UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001            Commission File   
number 1-6659

PHILADELPHIA SUBURBAN CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)

Pennsylvania                                23-1702594                
--------------------------------           ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania              19010-3489  
------------------------------------------------              -----------
(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including
area code:                                                  (610)-527-8000 
--------------

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class                             which registered     
-------------------                         ------------------------

Common stock, par value $.50 per share          New York Stock Exchange, Inc.
Philadelphia Stock Exchange Inc.
Securities registered pursuant to Section
12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.

Yes    x          No          
-------          ---------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the 
registrant as of March 1, 2002.       

$1,345,282,568

For purposes of determining this amount only, registrant has defined
affiliates as including (a) the executive officers named in Part I of
this 10-K report, (b) all directors of registrant, and (c) each
shareholder that has informed registrant by March 1, 2002, that it has
sole or shared voting power of 5% or more of the outstanding common
stock of registrant.

The number of shares outstanding of each of the registrant's classes of common 
stock as of March 1, 2002. 

68,486,101

Documents incorporated by reference

(1) Portions of registrant's 2001 Annual Report to Shareholders have
been incorporated by reference into Parts I and II of this Form 10-K
Report.

(2) Portions of the Proxy Statement, relative to the May 16, 2002
annual meeting of shareholders of registrant, to be filed within 120
days after the end of the fiscal year covered by this Form 10-K Report,
have been incorporated by reference into Part III of this Form 10-K
Report.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K ("10-K"), or incorporated
by reference in this 10-K, are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 made based upon, among other things, our
current assumptions, expectations and beliefs concerning future developments and
their potential effect on us. These forward-looking statements involve risks,
uncertainties and other factors, many of which are outside our control, that may
cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
these forward-looking statements. In some cases you can identify forward-looking
statements where statements are preceded by, followed by or include the words
"believes," "expects," "anticipates," "plans," "future," "potential" or the
negative of such terms or similar expressions. Forward-looking statements in
this 10-K, or incorporated by reference in this 10-K, include, but are not
limited to, statements regarding:

o    projected capital expenditures and related funding requirements;

o    developments and trends in the water and wastewater utility
industries;

o    opportunities for future acquisitions;

o    the development of new services and technologies by us or our
competitors;

o    the availability of qualified personnel;

o    general economic conditions; and

o    merger-related costs and synergies.

Because forward-looking statements involve risks and uncertainties,
there are important factors that could cause actual results to differ materially
from those expressed or implied by these forward-looking statements, including
but not limited to:

o    changes in general economic, business and financial market
conditions;

o    changes in government regulations, including environmental and
public utility regulations;

o    abnormal weather conditions;

o    changes in capital requirements;

o    our ability to integrate businesses, technologies or services
which we may acquire;

o    our ability to manage the expansion of our business;

o    the extent to which we are able to develop and market new and
improved services;

o    the effect of the loss of major customers;

o    our ability to retain the services of key personnel and to hire
qualified personnel as we expand;

o    unanticipated capital requirements; and

o    cost overruns relating to improvements or the expansion of our
operations.

Given these uncertainties, you should not place undue reliance on these
forward-looking statements. You should read this 10-K and the documents that we
incorporate by reference in this 10-K completely and with the understanding that
our actual future results may be materially different from what we expect. These
forward-looking statements represent our estimates and assumptions only as of
the date of this 10-K. Except for our ongoing obligations to disclose material
information under the federal securities laws, we are not obligated to update
these forward-looking statements, even though our situation may change in the
future. We qualify all of our forward-looking statements by these cautionary
statements.

2

PART I

Item 1.         Business

The Company

Philadelphia Suburban Corporation (referred to as "we" or "us") is the
holding company for regulated utilities providing water or wastewater services
to approximately 2 million people in Pennsylvania, Ohio, Illinois, New Jersey,
Maine, and North Carolina. Our two primary subsidiaries are Pennsylvania
Suburban Water Company, a regulated public utility that provides water or
wastewater services to about 1.3 million residents in the suburban areas north
and west of the City of Philadelphia and in ten other counties in Pennsylvania,
and Consumers Water Company, a holding company for several regulated public
utility companies that provide water or wastewater service to about 700,000
residents in various communities in four states. Other subsidiaries provide
water or wastewater services in parts of Pennsylvania, North Carolina and Ohio.
In January 2002, Philadelphia Suburban Water Company and various of our other
Pennsylvania operating subsidiaries were merged together into Pennsylvania
Suburban Water Company. The purpose of the merger was to achieve certain legal,
financing and administrative efficiencies and benefits. For operational
purposes, those entities will continue to do business under their former names.
For discussion purposes, all references to Pennsylvania Suburban Water Company
relates to Pennsylvania Suburban Water Company or its predecessor companies.

We are among the largest investor-owned water utilities in the United
States based on the number of customers. In addition, we provide water and
wastewater service to approximately 35,000 people through operating and
maintenance contracts with municipal authorities and other parties close to our
operating companies' service territories. Some of our subsidiaries provide
wastewater collection, treatment and disposal services (primarily residential)
to approximately 40,000 people in Pennsylvania, Illinois, New Jersey and North
Carolina.

Consumers Water Company owns 100% of the voting stock of three water
companies operating in Ohio, Illinois and Maine, and at least 99% of the voting
stock of one water company operating in New Jersey. Consumers Water Company's
subsidiaries operate 24 divisions in these four states, providing water service
to approximately 700,000 people.

The following table indicates by geographic area our number of
customers served and utility revenues (water and wastewater revenues) for the
year ended December 31, 2001:
Number
Utility         of
Revenues     Customers
(000's)       Served
-----------------------

Suburban Philadelphia                                $ 185,451      347,728
Pennsylvania*                                           25,192       47,121
Ohio                                                    34,662       83,299
Illinois                                                28,571       64,030
New Jersey                                              15,584       37,937
Maine                                                    8,675       16,882
North Carolina                                           2,053        5,513
----------------------
$ 300,188      602,510
======================

* Other than suburban Philadelphia.

3

Item 1, Continued

The following table indicates by customer class our number of customers
served and utility revenues for the year ended December 31, 2001:

Number
Utility         of
Revenues     Customers
Customer class                                 (000's)       Served
--------------                               -----------------------

Residential                                  $ 188,303      526,776
Commercial                                      53,103       29,745
Industrial                                      16,140        1,454
Other                                           35,682        9,947
Wastewater and operating contracts               6,960       34,588
-----------------------
$ 300,188      602,510
=======================

Our customer base is primarily residential, representing approximately
63% of our total sales. Substantially all of our water customers are metered,
which allows us to measure our customers' water consumption. Water consumption
per customer is affected by local weather conditions during the year, especially
during the late spring and early summer. In general, during these seasons, an
extended period of dry weather increases consumption, while above average
rainfall decreases water consumption. Also, an increase in the average
temperature generally causes an increase in water consumption. See "Water
Supplies and Facilities" for a discussion of water use restrictions that may
impact water consumption during abnormally dry weather. Our exposure to regional
weather conditions is lessened by our geographic diversity, as our customers are
located in six states. During 2001, we experienced relatively dry weather and
warmer temperatures than normal in portions of our service territory,
particularly suburban Philadelphia, New Jersey and Maine. The 2001 weather
conditions resulted in increased water consumption in these portions of our
service territory, in contrast to the cool and wet weather conditions in these
same areas during the summer of 2000, which resulted in a decline in water
consumption during this period in 2000.

The growth in revenues over the past three years is a result of
increases in the customer base and in water rates. Excluding customers added
through acquisitions and other growth ventures, during the three-year period of
1999 through 2001, our customer base grew at an annual compound rate of 1.2%.
Including acquisitions and other growth ventures, our customer base increased at
an annual compound rate of 4.1% during this period. The customer growth rate in
2001 was 4.0%. Our business combination with Consumers Water Company in 1999 has
enabled us to grow through acquisitions in the areas where Consumers operates,
and to enter a new state, North Carolina, in 2000.

Acquisitions and Water Sale Agreements

With more than 50,000 community water systems in the U.S. (85% of which
serve less than 3,300 customers), the water industry is the most fragmented of
the major utility industries (telephone, natural gas, electric and water). The
nation's water systems range in size from large municipally-owned systems, like
the New York City water system that serves about 9 million people, to small
systems, where a few customers share a common well. In the states where we
operate, we believe there are over 8,800 public water systems of widely varying
size.

4

Item 1, Continued

Although not as fragmented as the water industry, the wastewater
industry in the U.S. also presents opportunities for consolidation. According to
the U.S Environmental Protection Agency's most recent survey of publicly-owned
wastewater treatment facilities in 1996, there are approximately 16,000 such
facilities in the nation serving approximately 72% of the U.S. population. The
vast majority of wastewater facilities are government-owned rather than
privately-owned. That survey also indicates that there are about 3,500 such
facilities in operation or planned in the six states where we operate.

We believe that there are many potential water and wastewater system
acquisition candidates throughout the United States because of the fragmented
nature of these industries. We believe the factors driving consolidation of
these systems are:

o   the benefits of economies of scale, including the development of
technological expertise that would not be feasible in a smaller
organization;
o   increasingly stringent environmental regulations; and
o   the need for capital investment.

We believe that acquisitions will continue to be an important source of
growth for us. We intend to continue to pursue acquisitions of municipally-owned
and investor-owned water systems of all sizes that provide services in the
vicinity of our existing service territories or in new service areas, and we
intend to pursue wastewater system acquisitions, typically when the wastewater
system acquisition complements a water system opportunity. We engage in
continuing activities with respect to potential acquisitions, including
performing analyses and investigations of acquisition candidates, making
preliminary acquisition proposals and negotiating the terms of potential
acquisitions.

During the past five years, exclusive of the Consumers Water Company
merger we have completed 73 acquisitions or other growth ventures adding
approximately 66,200 customers to our customer base. The largest of these
transactions was the acquisition of the water utility assets of Bensalem
Township in December 1999, which has added 14,945 customers. We are actively
exploring other opportunities to expand our utility operations through
acquisitions or otherwise.

Water Supplies and Water Facilities

Our water utility operations obtain their water supplies from surface
water sources such as reservoirs, lakes, ponds, rivers and streams, in addition
to obtaining water from wells and purchasing water from other water suppliers.
Less than 10% of our water sales are purchased from other suppliers. We believe
that we have all of the necessary permits to obtain the water we distribute. Our
supplies are sufficient for anticipated daily demand and normal peak demand
under normal weather conditions. Our supplies by service area are as follows:

o   Suburban Philadelphia - The principal supply of water is surface water from
the Schuylkill River, Delaware River, eight rural streams which are
tributaries of the Schuylkill and Delaware Rivers, and the Upper Merion
Reservoir, a former quarry now impounding groundwater. Wells and
interconnections with adjacent municipal authorities supplement these
surface supplies.

o   Pennsylvania (other than suburban Philadelphia) - The Roaring Creek Division
draws its water from a man-made lake within a 12,000 acre watershed and two
wells also located in the watershed. The Susquehanna Division obtains its
water supply from wells. The Shenango Division draws its water from the
Shenango River. The Waymart Division's water supply is principally from
wells.

5

Item 1, Continued

o   Ohio - Water supply is obtained for customers in Lake County from Lake Erie.
Customers in Mahoning County obtain their water from man-made lakes and the
Ashtabula division is supplied by purchased water. Water supply is obtained
for customers in Stark and Summit Counties from wells.

o   Illinois - Water supply is obtained for customers in Kankakee County from
the Kankakee River and satellite wells, while customers in Vermilion County
are supplied from Lake Vermilion. In Will, Lee, Boone, Lake and Knox
counties, our customers are served from deep and shallow well systems.

o   New Jersey - Water supply in our three non-contiguous divisions is obtained
from wells and is supplemented with purchased water.

o   Maine - Eleven non-contiguous water systems obtain their water supply as
follows: five systems use groundwater, five systems use surface water and
one system purchases water from a neighboring municipal district.

o   North Carolina - Water supply in 105 non-contiguous divisions is obtained
from wells and 2 divisions purchase water from neighboring municipalities.

We believe that the capacities of our sources of supply, and our water
treatment, pumping and distribution facilities are generally sufficient to meet
the present requirements of our customers. On a continuing basis, we make system
improvements and additions to capacity in response to changing regulatory
standards, changing patterns of consumption and increases in the number of
customers. The various state public utility commissions have generally
recognized the operating and capital costs associated with these improvements in
setting water rates.

On occasion, drought warnings and water use restrictions are issued by
governmental authorities for portions of our service territories in response to
extended periods of dry weather conditions. The timing and duration of the
warnings and restrictions can have an impact on our water revenues and net
income. In general, water consumption in the summer months are affected by
drought warnings and restrictions to a higher degree because nonessential and
recreational use of water is highest and at times other than the summer months,
warnings and restrictions generally have less of an effect on water consumption.
In November 2001, a drought warning was declared in nine counties in
Pennsylvania, including one of the five counties we serve in southeastern
Pennsylvania. A drought warning calls for a 10 to 15 percent voluntary reduction
of water use, particularly non-essential uses of water. In February 2002, a
drought emergency was declared in 24 counties, including seven of the counties
we serve in Pennsylvania. A drought emergency imposes a ban on nonessential
water use.

On occasion, there have been other water use restrictions in
Pennsylvania and New Jersey during the past three years, however, the
restrictions did not have a significant impact on operating revenues and we had
sufficient quantities of raw water and maintained adequate storage levels of
treated water.

6

Item 1, Continued

Economic Regulation

Our water and wastewater utility operations are subject to regulation
by their respective state regulatory commissions, which have broad
administrative power and authority to regulate rates and charges, determine
franchise areas and conditions of service and authorize the issuance of
securities. The regulatory commissions also establish uniform systems of
accounts and approve the terms of contracts with affiliates and customers,
business combinations with other utility systems, loans and the purchases or
sales of property. The profitability of our utility operations is influenced to
a great extent by the timeliness and adequacy of rate allowances in the various
states in which we operate. Accordingly, we maintain a rate case management
capability to provide that the tariffs of our utility operations reflect, to the
extent practicable, the timely recovery of increases in costs of operations,
capital, taxes, energy, materials and compliance with environmental regulations.
Rates for some divisions of our Ohio water utility can be fixed by negotiated
agreements with the municipalities that are served by those divisions in lieu of
regulatory approval from the Public Utilities Commission of Ohio. Currently, two
of the six regulated divisions in Ohio are operating under such rate ordinances.

The Pennsylvania Public Utility Commission ("PAPUC") permits
Pennsylvania water utilities to add a surcharge to their water bills. The
revenues earned from the surcharge offsets the additional depreciation and
capital costs associated with certain capital expenditures related to replacing
and rehabilitating distribution systems. In general, the capital expenditures
are associated with projects that are non-revenue producing, non-expense
reducing replacements and rehabilitation distribution system improvements. The
surcharge is known as a Distribution System Improvement Charge ("DSIC"). Prior
to the DSIC, water utilities absorbed all of the depreciation and capital costs
of these projects between base rate increases without the benefit of additional
revenues. The gap between the time that a capital project is completed and the
recovery of its costs in base rates is known as regulatory lag. The DSIC is
intended to eliminate or reduce regulatory lag that often acted as a
disincentive to water utilities in rehabilitating their distribution systems.
The DSIC is adjusted quarterly based on additional qualified capital
expenditures made in the previous quarter. The DSIC may never exceed 5% of the
base rates in effect. The DSIC is reset to zero when new base rates that reflect
the costs of those additions become effective. The PAPUC also limits use of the
DSIC to periods when a company's return on equity is less than a benchmark it
establishes each quarter.

In 2001, the Illinois Commerce Commission issued regulations
implementing an infrastructure surcharge mechanism known as a Qualifying
Infrastructure Plant Surcharge ("QIPS") for use by Illinois water and wastewater
utilities. QIPS is similar to DSIC, however, it is established annually and
prospectively based on anticipated qualifying capital expenditures, and it
includes a broader range of qualifying capital expenditures, including certain
wastewater capital expenditures. Consumers Illinois Water Company has received
approval to add a QIPS to its bills in three of its operating divisions
beginning January 1, 2002 at various rates ranging from 1.06% to 2.49%. We are
currently working to establish DSIC mechanisms in the other states in which we
operate.

In general, we believe that Philadelphia Suburban Corporation and its
subsidiaries have valid authority, free from unduly burdensome restrictions, to
enable us to carry on our business as presently conducted in the territories we
now serve. The rights to provide water or wastewater service to a particular
franchised service territory are generally non-exclusive, although the
applicable regulatory commissions usually allow only one utility to provide
service to a given area. In some instances, another water utility provides
service to a separate area within the same political subdivision served by one
of

7

Item 1, Continued

our subsidiaries. In the states where our subsidiaries operate, it is possible
that portions of our subsidiaries' operations could be acquired by municipal
governments by one or more of the following methods:

o   eminent domain;
o   the right of purchase given or reserved by a municipality or political
subdivision when the original franchise was granted; and
o   the right of purchase given or reserved under the law of the state in which
the subsidiary was incorporated or from which it received its permit.

The price to be paid upon such an acquisition by the municipal
government is usually determined in accordance with applicable law governing the
taking of lands and other property under eminent domain. In other instances, the
price may be negotiated, fixed by appraisers selected by the parties or computed
in accordance with a formula prescribed in the law of the state or in the
particular franchise or charter. Generally, our strategy is to acquire
additional water and wastewater systems, maintain our existing systems, and
actively oppose efforts by municipal governments to acquire any of our
operations, particularly for less than the fair market value of our operations
or where the municipal government seeks to acquire more than it is entitled to
under the applicable law or agreement.

There are two matters in Ohio that involve the attempted acquisition or
condemnation of certain assets of our Ohio water utility.

In Ashtabula County, Consumers Ohio Water Company provides water
service to several municipalities and to areas of the county that are located
outside of these municipalities. Ashtabula County has proposed, under a 1959
agreement with Consumers Ohio Water Company, to purchase certain assets of
Consumers Ohio Water Company that are located outside of these municipalities.
This proposal resulted in litigation over the question of whether Ashtabula
County's right to purchase includes all of the assets located outside of these
municipalities or only those assets that are not essential for providing service
to these municipalities. The court denied the County's request to acquire all
assets outside of these municipalities; yet, the assets which may be purchased
have not been defined. A court hearing has been scheduled in mid-2002 to define
the assets that may be purchased. It is not certain that the County will proceed
with an acquisition if all the assets cannot be purchased. If the County does
proceed to acquire all or some of these assets, we believe that Consumers Ohio
Water Company will be entitled to fair market value for these assets, which we
believe will be in excess of the book value for these assets.

The City of Geneva in Ashtabula County, Ohio, has passed an ordinance
seeking authorization to condemn the assets of Consumers Ohio Water Company that
are located in Geneva. The issue was submitted to a referendum in November 2000,
whereby voters by a margin of 16 votes affirmed the ordinance. The City has
engaged a consulting firm to assist it in valuing the assets that may be
condemned. If the City condemns these assets, we believe that Consumers Ohio
Water Company will be entitled to fair market value for these assets, which we
believe will be in excess of the book value for these assets. The total number
of customers included in the Ashtabula and Geneva systems discussed above
represent approximately 1% of our total customer base.

Environmental Regulation

The provision of water and wastewater services is governed primarily by
the federal Safe Drinking Water Act, the Clean Water Act and related state laws,
and state and federal regulations issued under these laws by the Environmental
Protection Agency and state environmental regulatory agencies. These laws and
regulations establish criteria and standards for drinking water and for
discharges into the 

8

Item 1, Continued

waters of the United States. The states may have the right to establish criteria
and standards that are stricter than those established by the Environmental
Protection Agency. In addition, we are subject to federal and state laws and
other regulations relating to residual waste disposal, dam safety and other
operations of our subsidiaries.

In addition to the capital expenditures and costs currently
anticipated, changes in environmental regulations, enforcement policies and
practices or related matters may result in additional capital expenditures and
costs. Capital expenditures and costs required as a result of water quality
standards and environmental requirements have been recognized by state public
utility commissions as appropriate for inclusion in establishing rates.

Safe Drinking Water Act - The Safe Drinking Water Act establishes criteria and
procedures for the Environmental Protection Agency to develop national quality
standards for drinking water. Regulations issued pursuant to the Safe Drinking
Water Act set standards on the amount of certain microbial and chemical
contaminants and radionuclides allowable in drinking water. The 1996 Amendments
to the Safe Drinking Water Act require the Environmental Protection Agency to
analyze both the benefits and the costs of compliance when considering new or
stricter water quality standards. Current requirements under the Safe Drinking
Water Act are not expected to have a material impact on our operations or
financial condition. We may, in the future, be required to change our method of
treating drinking water at certain sources of supply if additional regulations
become effective. The 1996 amendments to the Safe Drinking Water Act also
prescribe testing for certain additional substances and propose establishing
future rules that may change standards for water treatment. The cost of
maintaining compliance with new rulemakings is expected to be fully recoverable
in water rates and is not expected to have a material impact on our results from
operations or financial condition.

The Safe Drinking Water Act of 1974 established a standard for nitrate,
a regulated inorganic chemical used extensively in crop fertilization. In 1999
and 2000, elevated levels of nitrate were observed in the Vermilion River, a
water supply source for Consumers Illinois Water Company. As a result of the
nitrate levels, in December 2000 Consumers Illinois Water Company completed
construction of a nitrate-removal facility for its Vermilion River source. The
facility has operated effectively since then to keep nitrate levels at the
Danville Water Treatment Plant in compliance with the drinking water standard.
The project cost of approximately $5.7 million is being recovered in water
rates.

The EPA may issue a final rule for radon in the future, although the
EPA has postponed the issuance of these rules many times in the past. If a rule
is issued, limits for radon would probably become effective 4 or 5 years later.
We anticipate this rule may establish a radon level that would require treatment
at a small number of our wells. The capital costs to comply with the anticipated
limit are expected to total less than $1 million. If the states in which we
operate elect not to implement general radon reduction programs (Multi-Media
Mitigation), then a lower limit for radon may apply and a larger number of wells
would be affected. It is expected that states will adopt Multi-Media Mitigation
programs. Whether or not states adopt these programs, we expect that future
costs associated with radon treatment will be fully recoverable in water rates.

The Safe Drinking Water Act provides for the regulation of
radionuclides other than radon, such as radium and uranium. In December 2000,
the EPA issued a final rule regulating certain radionuclides other than radon.
The rule will become effective in December 2003 and no significant impact on our
operations or financial condition is anticipated from the new rulemaking. As a
result of revised testing procedures under the new regulation, additional
treatment or alternate sources of water supply may be required for a small
number of groundwater sources in one of our divisions. We believe the costs for
additional treatment or alternate sources of water supply will be fully
recoverable in water rates.

