority granted to the Trustee in the Indenture. The Company further
agrees to aid in  furnishing  to the  Authority  or the Trustee  any  documents,
certificates  or opinions that may be required under the Indenture and to comply
with the provisions  thereof to the extent applicable to the Company,  including
without limitation any payments due to the Bond Insurer pursuant to Section 5.04
of the Indenture.

                                       56
<PAGE>

                                  ARTICLE VIII

                              DEFAULTS AND REMEDIES
                              ---------------------

          Section  8.01.  Events of  Default.  Any one or more of the  following
events shall constitute an Event of Default with respect to the Bonds hereunder:

          (a) if any representation or warranty made herein or in any other Loan
Document or in any report, certificate,  financial statement or other instrument
furnished  in  connection  with this Loan  Agreement  shall prove to be false or
misleading in any material respect when made;

          (b)  default in the payment of any  installment  of the  principal  or
interest on the First Mortgage Bonds on the date when due after giving effect to
any applicable grace period;

          (c) default in the payment of any  installment  of the principal of or
interest due upon the Extraordinary  Mandatory  Redemption of the First Mortgage
Bonds or the Bonds;

          (d) default in the due  observance  or  performance  of any  covenant,
condition  or  agreement  on the part of the Company to be observed or performed
pursuant to the terms of the Loan Documents, other than the payment of principal
and  interest  which shall be governed  by (b) and (c) above,  and such  default
shall continue unremedied for sixty (60) days after written notice thereof given
by the Authority or the Trustee,  provided that in the event such default cannot
be  reasonably  cured  within such sixty (60) day period,  the Company  shall be
permitted, with the consent of the Bond Insurer, such additional period approved
by the Bond  Insurer  as may be  necessary  to cure such  default  provided  the
Company is diligently pursuing a cure of such default;

          (e) default in the  performance  or breach of any covenant or warranty
of the  Company in this Loan  Agreement  relating  to the  discharge,  vacation,
bonding  or stay of any  order,  writ or  warrant  of  attachment,  garnishment,
execution,  replevin or similar  process  filed against any part of the funds or
accounts held by the Trustee under the Indenture; or

          (f) the Company shall have applied for or consented to the appointment
of a custodian,  receiver, trustee or liquidator of all or a substantial part of
its assets;  or shall  generally  not be paying its debts as they become due; or
shall have made a general assignment for the benefit of creditors; or shall have
submitted a petition or an answer seeking  reorganization or an arrangement with
creditors;  or shall have taken advantage of any insolvency law, or submitted an
answer  admitting  the  material   allegations  of  a  petition  in  bankruptcy,
reorganization or insolvency  proceeding;  or an order, judgment or decree shall
have been entered, without the application,  approval or consent of the Company,
by  any  court  of   competent   jurisdiction   approving  a  petition   seeking
reorganization of the Company, or appointing a custodian,  receiver,  trustee or
liquidator of the Company or of a substantial part of any of its assets and such
order,  judgment or decree shall continue  unstayed and in effect for any period
of sixty (60)  consecutive  days;  or the  Company  shall have filed a voluntary

                                       57
<PAGE>

petition in bankruptcy;  or if any order for relief has been entered against the
Company under the Federal  Bankruptcy  Code;  (g) the occurrence of an "event of
default" under the Mortgage  Indenture other than an event of default  resulting
from a default in the payment of any installment of the principal or interest on
the First  Mortgage  Bonds on the date when due  (pursuant  to  Section  8.01(b)
hereof),  and the  acceleration  of the First Mortgage Bonds as a result of such
"event of default."

          Section 8.02. Remedies.  (i) Whenever any Event of Default referred to
in Section 8.01 hereof  shall have  occurred and be  subsisting,  provided  that
written notice of the default,  when required,  has been given to the Company by
the  Authority  and the Event of Default has not  theretofore  been  cured,  and
provided,  further,  that no remedial  steps shall be taken by the Authority the
effect of which would be to entitle the  Authority  to funds  necessary  for the
payment of principal and interest on the Bonds which have not yet matured unless
such  principal  and  interest  shall  have been  declared  due and  payable  in
accordance  with  the  Indenture  and  such  declaration  shall  not  have  been
rescinded, any one or more of the following remedial steps may be taken, subject
in the following  instances to the consent and direction of the Bond Insurer (so
long as no default exists under the Bond Insurance Policy):