9

Item 1, Continued

In order to eliminate or inactivate microbial organisms, the Surface
Water Treatment Rule and the Interim Enhanced Surface Water Treatment Rule were
issued by the EPA to improve disinfection or filtration. The EPA developed the
Disinfectants-Disinfection By-products Rule to reduce consumers' exposure to
disinfectants and by-products of the disinfection process. In December 1998, the
EPA issued new rules on disinfection and on surface water treatment. Our large
surface water systems are in compliance with these rulemakings, including the
additional provisions that became effective in January 2002. In July 2000,
construction was completed on a $35 million water treatment plant at one of our
Pennsylvania operating companies. This new plant replaced an aged,
lower-capacity facility and allows us to maintain compliance with the Surface
Water Treatment Rule, continue to maintain compliance with anticipated future
regulations. The cost of the plant is being fully recovered in rates. The plant
is currently operating under an agreement with a state regulatory agency while
data is being collected to demonstrate the effective performance of the plant's
innovative technologies. This plant has met and continues to meet all drinking
water standards. Groundwater and smaller surface water systems have until
December 2003 to comply with the rules on disinfection and on surface water
treatment. We are currently developing a new groundwater source for a small
surface water system in Maine, and in the future may be required to install
filtration for a surface water supply in Maine. A number of small groundwater
systems in New Jersey and Pennsylvania may be reclassified as being influenced
by surface water. This may require additional treatment or the development of
replacement sources of supply over time, and that could cost approximately $5
million. It is expected that these capital expenditures would be fully
recoverable in water rates and would represent a small portion of our typical
annual capital expenditures.

We conduct extensive water quality monitoring beyond what is required
by the regulations, including monitoring for contaminants for which health
advisories or other limits have been published or proposed, but for which
drinking water standards are not in effect. In the course of this monitoring,
contaminants may be identified that may prompt us to take a water supply source
out of service or add treatment at the water supply source. Where a source of
contamination can be identified, we pursue recovery of response costs from
responsible parties. In April 2000, the gasoline additive Methyl tert-Butyl
Ether ("MtBE") was discovered in a Consumers New Jersey production well at
levels exceeding the New Jersey drinking water standard. The well was
immediately taken out of service and alternate water supplies were obtained
through existing wells. The New Jersey Department of Environmental Protection
identified the source of the MtBE as a nearby gasoline station. The company
responsible for the contamination has reimbursed us for expenses incurred
to-date and we expect to continue to be reimbursed for the future costs
associated with developing a long-term replacement supply.

In January 2001, the EPA issued a final rule for arsenic that lowers
the limit to a more stringent level effective by 2006, with a provision for
further time extensions for small systems. Currently, two small well systems
slightly exceed the new arsenic levels and will require additional treatment.
The cost of maintaining compliance with new rulemakings is expected to be fully
recoverable in water rates and is not expected to have a material impact on our
results from operations or financial condition.

Additional rules dealing with water treatment and disinfection are
anticipated during 2002, and are not expected to have a material impact on our
results of operations or financial condition.

10

Item 1, Continued

Clean Water Act - The Clean Water Act regulates discharges from drinking water
and wastewater treatment facilities into lakes, rivers, streams, and
groundwater. We currently maintain all required permits and approvals for the
discharge from our water and wastewater facilities. Additional capital
expenditures and operating costs in connection with the management and disposal
of discharges from our water and wastewater facilities may be required in the
future, particularly if changes are made in the requirements of the applicable
Federal or state laws. We believe that these capital expenditures would be fully
recoverable in our rates.

Residual and Solid Waste Disposal - The handling and disposal of residuals and
solids from water and wastewater treatment facilities are governed by state and
federal laws and regulations. Water treatment residuals and solids are a
combination of the chemicals used in the treatment process and the silt and
other materials removed from the raw water. Most of our water treatment
residuals and solids are disposed of in company-owned, dedicated landfills, or
by land application by a licensed contractor. A small portion of our water
treatment residuals and solids are disposed of in state-approved landfills owned
by others or in a liquid form into municipal sewer systems. Wastewater residuals
and solids result from the treatment of wastewater, and these "sludges" are
disposed of in approved landfills, transferred to larger wastewater treatment
facilities or applied to farmland. We currently maintain all required permits
for our water and wastewater treatment facilities and our dedicated landfills.
Additional capital expenditures and operating costs in connection with the
management and disposal of residuals and solids from our water and wastewater
facilities may be required in the future, particularly if changes are made in
the requirements of the applicable Federal or state laws. We believe that these
capital expenditures would be fully recoverable in our rates.

Dam Safety - Our subsidiaries own seventeen major dams that are subject to the
requirements of the Federal and state regulations related to dam safety. All
major dams undergo an annual engineering inspection. We believe that all
seventeen dams are structurally sound and well-maintained.

In Pennsylvania, the Department of Environmental Protection has
recently adopted the use of a new formula for determining the magnitude of the
Probable Maximum Flood. We are studying our dams to determine what improvements
may be needed to our dams as a result of this new calculation. As a result of
the initial results of the studies, we have identified three dams that could
require capital improvements of approximately $7 million in aggregate. We
believe that these capital expenditures that could be required by the new
formulas would be fully recoverable in our rates. In Ohio, the Department of
Environmental Resources has adopted the use of the new formula. We are studying
our dams in Ohio to determine the required improvements. Based on the
preliminary results, we believe that capital expenditures of approximately $2.2
million in aggregate will be required on three dams over the next four years.

Employee Relations

As of December 31, 2001, we employed a total of 951 full-time persons.
Our subsidiaries are parties to agreements with labor unions covering 456
employees. We consider our employee relations to be good.

11

Item 2.  Properties.

Our properties consist of transmission and distribution mains and
conduits, water treatment plants, pumping facilities, wells, tanks, meters,
supply lines, dams, reservoirs, buildings, vehicles, land, easements, rights and
other facilities and equipment used for the operation of our systems, including
the collection, treatment, storage and distribution of water. Substantially all
of our properties are owned by our subsidiaries and are subject to liens of
mortgage or indentures. These liens secure bonds, notes and other evidences of
long-term indebtedness of our subsidiaries. For certain properties that we
acquired through the exercise of the power of eminent domain and certain other
properties we purchased, we hold title for water supply purposes only. We own,
operate and maintain approximately 7,690 miles of transmission and distribution
mains, 19 water treatment plants and 14 wastewater treatment plants. Some
properties are leased under long-term leases. The following table indicates our
net utility plant as of December 31, 2001 by service area:

Net Property,
Plant and
Equipment
(000's)
----------------

Suburban Philadelphia                                  $ 842,410
Pennsylvania*                                            129,174
Ohio                                                     150,909
Illinois                                                 124,442
New Jersey                                                79,571
Maine                                                     34,628
North Carolina                                            10,452
Inter-company eliminations and other                      (3,471)
----------
$1,368,115
==========

*Other than suburban Philadelphia.

We believe that our properties are maintained in good condition and in
accordance with current standards of good waterworks industry practice. We
believe that the facilities used in the operation of our business are in good
condition in terms of suitability, adequacy and utilization.

Our corporate offices are leased from Pennsylvania Suburban Water
Company and located in Bryn Mawr, Pennsylvania.

Item 3.  Legal Proceedings

There are various legal proceedings in which we are involved. Although
the results of legal proceedings cannot be predicted with certainty, there are
no pending legal proceedings to which we or any of our subsidiaries is a party
or to which any of our properties is the subject that are expected to have a
material effect on our financial position, results of operations or cash flows.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the
fourth quarter of 2001.

Executive Officers of the Registrant

Information with respect to our executive officers is contained in Item
10 hereof and is hereby incorporated by reference herein.

12

PART II

Item 5.  Market for the Registrant's Common Stock and Related Security
Holder Matters

Our common stock is traded on the New York Stock Exchange and the
Philadelphia Stock Exchange. As of March 1, 2002, there were approximately
21,056 holders of record of our common stock.

The following selected quarterly financial data is in thousands of 
dollars, except for per share amounts:

First        Second        Third        Fourth        Year
--------------------------------------------------------------
2001
--------------------------------------------------------------------------------------------------------------------

Operating revenues                                     $70,193      $77,240       $84,726      $75,121     $307,280
Operations and maintenance expense                      26,186       26,462        28,994       30,243      111,885
Net income available to common
stock                                                 13,085       15,432        19,279       12,209       60,005
Basic net income per common share                         0.19         0.23          0.28         0.18         0.88
Diluted net income per common share                       0.19         0.22          0.28         0.18         0.87
Dividend paid per common share                           0.124        0.124         0.124      0.13248        0.504
Dividend declared per common share                       0.124        0.124       0.25648            -        0.504
Price range of common stock
- high                                                 19.39        20.40         23.28        24.64        24.64
- low                                                  15.65        16.60         18.66        20.80        15.65

2000
--------------------------------------------------------------------------------------------------------------------
Operating revenues                                     $64,208      $68,494       $72,123      $69,189     $274,014
Operations and maintenance expense                      24,928       24,350        25,037       27,426      101,741
Net income available to common
stock                                                 10,246       13,565        16,539       12,434       52,784
Basic net income per common share                         0.16         0.21          0.26         0.19         0.82
Diluted net income per common share                       0.16         0.21          0.25         0.18         0.81
Dividends paid per common share                          0.115        0.115         0.115        0.124       0.4696
Dividends declared per common share                      0.115        0.115         0.239            -       0.4696
Price range of common stock
- high                                                 14.08        15.96         15.56        19.95        19.95
- low                                                  10.56        11.60         12.80        13.56        10.56

All per share data as presented has been adjusted for the 2001 5-for-4
common stock split effected in the form of a stock distribution (described
below). High and low prices of our common stock are as reported on the New York
Stock Exchange Composite Tape. The cash dividends paid in December 2001 of
$0.13248 per share and December 2000 of $0.124 per share were declared in August
2001 and August 2000, respectively.

Net income available to common stock and net income per common share
for 2000 includes the partial recovery of the merger costs related to the
Consumers Water Company merger as follows: $972,000 ($1,059,000 pre-tax) or
$0.02 per share in the second quarter and $1,264,000 ($2,982,000 pre-tax) or
$0.02 per share in the third quarter.

13

Item 5, Continued

We have paid common dividends consecutively for 57 years. Effective
December 1, 2001, our Board of Directors authorized an increase of 6.9% in the
dividend rate over the amount Philadelphia Suburban Corporation has historically
paid. As a result of this authorization, beginning with the dividend payment in
December, the annual dividend rate increased to $0.53 per share. We presently
intend to pay quarterly cash dividends in the future, on March 1, June 1,
September 1 and December 1, subject to our earnings and financial condition,
regulatory requirements and such other factors as our Board of Directors may
deem relevant. During the past five years, after restatement for the Consumers
Water Company pooling, our common dividends paid have averaged 65.3% of income
from continuing operations.

In August 2001, our Board of Directors declared a 5-for-4 common stock
split effected in the form of a 25% stock distribution for all common shares
outstanding, to shareholders of record on November 16, 2001. The new shares were
distributed on December 1, 2001. PSC's par value of $0.50 per share remained
unchanged and $6,829,000 was transferred from Capital in Excess of Par Value to
Common Stock to record the split. All share and per share data for all periods
presented have been restated to give effect to the stock split.

Item 6.  Selected Financial Data

The information appearing in the section captioned "Summary of Selected
Financial Data" from the portions of our 2001 Annual Report to Shareholders
filed as Exhibit 13.9 to this Form 10-K Report is incorporated by reference
herein.

Item 7.   Management's Discussion and Analysis of Financial Condition and 
Results of Operations

The information appearing in the section captioned "Management's
Discussion and Analysis" from the portions of our 2001 Annual Report to
Shareholders filed as Exhibit 13.9 to this Form 10-K Report is incorporated by
reference herein.

14

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risks in the normal course of business,
including changes in interest rates and equity prices. The exposure to changes
in interest rates is a result of financings through the issuance of fixed-rate,
long-term debt. Such exposure is typically related to financings between utility
rate increases, since generally our rate increases include a revenue level to
allow recovery of our current cost of capital. Interest rate risk is managed
through the use of a combination of long-term debt, which is at fixed interest
rates and short-term debt, which is at floating interest rates. As of December
31, 2001, the debt maturities by period, in thousands of dollars, and the
weighted average interest rate for fixed-rate, long-term debt are as follows:

Fair
2002       2003       2004       2005       2006  Thereafter       Total       Value
--------------------------------------------------------------------------------------------------------------------

Long-term
debt (fixed rate)        $14,935    $34,945    $39,972    $40,961    $17,130    $383,512    $531,455    $562,740
--------------------------------------------------------------------------------------------------------------------
Average interest rate         6.54%      6.75%      6.36%      7.22%      7.20%       7.02%       6.96%
--------------------------------------------------------------------------------------------------------------------

From time to time, we make investments in marketable equity securities.
As a result, we are exposed to the risk of changes in equity prices for the
"available-for-sale" marketable equity securities. As of December 31, 2001, our
carrying value of marketable equity securities was $6,425,000, which reflects
the market value of such securities. The market risks that we are exposed to are
consistent with the risks that we were exposed to in the prior year.

Item 8.  Financial Statements and Supplementary Data

Information appearing under the captions "Consolidated Statements of
Income and Comprehensive Income", "Consolidated Balance Sheets", "Consolidated
Cash Flow Statements" "Consolidated Statements of Capitalization" and "Notes to
Consolidated Financial Statements" from the portions of our 2001 Annual Report
to Shareholders filed as Exhibit 13.9 to this Form 10-K Report is incorporated
by reference herein. Also, the information appearing in the section captioned
"Reports on Financial Statements" from the portions of our 2001 Annual Report to
Shareholders filed as Exhibit 13.9 to this Form 10-K Report is incorporated by
reference herein.

Item 9.  Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure

None.

15

PART III

Item 10.  Directors and Executive Officers of the Registrant

Directors of the Registrant

The information appearing in the section captioned "Information
Regarding Nominees and Directors" of the Proxy Statement relating to our May 16,
2002, annual meeting of shareholders, to be filed within 120 days after the end
of the fiscal year covered by this Form 10-K Report, is incorporated herein by
reference.

Executive Officers of the Registrant

The following table and the notes thereto set forth information with
respect to the executive officers of the Registrant, including their names,
ages, positions with the Registrant and business experience during the last five
years:

Position with the Registrant
Name                                   Age          and date of election (1)  
----                                   ---          --------------------------

Nicholas DeBenedictis                   56          President and Chairman (May 1993 to present); President and Chief
Executive Officer (July 1992 to May 1993); Chairman and Chief
Executive Officer, Pennsylvania Suburban Water Company (July 1992 to
present); President, Philadelphia Suburban Water Company (February
1995 to January 1999) (2)

Morrison Coulter                        65          President, Pennsylvania Suburban Water Company - Philadelphia Suburban
Division (December 2001 to present); President, Philadelphia Suburban
Water Company (January 1999 to December 2001); Senior Vice President -
Production, Philadelphia Suburban Water Company (February 1996 to
January 1999); Vice President - Production, Philadelphia Suburban
Water Company (April 1989 to February 1996) (3)

Richard R. Riegler                      55          Senior Vice President - Engineering and Environmental Affairs (January
1999 to present); Senior Vice President - Operations, Philadelphia
Suburban Water Company (April 1989 to January 1999) (4)

Roy H. Stahl                            49          Executive Vice President and General Counsel (May 2000 to present);
Secretary (June 2001 to present); Senior Vice President and General
Counsel (April 1991 to May 2000) (5)

David P. Smeltzer                       43          Senior Vice President - Finance and Chief Financial Officer (December
1999 to present); Vice President - Finance and Chief Financial Officer
(May 1999 to December 1999); Vice President - Rates and Regulatory
Relations, Philadelphia Suburban Water Company (March 1991 to May
1999) (6)

(1) In addition to the capacities indicated, the individuals named in the above
table hold other offices or directorships with subsidiaries of the Registrant.
Officers serve at the discretion of the Board of Directors.

(2) Mr. DeBenedictis was Secretary of the Pennsylvania Department of
Environmental Resources from 1983 to 1986. From December 1986 to April 1989, he
was President of the Greater Philadelphia Chamber of Commerce. Mr. DeBenedictis
was Senior Vice President for Corporate and Public Affairs of Philadelphia
Electric Company from April 1989 to June 1992.

(3) Mr. Coulter was Superintendent of Pumping Facilities from 1971 to 1982. From
1982 to 1987 he served as Manager - Electrical/Mechanical Department and from
1987 to 1989 he was Assistant Vice President - Production.

(4) Mr. Riegler was Chief Engineer of Philadelphia Suburban Water Company from
1982 to 1984. He then served as Vice President and Chief Engineer from 1984 to
1986 and Vice President of Operations from 1986 to 1989.

(5) From January 1984 to August 1985, Mr. Stahl was Corporate Counsel, from
August 1985 to May 1988 he was Vice President - Administration and Corporate
Counsel of the Registrant, and from May 1988 to April 1991 he was Vice President
and General Counsel of the Registrant.

(6) Mr. Smeltzer was Vice President - Controller of Philadelphia Suburban Water
Company from March, 1986 to March 1991.

16

Item 11.  Executive Compensation

The information appearing in the sections captioned "Executive
Compensation" of the Proxy Statement relating to our May 16, 2002, annual
meeting of shareholders, to be filed within 120 days after the end of the fiscal
year covered by this Form 10-K Report, is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The information appearing in the sections captioned "Ownership of
Common Stock" of the Proxy Statement relating to our May 16, 2002, annual
meeting of shareholders, to be filed within 120 days after the end of the fiscal
year covered by this Form 10-K Report, is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

The information appearing in the sections captioned "Certain
Relationships and Related Transactions" of the Proxy Statement relating to our
May 16, 2002, annual meeting of shareholders, to be filed within 120 days after
the end of the fiscal year covered by this Form 10-K Report, is incorporated
herein by reference.

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

Financial Statements. The following is a list of our consolidated financial
statements and its subsidiaries and supplementary data incorporated by reference
in Item 8 hereof:

Report of Management

Independent Accountants' Report of PricewaterhouseCoopers LLP - 2001

Consolidated Balance Sheets - December 31, 2001 and 2000

Consolidated Statements of Income and Comprehensive Income - 2001, 2000
and 1999

Consolidated Cash Flow Statements - 2001, 2000, and 1999

Consolidated Statements of Capitalization - December 31, 2001 and 2000

Notes to Consolidated Financial Statements

Financial Statement Schedules. The financial statement schedules, or
supplemental schedules, filed as part of this annual report on Form 10-K are
omitted because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes
thereto.

17

Item 14, Continued

Pursuant to Rule 14a-3 Note 1, filed herein is the independent
auditors' report of KPMG LLP for the year ended December 31, 1999.

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
Philadelphia Suburban Corporation:

We have audited the accompanying consolidated statements of income and
comprehensive income and cash flow of Philadelphia Suburban Corporation and
subsidiaries for the year ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Philadelphia Suburban Corporation and subsidiaries for the year ended
December 31, 1999, in conformity with generally accepted accounting principles.

/s/ KPMG LLP

Philadelphia, Pennsylvania
January 31, 2000

Reports on Form 8-K.

Philadelphia Suburban Corporation filed no reports on Form 8-K during the
quarter ended December 31, 2001.

Exhibits, Including Those Incorporated by Reference. The following is a list of
exhibits filed as part of this annual report on Form 10-K. Where so indicated by
footnote, exhibits which were previously filed are incorporated by reference.
For exhibits incorporated by reference, the location of the exhibit in the
previous filing is indicated in parentheses. The page numbers listed refer to
page numbers where such exhibits are located using the sequential numbering
system specified by Rules 0-3 and 403.

18

EXHIBIT INDEX

Exhibit No.                                                                                                Page No.
----------                                                                                                 --------

3.1       Amended and Restated Articles of Incorporation, as                                             -
amended (1) (Exhibit 3.1)

3.2       By-Laws, as amended (14) (Exhibit 3.2)                                                         -

3.3       Amendment to Amended and Restated Articles of                                                  -
Incorporation, as amended, to increase the number
of authorized shares to 41,770,819 and to
provide that 40,000,000 of such shares be
shares of Common Stock (14) (Exhibit 3.3)

3.4       Amendment to Amended and Restated Articles of                                                  -
Incorporation, as amended, designating the
Series B Preferred Stock (14) (Exhibit 3.4)

3.5       Amendment to Section 3.03 and addition of Section 3.17                                         -
to Bylaws (16) (Exhibits 1 and 2)

3.6       Amendment to Amended and Restated Articles of                                                 -
Incorporation, designating the terms of the Series A
Junior Participating Preferred Shares (18) (Exhibit 3.6)

3.7       Amendment to Amended and Restated Articles of Incorporation,                                   -
to increase the number of authorized shares to 101,770,819
and to provide that 100,000,000 of such shares be shares of
Common Stock (20) (Annex E)

3.8       Amendment to Section 3.03 of the Bylaws (23) (Exhibit 3.8)                                     -

3.9       Amendment to Section 5.05(a) to the Amended and restated Articles                              -
of Incorporation (24) (Annex A)

3.10      Amendments to Sections 2.01(a), 2.02 and 3.08(b) of the Bylaws (25) (Exhibit 3.10)             -

3.11      Restated Articles of Incorporation (as of May 17, 2001)                                       28

4.1       Indenture of Mortgage dated as of January 1, 1941                                              -
between Philadelphia Suburban Water Company and The
Pennsylvania Company for Insurance on Lives and Granting
Annuities(now First Pennsylvania Bank, N.A.), as Trustee, with
supplements thereto through the Twentieth Supplemental Indenture
dated as of August 1, 1983  (2) (Exhibits 4.1 through 4.16)

4.2       Agreement to furnish copies of other long-term debt                                            -
instruments (1) (Exhibit 4.7)

4.3       Twenty-first Supplemental Indenture dated as of August 1,                                      -
1985 (3) (Exhibit 4.2)

4.4       Twenty-second Supplemental Indenture dated as of April 1,                                      -
1986  (4) (Exhibit 4.3)

4.5       Twenty-third Supplemental Indenture dated as of April 1,                                       -
1987  (5) (Exhibit 4.4)

4.6       Twenty-fourth Supplemental Indenture dated as of June 1,                                       -
1988  (6) (Exhibit 4.5)

4.7       Twenty-fifth Supplemental Indenture dated as of                                                -
January 1, 1990 (7) (Exhibit 4.6)

19

Exhibit No.                                                                                              Page No.
-----------                                                                                              --------

4.8       Twenty-sixth Supplemental Indenture dated as of November                                       -
1, 1991  (8) (Exhibit 4.12)

4.9       Twenty-seventh Supplemental Indenture dated as of June 1,                                      -
1992 (1) (Exhibit 4.14)

4.10      Twenty-eighth Supplemental Indenture dated as of April 1,                                      -
1993 (9) (Exhibit 4.15)

4.11      Twenty-ninth Supplemental Indenture dated as of March 30,                                      -
1995 (11) (Exhibit 4.17)

4.12      Thirtieth Supplemental Indenture dated as of August 15,                                        -
1995 (12) (Exhibit 4.18)

4.13      Thirty-first Supplemental Indenture dated as of July 1,                                        -
1997 (15) (Exhibit 4.22)

4.14      Rights Agreement, dated as of March 1, 1998 between Philadelphia                               -
Suburban Corporation and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (17) (Exhibit 1)

4.15      Rights Agreement, dated as of March 1, 1998 between Philadelphia                               -
Suburban Corporation and BankBoston, N.A., as Rights Agent (21)
(Exhibit 4.25)

4.16      Thirty-second Supplement Indenture, dated as of October 1, 1999 (22)                           -
(Exhibit 4.26)

4.17      Thirty-third Supplemental Indenture, dated as of November 15, 1999.                            -
(23) (Exhibit 4.27)

4.18      Revolving Credit Agreement between Philadelphia Suburban Water                                 -
Company and PNC Bank National Association, First Union National
Bank, N.A., Mellon Bank, N.A. dated as of December 22, 1999.
(23) (Exhibit 4.27)

4.19      First Amendment to Revolving Credit Agreement dated as of November 28,                         -
2000, between Philadelphia Suburban Water Company and PNC Bank,
National Association, First Union National Bank, N.A., Mellon Bank,
N.A. dated as of December 22, 1999. (25) (Exhibit 4.19)

4.20      Second Amendment to Revolving Credit Agreement dated as of December 18,                       37
2001, between Philadelphia Suburban Water Company (and its successor
Pennsylvania Suburban Water Company) and PNC Bank, National
Association, Citizens Bank of Pennsylvania, First Union National
Bank, N.A., Fleet National Bank dated as of December 22, 1999.