                           (a)  The  First   Mortgage  Bonds  may  be  redeemed,
                    together  with  interest  then due  thereon,  by delivery of
                    written notice of the Authority's or the Trustee's  exercise
                    of such option to the Trustee and the Company, such payments
                    to be immediately due and payable,  subject to the terms and
                    conditions of the Mortgage Indenture,  or the First Mortgage
                    Bonds may be sold in conformity  with the  provisions of the
                    New Jersey Uniform  Commercial Code (provided the same is in
                    compliance with all securities laws); and

                           (b) The  Authority  may take any  action at law or in
                    equity to collect the payments  then due and  thereafter  to
                    become due or to enforce  performance  and observance of any
                    obligation,  agreement or covenant of the Company under this
                    Loan Agreement or the Mortgage Indenture.

                           (ii) Without the  necessity of obtaining  the consent
of the Bond  Insurer or the holders of the bonds:  (a) if the Company  commits a
breach, or threatens to commit a breach of the Authority's  Reserved Rights, the
Authority  shall  have the  right  and  remedy,  without  posting  bond or other
security, to have the applicable provisions of this Loan Agreement  specifically
enforced by any court having  equity  jurisdiction,  it being  acknowledged  and
agreed  that any such  breach or  threatened  breach  will cause  immediate  and
irreparable  injury to the  Authority and that money damages will not provide an
adequate  remedy  therefor;  or (b) if a payment  default  occurs under  Section
8.01(c) hereof, the Authority may cause the Borrower's payment obligations under
this  Loan  Agreement  and under the  First  Mortgage  Bonds to be  accelerated,
together with interest  then due thereon,  by delivery of written  notice of the
Authority's  exercise  of such  option  to the  Trustee  and the  Company,  such
payments to be immediately due and payable.

                                       58
<PAGE>

Any amounts collected  pursuant to action taken under this Section 8.02 shall be
applied in accordance with the Indenture.

          Section  8.03.  No Remedy  Exclusive.  No remedy  herein  conferred or
reserved to the  Authority is intended to be  exclusive  of any other  available
remedy or remedies, but each 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 or by  statute.  No delay or omission to
exercise any right or power  accruing upon any Event of Default shall impair any
such right or power or shall be construed to be a waiver  thereof,  but any such
right and power may be exercised from time to time and as often as may be deemed
expedient.  In order to entitle the Authority to exercise any remedy reserved to
it in this  Article,  it shall not be necessary to give notice,  other than such
notice as may be required in this Article.

          Section 8.04.  Additional Remedies. In addition to the above remedies,
if the  Company  commits a breach or  threatens  to commit a breach of this Loan
Agreement,  the Trustee shall have the right and remedy, without posting bond or
other  security,  to have the  provisions  of this Loan  Agreement  specifically
enforced by any court having  equity  jurisdiction,  it being  acknowledged  and
agreed that any such breach or threatened breach will cause  irreparable  injury
to the  Trustee  and that money  damages  will not  provide an  adequate  remedy
therefor.

          Section 8.05.  Agreement to Pay Attorneys'  Fees and Expenses.  In the
event  the  Company  should  default  under any of the  provisions  of this Loan
Agreement or other Loan  Documents and either the Authority or the Trustee shall
require and employ  attorneys  or incur other  expenses  for the  collection  of
payments  due  or to  become  due or  for  the  enforcement  or  performance  or
observance  of any  obligation  or  agreement  on the  part  of the  Company  or
enforcement  of the Bonds under any Loan  Document,  the Company  agrees that it
will, on demand therefor,  pay to the Authority or the Trustee,  as the case may
be, the reasonable fees of such attorneys and such other expenses so incurred by
the Authority or the Trustee.

          Section 8.06. No Additional Waiver Implied by One Waiver. In the event
any agreement contained in any Loan Document should be breached by any party and
thereafter  such  breach  should be waived by any party,  such  waiver  shall be
limited to the particular  breach so waived and shall not be deemed to waive any
other breach hereunder.