4.21      Thirty-fourth Supplemental Indenture, dated as of October 15, 2001.                           43

4.22      Thirty-fifth Supplemental Indenture, dated as of January 1, 2002.                             79

10.1       1982 Stock Option Plan, as amended and restated effective                                      -
May 21, 1992* (1) (Exhibit 10.1)

10.2       1988 Stock Option Plan, as amended and restated effective                                      -
May 21, 1992* (1) (Exhibit 10.2)

10.3       Excess Benefit Plan for Salaried Employees, effective                                          -
December 1, 1989*  (7) (Exhibit 10.4)

10.4       Supplemental Executive Retirement Plan, effective                                              -
December 1, 1989*  (7) (Exhibit 10.5)

20

Exhibit No.                                                                                              Page No.
-----------                                                                                              --------

10.5       Supplemental Executive Retirement Plan, effective March                                        -
15, 1992* (1) (Exhibit 10.6)

10.6       Employment letter agreement with Mr. Nicholas                                                  -
DeBenedictis* (1) (Exhibit 10.8)

10.7       1994 Equity Compensation Plan, as amended by Amendment                                         -
1994-1* (13) (Exhibit 10.10)

10.8       Placement Agency Agreement between Philadelphia                                                -
Suburban Water Company and PaineWebber Incorporated
dated as of March 30, 1995 (11) (Exhibit 10.12)

10.9       Bond Purchase Agreement among the Delaware County                                              -
Industrial Development Authority, Philadelphia
Suburban Water Company and Legg Mason Wood Walker,
Incorporated dated August 24, 1995 (12) (Exhibit 10.13)

10.10      Construction and Financing Agreement between the                                               -
Delaware County Industrial Development Authority and
Philadelphia Suburban Water Company dated as of August
15, 1995 (12) (Exhibit 10.14)

10.11      Amendment 1994-2  to 1994 Equity Compensation                                                  -
Plan, as amended* (14) (Exhibit 10.16)

10.12      Agreement among Philadelphia Suburban Corporation,                                             -
Philadelphia Suburban Water Company and Nicholas
DeBenedictis, dated as of January 1, 1997* (14) (Exhibit 10.18)

10.13      Agreement among Philadelphia Suburban Corporation,                                             -
Philadelphia Suburban Water Company and Roy H.
Stahl, dated as of January 1, 1997* (14) (Exhibit 10.19)

10.14      Agreement among Philadelphia Suburban Corporation,                                             -
Philadelphia Suburban Water Company and Richard R.
Riegler, dated as of January 1, 1997* (14) (Exhibit 10.21)

10.15      Agreement among Philadelphia Suburban Corporation,                                             -
Philadelphia Suburban Water Company and Morrison
Coulter, dated as of January 1, 1997* (14) (Exhibit 10.22)

10.16      Philadelphia Suburban Corporation Amended and                                                  -
Restated Executive Deferral Plan* (14) (Exhibit 10.23)

10.17      Philadelphia Suburban Corporation Deferred                                                     -
Compensation Plan Master Trust Agreement
with PNC Bank, National Association, dated
as of December 31, 1996* (14) (Exhibit 10.24)

10.18      First Amendment to Supplemental Executive Retirement                                           -
Plan* (14) (Exhibit 10.25)

10.19      Placement Agency Agreement between Philadelphia                                                -
Suburban Water Company and A.G. Edwards and Sons,
Inc., Janney Montgomery Scott Inc., HSBC Securities,
Inc., and PaineWebber Incorporated (15) (Exhibit 10.26)

10.20      Philadelphia Suburban Corporation Director Deferral Plan* (21)                                 -
(Exhibit 10.28)

10.21      Amendment No. 1 dated as of February 1, 1999 to Agreement                                      -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Nicholas DeBenedictis,
dated as of January 1, 1997* (21) (Exhibit 10.29)

21

Exhibit No.                                                                                              Page No.
-----------                                                                                              --------

10.22      Amendment No. 1 dated as of February 1, 1999 to Agreement                                      -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Roy H. Stahl, dated as of
January 1, 1997* (21) (Exhibit 10.30)

10.23      Amendment No. 1 dated as of February 1, 1999 to Agreement                                      -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Richard R. Riegler, dated
as of January 1, 1997* (21) (Exhibit 10.32)

10.24      Amendment No. 1 dated as of February 1, 1999 to Agreement                                      -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Morrison Coulter, dated
as of January 1, 1997* (21) (Exhibit 10.33)

10.25      1999 Annual Cash Incentive Compensation Plan* (21)                                             -
(Exhibit 10.34)

10.26      The Philadelphia Suburban Corporation 1994 Equity                                              -
Compensation Plan (as Amended and Restated
Effective March 3, 1998)* (19) (Exhibit A)

10.27      Amendment 1998-1 to The Philadelphia Suburban                                                  -
Corporation 1994 Equity Compensation Plan*
(20) (Annex F)

10.28      Bond Purchase Agreement among the Delaware County                                              -
Industrial Development Authority, Philadelphia
Suburban Water Company and Commerce Capital
Markets dated September 29, 1999 (22) (Exhibit 10.37)

10.29      Construction and Financing Agreement between the Delaware                                      -
County Industrial Development Authority and Philadelphia
Suburban Water Company dated as of October 1, 1999
(22) (Exhibit 10.38)

10.30      2000 Annual Cash Incentive Compensation Plan * (23) (Exhibit 10.39)                            -

10.31      Agreement among Philadelphia Suburban Corporation,                                             -
Philadelphia Suburban Water Company and
David P. Smeltzer dated December 1,1999. (23) (Exhibit 10.40)

10.32      Placement Agency Agreement between Philadelphia Suburban                                       -
Water Company and Merrill Lynch & Co., PaineWebber
Incorporated, A.G. Edwards & Sons, Inc., First Union
Securities, Inc., PNC Capital Markets, Inc. and Janney
Montgomery Scott, Inc., dated as of November 15, 1999
(23) (Exhibit 10.41)

10.33      Amendment 2000-1 to 1994 Equity Compensation Plan* (24) (Exhibit 10.33)                        -

10.34      2001 Annual Cash Incentive Compensation Plan* (26) (Exhibit 10.34)                             -

10.35      Bond Purchase Agreement among the Delaware County                                            117 
Industrial Development Authority, Philadelphia
Suburban Water Company and The GMS Group, L.L.C,
dated October 23, 2001

10.36      Construction and Financing Agreement between the Delaware                                    140
County Industrial Development Authority and Philadelphia
Suburban Water Company dated as of October 15, 2001

22

Exhibit No.                                                                                              Page No.
-----------                                                                                              --------

10.37         Agreement among Philadelphia Suburban Corporation,                                           164
Philadelphia Suburban Water Company and Nicholas DeBenedictis,
dated August 7, 2001*

10.38         Agreement among Philadelphia Suburban Corporation,                                           176
Philadelphia Suburban Water Company and Roy H. Stahl,
dated August 7, 2001*

10.39         Agreement among Philadelphia Suburban Corporation,                                           186
Philadelphia Suburban Water Company and Richard R. Riegler,
dated August 7, 2001*

10.40         Agreement among Philadelphia Suburban Corporation,                                           199
Philadelphia Suburban Water Company and David P. Smeltzer,
dated August 7, 2001*

13.1          Selected portions of Annual Report to Shareholders                                             -
for the year ended December 31, 1993 incorporated
by reference in Annual Report on Form 10-K for
the year ended December 31, 1993 (9) (Exhibit 13.1)

13.2          Selected portions of Annual Report to Shareholders                                             -
for the year ended December 31, 1994 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1994 (10) (Exhibit 13.2)

13.3          Selected portions of Annual Report to Shareholders                                             -
for the year ended December 31, 1995 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1995 (13) (Exhibit 13.3)

13.4          Selected portions of Annual Report to Shareholders                                             -
for the year ended December 31, 1996 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1996 (14) (Exhibit 13.4)

13.5          Selected portions of Annual Report to Shareholders                                             -
for the year ended December 31, 1997 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1997 (18) (Exhibit 13.5)

13.6          Selected portions of Annual Report to Shareholders                                             -
for the year ended December 31, 1998 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1998 (21) (Exhibit 13.6)

13.7          Selected portions of Annual Report to Shareholders                                             -
for the year ended December 31, 1999 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 1999 (23) (Exhibit 13.7)

23

Exhibit No.                                                                                              Page No.
-----------                                                                                              --------

13.8       Selected portions of Annual Report to Shareholders                                             -
for the year ended December 31, 2000 incorporated
by reference in Annual Report on Form 10-K for the
year ended December 31, 2000 (25) (Exhibit 13.8)

13.9       Selected portions of Annual Report to Shareholders for the year                              209
ended December 31, 2001 incorporated by reference in Annual
Report on Form 10-K for the year ended December 31, 2001

21.        Subsidiaries of Philadelphia Suburban Corporation                                            253

23.1       Consent of Independent Accountants - PricewaterhouseCoopers LLP                              254

23.2       Consent of Independent Accountants - KPMG LLP                                                255

24.        Power of Attorney (set forth as a part of this report)                                        26

24

- Notes -

Documents Incorporated by Reference

(1)        Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1992.

(2)        Indenture of Mortgage dated as of January 1, 1941 with supplements thereto through the 
Twentieth Supplemental Indenture dated as of August 1, 1983 were filed as an Exhibit to Annual 
Report on Form 10-K for the year ended December 31, 1983.

(3)        Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1985.

(4)        Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1986.

(5)        Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1987.

(6)        Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1988.

(7)        Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1989.

(8)        Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1991.

(9)        Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1993.

(10)       Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1994.

(11)       Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.

(12)       Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.

(13)       Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1995.

(14)       Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1996.

(15)       Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

(16)       Filed as an Exhibit to Form 8-K filed August 7, 1997.

(17)       Filed as Exhibit 1 to the Registration Statement on Form 8-A filed on March 17, 1998.

(18)       Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1997.

(19)       Filed as Exhibit A to definitive Proxy Statement dated April 7, 1998.

(20)       Filed as an Annex to Registration Statement on Form S-4 filed on September 11, 1998.

(21)       Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1998.

(22)       Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.

(23)       Filed as Exhibit to Annual Report on Form 10-K for the year ended December 31, 1999.

(24)       Filed as Annex A to definitive Proxy Statement dated April 10, 2000.

(25)       Filed as Exhibit to Annual Report on Form 10-K for the year ended December 31, 2000.

(26)       Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

* Indicates management contract or compensatory plan or arrangement.

25

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

PHILADELPHIA SUBURBAN CORPORATION

By  /s/   Nicholas DeBenedictis
----------------------------------
Nicholas DeBenedictis
President and Chairman

Date:  March 20, 2002

Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

Each person in so signing also makes, constitutes and appoints Nicholas
DeBenedictis, President and Chairman of Philadelphia Suburban Corporation, David
P. Smeltzer, Senior Vice President - Finance and Chief Financial Officer of
Philadelphia Suburban Corporation, and each of them, his or her true and lawful
attorneys-in-fact, in his or her name, place and stead to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments to
this report.

26

/s/  Nicholas DeBenedictis                                       /s/  David P. Smeltzer
----------------------------------                               ----------------------------------------
Nicholas DeBenedictis                                            David P. Smeltzer
President and Chairman                                           Senior Vice President - Finance and
(principal executive officer)                                    Chief Financial Officer
and Director

/s/  Mary C. Carroll                                             /s/  G. Fred DiBona, Jr.
----------------------------------                               ----------------------------------------
Mary C. Carroll                                                  G. Fred DiBona, Jr.
Director                                                         Director

/s/  Richard H. Glanton                                          /s/  Alan Hirsig
----------------------------------                               ----------------------------------------
Richard H. Glanton                                               Alan Hirsig
Director                                                         Director

/s/  John E. Menario                                             /s/  John F. McCaughan
----------------------------------                               ----------------------------------------
John E. Menario                                                  John F. McCaughan
Director                                                         Director

/s/  Richard L. Smoot
----------------------------------                               ----------------------------------------
Andrew D. Seidel                                                 Richard L. Smoot
Director                                                         Director

27

Exhibit 3.11

PHILADELPHIA SUBURBAN CORPORATION

RESTATED ARTICLES OF INCORPORATION
(As of May 17, 2001)

ARTICLE I
NAME

The name of the Corporation is Philadelphia Suburban Corporation.

ARTICLE II
ADDRESS OF REGISTERED OFFICE

The location and address of the registered office of the Corporation in
this Commonwealth is 762 Lancaster Avenue, Bryn Mawr, Montgomery County,
Pennsylvania, 19010.

ARTICLE III
PURPOSE

The purpose or purposes for which the Corporation is incorporated under
the Pennsylvania Business Corporation Law of 1988 are to engage in, and to do
any lawful act concerning, any or all lawful business for which corporations may
be incorporated under said Business Corporation Law, including but not limited
to, manufacturing, processing, owning, using and dealing in personal property of
every class and description, engaging in research and development, furnishing
services, and acquiring, owning, using and disposing of real property of any
nature whatsoever.

ARTICLE IV
CAPITAL STOCK

4.01 The aggregate number of shares which the Corporation shall have authority
to issue is 101,770,819 shares, divided into 100,000,000 shares of Common Stock,
par value $.50 per share, and 1,770,819 shares of Series Preferred Stock, par
value $1.00 per share. The Board of Directors shall have the full authority
permitted by law to fix by resolution full, limited, multiple or fractional, or
no voting rights, and such designations, preferences, qualifications,
privileges, limitations, restrictions, options, conversion rights, and other
special or relative rights of any class or any series of any class that may be
desired.

4.02 Series A Preferred Shares. The first series of the Series Preferred Stock,
par value $1.00 per share, shall consist of 100,000 shares and shall be
designated as Series A Junior Participating Preferred Shares (the "Series A
Preferred Shares").

-1-

4.02 (a) Dividends and Distributions.

(1) The rate of dividends payable per share of Series A Preferred
Shares on the first day of January, April, July and October in each year or such
other quarterly payment date as shall be specified by the Board of Directors
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of the Series A Preferred Shares,
shall be (rounded to the nearest cent) equal to the greater of (i) $10.00 or
(ii) subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in cash, based upon the fair market value at
the time the non-cash dividend or other distribution is declared or paid as
determined in good faith by the Board of Directors) of all non-cash dividends or
other distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, $.50 par value, of the Corporation
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of the Series A Preferred Shares. Dividends
on the Series A Preferred Shares shall be paid out of funds legally available
for such purpose. In the event the Corporation shall at any time after February
19, 1988 (the "Rights Declaration Date") (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock, or (iii) combine the outstanding shares of Common Stock into a
smaller number of shares, then in each such case the amounts to which holders of
Series A Preferred Shares were entitled immediately prior to such event under
clause (ii) of the preceding sentence shall be adjusted by multiplying each such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

(2) Dividends shall begin to accrue and be cumulative on outstanding
Series A Preferred Shares from the Quarterly Dividend Payment Date next
preceding the date of issue of such Series A Preferred Shares, unless the date
of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of Series A Preferred Shares entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Series A Preferred Shares in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.

-2-

4.02 (b) Voting Rights. In addition to any other voting rights required by law,
the holders of Series A Preferred Shares shall have the following voting rights:

(1) Subject to the provision for adjustment hereinafter set forth, each
Series A Preferred Share shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the shareholders of the Corporation. In the event
the Corporation shall at any time after the Rights Declaration Date (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding shares of Common Stock, or (iii) combine the outstanding shares
of Common Stock into a smaller number of shares, then in each such case the
number of votes per share to which holders of Series A Preferred Shares were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

(2) Except as otherwise provided herein, in the articles of the
Corporation or by law, the holders of Series A Preferred Shares and the holders
of Common Stock (and the holders of shares of any other series or class entitled
to vote thereon) shall vote together as one class on all matters submitted to a
vote of shareholders of the Corporation.

4.02(c) Reacquired Shares. Any Series A Preferred Shares purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued Series Preferred Stock and may
be reissued as part of a new series of Series Preferred Stock to be created by
resolution or resolutions of the Board of Directors.

4.02(d) Liquidation, Dissolution or Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of Series A Preferred Shares shall be entitled to receive the greater of
(a) $100.00 per share, plus accrued dividends to the date of distribution,
whether or not earned or declared, or (b) an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per share to holders of Common Stock. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each such case the amount
to which holders of Series A Preferred Shares were entitled immediately prior to
such event pursuant to clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

-3-

4.02(e) Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the Series A Preferred Shares
shall at the same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding shares of
Common Stock, or (iii) combine the outstanding shares of Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Preferred Shares shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

4.02(f) No Redemption. The Series A Preferred Shares shall not be redeemable.

4.02(g) Ranking. The Series A Preferred Shares shall rank junior to all other
series of the Corporation's Series Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.

4.02(h) Fractional Shares. Series A Preferred Shares may be issued in fractions
of a share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series A
Preferred Shares.

4.03 Series B Preferred Shares. The second series of the Series Preferred Stock,
par value $1.00 per share, shall consist of 32,200 shares and shall be
designated as the Series B Preferred Stock.

4.03(a) Designation. The shares of such series of Preferred Stock shall be
designated as "Series B Preferred Stock."

4.03(b) Authorized Number. The number of shares constituting the Series B
Preferred Stock shall be 32,200 shares.

-4-

4.03(c) Dividends. Beginning on March 1, 1997, and on each June 1, September 1,
December 1 and March 1 thereafter, the holders of shares of Series B Preferred
Stock shall be entitled to receive a quarterly dividend in arrears equal to
$1.5125 per share of Series B Preferred Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares) out of funds
legally available for such purchase. Such dividends shall be payable only when,
as and if declared by the Board of Directors, provided that quarterly dividends
that are not so paid shall be cumulative, and accumulations of dividends shall
bear interest at the rate of 6.05% per annum. No dividend or other distribution
shall be declared or paid (other than dividends payable in shares of common
stock of the Corporation, par value $.50 per share (the "Common Stock") or
options to purchase or rights to subscribe for Common Stock, or securities by
their terms convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable securities,
provided that such securities rank junior to the Series B Preferred Stock with
respect to the payment of dividends and liquidation proceeds) on any shares of
the Corporation"s capital stock ranking junior to the Series B Preferred Stock
as to payment of dividends unless all dividends on the Series B Preferred Stock
accrued for all past quarterly dividend periods shall have been paid and the
full dividend thereon for the current dividend period shall be paid or declared
and set apart for payment. The Corporation"s Series B Preferred Stock shall rank
senior to its Series A Preferred Stock and its Common Stock with respect to the
right to receive dividends and other distributions.

4.03(d) Rights on Liquidation, Dissolution, Winding-Up.

(1) In the event of any liquidation, dissolution or winding-up of the
affairs of the Corporation (collectively, a "Liquidation"), whether voluntary or
involuntary, before any payment of cash or distribution of other property is
made to the holders of the Common Stock or any other class or series of shares
ranking on Liquidation junior to the Series B Preferred Stock, the holders of
Series B Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its shareholders, an amount
per share (rounded to the nearest $0.01 equal to the Liquidation Preference (as
defined below), plus an amount equal to any accrued but unpaid cumulative
dividends and any interest accrued thereon. The Liquidation Preference shall be
equal to $100.00 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares).

(2) If upon the occurrence of any Liquidation, whether voluntary or
involuntary, the assets and funds to be distributed among holders of Series B
Preferred Stock and any other class or series of stock ranking equal to the
Series B Preferred Stock as to distribution of assets upon Liquidation shall be
insufficient to permit the payment to the holders of the preferential amounts
described in Section 4.03 (d)(1), then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among holders of Series B Preferred Stock and any other class or series of stock
ranking equal to the Series B Preferred Stock as to distribution of assets upon
Liquidation in accordance with the sums that would be payable on such
distribution if all sums payable thereon to holders of all shares of such
classes or series were paid in full.

(3) If upon the occurrence of any liquidation, the assets and funds
thus distributed among holders of Series B Preferred Stock shall be sufficient
to permit the payment to such holders of the preferential amounts described in
4.03(d)(1), then the holders of shares of Series B Preferred Stock shall be
entitled to no further participation in the distribution of the assets of the
Corporation and any remaining net assets of the Corporation may be distributed
to the holders of Common Stock and any other class or series of stock ranking
junior to the Series B Preferred Stock as to the distribution of assets upon
Liquidation in accordance with their relative liquidation preferences. Written
notice of such liquidation, dissolution or winding up, stating a payment date,
the amount of the Liquidation payments and the place where said Liquidation
payments shall be payable, shall be given by mail, postage prepaid, not less
than 30 days prior to the payment date stated therein, to the holders of record
of Series B Preferred Stock, such notice to be addressed to each such holder at
his post office address as shown by the records of the Corporation.

(4) Except as provided in 4.03(e), a consolidation or merger of the
Corporation into or with any other corporation or corporations shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meanings of the provisions of 4.03(d).

(5) The Company's Series B Preferred Stock shall rank senior to its
Series A Preferred Stock with respect to the right to the distribution of the
Company's assets upon liquidation.

-5-

4.03(e) Merger, Consolidation, etc. The Corporation shall give notice to each
holder of Series B Preferred Stock at least 20 days prior to the effective date
of (i) any consolidation or merger of the Corporation with or into any other
corporation or corporations (other than a merger or consolidation in which the
holders of Series B Preferred Stock receive securities of the surviving
corporation having substantially similar rights to the Series B Preferred Stock
and in which the shareholders of the Corporation immediately prior to the
transaction will be the holders of at least a majority of the voting securities
of the surviving corporation immediately after the transaction); (ii) a sale,
conveyance or disposition of all or substantially all of the assets of the
Corporation; or (iii) the effectuation by the Corporation of a transaction or
series of related transactions in which more than 50% of the voting power of the
Corporation is disposed of. The holders of a majority of the Series B Preferred
Stock shall be entitled, by electing prior to the effective date of any of the
foregoing types of transactions, to require the Corporation to treat any such
transaction as if it were a Liquidation and to cause the proceeds of such
transaction, or any property deliverable from such transaction to be distributed
among the shareholders as if such transaction were a Liquidation.