          Section 8.07. Rights of the Bond Insurer.  The Bond Insurer shall have
the same rights as the  Authority  and the Trustee to pursue any remedy  created
herein, in the Indenture or the Twenty-Ninth Supplemental Indenture.

          The Company  shall furnish the Bond Insurer with at least two Business
Days' notice prior to any Interest  Payment Date or Principal  Payment  Date, if
the Company does not intend or will be unable to make the  scheduled  payment on
such date to the Trustee.

                                       59
<PAGE>

          Any  reorganization  or  liquidation  plan with respect to the Company
must be acceptable to the Bond Insurer.  In the event of any  reorganization  or
liquidation,  the Bond  Insurer  shall  have the  right to vote on behalf of all
Holders, absent a Bond Insurer Default.

          Section 8.08.  Authority May File Claim in Bankruptcy.  In case of the
pendency   of   any   receivership,    insolvency,   liquidation,    bankruptcy,
reorganization,  arrangement,  adjustment, composition or other similar judicial
proceeding  relative to the Company or any other obligor upon the Loan Agreement
or the  Bonds or to  property  of the  Company,  or such  other  obligor  or the
creditors of any of them, the Authority  (irrespective  of whether the principal
of the Note shall then be due and payable as therein expressed or by declaration
or otherwise and  irrespective  of whether demand shall have made on the Company
for the  payment  on the  First  Mortgage  Bonds of an amount  equal to  overdue
principal or interest or additional  interest)  shall be entitled and empowered,
by intervention in such proceeding or otherwise to:

                    (i) file and prove a claim for the reasonable  compensation,
expenses,  disbursements  and advances of the Authority,  its agents and counsel
allowed in such judicial proceeding; and

                    (ii)  file  and  prove a claim  arising  out of a claim  for
indemnification by or on behalf of the Authority,  any person who "controls" the
Authority  (within the meaning of Section 15 of the  Securities  Act of 1933, as
amended) and members, officers, directors, officials, employees and attorneys of
the Authority,  the State and their  respective  members,  officers,  directors,
officials,  attorneys  and  employees  its  agents and  counsel  allowed in such
judicial proceeding; and

                    (iii)  file and prove a claim  for  funds  held in, or which
should have been held in, the Rebate Account or the payment of the Rebate Amount
due under Section 6.04 hereof; and

                    (iv) to collect  and  receive  any moneys or other  property
payable or deliverable on any such claims and to distribute the same.

                                       60
<PAGE>

                                   ARTICLE IX

                                  MISCELLANEOUS
                                  -------------

          Section  9.01.  Notice.  Any notice  required to be given by any party
shall also be given to the Bond Insurer.  Any notice to the parties to this Loan
Agreement  shall be  conclusively  deemed to have been  received  by,  and to be
effective  on the date on which sent by facsimile  transmission  or delivered to
it, at the address listed below or, if sent by certified mail,  postage prepaid,
on the third business day after the day on which mailed,  addressed to the party
at said address:

         Authority:        New Jersey Economic Development Authority
                           36 West State Street
                           PO Box 990
                           Trenton, New Jersey  08625
                           Attn:  Managing Director of Investment Banking

         Company:          Middlesex Water Company
                           1500 Ronson Road
                           P.O. Box 1500
                           Iselin, New Jersey 08830
                           Attn:  A. Bruce O'Connor, C.P.A.
                                  Vice President, Controller &
                                  Chief Financial Officer

         Trustee:          The Bank of New York
                           385 Rifle Camp Road
                           West Paterson, New Jersey 07424
                           Attn:  Corporate Trust Department

         Bond Insurer:     AMBAC Indemnity Corporation
                           One State Street Plaza
                           New York, New York  10004
                           Attn:  General Counsel

The addresses set forth  hereinabove may be changed  pursuant to notice given in
accordance with this Section 9.01.