4.03(f) Protective Provisions. So long as any shares of Series B Preferred Stock
shall remain outstanding, the Corporation shall not, without the affirmative
vote of the holders of at least a majority of the shares of Series B Preferred
Stock at the time outstanding adopt any amendment to its Articles of
Incorporation which would adversely affect in any material respect the rights or
preferences of shares of the Series B Preferred Stock as set forth in this
Statement of Designation.

4.03(g) Conversion. The Series B Preferred Stock shall not be convertible into
any other class or series of capital stock of the Corporation.

4.03(h) Redemption.

(1) The Series B Preferred Stock shall not be redeemable by the
Corporation prior to November 30, 2001. Thereafter, up to 20% of the number of
the number of shares of Series B Preferred Stock originally issued may be called
for redemption by the Corporation, in whole or in part, each year starting on
December 1, 2001 (the "Redemption Date"), upon 30 days prior written notice, by
the payment therefor of an amount per share (rounded to the nearest $0.01) equal
to the sum of (i) the Liquidation Preference and (ii) all accumulations of
accrued and unpaid dividends on such outstanding shares of Series B Preferred
Stock (together with any accrued interest thereon) through the date of
redemption (such amount, the "Redemption Price"). The Corporation"s right to
redeem shall be cumulative, such that any shares the Corporation has a right to
redeem in one year that are not so redeemed, may be redeemed by the Corporation
in a subsequent year. At the election of the holders of the Series B Preferred
Stock called for redemption by the Corporation, the Redemption Price may be paid
in cash or by the delivery of a promissory note of the Corporation in
substantially the form attached hereto as Exhibit "A" (the "Note"). The election
by the holders of the shares being redeemed shall be made by written notice to
the Corporation no less than 15 days prior to the Redemption Date, otherwise the
Corporation may elect to pay the Redemption Price in cash.

(2) The Series B Preferred Stock shall not be called for redemption by
the holders prior to December 1, 1998. Thereafter, the Series B Preferred Stock
may be called for redemption, in whole or in part, by such holders, and
thereupon shall be redeemed for cash by the Corporation, upon 30 days prior
written notice, from such holders at a per share price equal to the Redemption
Price.

-6-

(3) Shares of Series B Preferred Stock are not subject to or entitled
to the benefit of a sinking fund.

(4) Shares of Series B Preferred Stock that are redeemed shall be
canceled and shall not be reissuable by the Corporation and the Articles of
Incorporation of the Corporation shall be appropriately amended to effect a
corresponding reduction in the Corporation"s authorized capital stock.

(5) If notice of redemption as provided in Section 4.03 (h) (1) above
shall have been duly given or if the Corporation shall have given to the bank or
trust company hereinafter referred to irrevocable authorization promptly to give
such notice, and if on or before the Redemption Date specified therein the
Corporation shall have either deposited the funds necessary for such redemption
with, or delivered a Note in the amount of the applicable Redemption to, such
bank or trust company in trust for the benefit of the holders of the shares
called for redemption, then, notwithstanding that any certificates for shares so
called for redemption shall not have been surrendered for cancellation, from and
after the Redemption Date, all shares so called for redemption shall no longer
be deemed to be outstanding and all rights with respect to such shares shall
forthwith cease and terminate, except only the right of the holders thereof to
receive from such bank or trust company at any time after the time of such
deposit the funds so deposited, without interest. Any interest accrued on such
funds shall be paid to the Corporation from time to time. The aforesaid bank or
trust company shall be organized and in good standing under the laws of the
United States of America, or the Commonwealth of Pennsylvania, shall be doing
business in Pennsylvania, and shall be identified in the notice of redemption.
Any funds so set aside or deposited, as the case may be, and unclaimed at the
end of two years from such Redemption Date shall, to the extent permitted by
law, be released or repaid to the Corporation, after which repayment the holders
of the shares so called for redemption shall look only to the Corporation for
payment thereof.

ARTICLE V
MANAGEMENT

5.01 Board of Directors

5.01(a) Number; Classification. The Board of Directors of the Corporation shall
consist of such number of directors as shall be fixed from time to time by
resolution of the Board adopted by a vote of three-quarters of the entire Board
of Directors. Cumulative voting for directors shall not be permitted. The Board
of Directors shall be divided into three classes, which shall be as nearly equal
in number as possible. Directors of each class shall serve for a term of three
years and until their successors shall have been elected and qualified.

5.01(b) Qualifications. Directors of the Corporation need not be residents of
Pennsylvania or Shareholders. No person shall be appointed or elected a director
of the Corporation unless:

-7-

(1) such person is elected to fill a vacancy in the Board of Directors
(including any vacancy resulting from any increase in the authorized number of
directors) by a vote of a majority of the entire Board of Directors, and any
director so elected shall hold office until the next election of the class for
which such director shall have been elected and until a successor shall have
been elected and qualified; or

(2) the name of such person, together with such consents and
information concerning present and prior occupations, transactions with the
Corporation or its subsidiaries and other matters as may at the time be required
by or pursuant to the Bylaws, shall have been filed with the Secretary of the
Corporation no later than a time fixed by or pursuant to the Bylaws immediately
preceding the annual or special meeting at which such person intends to be a
candidate for director.

5.01(c) Removal of Directors. Directors of the Corporation may be removed
without cause by vote of the shareholders only if authorized in the manner
provided in Section 5.05 (b). No decrease or increase in the size of the Board
shall shorten or otherwise affect the term of any incumbent director.

5.02 Bylaws. Bylaws may be adopted, amended or repealed by the Board of
Directors to the full extent permitted by law.

5.03 Special Meetings. A special meeting of shareholders may be called by the
President, the Board of Directors, or shareholders entitled to cast a majority
of the votes, which all shareholders are entitled to cast at the particular
meeting or by such other officers or persons as may be provided in the Bylaws.

5.04 Amendment of Articles. Any amendment of the Articles of Incorporation may
be proposed by either the Board of Directors or by the shareholders. An
amendment initiated by the shareholders shall be proposed only by a petition of
shareholders entitled to cast a majority of the votes which all shareholders are
entitled to cast thereon, setting forth the proposed amendment, which petition
shall be directed to and filed with the Board of Directors.

5.05 Fundamental and Other Transactions.

5.05(a) Shareholder Authorization of Corporate Action Recommended by Management.
Whenever any corporate action, other than the election of directors, is to be
taken by vote of the Shareholders on recommendation of a vote of a majority of
the entire Board of Directors, the proposed corporate action, including a
Fundamental Transaction (as defined in Section 5.06), shall be authorized upon
receiving the minimum vote required for the authorization of such action by
statute, after taking into account the express terms of any class or any series
of any class of shares of the Corporation with respect to such vote.

5.05(b) Shareholder Authorization of Other Corporate Action. Except as provided
in Section 5.05 (a), whenever any corporate action, other than the election of
directors, is to be taken by vote of the shareholder, the proposed corporate
action, including a Fundamental Transaction (as defined in Section 5.06), shall
be authorized only upon receiving at least three-quarters of the vote which all
voting shareholders, voting as a single class, are entitled to cast thereon and,
in addition, the affirmative vote of the number or proportion of shares of any
class or any series of any class of shares of the Corporation, if any, as shall
at the time be required by the express terms of any such class or series of
shares of the Corporation.

-8-

5.06 Fundamental Transactions Defined. For the purposes of this Article V, the
term "Fundamental Transaction shall mean:

5.06(a) Any of the following, if such action is effected by vote of the
shareholders: amendment of the Articles of Incorporation; adoption, amendment or
repeal of the Bylaws; a change in the number of directors constituting the
entire Board of Directors; or removal of one or more directors; or

5.06(b) Any of the following, if any such transaction requires the approval of
the shareholders under the Articles of Incorporation of the Corporation as then
in effect or the Business Corporation Law as then in effect with respect to the
Corporation: the sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation; the issuance in a single or
one or more related transactions of voting shares of the Corporation sufficient
to elect a majority of the directors of the Corporation; or the merger,
consolidation, division, reorganization, recapitalization, dissolution,
liquidation or winding up of the Corporation.

5.07 Series Preferred Stock Provisions. The provisions of Sections 5.01, 5.03
and 5.04 shall be subject to the express terms of any class or series of any
class of the Corporation.

ARTICLE VI
MISCELLANEOUS

Reservation of Right to Amend. Subject to the provisions of Article V
hereof, the Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by the statute, and all rights conferred upon Shareholders
herein are granted subject to this reservation.

-9-

Exhibit 4.20

SECOND AMENDMENT TO CREDIT AGREEMENT

THIS SECOND AMENDMENT TO CREDIT AGREEMENT is made as of this 18th day
of December, 2001, by and among PHILADELPHIA SUBURBAN WATER COMPANY, a
Pennsylvania corporation ("Borrower"), the several banks which are parties to
this Agreement (each a "Bank" and collectively, "Banks") and PNC BANK, NATIONAL
ASSOCIATION in its capacity as agent for Banks (in such capacity, "Agent").

BACKGROUND

A. Borrower, Agent and certain Banks are parties to a Credit Agreement,
dated as of December 22, 1999, as amended by a First Amendment to Credit
Agreement dated as of November 28, 2000 (as so amended, the "Credit Agreement"),
pursuant to which those Banks agreed to make revolving credit loans to Borrower
in an aggregate outstanding amount of up to $50,000,000 (the "Loans"). The Loans
are evidenced by Borrower's Revolving Credit Notes in the aggregate principal
face amount of $50,000,000 (the "Notes").

B. Borrower, Agent and Banks desire to increase the amount of the
facility by $20,000,000, increase the Commitment of Citizens Bank of
Pennsylvania (successor by assignment from Mellon Bank, N.A.) ("Citizens"), add
Fleet National Bank ("Fleet") as an additional Bank under the Credit Agreement,
modify certain covenants in the Credit Agreement and extend the Termination Date
of the facility, all on the terms and subject to the conditions herein set
forth.

NOW THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:

AGREEMENT

1. Terms. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Credit Agreement.

2. Amendments to Credit Agreement. Effective on December 18, 2001 (the
"Effective Date") the Credit Agreement is hereby amended as follows:

(a) The definition of Termination Date in Section 1.1 is hereby amended
and restated to read in full as follows:

" "Termination Date": the earlier of (a) December 16, 2002 or
any later date to which the Termination Date shall have been
extended pursuant to subsection 2.8(d) hereof and (b) the date
the Commitments are terminated as provided herein."

(b) Subsection 6.2(vii) is hereby amended and restated to read in full
as follows:

"(vii)   indebtedness to the Pennsylvania 
Infrastructure Investment Authority for the purchase of 
capital assets; and"

(c) The amount of the Total Commitment is hereby increased from
$50,000,000 to $70,000,000 and any references to "$50,000,000" in the Credit
Agreement shall be changed to "$70,000,000." $5,000,000 of such increase shall
be allocated to Citizens increasing its Commitment from $12,500,000 to
$17,500,000 and $15,000,000 of such increase shall become the Commitment of
Fleet upon its joinder as a party to the Credit Agreement as provided hereunder.

(d) To give effect to the increase in the Total Commitment, the joinder
of Fleet and the change in the Commitment of Citizens, Schedule I to the Credit
Agreement is hereby amended and replaced with Schedule I attached hereto.

3. Joinder of Fleet. Effective on the Effective Date, Fleet hereby
joins in and becomes a party to the Credit Agreement with a Commitment of
$15,000,000, agrees to be bound by the provisions of the Credit Agreement and
shall have the rights and obligations of a Bank thereunder and under any other
document issued in connection therewith. Fleet hereby makes and agrees to be
bound by all of the representations, warranties and agreements set forth in
Section 9.6(c) of the Agreement as if it were an assignee of its Commitment
under the provisions of Section 9.6.

4. Replacement and Additional Notes. Concurrently with the execution
and delivery of this Agreement, Borrower shall execute and deliver to Citizens a
replacement Revolving Credit Note in the face amount of $17,500,000 and to Fleet
a Revolving Credit Note in the face amount of $15,000,000 in each case in the
form of Exhibit B-2 attached to the Credit Agreement. Such replacement Revolving
Credit Note to Citizens shall evidence any outstanding Revolving Credit Loans
and upon receipt thereof the existing Revolving Credit Note to Citizens shall be
cancelled and returned to Borrower.

5. Adjusting Payments. Prior to the Effective Date Agent shall notify
each Bank as to the adjusting payments which will be required to be made to the
outstanding Revolving Credit Loans of each Bank in order to give effect to the
increase in the Total Commitment and the increase to and addition of the
individual Commitments of certain Banks pursuant to the provisions of Sections
2(c) and 3 above so that after such adjusting payments are made each Bank's
outstanding Revolving Credit Loans evidenced by such Bank's Revolving Credit
Note shall be in an amount equal to its Commitment Percentage of all outstanding
Revolving Credit Loans. On the Effective Date each Bank agrees to pay to the
other Banks the amounts, if any, specified by Agent in such notice.

6. Merger of Borrower. Borrower has advised Agent and Banks that on or
about December 31, 2001 Borrower and its Pennsylvania affiliates will merge with
and into Pennsylvania Suburban Water Company, a Pennsylvania corporation
("PSWC") and has requested that Banks consent to such merger (the "Merger").
Notwithstanding the provisions of Section 6.4, Banks hereby consent to the
Merger subject to compliance, to the satisfaction of Agent, with the following
terms and conditions: (a) the Merger occurs no later than March 31, 2002 and
after giving effect thereto PSWC (i) is and remains a wholly-owned subsidiary of
the Parent Company, (ii) has a senior secured indebtedness rating (the "Debt
Rating") from S&P of either AA- or A+ and (iii) shall have succeeded to and
assumed all of the rights, obligations and liabilities of Borrower under the
Credit Agreement and the Notes, (b) immediately after the Merger and after
giving effect thereto (assuming that pro forma adjustments are made to the
financial statements of Borrower reflecting the Merger) PSWC, as successor
Borrower, is in compliance with the Credit Agreement and no Default or Event of
Default shall be in existence or result from the Merger, and Borrower shall have
delivered to Agent a certificate of a Responsible Officer certifying to the
foregoing, (including detailed calculations demonstrating pro forma compliance
with all financial covenants), (c) if the Debt Rating of PSWC is A+, the
interest rate margin above the Eurodollar Rate for purposes of Section 2.6(b) of
the Credit Agreement shall be increased from twenty two and one-half basis
points (.225%) to thirty two and one-half basis points (.325%) effective as of
the effective date of the Merger, and (d) PSWC, as successor Borrower, shall, at
Agent's request, execute and deliver such filings, agreements, documents and
instruments as Agent shall have reasonably requested to evidence and confirm the
completion of the Merger consistent with the terms and conditions hereof,
including evidence from S&P of the Debt Rating of PSWC, and the succession of
PSWC as Borrower under the Credit Agreement and the Notes. Agent will provide
Banks with notice of the effective date of the Merger and with copies of each
such filing, agreement, document and instrument executed and/or delivered by
Borrower and/or Agent in compliance with this Section.

7. Loan Documents. Except where the context clearly requires otherwise,
all references to the Credit Agreement in any of the Loan Documents or any other
document delivered to Banks or Agent in connection therewith shall be to the
Credit Agreement as amended by this Agreement.

8. Borrower's Ratification. Borrower agrees that it has no defenses or
set-offs against Banks or Agent or their respective officers, directors,
employees, agents or attorneys, with respect to the Loan Documents, all of which
are in full force and effect, and that all of the terms and conditions of the
Loan Documents not inconsistent herewith shall remain in full force and effect
unless and until modified or amended in writing in accordance with their terms.
Borrower hereby ratifies and confirms its obligations under the Loan Documents
as amended hereby and agrees that the execution and delivery of this Agreement
does not in any way diminish or invalidate any of its obligations thereunder.

9. Representations and Warranties. Borrower hereby represents and
warrants to Agent and Banks that:

(a) Except as otherwise previously disclosed to Agent and Banks,
the representations and warranties made in the Credit Agreement, as amended by
this Agreement, are true and correct as of the date hereof;

(b) No Default or Event of Default under the Credit Agreement
exists on the date hereof; and

(c) This Agreement and the replacement and additional Revolving
Credit Notes have been duly authorized, executed and delivered so as to
constitute the legal, valid and binding obligations of Borrower, enforceable in
accordance with its terms.

All of the above representations and warranties shall survive the
making of this Agreement.

10. Conditions Precedent. The effectiveness of the amendments set forth
herein is subject to the fulfillment, to the satisfaction of Agent and its
counsel, of the following conditions precedent on or before the Effective Date:

(a) Borrower shall have delivered to Agent, with copies or
counterparts for each Bank as appropriate, the following, all of which shall be
in form and substance satisfactory to Agent and shall be duly completed and
executed:

(i)     This Agreement;

(ii)    The replacement Revolving Credit Note to Citizens and the
additional Revolving Credit Note to Fleet;

(iii)   Copies, certified by the Secretary or an Assistant
Secretary of Borrower of resolutions of the board of
directors of Borrower in effect on the date hereof
authorizing the execution, delivery and performance of
this Agreement and the replacement and additional
Revolving Credit Notes and the other documents and
transactions contemplated hereby;

(iv)    Copies, certified by its corporate secretary of the
articles of incorporation, certificate of formation, and
by-laws of Borrower as in effect, or a certificate stating
that there have been no changes to any such documents
since the most recent date, true and correct copies
thereof were delivered to Agent;

(v)     Copies of the proposed terms and conditions of the Merger
as they exist on the date hereof; and

(vi)    Such additional documents, certificates and information as
Agent or Banks may require pursuant to the terms hereof or
otherwise reasonably request.

(b) The representations and warranties set forth in the Credit
Agreement shall be true and correct on and as of the date hereof.

(c) No Default or Event of Default shall have occurred and be
continuing as of the date hereof.

(d) Borrower shall have paid to Agent for the benefit of Banks an
additional fee of $42,000 to be distributed to Banks pro rata in accordance with
their Commitments (after giving effect to the increase and adjustment in the
Commitments provided herein).

11. Miscellaneous.

(a) All terms, conditions, provisions and covenants in the Loan
Documents and all other documents delivered to Agent and Banks in connection
therewith shall remain unaltered and in full force and effect except as modified
or amended hereby. To the extent that any term or provision of this Agreement is
or may be deemed expressly inconsistent with any term or provision in any Loan
Document or any other document executed in connection therewith, the terms and
provisions hereof shall control.

(b) The execution, delivery and effectiveness of this Agreement
shall neither operate as a waiver of any right, power or remedy of Agent or
Banks under any of the Loan Documents nor constitute a waiver of any Default or
Event of Default or default thereunder.

(c) In consideration of Agent's and Banks' agreement to amend the
existing credit facility, Borrower hereby waives and releases Agent and Banks
and their respective officers, attorneys, agents and employees from any
liability, suit, damage, claim, loss or expense of any kind or failure
whatsoever and howsoever arising that it ever had up until, or has as of, the
date of this Agreement.

(d) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior and
contemporaneous understandings and agreements.

(e) In the event any provisions of this Agreement shall be held
invalid or unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provision hereof.

(f) This Agreement shall be governed by and construed according to
the laws of the Commonwealth of Pennsylvania.

(g) This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective successors and assigns and may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.

(h) The headings used in this Agreement are for convenience of
reference only, do not form a part of this Agreement and shall not affect in any
way the meaning or interpretation of this Agreement.

IN WITNESS WHEREOF, Borrower, Agent and Banks have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.

PHILADELPHIA SUBURBAN
WATER COMPANY

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

PNC BANK, NATIONAL ASSOCIATION, as a 
Bank and as Agent

By: /s/ Frank Pugliese                          
--------------------------------------------
Title: Vice President

FIRST UNION NATIONAL BANK

By: /s/ Jeffrey Stottler                        
--------------------------------------------
Title:

CITIZENS BANK OF PENNSYLVANIA 
(successor by assignment from Mellon Bank, N.A.)

By: /s/ Mark Tori                               
--------------------------------------------
Title:

FLEET NATIONAL BANK

By: /s/ Tracy L. Hawkins                        
--------------------------------------------
Title: Senior Vice President

Exhibit 4.21
--------------------------------------------------------------------------------

THIRTY-FOURTH SUPPLEMENTAL

INDENTURE

DATED AS OF OCTOBER 15, 2001

TO

INDENTURE OF MORTGAGE

DATED AS OF JANUARY 1, 1941

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

PHILADELPHIA SUBURBAN WATER COMPANY

TO

CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION

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

$30,000,000 FIRST MORTGAGE BONDS, 5.35% Series due 2031

THIRTY-FOURTH SUPPLEMENTAL INDENTURE

THIRTY-FOURTH SUPPLEMENTAL INDENTURE dated as of the 15TH day of
October 2001, by and between PHILADELPHIA SUBURBAN WATER COMPANY, a corporation
duly organized and existing under the laws of the Commonwealth of Pennsylvania
(the "Company"), party of the first part, and CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association (the "Trustee"), party of
the second part.