          Section  9.02.  Concerning  Successors  and  Assigns.  All  covenants,
agreements,  representations  and  warranties  made  herein,  in the other  Loan
Documents and in the  certificates  delivered  pursuant hereto and thereto shall
survive  the  making  of the Loan  herein  contemplated  and the  execution  and
delivery of the First Mortgage Bonds and shall continue in full force and effect
so long as the Obligations  are  outstanding  and unpaid.  Whenever in this Loan
Agreement  any of the parties  hereto is referred  to, such  reference  shall be
deemed to include the successors  and assigns of such party;  and all covenants,
promises and  agreements  by or on behalf of the Company  which are contained in

                                       61
<PAGE>

this Loan  Agreement  shall bind its  successors  and  assigns  and inure to the
benefit of the successors and assigns of the Authority.

          Section 9.03.  Expenses and Fees. All expenses in connection  with the
preparation,  execution,  delivery, recording and filing of this Loan Agreement,
and the other Loan Documents and in connection  with the  preparation,  issuance
and delivery of the Bonds,  the  Authority's  fees, the fees and expenses of St.
John & Wayne,  L.L.C.,  the  fees  and  expenses  of the  Trustee,  the fees and
expenses  of  Trustee's  counsel  and the fees and  expenses  of  counsel to the
Underwriter  shall be paid  directly by the Company.  The Company shall also pay
throughout  the term of the  Bonds the  Authority's  fees and  expenses  and the
Trustee's  annual and special fees and expenses  under the  Indenture,  the Loan
Agreement  and  the  other  Loan  Documents,  including,  but  not  limited  to,
reasonable  attorney's fees and all costs of issuing,  collecting payment on and
redeeming the Bonds thereunder, and any costs and expenses of any Bondholder (or
beneficial  owner) in connection with any approval,  consent or waiver under, or
modification of, any such document.

          Section  9.04.  New Jersey Law Governs.  This Loan  Agreement  and the
other Loan Documents  shall be construed in accordance  with and governed by the
laws of the State.

          Section 9.05.  Modification in Writing. The waiver of any provision of
this Loan Agreement or any other Loan  Document,  or consent to any departure by
the Company  therefrom shall, in no event, be effective unless the same shall be
in writing and signed by the  Authority  and approved by the Bond  Insurer.  Any
such waiver shall be effective only in the specific instance and for the purpose
for which  given.  No notice to or demand  upon the  Company  in any case  shall
entitle it to any other further notice or demand in the same circumstances.  Any
amendment of this Loan Agreement  shall be effected only in the manner  provided
in Article XII of the Indenture.

          Section 9.06. Failure to Exercise Rights.  Neither any failure nor any
delay on the part of the Authority in exercising  any right,  power or privilege
hereunder or under any other Loan  Document  shall operate as a waiver hereof or
thereof,  nor shall a single or partial  exercise  thereof preclude any other or
further exercise of any other right, power or privilege.

          Section 9.07.  Assignment of Loan Documents.  The Company acknowledges
that the Loan Documents including the First Mortgage Bonds, shall be assigned by
the Authority to the Trustee as security for the Bonds  pursuant to the terms of
the Indenture.  The Authority retains the right,  jointly and severally with the
Trustee, to specifically enforce the provisions contained in the Loan Documents.

          The Company  assents to such  assignment and hereby agrees that, as to
the Trustee,  its  obligation to make payments  under the Loan Documents and the
First Mortgage Bonds shall be absolute,  and shall not be subject to any defense
or any right of set-off, counterclaim or recoupment arising out of any breach by
the  Authority of any duty or obligation  to the Company,  whether  hereunder or
otherwise,  or out of indebtedness or liability at any time owing to the Company
by the Authority.

                                       62
<PAGE>

          Section 9.08.  Further  Assurances  and  Corrective  Instruments.  The
Authority  and the  Company  agree that they will,  from time to time,  execute,
acknowledge and deliver,  or cause to be executed,  acknowledged  and delivered,
such  supplements  hereto and such  further  instruments  as may  reasonably  be
required for correcting  any inadequate or incorrect  description of the Project
or for carrying out the intention of or  facilitating  the  performance  of this
Loan Agreement in the manner provided in Article XII of the Indenture.

          Section 9.09. Captions.  The section headings contained herein are for
reference  purposes  only  and  shall  not in any  way  affect  the  meaning  or
interpretation of this Loan Agreement.

          Section  9.10.  Severability.  In the event any provision of this Loan
Agreement  shall be held  invalid  or  unenforceable  by any court of  competent
jurisdiction,  such holding shall not  invalidate or render any other  provision
hereof unenforceable.