WHEREAS, the Company heretofore duly executed and delivered to
The Pennsylvania Company for Insurances on Lives and Granting Annuities, as
trustee, an Indenture of Mortgage dated as of January 1, 1941 (the "Original
Indenture"), which by reference is hereby made a part hereof, and in and by the
Original Indenture the Company conveyed and mortgaged to the Trustee certain
property therein described, to secure the payment of its bonds to be generally
known as its "First Mortgage Bonds" and to be issued under the Original
Indenture in one or more series as therein provided; and

WHEREAS, on March 29, 1947, concurrently with a merger of
Germantown Trust Company into The Pennsylvania Company for Insurances on Lives
and Granting Annuities, the name of the surviving corporation was changed to The
Pennsylvania Company for Banking and Trusts; on September 30, 1955, concurrently
with a merger of The First National Bank of Philadelphia into The Pennsylvania
Company for Banking and Trusts, the name of the surviving corporation was
changed to The First Pennsylvania Banking and Trust Company; on June 3, 1974, by
amendment to its Articles of Association, The First Pennsylvania Banking and
Trust Company was changed and converted into a national bank and concurrently
therewith changed its name to First Pennsylvania Bank N.A.; on October 1, 1991,
First Pennsylvania Bank N.A. merged with and into The Philadelphia National
Bank, which changed its name to CoreStates Bank, N.A.; on October 10, 1995,
Mellon Bank, N.A. succeeded Corestates Bank N.A. as trustee; and on November 24,
1997, Chase Manhattan Trust Company, National Association, succeeded Mellon
Bank, N.A. as trustee, such mergers and changes of name not involving any change
in the title, powers, rights or duties of the Trustee, as trustee under the
Original Indenture as supplemented at the respective dates thereof; and

WHEREAS, the Company duly executed and delivered to the
Trustee a First Supplemental Indenture dated as of July 1, 1948, a Second
Supplemental Indenture dated as of July 1, 1952, a Third Supplemental Indenture
dated as of November 1, 1953, a Fourth Supplemental Indenture dated as of
January 1, 1956, a Fifth Supplemental Indenture dated as of March 1, 1957, a
Sixth Supplemental Indenture dated as of May 1, 1958, a Seventh Supplemental
Indenture dated as of September 1, 1959, an Eighth Supplemental Indenture dated
as of May 1, 1961, a Ninth Supplemental Indenture dated as of April 1, 1962, a
Tenth Supplemental Indenture dated as of March 1, 1964, an Eleventh Supplemental
Indenture dated as of November 1, 1966, a Twelfth Supplemental Indenture dated
as of January 1, 1968, a Thirteenth Supplemental Indenture dated as of June 15,
1970, a Fourteenth Supplemental Indenture dated as of November 1, 1970, a
Fifteenth Supplemental Indenture dated as of December 1, 1972, a Sixteenth
Supplemental Indenture dated as of May 15, 1975, a Seventeenth Supplemental
Indenture dated as of December 15, 1976, an Eighteenth Supplemental Indenture

dated as of May 1, 1977, a Nineteenth Supplemental Indenture dated as of June 1,
1980, a Twentieth Supplemental Indenture dated as of August 1, 1983, a
Twenty-First Supplemental Indenture dated as of August 1, 1985, a Twenty-Second
Supplemental Indenture dated as of April 1, 1986, a Twenty-Third Supplemental
Indenture dated as of April 1, 1987, a Twenty-Fourth Supplemental Indenture
dated as of June 1, 1988, a Twenty-Fifth Supplemental Indenture dated as of
January 1, 1990, a Twenty-Sixth Supplemental Indenture dated as of November 1,
1991, a Twenty-Seventh Supplemental Indenture dated as of June 1, 1992, a
Twenty-Eighth Supplemental Indenture dated as of April 1, 1993, a Twenty-Ninth
Supplemental Indenture dated as of March 1, 1995, a Thirtieth Supplemental
Indenture dated as of August 15, 1995, a Thirty-First Supplemental Indenture
dated as of July 1, 1997, a Thirty-Second Supplemental Indenture dated as of
October 1, 1999, and a Thirty-Third Supplemental Indenture dated as of November
15, 1999, so as to subject certain additional property to the lien of the
Original Indenture and to provide for the creation of additional series of
bonds; and

WHEREAS, the Company has issued under the Original Indenture,
as supplemented at the respective dates of issue, thirty-nine series of First
Mortgage Bonds designated, respectively, as set forth in the following table,
the Indenture creating each series and the principal amount of bonds thereof
issued being indicated opposite the designation of such series:

Designation                      Indenture                               Amount
-----------                      ---------                               ------

3 1/4% Series due 1971                    Original                                $16,375,000
9 5/8% Series due 1975                    Thirteenth Supplemental                  10,000,000
9.15% Series due 1977                     Fourteenth Supplemental                  10,000,000
3% Series due 1978                        First Supplemental                        2,000,000
3 3/8% Series due 1982                    Second Supplemental                       4,000,000
3.90% Series due 1983                     Third Supplemental                        5,000,000
3 1/2% Series due 1986                    Fourth Supplemental                       6,000,000
4 1/2% Series due 1987                    Fifth Supplemental                        4,000,000
4 1/8% Series due 1988                    Sixth Supplemental                        4,000,000
5% Series due 1989                        Seventh Supplemental                      4,000,000
4 5/8% Series due 1991                    Eighth Supplemental                       3,000,000
4.70% Series due 1992                     Ninth Supplemental                        3,000,000
6 7/8% Series due 1993                    Twelfth Supplemental                      4,500,000
4.55% Series due 1994                     Tenth Supplemental                        4,000,000
10 1/8% Series due 1995                   Sixteenth Supplemental                   10,000,000
5 1/2% Series due 1996                    Eleventh Supplemental                     4,000,000
7 7/8% Series due 1997                    Fifteenth Supplemental                    5,000,000
8.44% Series due 1997                     Twenty-Third Supplemental                12,000,000
9.20% Series due 2001                     Seventeenth Supplemental                  7,000,000
8.40% Series due 2002                     Eighteenth Supplemental                  10,000,000
5.95% Series due 2002                     Twenty-Seventh Supplemental               4,000,000
12.45% Series due 2003                    Twentieth Supplemental                   10,000,000

2

Designation                      Indenture                               Amount
-----------                      ---------                               ------

13% Series due 2005                       Twenty-First Supplemental                 8,000,000
10.65% Series due 2006                    Twenty-Second Supplemental               10,000,000
9.89% Series due 2008                     Twenty-Fourth Supplemental                5,000,000
7.15% Series due 2008                     Twenty-Eighth Supplemental               22,000,000
9.12% Series due 2010                     Twenty-Fifth Supplemental                20,000,000
8 7/8% Series due 2010                    Nineteenth Supplemental                   8,000,000
6.50% Series due 2010                     Twenty-Seventh Supplemental               3,200,000
9.17% Series due 2011                     Twenty-Sixth Supplemental                 5,000,000
9.93% Series due 2013                     Twenty-Fourth Supplemental                5,000,000
9.97% Series due 2018                     Twenty-Fourth Supplemental                5,000,000
9.17% Series due 2021                     Twenty-Sixth Supplemental                 8,000,000
9.29% Series due 2026                     Twenty-Sixth Supplemental                12,000,000
1995 Medium Term Note Series              Twenty-Ninth Supplemental                77,000,000
7.72% Subseries A due 2025                  15,000,000
6.82% Subseries B due 2005                  10,000,000
6.89% Subseries C due 2015                  12,000,000
6.99% Subseries D due 2006                  10,000,000
7.47% Subseries E due 2003                  10,000,000
6.83% Subseries F due 2003                  10,000,000
7.06% Subseries G due 2004                  10,000,000
6.35% Series due 2025                  Thirtieth Supplemental                   22,000,000
1997 Medium Term Note Series              Thirty-First Supplemental                65,000,000
6.75% Subseries A due 2007                  10,000,000
6.30% Subseries B due 2002                  10,000,000
6.14% Subseries C due 2008                  10,000,000
5.80% Subseries D due 2003                  10,000,000
5.85% Subseries E due 2004                  10,000,000
6.00% Subseries F due 2004                  15,000,000
6.00% Series due 2029                  Thirty-Second Supplemental               25,000,000
1999 Medium Term Note Series              Thirty-Third Supplemental
7.40% Subseries A due 2005                  15,000,000
7.40% Subseries B due 2005                  11,000,000
6.21% Subseries C due 2011                  15,000,000

WHEREAS, the Original Indenture and said Supplemental
Indentures were duly recorded in the Commonwealth of Pennsylvania on the dates
and in the office for the Recording of Deeds for the following counties in the
Mortgage Books and at the pages indicated in the following table:

[Continued on Next Page]

3

COUNTY

====================================================================================================================================
Bucks                  Chester              Delaware             Montgomery

------------------------------------------------------------------------------------------------------------------------------------
Date of
Indenture                     Recording        Book     Page           Book         Page      Book     Page        Book     Page
------------------------------------------------------------------------------------------------------------------------------------

Original                       2/20/41          496       1         H-13.Vol.307     20       1034      1          1625       1
------------------------------------------------------------------------------------------------------------------------------------
First Supplemental             8/26/48          632       1         F-16.Vol.380    200       1668     169         2031      257
------------------------------------------------------------------------------------------------------------------------------------
Second Supplemental             7/1/52          768      438        18.Vol.425      186       1962     376         2360      517
------------------------------------------------------------------------------------------------------------------------------------
Third Supplemental             11/25/53         895       1         18.Vol.442      325       2052      1          2493       1
------------------------------------------------------------------------------------------------------------------------------------
Fourth Supplemental             1/9/56         1089      155        Z-20.Vol.499     1        2199      1          2722      425
------------------------------------------------------------------------------------------------------------------------------------
Fifth Supplemental             3/20/57         1181      316        B-22.Vol.536    601       2294      50         2850      335
------------------------------------------------------------------------------------------------------------------------------------
Sixth Supplemental              5/9/58         1254       1            G-23         201       2380     039         2952      289
------------------------------------------------------------------------------------------------------------------------------------
Seventh Supplemental           9/25/59         1332      509           B-25         109       2442      1          3090      249
------------------------------------------------------------------------------------------------------------------------------------
Eighth Supplemental             5/9/61           -        -            Z-26          17       2526     312           -        -
------------------------------------------------------------------------------------------------------------------------------------
Eighth Supplemental            5/10/61         1409      225             -           -          -       -          3249      289
------------------------------------------------------------------------------------------------------------------------------------
Ninth Supplemental             4/10/62         1458      372           G-28         126       2581     463         3307      169
------------------------------------------------------------------------------------------------------------------------------------
Tenth Supplemental             3/19/64         1568       1            M-30         967       2976     1043        3310      237
------------------------------------------------------------------------------------------------------------------------------------
Eleventh Supplemental          11/4/66         1655      695           Q-32         6682       762     223         3549      129
------------------------------------------------------------------------------------------------------------------------------------
Twelfth Supplemental           1/23/68         1691      531           N-33         219       2792     708         3542      315
------------------------------------------------------------------------------------------------------------------------------------
Thirteenth Supplemental         7/2/70         1763     1167           D-35          80       2850     301         3687      23
------------------------------------------------------------------------------------------------------------------------------------
Fourteenth Supplemental        11/5/70         1774      331           K-35         713       2858     3113         700      548
------------------------------------------------------------------------------------------------------------------------------------
Fifteenth Supplemental         12/11/72        1869      196           O-37         998       2926     550         3786      96
------------------------------------------------------------------------------------------------------------------------------------
Sixteenth Supplemental         5/28/75         1979      14            E-44          77       3005     511         4010      307
------------------------------------------------------------------------------------------------------------------------------------
Seventeenth Supplemental       12/18/77        2072      683           L-51          1        3072      43         5002      436
------------------------------------------------------------------------------------------------------------------------------------
Eighteenth Supplemental        4/29/77         2082      567           B-52         344       3078     728         5003      291
------------------------------------------------------------------------------------------------------------------------------------

4

COUNTY

====================================================================================================================================
Bucks                  Chester              Delaware             Montgomery

------------------------------------------------------------------------------------------------------------------------------------
Date of
Indenture                     Recording        Book     Page           Book         Page      Book     Page        Book     Page
------------------------------------------------------------------------------------------------------------------------------------

Nineteenth Supplemental        6/23/80         2303      714           J-62          92       3261     293         5030      502
------------------------------------------------------------------------------------------------------------------------------------
Twentieth Supplemental          8/2/83         2487      370           D-72          1         96      810         5662     1045
------------------------------------------------------------------------------------------------------------------------------------
Twenty-First Supplemental      8/27/85         2690      806            54          550         -       -          5864     1347
------------------------------------------------------------------------------------------------------------------------------------
Twenty-First Supplemental      8/28/85           -        -              -           -         264     159           -        -
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Second Supplemental     4/22/86         2774      160            263         275        326     592         5944      360
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Third Supplemental       4/1/87         2960      693             -           -          -       -            -        -
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Third Supplemental       4/2/87           -        -             680         337        447     1807        6115      602
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Fourth Supplemental     7/25/88         3199     1095           1224         389       0593     0585        6324      143
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Fifth Supplemental      1/12/90         0136     0250           1848         205        731     1571        6538      376
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Sixth Supplemental      11/8/91          369     2190           2660         205        894     2241        6780      891
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Seventh Supplemental    6/29/92         0487     1829           3055         182       0969     2023        6918      302
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Eighth Supplemental     4/22/93         0652     1335           3542         1542      1081     0852        7112     0539
------------------------------------------------------------------------------------------------------------------------------------
Twenty-Ninth                   3/30/95         1045     1872           3875         1368      1349     0829        7561     1155
Supplemental
------------------------------------------------------------------------------------------------------------------------------------
Thirtieth Supplemental         8/30/95         1111     0798           3932         0471      1393     2255        7631     0689
------------------------------------------------------------------------------------------------------------------------------------
Thirty-First Supplemental      7/11/97         1421     2196           4201         2133      1607     138         7968      779
------------------------------------------------------------------------------------------------------------------------------------
Thirty-Second Supplemental     10/6/99         1939      421           4646         642       1936     1207        8548     1067
------------------------------------------------------------------------------------------------------------------------------------
Thirty-Third Supplemental      11/30/99        1970     1573           4675         1272      1936     1207        8548     1067
====================================================================================================================================

5

and
WHEREAS, the Original Indenture was recorded in Berks County on August
16, 1999, the Thirty-Second Supplemental Indenture was recorded in Berks County
on October 6, 1999 and the Thirty-Third Supplemental Indenture was recorded in
Berks County on November 30, 1999 in Books 3113, 3132 and 3149 and at Pages 707,
1510 and 1260, respectively; and

WHEREAS, all of the bonds of each of said series are presently
outstanding other than the bonds listed on Exhibit A attached hereto and made a
part hereof; and

WHEREAS, the lien of the Original Indenture, as supplemented, has been
perfected as a security interest under the Pennsylvania Uniform Commercial Code
by filing a financing statement in the office of the Secretary of the
Commonwealth; and

WHEREAS, the Company proposes to create under the Original Indenture,
as supplemented by this Thirty-Fourth Supplemental Indenture, a new series of
bonds to be designated "First Mortgage Bonds, 5.35% Series due 2031" (herein
referred to as the "Bonds") to be limited in aggregate principal amount to
$30,000,000, to be issued only as registered bonds without coupons, to be dated
as of November 1, 2001, to bear interest at the rate of 5.35% per annum, and to
mature on October 1, 2031; and

WHEREAS, in order to finance the cost of acquiring, constructing,
installing and equipping facilities for the furnishing of water, in the counties
of Bucks, Chester, Delaware and Montgomery, which are to be financed under a
Construction and Financing Agreement dated as of October 15, 2001 (the
"Financing Agreement") between the Company and the Delaware County Industrial
Development Authority, a Pennsylvania body politic and corporate (the
"Authority"), and which are described in Exhibit A thereto, less any deletions
therefor and together with any additions, improvements and modifications thereto
and substitutions therefor made in accordance with the provisions of the
Financing Agreement (the "Facilities"), the Company has requested the Authority
to issue a new series of bonds to be known as the Authority's Water Facilities
Revenue Bonds (Philadelphia Suburban Water Company Project), Series of 2001 in
the aggregate principal amount of $30,000,000 (the "Authority Bonds"); and

WHEREAS, the Authority Bonds are to be issued under a Trust Indenture,
dated as of October 15, 2001 (the "Authority Indenture"), between the Authority
and First Union National Bank, as trustee (the "Authority Trustee"); and

WHEREAS, the Bonds are to be issued by the Company to secure the
obligation of the Company to pay to or for the account of the Authority an
amount equal to the principal of, redemption premium, if any, and interest on
the Authority Bonds pursuant to the Financing Agreement; and

6

WHEREAS, the right, title and interest of the Authority in and to the
Financing Agreement and the payments thereunder and the security for such
payments are to be assigned by the Authority to the Authority Trustee, and the
Bonds are to be delivered by the Company on behalf of the Authority directly to
the Authority Trustee, as assignee, as security for the payment of the principal
of, redemption premium, if any, and interest on, the Authority Bonds; and

WHEREAS, Article XVIII of the Original Indenture provides that the
Company, when authorized by resolution of its Board of Directors, may with the
Trustee enter into an indenture supplemental to the Original Indenture, which
thereafter shall form a part of the Original Indenture, for the purposes, inter
alia, of subjecting to the lien of the Original Indenture additional property,
of defining the covenants and provisions applicable to any bonds of any series
other than the 3 1/4% Series due 1971, of adding to the covenants and agreements
of the Company contained in the Original Indenture other covenants and
agreements thereafter to be observed by the Company, of surrendering any right
or power in the Original Indenture reserved to or conferred upon the Company,
and of making such provisions in regard to matters or questions arising under
the Original Indenture as may be necessary or desirable and not inconsistent
therewith; and

WHEREAS, in addition to the property described in the Original
Indenture and the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth,
Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second,
Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh,
Twenty-Eighth, Twenty-Ninth, Thirtieth, Thirty-First, Thirty-Second and
Thirty-Third Supplemental Indentures, the Company has acquired certain other
property and desires to confirm the lien of the Original Indenture thereon; and

WHEREAS, the Company, by proper corporate action, has duly authorized
the creation of said new series of Bonds (to be issued in accordance with the
terms and provisions of the Original Indenture and indentures supplemental
thereto, including this Thirty-Fourth Supplemental Indenture, and to be secured
by said Original Indenture and indentures supplemental thereto, including this
Thirty-Fourth Supplemental Indenture) and has further duly authorized the
execution, delivery and recording of this Thirty-Fourth Supplemental Indenture
setting forth the terms and provisions of the Bonds insofar as said terms and
provisions are not set forth in said Original Indenture; and

WHEREAS, the Bonds and the Trustee's certificate upon said Bonds are to
be substantially in the following form - the proper amount, names of registered
owners and numbers to be inserted therein, and such appropriate insertions,
omissions and changes to be made therein as may be required or permitted by this
Indenture to conform to any pertinent law or usage:

7

No. R-1                                                              $30,000,000

PHILADELPHIA SUBURBAN WATER
COMPANY

(Incorporated under the Laws of the Commonwealth
of Pennsylvania)

First Mortgage Bond, 5.35% Series Due 2031

Philadelphia Suburban Water Company, a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania (hereinafter
called the "Company", which term shall include any successor corporation as
defined in the Indenture hereinafter referred to), for value received, hereby
promises to pay to The Delaware County Industrial Development Authority or its
registered assigns, on the 1st day of October 2031, at the designated office of
Chase Manhattan Trust Company, National Association in Dallas, Texas, the sum of
Thirty Million Dollars in such coin or currency of the United States of America
as at the time of payment is legal tender for the payment of public and private
debts and to pay interest thereon to the registered owner hereof by draft or
check of the Trustee mailed to such registered owner from the interest payment
date next preceding the date of the authentication of this Bond (or if this Bond
is authenticated after a Record Date as defined below and on or before the
succeeding interest payment date, from such succeeding interest payment date, or
if this Bond is authenticated prior to April 1, 2002, from the date hereof)
until the principal hereof shall become due and payable, at the rate of five and
thirty-five hundredths percent (5.35%) per annum, payable semiannually in like
coin or currency on the first day of April and the first day of October in each
year, commencing April 1, 2002 and to pay interest on overdue principal
(including any overdue required or optional prepayment of principal) and
premium, if any, and, to the extent legally enforceable, on any overdue
installment of interest at a rate of 5.35% per annum after maturity whether by
acceleration or otherwise until paid.

The interest so payable will (except as otherwise provided in
the Thirty-Fourth Supplemental Indenture referred to herein) be calculated on
the basis of a 360-day year of twelve 30-day months and be paid to the person in
whose name this Bond (or a Bond or Bonds in exchange for which this Bond was
issued) is registered at the close of business on the fifteenth day of the
calendar month next preceding the month in which the interest payment date
occurs whether or not such day is a business day (a "Record Date") and
principal, premium, if any, and interest on this Bond shall be paid in
accordance with written payment instructions of the registered owner delivered
to the Trustee (defined below) on or before such record date.

The provisions of the Bond are continued on the reverse hereof
and such continued provisions shall for all purposes have the same effect as if
fully set forth at this place.

8

IN WITNESS WHEREOF, Philadelphia Suburban Water Company has
caused this Bond to be signed by its President or a Vice President and its
corporate seal to be hereto affixed and attested by its Secretary or an
Assistant Secretary, and this Bond to be dated November 1, 2001.

Attest:                             PHILADELPHIA SUBURBAN WATER COMPANY

By:
-----------------------------                ----------------------------------

(Assistant) Secretary                    Vice President and Treasurer

(Form of Reverse of Bond)

This Bond is one of a duly authorized issue of bonds of the
Company known as its First Mortgage Bonds, issued and to be issued without
limitation as to aggregate principal amount except as set forth in the Indenture
hereinafter mentioned in one or more series and equally secured (except insofar
as a sinking fund or other similar fund established in accordance with the
provisions of the Indenture may afford additional security for the bonds of any
specific series) by an Indenture of Mortgage (herein called the "Indenture")
dated as of January 1, 1941, executed by the Company to The Pennsylvania Company
for Insurances on Lives and Granting Annuities (succeeded as trustee by Chase
Manhattan Trust Company, National Association), as Trustee (hereinafter called
the "Trustee"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a description of the property mortgaged and
pledged, the nature and extent of the security, the rights of the holders and
registered owners of the bonds and of the Trustee in respect of such security,
and the terms and conditions under which the bonds are and are to be secured and
may be issued under the Indenture; but neither the foregoing reference to the
Indenture nor any provision of this Bond or of the Indenture or of any indenture
supplemental thereto shall affect or impair the obligation of the Company, which
is absolute and unconditional, to pay at the stated or accelerated maturity
herein and in the Indenture provided, the principal of and premium, if any, and
interest on this Bond as herein provided. As provided in the Indenture, the
bonds may be issued in series for various principal amounts, may bear different
dates and mature at different times, may bear interest at different rates and
may otherwise vary as in the Indenture provided or permitted. This Bond is one
of the Bonds described in an indenture supplemental to said Indenture known as
the "Thirty-Fourth Supplemental Indenture" dated as of October 15, 2001, and
designated therein as "First Mortgage Bonds, 5.35% Series due 2031" (the
"Bonds").

9

To the extent permitted by and as provided in the Indenture,
modifications or alterations of the Indenture, or of any indenture supplemental
thereto, and of the rights and obligations of the Company and of the holders and
registered owners of bonds issued and to be issued thereunder may be made with
the consent of the Company by an affirmative vote of the holders and registered
owners of not less than 75% in principal amount of bonds then outstanding under
the Indenture and entitled to vote, at a meeting of the bondholders called and
held as provided in the Indenture, and, in case one or more but less than all of
the series of bonds then outstanding under the Indenture are so affected, by an
affirmative vote of the holders and registered owners of not less than 75% in
principal amount of bonds of any series then outstanding under the Indenture and
entitled to vote on and affected by such modification or alteration, or by the
written consent of the holders and registered owners of such percentages of
bonds; provided, however, that no such modification or alteration shall be made
which shall reduce the percentage of bonds the consent of the holders or
registered owners of which is required for any such modification or alteration
or which shall affect the terms of payment of the principal of or interest on
the bonds, or permit the creation by the Company of any lien prior to or on a
parity with the lien of the Indenture with respect to any property subject to
the lien of the Indenture as a first mortgage lien thereon, or which shall
affect the rights of the holders or registered owners of less than all of the
bonds of any series affected thereby.

The Bonds have been issued by the Company to secure the
obligation of the Company to pay to or for the account of the Authority (defined
below) an amount equal to the principal, premium, if any, of, and interest on,
the Authority Bonds (defined below) pursuant to the Construction and Financing
Agreement (the "Financing Agreement") dated as of October 15, 2001, between the
Delaware County Industrial Development Authority, a Pennsylvania body politic
and corporate (the "Authority"), and the Company, which Authority Bonds are
being issued to finance the cost of acquiring, constructing, installing and
equipping facilities for the furnishing of water, in the counties of Bucks,
Chester, Delaware and Montgomery in the Commonwealth of Pennsylvania which are
to be financed under the Financing Agreement and which are described in Exhibit
A thereto, less any deletions therefor and together with any additions,
improvements and modifications thereto and substitutions therefor made in
accordance with the provisions of the Financing Agreement (the "Facilities").
The Facilities are to be financed through the sale of the Authority's Water
Facilities Revenue Bonds (Philadelphia Suburban Water Company Project), Series
of 2001, in the aggregate principal amount of $30,000,000 due October 1, 2031
(the "Authority Bonds") and bearing interest at 5.35% per annum.