          Section 9.11.  Counterparts.  This Loan Agreement may be signed in any
number of  counterparts  with the same effect as if the  signatures  thereto and
hereto were upon the same instrument.

          Section  9.12.  Effective  Date and Term.  This Loan  Agreement  shall
become effective upon its execution and delivery by the parties hereto,  and all
representations and warranties shall be deemed to have been made as of such date
of  execution  and  delivery  and shall remain in full force and effect from the
date hereof and, subject to the provisions hereof,  shall expire on such date as
the Bonds and the interest  thereon,  the First  Mortgage Bonds and the interest
thereon and all other  expenses,  penalties,  fees,  additions to tax or sums to
which the  Authority  and the  Trustee  are  entitled,  have been fully paid and
retired.

          Section 9.13.  Incorporation  of Terms. The other Loan Documents shall
be made subject to all the terms and conditions contained in this Loan Agreement
to the same extent and effect as if this Loan  Agreement were fully set forth in
and made a part of the other Loan Documents. This Loan Agreement is made subject
to all the conditions,  stipulations,  agreements and covenants contained in the
other  Loan  Documents  to the same  extent  and  effect  as if the  other  Loan
Documents  were fully set forth herein and made a part  hereof.  Notwithstanding
any of the foregoing,  if any provisions in the other Loan Documents (other than
the Indenture and the Bonds) are inconsistent  with the public purpose covenants
contained  within this Loan Agreement,  to that extent this Loan Agreement shall
control.

                                       63
<PAGE>

          IN  WITNESS  WHEREOF,  the  parties  hereto  have  executed  this Loan
Agreement  and, where  applicable,  caused their  corporate  seals to be affixed
hereto and to be attested, as of the day first written above.

[SEAL]                                      NEW JERSEY ECONOMIC DEVELOPMENT
                                                       AUTHORITY
ATTEST:

_________________________           By:_____________________________________
Frank T. Mancini, Jr.                       Caren S. Franzini
Assistant Secretary                         Executive Director

                                       64
<PAGE>

[SEAL]                                      MIDDLESEX WATER COMPANY

ATTEST:

____________________________        By:_______________________________
Marion F. Reynolds                          Dennis G. Sullivan
Vice President, Secretary                   President
and Treasurer

                                       65
<PAGE>

                                    EXHIBIT A
                                    ---------

                          Form of First Mortgage Bonds

                                      A-1
<PAGE>
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

                                 LOAN AGREEMENT

                                 By and Between

                    NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY

                                       and

                             MIDDLESEX WATER COMPANY

                          Dated as of January 15, 2002

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

<PAGE>

                                 LOAN AGREEMENT
                                 --------------

                    Water Facilities Revenue Refunding Bonds
                 (Middlesex Water Company Project), Series 2002

                                TABLE OF CONTENTS
                                -----------------

                                    ARTICLE I

                                   DEFINITIONS

Section 1.01.     Definitions............................................  21

                                   ARTICLE II

                                    THE LOAN

Section 2.01.     The Loan...............................................  28
Section 2.02.     First Mortgage Bonds...................................  29
Section 2.03.     Prepayment of Redeemed Bonds...........................  30
Section 2.04.     No Defense or Set-Off..................................  30
Section 2.05.     Deficiencies in Revenues...............................  30
Section 2.06.     Manner of Payment......................................  30
Section 2.07.     Repayment of Loan......................................  30

                                   ARTICLE III

                                  PROJECT FUNDS

Section 3.01.     Application of Bond Proceeds...........................  32
Section 3.02.     Disbursement from the Project Fund.....................  32
Section 3.03.     Company Required to Pay if Project Fund Insufficient...  32
Section 3.04.     Rebate Fund............................................  32
Section 3.05.     Investment of the Funds................................  33
Section 3.06.     The Trustee............................................  34

<PAGE>

                                   ARTICLE IV

                        REPRESENTATIONS OF THE AUTHORITY

Section 4.01.     Representations........................................  35

                                    ARTICLE V

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 5.01.     Organization, Powers, etc..............................  37
Section 5.02.     Execution of Loan Documents............................  37
Section 5.03.     Litigation.............................................  37
Section 5.04.     No Defaults............................................  38
Section 5.05.     No Material Adverse Change.............................  38
Section 5.06.     Important Inducement...................................  38
Section 5.07.     No Untrue Statements...................................  38
Section 5.08.     No Action..............................................  38
Section 5.09.     Design of the Project Facilities.......................  38
Section 5.10.     Commencement of Project................................  39
Section 5.11.     Substantial Users......................................  39
Section 5.12.     Placement in Service...................................  39
Section 5.13.     No Common Plan of Financing............................  39
Section 5.14.     Use of Proceeds........................................  39
Section 5.15.     Economic Life..........................................  40

                                   ARTICLE VI

                                SPECIAL COVENANTS

Section 6.01.     Access to the Project and Inspection.................... 41
Section 6.02.     Further Assurances and Corrective Instruments........... 41
Section 6.03.     Recording and Filing; Other Instruments................. 41
Section 6.04.     Compliance with Code, Arbitrage and Rebate Regulations.. 42
Section 6.05.     Administrative Expenses................................. 47
Section 6.06.     Indemnity Against Claims................................ 47
Section 6.07.     Indemnification of the Authority and the Trustee........ 47
Section 6.08.     Additional Information.................................. 49
Section 6.09.     Maintain Existence...................................... 49
Section 6.10.     Use of Project.......................................... 50
Section 6.11.     Change in Location...................................... 50
Section 6.12.     Additional Reporting Requirements....................... 50
Section 6.13.     Observe Laws............................................ 51

<PAGE>

Section 6.14.     Number of Employees..................................... 51
Section 6.15.     Authority Consent to Sale of Assets..................... 51
Section 6.16.     Approval of Tenants by the Authority.................... 52
Section 6.17.     Continuing Disclosure................................... 52
Section 6.18.     Brokerage Fee........................................... 52

                                   ARTICLE VII

                            COVENANTS OF THE COMPANY

Section 7.01.     Preservation of Corporate Existence, Business and
                      Property............................................ 53
Section 7.02.     Insurance Required...................................... 53
Section 7.03.     General Requirements Applicable to Insurance............ 54
Section 7.04.     Payment of Taxes, etc................................... 55
Section 7.05.     Compliance with Applicable Laws......................... 55
Section 7.06.     Covenant with Respect to the Bond Insurer............... 55
Section 7.07.     Financial Statements.................................... 55
Section 7.08.     Mergers, etc............................................ 56
Section 7.09.     Assignment of Loan Agreement............................ 56
Section 7.10.     Transfer of Project Facilities.......................... 56
Section 7.11.     Cost Recovery........................................... 56
Section 7.12.     Covenant by Company as to Compliance with Indenture..... 56

                                  ARTICLE VIII

                              DEFAULTS AND REMEDIES

Section 8.01.     Events of Default....................................... 57
Section 8.02.     Remedies................................................ 58
Section 8.03.     No Remedy Exclusive..................................... 59
Section 8.04.     Additional Remedies..................................... 59
Section 8.05.     Agreement to Pay Attorneys' Fees and Expenses........... 59
Section 8.06.     No Additional Waiver Implied by One Waiver.............. 59
Section 8.07.     Rights of the Bond Insurer.............................. 59
Section 8.08.     Authority May File Claim in Bankruptcy.................. 60

<PAGE>

                                   ARTICLE IX

                                  MISCELLANEOUS

Section 9.01.     Notice.................................................. 61
Section 9.02.     Concerning Successors and Assigns....................... 61
Section 9.03.     Expenses and Fees....................................... 62
Section 9.04.     New Jersey Law Governs.................................. 62
Section 9.05.     Modification in Writing................................. 62
Section 9.06.     Failure to Exercise Rights.............................. 62
Section 9.07.     Assignment of Loan Documents............................ 62
Section 9.08.     Further Assurances and Corrective Instruments........... 63
Section 9.09.     Captions................................................ 63
Section 9.10.     Severability............................................ 63
Section 9.11.     Counterparts............................................ 63
Section 9.12.     Effective Date and Term................................. 63
Section 9.13.     Incorporation of Terms.................................. 63

Exhibit A         Form of First Mortgage Bonds
---------

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