The Authority Bonds are to be issued under a Trust Indenture,
dated as of October 15, 2001 (the "Authority Indenture"), between the Authority
and First Union National Bank as trustee (the "Authority Trustee"). The right,
title and interest of the Authority in and to the Financing Agreement and the
payments thereunder and the security for such payments have been assigned by the
Authority to the Authority Trustee, and the Bonds have been delivered by the
Company on behalf of the Authority directly to the Authority Trustee, as
assignee, as security for the payment of the principal of, and premium, if any,
and interest on, the Authority Bonds. The Authority Trustee may not sell, assign
or otherwise transfer the Bonds except for a transfer of the entire outstanding
principal amount thereof to its successor as Trustee under the Authority
Indenture, which successor and each subsequent successor shall hold such Bonds
subject to the same restriction on transfer.

10

In the event any Authority Bonds shall be purchased by the
Company and cancelled pursuant to the Authority Indenture, Bonds corresponding
in principal amount to the Authority Bonds so purchased and cancelled shall be
deemed to be paid in full, and in the event and to the extent the principal of,
and premium, if any, or interest on, any Authority Bonds is paid out of funds
held by the Authority Trustee other than payments on Bonds, the corresponding
payment of the principal of and premium, if any, or interest on, an aggregate
principal amount of Bonds shall be deemed to have been satisfied.

In the event this Bond shall be deemed to have been paid in
full, this Bond shall be surrendered to the Trustee for cancellation. In the
event this Bond shall be deemed to have been paid in part, this Bond shall be
presented to the Trustee for notation hereon of the payment of the portion of
the principal hereof so deemed to have been paid.

The Bonds are redeemable only as follows:

(a) The Bonds are subject to redemption prior to maturity on or after
October 1, 2012 by the Company, to the extent that the Authority Bonds are
called for redemption under Section 7.01 of the Authority Indenture, and then
out of moneys deposited with or held by the Trustee for such purpose, as a whole
or in part, at any time in the manner described below, at the redemption price
(stated as a percentage of the principal amount), as set forth below, of the
Bonds to be redeemed, plus interest accrued thereon to the date fixed for
redemption:

Optional Redemption Period                Redemption Price
--------------------------                ----------------

October 1, 2012 and thereafter                  100%

(b) The Bonds are subject to mandatory redemption as a whole at any
time prior to maturity should the Company be required to make payments with
respect to the Authority Bonds pursuant to the provisions of Section 7.02 (a) of
the Financing Agreement or Sections 7.01(b) or (c) of the Authority Indenture,
if the Trustee shall receive a written notice from the Authority or the
Authority Trustee that the Authority Bonds are subject to mandatory redemption
in accordance with any of such provisions.

(c) The Bonds are also subject to mandatory redemption by the Company
in whole if the Trustee shall receive a written demand from the Authority
Trustee for redemption of all such Bonds held by the Authority Trustee stating
that an "Event of Default" as defined in Section 9.01(a) of the Authority
Indenture has occurred and is continuing and that payment of the principal of
the Authority Bonds has been accelerated pursuant to Section 9.01(b) of the
Authority Indenture, provided that at the time of notice of such redemption as
provided in Section 2 of Article V of the Original Indenture (i) said written
demand shall not have been withdrawn by the Authority Trustee, and (ii) no event
of default under Section 1 of Article XI of the Original Indenture shall have
occurred and be continuing.

11

If this Bond or any portion hereof is called for redemption
and payment thereof is duly provided for as specified in the Indenture, interest
shall cease to accrue hereon or on such portion, as the case may be, from and
after the date fixed for redemption.

The principal hereof may be declared or may become due prior
to its maturity date on the conditions, in the manner and with the effect set
forth in the Indenture upon the happening of an event of default, as in the
Indenture provided; subject, however, to the right, under certain circumstances,
of the registered owners of a majority in principal amount of Bonds outstanding
to annul such declaration.

This Bond is transferable by the registered owner hereof in
person or by attorney duly authorized in writing, on books of the Company to be
kept for that purpose at the designated office of the Trustee in Dallas, Texas
upon surrender hereof for cancellation at such office and upon presentation of a
written instrument of transfer duly executed, and thereupon the Company shall
issue in the name of the transferee or transferees, and the Trustee shall
authenticate and deliver, a new Bond or Bonds in authorized denominations, of
equal aggregate unpaid principal amount. Any such transfer or exchange shall be
subject to the terms and conditions and to the payment of the charges specified
in the Indenture.

The Company and the Trustee may deem and treat the registered
owner of this Bond as the absolute owner hereof for the purpose of receiving
payment of or on account of the principal hereof and the interest hereon, and
for all other purposes, and shall not be affected by any notice to the contrary.

No recourse shall be had for the payment of the principal of
or interest on this Bond or for any claim based hereon or otherwise in respect
hereof or of the Indenture or of any indenture supplemental thereto against any
incorporator or any past, present or future stockholder, officer or director of
the Company or of any predecessor or successor corporation, as such, either
directly or through the Company or through any such predecessor or successor
corporation or through any receiver or trustee in bankruptcy, by virtue of any
constitutional provision, statute or rule of law or equity, or by the
enforcement of any assessment or penalty or otherwise; all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released by every holder or registered owner hereof, as
more fully provided in the Indenture.

This Bond shall not be entitled to any benefit under the
Indenture or any indenture supplemental thereto, or become valid or obligatory
for any purpose, until Chase Manhattan Trust Company, National Association, as
Trustee under the Indenture, or a successor trustee thereunder, shall have
signed the certificate of authentication endorsed hereon.

(Form of Trustee's Certificate)

This Bond is one of the Bonds, of the series designated
therein, referred to in the within-mentioned Thirty-Fourth Supplemental
Indenture.

CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION

By:__________________________
Authorized Signer

12

and;

WHEREAS, all acts and things necessary to make the Bonds, when
executed by the Company and authenticated and delivered by the Trustee as in
this Thirty-Fourth Supplemental Indenture provided and issued by the Company,
valid, binding and legal obligations of the Company, and this Thirty-Fourth
Supplemental Indenture a valid and enforceable supplement to said Original
Indenture, have been done, performed and fulfilled, and the execution of this
Thirty-Fourth Supplemental Indenture has been in all respects duly authorized;
and

WHEREAS, the Company and the Trustee, pursuant to Article
XVIII of the Original Indenture, wish, by means of this Thirty-Fourth
Supplemental Indenture, to amend the Thirty-Third Supplemental Indenture dated
as of November 15, 1999 (the "Thirty-Third Supplemental Indenture"):

NOW, THEREFORE, THIS THIRTY-FOURTH SUPPLEMENTAL INDENTURE
WITNESSETH: That, in order to secure the payment of the principal and interest
of all bonds issued under the Original Indenture and all indentures supplemental
thereto, according to their tenor and effect, and according to the terms of the
Original Indenture and of any indenture supplemental thereto, and to secure the
performance of the covenants and obligations in said bonds and in the Original
Indenture and any indenture supplemental thereto respectively contained, and to
provide for the proper issuing, conveying and confirming unto the Trustee, its
successors in said trust and its and their assigns forever, upon the trusts and
for the purposes expressed in the Original Indenture and in any indenture
supplemental thereto, all and singular the estates, property and franchises of
the Company thereby mortgaged or intended so to be, the Company, for and in
consideration of the premises and of the sum of One Dollar ($1.00) in hand paid
by the Trustee to the Company upon the execution and delivery of this
Thirty-Fourth Supplemental Indenture, receipt whereof is hereby acknowledged,
and of other good and valuable consideration, and intending to be legally bound,
has granted, bargained, sold, aliened, enfeoffed, released and confirmed and by
these presents does grant, bargain, sell, alien, enfeoff, release and confirm
unto Chase Manhattan Trust Company, National Association, as Trustee, and to its
successors in said trust and its and their assigns forever:

All and singular the premises, property, assets, rights and
franchises of the Company, whether now or hereafter owned, constructed or
acquired, of whatever character and wherever situated (except as herein
expressly excepted), including among other things the following, but reference
to or enumeration of any particular kinds, classes, or items of property shall
not be deemed to exclude from the operation and effect of the Original Indenture
or any indenture supplemental thereto any kind, class or item not so referred to
or enumerated:

13

I.

REAL ESTATE AND WATER RIGHTS.

The real estate described in the deeds from the grantors named
in Exhibit B hereto, dated and recorded as therein set forth, and any other real
estate and water rights acquired since the date of the Thirty-Third Supplemental
Indenture.

II.

BUILDINGS AND EQUIPMENT.

All mains, pipes, pipe lines, service pipes, buildings,
improvements, standpipes, reservoirs, wells, flumes, sluices, canals, basins,
cribs, machinery, conduits, hydrants, water works, plants and systems, tanks,
shops, structures, purification systems, pumping stations, fixtures, engines,
boilers, pumps, meters and equipment which are now owned or may hereafter be
acquired by the Company (except as herein expressly excepted), including all
improvements, additions and extensions appurtenant to any real or fixed property
now or hereafter subject to the lien of the Original Indenture or any indenture
supplemental thereto which are used or useful in connection with the business of
the Company as a water company or as a water utility, whether any of the
foregoing property is now owned or may hereafter be acquired by the Company.

It is hereby declared by the Company that all property of the
kinds described in the next preceding paragraph, whether now owned or hereafter
acquired, has been or is or will be owned or acquired with the intention of
using the same in carrying on the business or branches of the business of the
Company, and it is hereby declared that it is the intention of the Company that
all thereof (except property hereinafter specifically excepted) shall be subject
to the lien of the Original Indenture.

It is agreed by the Company that so far as may be permitted by
law tangible personal property now owned or hereafter acquired by the Company,
except such as is hereafter expressly excepted from the lien hereof, shall be
deemed to be and construed as fixtures and appurtenances to the real property of
the Company.

III.

FRANCHISES AND RIGHTS OF WAY.

All the corporate and other franchises of the Company, all
water and flowage rights, riparian rights, easements and rights of way, and all
permits, licenses, rights, grants, privileges and immunities, and all renewals,
extensions, additions or modifications of any of the foregoing, whether the same
or any thereof, or any renewals, extensions, additions or modifications thereof,
are now owned or may hereafter be acquired, owned, held, or enjoyed by the
Company.

IV.

AFTER ACQUIRED PROPERTY.

All real and fixed property and all other property of the
character hereinabove described which the Company may hereafter acquire.

14

TOGETHER WITH all and singular the tenements, hereditaments
and appurtenances belonging or in any way appertaining to the aforesaid property
or any part thereof, with the reversion and reversions, remainder and
remainders, tolls, rents, revenues, issues, income, product and profits thereof,
and all the estate, right, title, interest and claim whatsoever, at law as well
as in equity, which the Company now has or may hereafter acquire in and to the
aforesaid premises, property, rights and franchises and every part and parcel
thereof.

EXCEPTING AND RESERVING, HOWEVER, certain premises, not used
or useful in the supplying of water by the Company, expressly excepted and
reserved from the lien of the Original Indenture and not subject to the terms
thereof.

AND ALSO SAVING AND EXCEPTING from the property hereby
mortgaged and pledged, all of the following property (whether now owned by the
Company or hereafter acquired by it): All bills, notes and accounts receivable,
cash on hand and in banks, contracts, choses in action and leases to others (as
distinct from the property leased and without limiting any rights of the Trustee
with respect thereto under any of the provisions of the Original Indenture or of
any indenture supplemental thereto), all bonds, obligations, evidences of
indebtedness, shares of stock and other securities, and certificates or
evidences of interest therein, all automobiles, motor trucks, and other like
automobile equipment and all furniture, and all equipment, materials, goods,
merchandise and supplies acquired for the purpose of sale in the ordinary course
of business or for consumption in the operation of any properties of the Company
other than any of the foregoing which may be specifically transferred or
assigned to or pledged or deposited with the Trustee hereunder or required by
the provisions of the Original Indenture or any indenture supplemental thereto
so to be; provided, however, that if, upon the happening of a completed default,
as specified in Section 1 of Article XI of the Original Indenture, the Trustee
or any receiver appointed hereunder shall enter upon and take possession of the
mortgaged property, the Trustee or any such receiver may, to the extent
permitted by law, at the same time likewise take possession of any and all of
the property described in this paragraph then on hand and any and all other
property of the Company then on hand, not described or referred to in the
foregoing granting clauses, which is used or useful in connection with the
business of the Company as a water company or as a water utility, and use and
administer the same to the same extent as if such property were part of the
mortgaged property, unless and until such completed default shall be remedied or
waived and possession of the mortgaged property restored to the Company, its
successors or assigns.

SUBJECT, HOWEVER, to the exceptions, reservations and matters
hereinabove and in the Original Indenture recited, to releases executed since
the date of the Original Indenture in accordance with the provisions thereof, to
existing leases, to easements and rights of way for pole lines and electric
transmission lines and other similar encumbrances and restrictions which the
Company hereby certifies, in its judgment, do not impair the use of said
property by the Company in its business, to liens existing on or claims against,
and rights in and relating to, real estate acquired for right-of-way purposes,
to taxes and assessments not delinquent, to alleys, streets and highways that

15

may run across or encroach upon said lands, to liens, if any, incidental to
construction, and to Permitted Liens, as defined in the Original Indenture; and,
with respect to any property which the Company may hereafter acquire, to all
terms, conditions, agreements, covenants, exceptions and reservations expressed
or provided in such deeds and other instruments, respectively, under and by
virtue of which the Company shall hereafter acquire the same and to any and all
liens existing thereon at the time of such acquisition.

TO HAVE AND TO HOLD, all and singular the property, rights,
privileges and franchises hereby conveyed, transferred or pledged or intended so
to be unto the Trustee and its successors in the trust heretofore and hereby
created, and its and their assigns forever.

IN TRUST NEVERTHELESS, for the equal pro rata benefit and
security of each and every entity who may be or become the holders of bonds and
coupons secured by the Original Indenture or by any indenture supplemental
thereto, or both, without preference, priority or distinction as to lien or
otherwise of any bond or coupon over or from any other bond or coupon, so that
each and every of said bonds and coupons issued or to be issued, of whatsoever
series, shall have the same right, lien and privilege under the Original
Indenture and all indentures supplemental thereto and shall be equally secured
hereby and thereby, with the same effect as if said bonds and coupons had all
been made, issued and negotiated simultaneously on the date thereof; subject,
however, to the provisions with reference to extended, transferred or pledged
coupons and claims for interest contained in the Original Indenture and subject
to any sinking or improvement fund or maintenance deposit provisions, or both,
for the benefit of any particular series of bonds.

IT IS HEREBY COVENANTED, DECLARED AND AGREED, by and between
the parties hereto, that all such bonds and coupons are to be authenticated,
delivered and issued, and that all property subject or to become subject hereto
is to be held subject to the further covenants, conditions, uses and trusts
hereinafter set forth, and the Company, for itself and its successors and
assigns, does hereby covenant and agree to and with the Trustee and its
successor or successors in said trust, for the benefit of those who shall hold
said bonds and coupons, or any of them, issued under this Indenture or any
indenture supplemental hereto, or both, as follows:

ARTICLE I.

Form, Authentication and Delivery of the Bonds;
Redemption Provisions

SECTION 1. There shall be a fortieth series of bonds, limited
in aggregate principal amount to $30,000,000 designated as "Philadelphia
Suburban Water Company, First Mortgage Bonds, 5.35% Series due 2031".

Interest on the Bonds shall be payable semiannually on April 1
and October 1 of each year (each an "interest payment date"), commencing April
1, 2002. Each Bond shall be dated the date of its authentication and shall bear
interest from the interest payment date next preceding its date of
authentication, unless authenticated after a record date and on or before the
succeeding interest payment date, in which case it shall bear interest from such
succeeding interest payment date, or, unless authenticated on or prior to the
record date for the first interest payment date for the Bonds, in which case it

16

shall bear interest from November 1, 2001; provided, however, that, if at the
time of authentication of any Bond, interest on the predecessor Bond of such
Bond is in default, such Bond shall bear interest from the date to which
interest has been paid, or, if no interest has been paid, from November 1, 2001.
The Bonds shall be stated to mature (subject to the right of earlier redemption
at the prices and dates and upon the terms and conditions hereinafter set forth)
on October 1, 2031 and shall bear interest at the rate of 5.35%.

The Bonds shall be issuable only as registered bonds without
coupons, shall be in the form hereinabove recited, in the denomination of Five
Thousand Dollars ($5,000) or any integral multiple thereof, shall be lettered
"R", and shall bear such numbers as the Company may reasonably require.

The principal of, and interest on the Bonds shall be payable
at the designated office of the trustee in Dallas, Texas, and shall be payable,
along with interest on the Bonds, in such coin or currency of the United States
of America as at the time of payment is legal tender for the payment of public
and private debts; each installment of interest shall be paid by check to the
order of the person entitled thereto, mailed to such person's address as the
same appears on the books maintained for such purpose by or on behalf of the
Company, or by bank wire transfer of immediately available funds pursuant to
instructions and conditions incorporated in an agreement between such person and
the Trustee or the Company.

The person in whose name any Bond is registered at the close
of business on any Record Date (as hereinafter defined) with respect to any
interest payment date shall be entitled to receive the interest payable on such
interest payment date notwithstanding the cancellation of such Bond upon any
transfer or exchange subsequent to the Record Date and prior to such interest
payment date; provided, however, that if and to the extent the Company shall
default in the payment of the interest due on such interest payment date, such
defaulted interest shall be paid to the persons in whose names outstanding Bonds
are registered at the close of business on a subsequent Record Date established
by notice given by mail by or on behalf of the Company to the holders of Bonds
not less than fifteen days preceding such subsequent Record Date, such Record
Date to be not less than ten days preceding the date of payment of such
defaulted interest. The term "Record Date" with respect to any regular interest
payment date shall mean the fifteenth day of the calendar month next preceding
the month in which such interest payment date occurs.

The Bonds are being issued by the Company to secure the
obligation of the Company to pay to or for the account of the Authority an
amount equal to the principal of, and interest on, the Authority Bonds pursuant
to the Financing Agreement. The Authority Bonds are being sold to finance the
cost of the acquiring, constructing, installing and equipping of the Facilities.

The Authority Bonds are to be issued under the Authority
Indenture and the right, title and interest of the Authority in and to the
Financing Agreement and the payments thereunder and the security for such
payments have been assigned by the Authority to the Authority Trustee, and the
Bonds are to be delivered by the Company on behalf of the Authority directly to

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the Authority Trustee, as assignee, as security for the payment of the principal
of, and premium, if any, and interest on, the Authority Bonds. The Authority
Trustee may not sell, assign or otherwise transfer the Bonds except for a
transfer of the entire outstanding principal amount thereof to its successor as
Trustee under the Authority Indenture, which successor and each subsequent
successor shall hold the Bonds subject to the same restriction on transfer.

The text of the Bonds and of the certificate of the Trustee
upon such Bonds shall be, respectively, substantially of the tenor and effect
hereinbefore recited.

Exchange of any Bonds shall be effected in accordance with the
applicable provisions of Sections 7, 8 and 9 of Article II of the Original
Indenture.

SECTION 2.  The Bonds are redeemable only as follows:

(a) The Bonds are subject to redemption prior to maturity on
or after October 1, 2012 by the Company, to the extent that the Authority Bonds
are called for redemption under Section 7.01 of the Authority Indenture, and
then out of moneys deposited with or held by the Trustee for such purpose, as a
whole or in part, at any time in the manner described below, at the redemption
price (stated as a percentage of the principal amount), as set forth below, of
the Bonds to be redeemed, plus interest accrued thereon to the date fixed for
redemption:

Optional Redemption Period          Redemption Price
--------------------------          ----------------

October 1, 2012 and thereafter           100%

(b) The Bonds are subject to mandatory redemption as a whole
or in part at any time prior to maturity should the Company be required to make
payments with respect to the Authority Bonds pursuant to the provisions of
Section 7.02(a) of the Financing Agreement, or Sections 7.01(b) or (c) of the
Authority Indenture, if the Trustee shall receive a notice from the Authority or
the Authority Trustee that the Bonds are subject to mandatory redemption in
accordance with any of such provisions.

(c) (reserved)

(d) The Bonds are also subject to mandatory redemption by the
Company in whole if the Trustee shall receive a written demand from the
Authority Trustee for redemption of all such Bonds held by the Authority Trustee
stating that an "Event of Default" as defined in Section 9.01(a) of the
Authority Indenture has occurred and is continuing and that payment of the
principal of the Authority Bonds has been accelerated pursuant to Section
9.01(b) of the Authority Indenture, provided that at the time of notice of such
redemption as provided in Section 2 of Article V of the Original Indenture (i)
said written demand shall not have been withdrawn by the Authority Trustee, and
(ii) no event of default under Section 1 of Article XI of the Original Indenture
shall have occurred and be continuing.

SECTION 3. Any redemption of the Bonds shall be effected in
accordance with the provisions of Article V of the Original Indenture.

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SECTION 4. In the event any Authority Bonds shall be purchased
by the Company, surrendered by the Company to the Authority Trustee for
cancellation and cancelled by the Authority Trustee, Bonds corresponding in
principal amount to the Authority Bonds so purchased, surrendered and cancelled
shall be deemed to have been paid in full.

SECTION 5. In the event and to the extent the principal of and
premium, if any, or interest on, any Authority Bonds is paid out of funds held
by the Authority Trustee other than payments of Bonds, the corresponding payment
of the principal of, and premium, if any, or interest on, an aggregate principal
amount of Bonds equal to the aggregate principal amount of such Authority Bonds
shall be deemed to have been satisfied.

SECTION 6. All Bonds deemed to have been paid in full as
provided in Section 4 and 5 of this Article I of this Thirty-Fourth Supplemental
Indenture shall be surrendered to the Trustee for cancellation, and the Trustee
shall forthwith cancel the same and, in accordance with applicable laws and
regulations and the Trustee's policies and procedures, and on the written
request of the Company, deliver the same to the Company. In case part of an
outstanding Bond shall be deemed to have been partially paid as provided in said
Section 4 or Section 5, upon presentation of such Bond at the designated office
of the Trustee, the Trustee shall make a notation thereon of the payment of the
portion of the principal amount of such Bond so deemed to have been paid unless
the registered owner shall elect to surrender such Bond to the Trustee, in which
case the Company shall execute and the Trustee shall authenticate and deliver,
without charge to the registered owner, Bonds in such authorized denominations
as shall be specified by the registered owner for the unpaid balance of the
principal amount of such outstanding Bond.

SECTION 7. Bonds in the aggregate principal amount of
$30,000,000 may be issued under the provisions of Article IV of the Original
Indenture and may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company, upon receipt by the Trustee of the resolutions,
certificates, opinions or other instruments or all of the foregoing required to
be delivered upon the issue of bonds pursuant to the provisions of the Original
Indenture.

ARTICLE II.

Maintenance or Improvement Deposit.

SECTION 1. The Company covenants that it will deposit with the
Trustee on or before the March 1 next occurring after the bonds of the 9.89%
Series due 2008 cease to be outstanding, or on or before the March 1 next
occurring after the bonds of the 9.93% Series due 2013 cease to be outstanding,
or on or before the next March 1 next occurring after the bonds of the 9.97%
Series due 2018 cease to be outstanding, or on or before the March 1 next
occurring after the bonds of the 9.12% Series due 2010 cease to be outstanding,
or on or before the March 1 next occurring after the bonds of the 9.29% Series
due 2026 cease to be outstanding, or on or before the March 1 next occurring
after the bonds of the 9.17% Series due 2021 cease to be outstanding, or on or
before the next March 1 next occurring after the bonds of the 9.17% Series due

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2011 cease to be outstanding, or on or before the March 1 next occurring after
the bonds of the 6.50% Series due 2010 cease to be outstanding, or on or before
the next March 1 next occurring after the bonds of the 5.95% Series due 2002
cease to be outstanding, or on or before the March 1 next occurring after the
bonds of the 7.15% Series due 2008 cease to be outstanding, or on or before the
March 1 next occurring after the bonds of any of the Subseries of the 1995
Medium Term Note Series issued under the Twenty-Ninth Supplemental Indenture
(consisting of the 7.72% Subseries A due 2025, the 6.82% Subseries B due 2005,
the 6.89% Subseries C due 2015, the 6.99% Subseries D due 2006, the 7.47%
Subseries E due 2003, the 6.83% Subseries F due 2003, and the 7.06% Subseries G
due 2004) shall cease to be outstanding, or on or before the March 1 next
occurring after bonds of the 6.35% Series due 2025 shall cease to be
outstanding, on or before the March 1 next occurring after the bonds of any of
the Subseries of the 1997 Medium Term Note Series issued under the Thirty-First
Supplemental Indenture (consisting of the 6.75% Subseries A due 2007, the 6.30%
Subseries B due 2002, the 6.14% Subseries C due 2008, the 5.80% Subseries D due
2003, the 5.85% Subseries E due 2004 and the 6.00% Subseries F due 2004) cease
to be outstanding, or on or before March 1 next occurring after the bonds of
6.00% Series due 2029 cease to be outstanding, or on or before March 1 next
occurring after the Bonds of any of the Subseries of the 1999 Medium Term Note
Series issued under the Thirty-Third Supplemental Indenture (consisting of the
7.40% Subseries A due 2005, the 7.40% Subseries B due 2005 and the 6.21%
Subseries C due 2011) cease to be outstanding, and on or before March 1 in each
year thereafter if and so long as any of the Bonds are outstanding, whichever is
latest, an amount in cash (the "Maintenance or Improvement Deposit") equal to 9%
of the Gross Operating Revenues of the Company during the preceding calendar
year less, to the extent that the Company desires to take such credits, the
following:

(a) the amount actually expended for maintenance
during such calendar year; and

(b) the Cost or Fair Value, whichever is less, of
Permanent Additions acquired during such calendar year which
at the time of taking such credit constitute Available
Permanent Additions; and

(c) the unapplied balance, or any part thereof, of
the Cost or Fair Value, whichever is less, of Available
Permanent Additions acquired by the Company during the five
calendar years preceding such calendar year and specified in
the Officers' Certificates delivered to the Trustee pursuant
to Section 2 of this Article, but only to the extent that the
Permanent Additions with respect to which such Cost or Fair
Value was determined shall at the time of taking such credit
constitute Available Permanent Additions.

SECTION 2. The Company covenants that it will on or before
March 1 in each year, beginning with the first deposit made with the Trustee
under the provisions of Section 1 of this Article, as long as any of the Bonds
are outstanding, deliver to the Trustee the following:

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(A) An Officers' Certificate, which shall state:

(i) The amount of the Gross Operating
Revenues for the preceding calendar year;

(ii) 9% of such Gross Operating Revenues;

(iii) The amount actually expended by the
Company for maintenance during such calendar year;

(iv) The amount set forth in subparagraph
(xii) of each Officers' Certificate delivered to the Trustee
pursuant to the provisions of this Section during the
preceding five calendar years (specifying each such Officers'
Certificate), after deducting from each such amount the
aggregate of (a) the Cost or Fair Value, whichever is less, of
all Permanent Additions represented by such amount which have
ceased to be Available Permanent Additions; and (b) any part
of such amount for which the Company has previously taken
credit against any Maintenance or Improvement Deposit
(specifying the Officers' Certificate in which such credit was
taken); and (c) any part of such amount for which the Company
then desires to take credit against the Maintenance or
Improvement Deposit;

(v) An amount which shall be the aggregate
of all amounts set forth pursuant to the provisions of clause
(c) of the foregoing subparagraph (iv);

(vi) The Cost or Fair Value, whichever is
less, of Available Permanent Additions acquired by the Company
during the preceding calendar year;

(vii) That part of the amount set forth in
subparagraph (vi) which the Company desires to use as a credit
against the Maintenance or Improvement Deposit;

(viii) The amount of cash payable to the
Trustee under the provisions of Section 1 of this Article,
which shall be the amount by which the amount set forth in
subparagraph (ii) hereof exceeds the sum of the amounts set
forth in subparagraphs (iii), (v) and (vii) hereof;

(ix) The sum of all amounts charged on the
books of the Company against any reserve for retirement or
depreciation during the preceding calendar year representing
the aggregate of the Cost when acquired of any part of the
Company's plants and property of the character described in
the granting clauses hereof which has been permanently retired
or abandoned;

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(x) The aggregate of the amounts set forth
in subparagraphs (v) and (vii) hereof;

(xi) The amount by which the amount set
forth in subparagraph (x) exceeds the amount set forth in
subparagraph (ix), being the amount required to be deducted
from the Cost or Fair Value of Available Permanent Additions
in order to determine a Net Amount of Available Permanent
Additions pursuant to the provisions of Section 9 of Article I
of the Original Indenture;

(xii) The amount set forth in subparagraph
(vi) after deducting the amount, if any, set forth in
subparagraph (vii); and

(xiii) That all conditions precedent to the
taking of the credit or credits so requested by the Company
have been complied with.

(B) In the event that the Officers' Certificate delivered to
the Trustee pursuant to the provisions of paragraph (A) of this Section shall
state, pursuant to the requirements of subparagraph (vi), the Cost or Fair Value
of Available Permanent Additions acquired by the Company during the preceding
calendar year, the documents specified in paragraphs 2, 3, 5, 6 and 7 of
subdivision (B) of Section 3 of Article IV of the Original Indenture.

(C) An amount in cash equal to the sum set forth in
subparagraph (viii) of the Officers' Certificate provided for in paragraph (A)
hereof.

SECTION 3. All cash deposited with the Trustee as part of any
Maintenance or Improvement Deposit provided for in Section 1 of this Article,
may, at the option of the Company, be applied to the purchase of bonds under the
provisions of Section 2 of Article X of the Original Indenture or to the
redemption of bonds under the provisions of Section 3 of Article X of the
Original Indenture or may be withdrawn by the Company at any time to reimburse
the Company for the cost of a Net Amount of Available Permanent Additions
(excluding, however, from any such Available Permanent Additions all Permanent
Additions included in any certificate delivered to the Trustee for the purpose
of obtaining a credit against any Maintenance or Improvement Deposit provided
for in Section 1 of this Article to the extent that such Permanent Additions
have been used for any such credit). The Trustee shall pay to or upon the
written order of the Company all or any part of such cash upon the receipt by
the Trustee of:

(a) A Resolution requesting such payment; and

(b) The documents specified in paragraphs 2, 5, 6 and
7 of subdivision (B) of Section 3 of Article IV of the
Original Indenture, with such modifications, additions and
omissions as may be appropriate in the light of the purposes
for which they are used.

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ARTICLE III.

Covenants of the Company.

SECTION 1. The Company hereby covenants and agrees with the
Trustee, for the benefit of the Trustee and all the present and future holders
of the Bonds, that the Company will pay the principal of, and premium, if any,
and interest on, all bonds issued or to be issued as aforesaid under and secured
by the Original Indenture as hereby supplemented, as well as all bonds which may
be hereafter issued in exchange or substitution therefor, and will perform and
fulfill all of the terms, covenants and conditions of the Original Indenture and
of this Thirty-Fourth Supplemental Indenture with respect to the additional
bonds to be issued under the Original Indenture as hereby supplemented.

SECTION 2. The Company covenants and agrees that so long as
any of the Bonds are outstanding (a) the Company will not make any Stock Payment
if, after giving effect thereto, its retained earnings, computed in accordance
with generally accepted accounting principles consistently applied, will be less
than the sum of (i) Excluded Earnings, if any, since December 31, 2000, and (ii)
$20,000,000; (b) Stock Payments made more than 40 days after the commencement,
and prior to the expiration, of any Restricted Period shall not exceed 65% of
the Company's Net Income during such Restricted Period; and (c) the Company will
not authorize a Stock Payment if there has occurred and is continuing an event
of default under subsections (a) and (b) of Section 1 of Article XI of the
Original Indenture.

For the purposes of this Section 2 the following terms shall
have the following meanings:

"Capitalization" shall mean the sum of (i) the aggregate
principal amount of all Debt at the time outstanding, (ii) the aggregate par or
stated value of all capital stock of the Company of all classes at the time
outstanding, (iii) premium on capital stock, (iv) capital surplus, and (v)
retained earnings.

"Debt" means (i) all indebtedness, whether or not represented
by bonds, debentures, notes or other securities, for the repayment of money
borrowed, (ii) all deferred indebtedness for the payment of the purchase price
of property or assets purchased (but Debt shall not be deemed to include
Customer Advances for construction or any bonds issued under the Indenture which
are not Outstanding Bonds), (iii) leases which have been or, in accordance with
generally accepted accounting principles, should be recorded as capital leases
and (iv) guarantees of the obligations of another of the nature described in
clauses (i), (ii) or (iii) which have been or, in accordance with generally
accepted accounting principles, should be recorded as debt.

"Determination Date" shall mean the last day of each calendar
quarter. Any calculation with respect to any Determination Date shall be based
on the Company's balance sheet as of such date.

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"Excluded Earnings" shall mean 35% of the Company's Net Income
during any Restricted Period.

"Net Income" for any particular Restricted Period shall mean
the amount of net income properly attributable to the conduct of the business of
the Company for such period, as determined in accordance with generally accepted
accounting principles consistently applied, after payment of or provision for
taxes on income for such period.

"Outstanding Bonds" shall mean bonds which are outstanding
within the meaning indicated in Section 20 of Article I of the Original
Indenture except that, in addition to the bonds referred to in clauses (a), (b)
and (c) of said Section 20, said term shall not include bonds for the retirement
of which sufficient funds have been deposited with the Trustee with irrevocable
instructions to apply such funds to the retirement of such bonds at a specified
time, which may be either the maturity thereof or a specified redemption date,
whether or not notice of redemption shall have been given.

"Restricted Period" shall mean a period commencing on any
Determination Date on which the total Debt of the Company is, or as the result
of any Stock Payment then declared or set aside and to be made thereafter will
be, more than 70% of Capitalization, and continuing until the third consecutive
Determination Date on which the total Debt of the Company does not exceed 70% of
Capitalization.

"Stock Payment" shall mean any payment in cash or property
(other than stock of the Company) to any holder of shares of any class of
capital stock of the Company as such holder, whether by dividend or upon the
purchase, redemption, conversion or other acquisition of such shares, or
otherwise.

SECTION 3. The Company covenants and agrees that so long as
any of the Bonds are outstanding, neither the Company nor any subsidiary of the
Company will, directly or indirectly, lend or in any manner extend its credit
to, or indemnify, or make any donation or capital contribution to, or purchase
any security of, any corporation which directly or indirectly controls the
Company, or any subsidiary or affiliate (other than an affiliate which is a
subsidiary of the Company) of any such corporation.

ARTICLE IV.

The Trustee.

SECTION 1. The Trustee hereby accepts the trust hereby
declared and provided, and agrees to perform the same upon the terms and
conditions in the Original Indenture, as supplemented by this Thirty-Fourth
Supplemental Indenture.

24

SECTION 2. Subject to the provisions of Article XIII of the
Original Indenture, the Trustee may execute any of the trusts or powers hereof
and perform any of its duties by or through and consult with attorneys, agents,
officers or employees selected by the Trustee in its sole discretion. The
Trustee shall be entitled to advice of counsel concerning all matters of trusts
hereof and the duties hereunder and may in all cases pay such reasonable
compensation to all such attorneys, agents, officers and employees as may
reasonably be employed in connection with the trusts hereof. The Trustee may act
or refrain from acting and rely upon and be free from all liability for so
relying upon the opinion or advice of any attorney (who may be the attorney or
attorneys for the Company). The Trustee may act and rely on written opinions of
experts employed by the Trustee and such advice shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by the Trustee hereunder in good faith and in reliance thereon. The Trustee
shall not be responsible for any loss or damage resulting from any action or
non-action in good faith taken in reliance upon such opinion or advice. The
Trustee shall not be bound to confirm, verify or make any investigation into the
facts or matters stated in any financial or other statements, resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order or other paper or document furnished pursuant to the terms
hereof.

SECTION 3. Before the Trustee shall be required to foreclose
on, or to take control or possession of, the real property or leasehold interest
(the "Premises") which may be the subject of any mortgage or mortgages for which
the Trustee is mortgagee in connection with the issuance of the Bonds, the
Trustee shall be indemnified and held harmless by the holders and/or beneficial
owners of the Bonds from and against any and all expense, loss, or liability
that may be suffered by the Trustee in connection with any spill, leak or
release which may have occurred on or invaded the Premises or any contamination
by any Hazardous Substance (hereinafter defined), whether caused by the Company
or any other person or entity, including, but not limited to, (1) any and all
reasonable expenses that the Trustee may incur in complying with any of the
Environmental Statutes (hereinafter defined), (2) any and all reasonable costs
that the Trustee may incur in studying or remedying any spill, leak or release
which may have occurred on or invaded the Premises or any contamination, (3) any
and all fines or penalties assessed upon the Trustee by reason of such
contamination, (4) any and all loss of value of the Premises or the improvements
thereon by reason of such contamination, and (5) any and all legal fees and
costs reasonably incurred by the Trustee in connection with any of the
foregoing. As used in this Section, contamination by any Hazardous Substance
shall include contamination, arising from the presence, creation, production,
collection, treatment, disposal, discharge, release, storage, transport or
transfer of any Hazardous Substance at or from the Premises or any improvements
thereon. As used in this Section, the term "Hazardous Substance" shall mean
petroleum hydrocarbons or any substance which (a) constitutes a hazardous waste
or substance under any applicable federal, state or local law, rule, order or
regulation now or hereafter adopted; (b) constitutes a "hazardous substance" as
such term is defined under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (42 U.S.C. ss.9601 et seq.) and the
regulations issued thereunder and any comparable state or local law or
regulation; (c) constitutes a "hazardous waste" under the Resource Conservation
and Recovery Act, (42 U.S.C. ss.6991) and the regulations issued thereunder and
any comparable state or local law or regulation; (d) constitutes a pollutant,
contaminant, chemical or industrial, toxic or hazardous substance or waste as

25

such terms are defined under Federal Clean Water Act, as amended (33 U.S.C.
ss.1251 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C.
ss.2601 et seq.), or any comparable state or local laws or regulations; (e)
exhibits any of the characteristics enumerated in 40 C.F.R. Sections 261.20 -
261.24, inclusive; (f) those extremely hazardous substances listed in Section
302 of the Superfund Amendments and Reauthorization Act of 1986 (Public Law
99-499, 100 Stat. 1613) which are present in threshold planning or reportable
quantities as defined under such act; (g) toxic or hazardous chemical substances
which are present in quantities which exceed exposure standards as those terms
are defined under Sections 6 and 8 of the Occupational Safety and Health Act, as
amended (29 U.S.C. ss.ss.655 and 657 and 29 C.F.R. Part 1910, subpart 2); and
(h) any asbestos, petroleum-based products or any Hazardous Substance contained
within or release from any underground or aboveground storage tanks. As used in
this Section, the term "Environmental Statutes" shall mean the statutes, laws,
rules, orders and regulations referred to in (a) through (h) inclusive in the
preceding sentence.

ARTICLE V.

Amendment of Thirty-Third Supplemental Indenture

The second paragraph of Section 1 of Article I of the
Thirty-Third Supplemental Indenture is deleted and the following paragraph is
substituted therefor:

Interest on each subseries of the Bonds shall be
payable semiannually on either the 1st, 12th or 15th day of
two calendar months six months apart as indicated in the
Subseries Authorizing Certificate (each an "Interest Payment
Date") in each year commencing on the first Interest Payment
Date next succeeding the date of authentication of such Bond
(the "Original Issue Date"), unless the Original Issue Date or
the date of authentication occurs between a Record Date, as
defined below, and the next succeeding Interest Payment Date,
in which case commencing on the second Interest Payment Date
succeeding the Original Issue Date or the date of
authentication, to the registered holders of the Bonds on the
Record Date with respect to such Interest Payment Date, and on
the maturity date specified on the face of the Bond (the
"Maturity Date") or any date fixed for tender or redemption
pursuant to the terms of such Bond (the "Tender Date" or
"Redemption Date" respectively). Interest on each subseries of
Bonds will accrue from the most recent Interest Payment Date
to which interest has been paid or duly provided for or, if no
interest has been paid, from its Original Issue Date, until
the principal has been paid or made duly available for
payment. If the Maturity Date (or any Redemption Date or
Tender Date) or an Interest Payment Date falls on a day which
is not a Business Day, as defined below, principal (and
premium, if any) or interest payable with respect to such
Maturity Date (or Redemption Date or Tender Date) or Interest
Payment Date will be paid on the next succeeding Business Day
with the same force and effect as if made on such Maturity
Date (or Redemption Date or Tender Date) or Interest Payment
Date, as the case may be, and no interest shall accrue with
respect to such payment for the period from and after such

26

Maturity Date (or Redemption Date or Tender Date) or Interest
Payment Date. The term "Record Date" as used in this Section 1
with respect to any regular Interest Payment Date shall mean
the 1st day of the same calendar month of the Interest Payment
Date where the Interest Payment Date is on the 12th or 15th
day of such month, or the 15th day of the calendar month
preceding the Interest Payment Date where such Interest
Payment Date is on the 1st day of such month. As used herein,
"Business Day" means any day other than a Saturday or Sunday,
on which the Trustee, any paying agent or banks in New York,
New York are not required or authorized by law or executive
order to close.

ARTICLE VI

Miscellaneous.

SECTION 1. This instrument is executed and shall be construed
as an indenture supplemental to the Original Indenture, and shall form a part
thereof, and except as hereby supplemented, the Original Indenture and the
First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth,
Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second, Twenty-Third,
Twenty-Fourth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh, Twenty-Eighth,
Twenty-Ninth, Thirtieth, Thirty-First, Thirty-Second and Thirty-Third
Supplemental Indentures are hereby confirmed. All references in this
Thirty-Fourth Supplemental Indenture to the Original Indenture shall be deemed
to refer to the Original Indenture as heretofore amended and supplemented, and
all terms used herein and not specifically defined herein shall be taken to have
the same meaning as in the Original Indenture, as so amended, except in the
cases where the context clearly indicates otherwise.

SECTION 2. Any notices to the Trustee under this Thirty-Fourth
Supplemental Indenture shall be delivered to the Trustee by registered or
certified mail, hand delivery or other courier or express delivery service (with
receipt confirmed) or by telecopy (with receipt confirmed) at the following
address:

Chase Manhattan Trust Company, National Association
Institutional Trust Services
1650 Market Street, Suite 5210
Philadelphia, PA  19103
Attention: Philadelphia Suburban Water Administrator
Telecopy:  (215) 972-1685

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Any change in such address or telecopy number may be made by notice to the
Company delivered in the manner set forth above.

SECTION 3. All recitals in this Thirty-Fourth Supplemental
Indenture are made by the Company only and not by the Trustee; and all of the
provisions contained in the Original Indenture in respect of the rights,
privileges, immunities, powers and duties of the Trustee shall be applicable in
respect hereof as fully and with like effect as if set forth herein in full.

SECTION 4. Although this Thirty-Fourth Supplemental Indenture
is dated as of October 15, 2001 for convenience and for the purpose of
reference, the actual date or dates of execution hereof by the Company and the
Trustee are as indicated by their respective acknowledgments annexed hereto.

SECTION 5. In order to facilitate the recording or filing of
this Thirty-Fourth Supplemental Indenture, the same may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original and such counterparts shall together constitute but one and the same
instrument.

28

IN WITNESS WHEREOF the parties hereto have caused their
corporate seals to be hereunto affixed and their authorized officers have hereto
affixed their signatures, and their authorized officers have duly attested the
execution hereof, as of the 15th day of October, 2001.

[CORPORATE SEAL]                    PHILADELPHIA SUBURBAN WATER
COMPANY

Attest: /s/ Roy H. Stahl                By:      /s/ Kathy L. Pape
---------------------------              -------------------------------
Secretary                            Vice President and Treasurer

[CORPORATE SEAL]                        CHASE MANHATTAN TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee

Attest: /s/ Judy Wisniewski             By:      /s/ Catherine Lenhardt
---------------------------              -------------------------------
Authorized Officer                      Authorized Officer

29

Exhibit A

Bonds Redeemed or Paid at Maturity

Principal Amount                                              
Paid or Redeemed                                              
(If less than all              Date                           
Series                        Bonds of Series)               Paid                Maturity   
------                        -----------------              ----                --------   

3.25% Series Due 1971                                       12/31/1970          Redemption   
9.63% Series Due 1975                                       06/15/1975          Maturity     
9.15% Series Due 1977                                       01/01/1977          Maturity     
3.00% Series Due 1978                                       07/01/1978          Maturity     
3.38% Series Due 1982                                       07/01/1982          Maturity     
3.90% Series Due 1983                                       07/01/1983          Maturity     
3.50% Series Due 1986                                       01/01/1986          Maturity     
4.50% Series Due 1987                                       01/01/1987          Maturity     
4.13% Series Due 1988                                       05/01/1988          Maturity     
5.00% Series Due 1989                                       09/01/1989          Maturity     
4.63% Series Due 1991                                       05/01/1991          Maturity     
4.70% Series Due 1992                                       04/01/1992          Maturity     
6.88% Series Due 1993                                       01/01/1993          Maturity     
4.55% Series Due 1994                                       03/01/1994          Maturity                                    
10.13% Series Due 1995        $6,300,000                             --          Sinking Fund
10.13% Series Due 1995        $3,700,000                     05/17/1993          Redemption 
9.20% Series Due 2001        $3,850,000                             --          Sinking Fund
9.20% Series Due 2001        $3,150,000                     05/01/1993          Redemption 
8.40% Series Due 2002        $5,850,000                             --          Sinking Fund
8.40% Series Due 2002        $4,150,000                     01/02/1996          Redemption 
5.95% Series Due 2002        $3,200,000                             --          Sinking Fund 
12.45% Series Due 2003        $1,000,000                     08/01/1993          Sinking Fund
12.45% Series Due 2003        $9,000,000                     08/02/1993          Redemption  
8.88% Series Due 2010        $  800,000                             --          Sinking Fund
8.88% Series Due 2010        $7,200,000                     06/30/1992          Redemption  
13.00% Series Due 2005                                       08/02/1995          Redemption
7.88% Series Due 1997                                       01/02/1996          Redemption  
10.65% Series Due 2006                                       04/02/1996          Redemption
5.50% Series Due 1996                                       11/01/1996          Maturity    
8.44% Series Due 1997                                       04/01/1997          Maturity   
7.15% Series Due 2008        $8,000,000                             --          Sinking Fund

EXHIBIT B

Properties acquired from 8/31/99 to 9/30/01

-----------------------------------------------------------------------------------------------------------------------------------
Name                  Grantor                  County                 Index No.       Deed Date       Book        Page
----                  -------                  ------                 ---------       ---------       ----        ----
-----------------------------------------------------------------------------------------------------------------------------------

Bubbling Springs           Simpson Paper                Montgomery               VI-E-74         09/24/99        5293        1660
-----------------------------------------------------------------------------------------------------------------------------------
Reeser Parcel              Martin M. & Faye A. Reecer   Chester                  VIII-Q-1        09/20/99        4641        1163
-----------------------------------------------------------------------------------------------------------------------------------
East Marlbough             Township of East             Chester                  VI-E-75         12/07/99        4684        2168
Marlborough
-----------------------------------------------------------------------------------------------------------------------------------
Fenimore Parcel            Richard D. Fenimore          Chester                  VI-B-64         03/07/00        4724        1814
(Glenside)
-----------------------------------------------------------------------------------------------------------------------------------
Chatwood                   Chatwood Water Company       Chester                  R-1             10/18/00        4850          35
-----------------------------------------------------------------------------------------------------------------------------------
Chatwood                   Chatwood Water Company       Chester                  R-2             10/18/00        4850          35
-----------------------------------------------------------------------------------------------------------------------------------
Todd Cooke Parcel          Todd Cooke                   Delaware                 I-A-28          05/01/00        2009        1451
-----------------------------------------------------------------------------------------------------------------------------------
Nase Booster               Ruth V. Nase                 Berks                    VI-C-12         08/08/01        3382          47
-----------------------------------------------------------------------------------------------------------------------------------
Embreeville Tank           Com. Of PA.                  Chester                  VI-B-60         05/15/01        4980        1763
-----------------------------------------------------------------------------------------------------------------------------------

Chase Manhattan Trust Company National Association, Mortgagee
and Trustee named in the foregoing Thirty-Fourth Supplemental Indenture, hereby
certifies that its precise name and the post office address of its Institutional
Trust Services Group in Philadelphia, Pennsylvania are as follows:

Chase Manhattan Trust Company, National Association
Institutional Trust Services
1650 Market Street, Suite 5210
Philadelphia, PA  19103
Attention: Philadelphia Suburban Water Administrator
Telecopy:  (215) 972-1685

CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION

By: /s/ Catherine Lenhardt
-------------------------
Authorized Officer

COMMONWEALTH OF PENNSYLVANIA

COUNTY OF MONTGOMERY

On the 26th day of October, 2001, before me, the Subscriber, a
Notary Public for the Commonwealth of Pennsylvania, personally appeared Kathy L.
Pape, who acknowledged herself to be the Vice President and Treasurer of
Philadelphia Suburban Water Company, a corporation, and that she as such Vice
President and Treasurer, being authorized to do so, executed the foregoing
Thirty-Fourth Supplemental Indenture as and for the act and deed of said
corporation and for the uses and purposes therein mentioned, by signing the name
of the corporation by herself as such officer.

In Witness Whereof I hereunto set my hand and official seal.

[NOTARIAL SEAL]

/s/ Catherine Iezzi
----------------------------
Notary

COMMONWEALTH OF PENNSYLVANIA

COUNTY OF PHILADELPHIA

On the 25th day of October, 2001 before me, the Subscriber, a
Notary Public for the Commonwealth of Pennsylvania, personally appeared
Catherine Lenhardt, who acknowledged herself to be a Vice President of Chase
Manhattan Trust Company, National Association, Trustee, a national banking
association, and that she as such Vice President, being authorized to do so,
executed the foregoing Thirty-Fourth Supplemental Indenture as and for the act
and deed of said national banking association and for the uses and purposes
therein mentioned by signing the name of said national banking association by
herself as such officer.

In Witness Whereof I hereunto set my hand and official seal.

[NOTARIAL SEAL]

/s/ Sandra M. Abrahams
----------------------------
Notary

This Thirty-Fourth Supplemental Indenture was recorded on
_____ __, 2001 in the Office for the Recording of Deeds for each of the five
counties tabulated below in the Mortgage Book and at the page indicated:

Mortgage
County                            Book                     Page
----                     ----
Berks ....................        ____                     ____
Bucks ....................        ____                     ____
Chester ..................        ____                     ____
Delaware .................        ____                     ____
Montgomery ...............        ____                     ____

For the recording information with respect to the Original Indenture and the
first thirty-three supplemental indentures, see pages 4 and 5 of this
Thirty-Fourth Supplemental Indenture.

Exhibit 4.22

THIRTY-FIFTH SUPPLEMENTAL

INDENTURE

DATED AS OF JANUARY 1, 2002

TO

INDENTURE OF MORTGAGE

DATED AS OF JANUARY 1, 1941

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

PENNSYLVANIA SUBURBAN WATER COMPANY, as successor by merger to
Philadelphia Suburban Water Company
Consumers Pennsylvania Water Company - Shenango Valley Division
Consumers Pennsylvania Water Company - Roaring Creek Division
Consumers Pennsylvania Water Company - Susquehanna Division
Waymart Water Company
Fawn Lake Forest Water Company
Northeastern Utilities, Inc.
and
Western Utilities, Inc.

TO

J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION

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

THIRTY-FIFTH SUPPLEMENTAL INDENTURE

THIRTY-FIFTH SUPPLEMENTAL INDENTURE dated as of the 1st day of January,
2002, by and between PENNSYLVANIA SUBURBAN WATER COMPANY, a corporation duly
organized and existing under the laws of the Commonwealth of Pennsylvania (the
"Company") as successor by merger to the Philadelphia Suburban Water Company
(the "Original Company"), party of the first part, and J.P. MORGAN TRUST
COMPANY, NATIONAL ASSOCIATION, a national banking association (the "Trustee"),
party of the second part.

WHEREAS, the Original Company heretofore duly executed and delivered
to The Pennsylvania Company for Insurances on Lives and Granting Annuities, as
trustee, an Indenture of Mortgage dated as of January 1, 1941 (the "Original
Indenture"), which by reference is hereby made a part hereof, and in and by the
Original Indenture the Original Company conveyed and mortgaged to the Trustee
certain property therein described, to secure the payment of its bonds to be
generally known as its "First Mortgage Bonds" and to be issued under the
Original Indenture in one or more series as therein provided; and

WHEREAS, on March 29, 1947, concurrently with a merger of Germantown
Trust Company into The Pennsylvania Company for Insurances on Lives and Granting
Annuities, the name of the surviving corporation was changed to The Pennsylvania
Company for Banking and Trusts; on September 30, 1955, concurrently with a
merger of The First National Bank of Philadelphia into The Pennsylvania Company
for Banking and Trusts, the name of the surviving corporation was changed to The
First Pennsylvania Banking and Trust Company; on June 3, 1974, by amendment to
its Articles of Association, The First Pennsylvania Banking and Trust Company
was changed and converted into a national bank and concurrently therewith
changed its name to First Pennsylvania Bank N.A.; on October 1, 1991, First
Pennsylvania Bank N.A. merged with and into The Philadelphia National Bank,
which changed its name to CoreStates Bank, N.A.; on October 10, 1995, Mellon
Bank, N.A. succeeded Corestates Bank N.A. as trustee; on November 24, 1997,
Chase Manhattan Trust Company, National Association, succeeded Mellon Bank, N.A.
as trustee; on December 1, 2001, J.P. Morgan Trust Company, National
Association, became successor by merger to Chase Manhattan Trust Company,
National Association; such mergers and changes of name not involving any change
in the title, powers, rights or duties of the Trustee, as trustee under the
Original Indenture as supplemented at the respective dates thereof; and

WHEREAS, the Original Company duly executed and delivered to the
Trustee a First Supplemental Indenture dated as of July 1, 1948, a Second
Supplemental Indenture dated as of July 1, 1952, a Third Supplemental Indenture
dated as of November 1, 1953, a Fourth Supplemental Indenture dated as of
January 1, 1956, a Fifth Supplemental Indenture dated as of March 1, 1957, (the
"Fifth Supplemental Indenture") a Sixth Supplemental Indenture dated as of May
1, 1958, a Seventh Supplemental Indenture dated as of September 1, 1959, an
Eighth Supplemental Indenture dated as of May 1, 1961, a Ninth Supplemental
Indenture dated as of April 1, 1962, a Tenth Supplemental Indenture dated as of
March 1, 1964, an Eleventh Supplemental Indenture dated as of November 1, 1966,
a Twelfth Supplemental Indenture dated as of January 1, 1968, a Thirteenth
Supplemental Indenture dated as of June 15, 1970, a Fourteenth Supplemental
Indenture dated as of November 1, 1970, a Fifteenth Supplemental Indenture dated
as of

December 1, 1972, a Sixteenth Supplemental Indenture dated as of May 15,
1975, a Seventeenth Supplemental Indenture dated as of December 15, 1976, an
Eighteenth Supplemental Indenture dated as of May 1, 1977, a Nineteenth
Supplemental Indenture dated as of June 1, 1980, a Twentieth Supplemental
Indenture dated as of August 1, 1983, a Twenty-First Supplemental Indenture
dated as of August 1, 1985, a Twenty-Second Supplemental Indenture dated as of
April 1, 1986, a Twenty-Third Supplemental Indenture dated as of April 1, 1987,
a Twenty-Fourth Supplemental Indenture dated as of June 1, 1988, a Twenty-Fifth
Supplemental Indenture dated as of January 1, 1990, a Twenty-Sixth Supplemental
Indenture dated as of November 1, 1991, a Twenty-Seventh Supplemental Indenture
dated as of June 1, 1992, a Twenty-Eighth Supplemental Indenture dated as of
April 1, 1993, a Twenty-Ninth Supplemental Indenture dated as of March 1, 1995,
a Thirtieth Supplemental Indenture dated as of August 15, 1995, a Thirty-First
Supplemental Indenture dated as of July 1, 1997, a Thirty-Second Supplemental
Indenture dated as of October 1, 1999, a Thirty-Third Supplemental Indenture
dated as of November 15, 1999, and a Thirty-Fourth Supplemental Indenture dated
as of October 15, 2001, so as to subject certain additional property to the lien
of the Original Indenture and to provide for the creation of additional series
of bonds; and

WHEREAS, the terms of the Original Indenture were amended by the Fifth
Supplemental Indenture; and

WHEREAS, the Original Company has issued under the Original Indenture,
as supplemented at the respective dates of issue, forty series of First Mortgage
Bonds designated, respectively, as set forth in the following table, the
Indenture creating each series and the principal amount of bonds thereof issued
being indicated opposite the designation of such series:

Designation                                     Indenture                                               Amount
-----------                                     ---------                                               ------

3 1/4% Series due 1971                          Original                                                $16,375,000
9 5/8% Series due 1975                          Thirteenth Supplemental                                  10,000,000
9.15% Series due 1977                           Fourteenth Supplemental                                  10,000,000
3% Series due 1978                              First Supplemental                                        2,000,000
3 3/8% Series due 1982                          Second Supplemental                                       4,000,000
3.90% Series due 1983                           Third Supplemental                                        5,000,000
3 1/2% Series due 1986                          Fourth Supplemental                                       6,000,000
4 1/2% Series due 1987                          Fifth Supplemental                                        4,000,000
4 1/8% Series due 1988                          Sixth Supplemental                                        4,000,000
5% Series due 1989                              Seventh Supplemental                                      4,000,000
4 5/8% Series due 1991                          Eighth Supplemental                                       3,000,000
4.70% Series due 1992                           Ninth Supplemental                                        3,000,000
6 7/8% Series due 1993                          Twelfth Supplemental                                      4,500,000
4.55% Series due 1994                           Tenth Supplemental                                        4,000,000
10 1/8% Series due 1995                         Sixteenth Supplemental                                   10,000,000
5 1/2% Series due 1996                          Eleventh Supplemental                                     4,000,000
7 7/8% Series due 1997                          Fifteenth Supplemental                                    5,000,000
8.44% Series due 1997                           Twenty-Third Supplemental                                12,000,000
9.20% Series due 2001                           Seventeenth Supplemental                                  7,000,000

2

Designation                                     Indenture                                               Amount
-----------                                     ---------                                               ------

8.40% Series due 2002                           Eighteenth Supplemental                                  10,000,000
5.95% Series due 2002                           Twenty-Seventh Supplemental                               4,000,000
12.45% Series due 2003                          Twentieth Supplemental                                   10,000,000
13% Series due 2005                             Twenty-First Supplemental                                 8,000,000
10.65% Series due 2006                          Twenty-Second Supplemental                               10,000,000
9.89% Series due 2008                           Twenty-Fourth Supplemental                                5,000,000
7.15% Series due 2008                           Twenty-Eighth Supplemental                               22,000,000
9.12% Series due 2010                           Twenty-Fifth Supplemental                                20,000,000
8 7/8% Series due 2010                          Nineteenth Supplemental                                   8,000,000
6.50% Series due 2010                           Twenty-Seventh Supplemental                               3,200,000
9.17% Series due 2011                           Twenty-Sixth Supplemental                                 5,000,000
9.93% Series due 2013                           Twenty-Fourth Supplemental                                5,000,000
9.97% Series due 2018                           Twenty-Fourth Supplemental                                5,000,000
9.17% Series due 2021                           Twenty-Sixth Supplemental                                 8,000,000
9.29% Series due 2026                           Twenty-Sixth Supplemental                                12,000,000
1995 Medium Term Note
Series                                 Twenty-Ninth Supplemental                                77,000,000
7.72% Subseries A due 2025                   15,000,000                                                            
6.82% Subseries B due 2005                   10,000,000                                                            
6.89% Subseries C due 2015                   12,000,000                                                            
6.99% Subseries D due 2006                   10,000,000                                                            
7.47% Subseries E due 2003                   10,000,000                                                            
6.83% Subseries F due 2003                   10,000,000                                                            
7.06% Subseries G due 2004                   10,000,000                                                            
6.35% Series due 2025                        Thirtieth Supplemental                                   22,000,000
1997 Medium Term Note
Series                                 Thirty-First Supplemental                                65,000,000
6.75% Subseries A due 2007                   10,000,000                                                          
6.30% Subseries B due 2002                   10,000,000                                                          
6.14% Subseries C due 2008                   10,000,000                                                          
5.80% Subseries D due 2003                   10,000,000                                                          
5.85% Subseries E due 2004                   10,000,000                                                          
6.00% Subseries F due 2004                   15,000,000                                                          
6.00% Series due 2029                        Thirty-Second Supplemental                               25,000,000
1999 Medium Term Note
Series                                 Thirty-Third Supplemental
7.40% Subseries A due 2005                   15,000,000                                                          
7.40% Subseries B due 2005                   11,000,000                                                          
6.21% Subseries C due 2011                   15,000,000                                                          
5.35% Series Due 2031                        Thirty-Fourth Supplemental                               30,000,000

WHEREAS, the Original Indenture and said Supplemental Indentures were
duly recorded in the Commonwealth of Pennsylvania on the dates and in the office
for the Recording of Deeds for the following counties in the Mortgage Books and
at the pages indicated in the following table:

3

COUNTY
============================ ============ ================== ====================== ======================= =======================
Bucks               Chester                 Delaware               Montgomery
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Date of
Indenture                     Recording    Book      Page       Book        Page       Book        Page        Book        Page
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------

Original                       2/20/41      496        1     H-13.Vol.307    20        1034         1          1625          1
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
First Supplemental             8/26/48      632        1     F-16.Vol.380   200        1668        169         2031         257
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Second Supplemental             7/1/52      768       438    18.Vol.425     186        1962        376         2360         517
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Third Supplemental             11/25/53     895        1     18.Vol.442     325        2052         1          2493          1
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Fourth Supplemental             1/9/56     1089       155    Z-20.Vol.499    1         2199         1          2722         425
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Fifth Supplemental             3/20/57     1181       316    B-22.Vol.536   601        2294         50         2850         335
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Sixth Supplemental              5/9/58     1254        1        G-23        201        2380        039         2952         289
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Seventh Supplemental           9/25/59     1332       509       B-25        109        2442         1          3090         249
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Eighth Supplemental             5/9/61       -         -        Z-26         17        2526        312           -           -
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Eighth Supplemental            5/10/61     1409       225         -          -           -          -          3249         289
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Ninth Supplemental             4/10/62     1458       372       G-28        126        2581        463         3307         169
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Tenth Supplemental             3/19/64     1568        1        M-30        967        2976        1043        3310         237
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Eleventh Supplemental          11/4/66     1655       695       Q-32        6682        762        223         3549         129
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twelfth Supplemental           1/23/68     1691       531       N-33        219        2792        708         3542         315
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Thirteenth Supplemental         7/2/70     1763      1167       D-35         80        2850        301         3687         23
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Fourteenth Supplemental        11/5/70     1774       331       K-35        713        2858        3113         700         548
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Fifteenth Supplemental         12/11/72    1869       196       O-37        998        2926        550         3786         96
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Sixteenth Supplemental         5/28/75     1979       14        E-44         77        3005        511         4010         307
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Seventeenth Supplemental       12/18/77    2072       683       L-51         1         3072         43         5002         436
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Eighteenth Supplemental        4/29/77     2082       567       B-52        344        3078        728         5003         291
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------

4

COUNTY
============================ ============ ================== ====================== ======================= =======================
Bucks               Chester                 Delaware               Montgomery
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Date of
Indenture                     Recording    Book      Page       Book        Page       Book        Page        Book        Page
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------

Nineteenth Supplemental        6/23/80     2303       714       J-62         92        3261        293         5030         502
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twentieth Supplemental          8/2/83     2487       370       D-72         1          96         810         5662        1045
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-First Supplemental      8/27/85     2690       806        54         550          -          -          5864        1347
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-First Supplemental      8/28/85       -         -          -          -          264        159           -           -
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Second Supplemental     4/22/86     2774       160        263        275         326        592         5944         360
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Third Supplemental       4/1/87     2960       693         -          -           -          -            -           -
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Third Supplemental       4/2/87       -         -         680        337         447        1807        6115         602
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Fourth Supplemental     7/25/88     3199      1095       1224        389        0593        0585        6324         143
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Fifth Supplemental      1/12/90     0136      0250       1848        205         731        1571        6538         376
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Sixth Supplemental      11/8/91      369      2190       2660        205         894        2241        6780         891
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Seventh Supplemental    6/29/92     0487      1829       3055        182        0969        2023        6918         302
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Eighth Supplemental     4/22/93     0652      1335       3542        1542       1081        0852        7112        0539
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Twenty-Ninth Supplemental      3/30/95     1045      1872       3875        1368       1349        0829        7561        1155
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Thirtieth Supplemental         8/30/95     1111      0798       3932        0471       1393        2255        7631        0689
---------------------------- ------------ -------- --------- ------------ --------- ----------- ----------- ------------ ----------
Thirty-First Supplemental      7/11/97     1421      2196       4201        2133       1607        138         7968         779
============================ ============ ======== ========= ============ ========= =========== =========== ============ ==========
Thirty-Second Supplemental     10/6/99     1939       421       4646        642        1936        1207        8548        1067
============================ ============ ======== ========= ============ ========= =========== =========== ============ ==========
Thirty-Third Supplemental      11/30/99    1970      1573       4675        1272       1936        1207        8548        1067
============================ ============ ======== ========= ============ ========= =========== =========== ============ ==========
Thirty-Fourth Supplemental     10/31/01    2471      1207       5101        2142       2288        0174        9225         761
============================ ============ ======== ========= ============ ========= =========== =========== ============ ==========

5

; and

WHEREAS, the Original Indenture was recorded in Berks County on August
16, 1999, the Thirty-Second Supplemental Indenture was recorded in Berks County
on October 6, 1999, the Thirty-Third Supplemental Indenture was recorded in
Berks County on November 30, 1999 and the Thirty-Fourth Supplemental Indenture
was recorded in Berks County on October 31, 2001 in Books 3113, 3132, 3149 and
3421 and at Pages 707, 1510, 1260 and 896, respectively; and

WHEREAS, all of the bonds of each of said series are presently
outstanding other than the bonds listed on Exhibit A attached hereto and made a
part hereof; and

WHEREAS, the lien of the Original Indenture, as supplemented, has been
perfected as a security interest under the Pennsylvania Uniform Commercial Code
by filing a financing statement in the office of the Secretary of the
Commonwealth; and

WHEREAS, Article XVIII of the Original Indenture provides that the
Original Company, when authorized by resolution of its Board of Directors, may
with the Trustee enter into an indenture supplemental to the Original Indenture,
which thereafter shall form a part of the Original Indenture, for the purposes,
inter alia, of evidencing the succession of another corporation to the Original
Company (and the assumption by such successor corporation of the covenants and
obligations of the Company under this Indenture), of subjecting to the lien of
the Original Indenture additional property, of defining the covenants and
provisions applicable to any bonds of any series other than the 3 1/4% Series
due 1971, of adding to the covenants and agreements of the Original Company
contained in the Original Indenture other covenants and agreements thereafter to
be observed by the Original Company, of surrendering any right or power in the
Original Indenture reserved to or conferred upon the Original Company, and of
making such provisions in regard to matters or questions arising under the
Indenture as may be necessary or desirable and not inconsistent therewith; and

WHEREAS, pursuant to an Agreement and Plan of Merger and
Reorganization dated December 20, 2001, and effective on January 1, 2002, the
Original Company agreed to merge, in conjunction with its affiliated
corporations, Consumers Pennsylvania Water Company - Shenango Valley Division,
Consumers Pennsylvania Water Company - Roaring Creek Division, Consumers
Pennsylvania Water Company - Susquehanna Division, Waymart Water Company, Fawn
Lake Forrest Water Company, Western Utilities, Inc., and Northeastern Utilities,
Inc. (such affiliates referred to hereinafter as the "Merging Entities") with
and into the Company; and

6

WHEREAS, the Company agrees to assume the obligations of the Original
Company under the Original Indenture and all supplements thereto; and

WHEREAS, in addition to the property described in the Original
Indenture and the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth,
Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second,
Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh,
Twenty-Eighth, Twenty-Ninth, Thirtieth, Thirty-First, Thirty-Second,
Thirty-Third and Thirty-Fourth Supplemental Indentures, the Company has acquired
certain other property and desires to confirm the lien of the Original Indenture
thereon; and

WHEREAS, in order to secure the Lien of the Original Indenture on the
properties of the Merging Entities, this Thirty-Fifth Supplemental Indenture,
with a true and correct copy of the Original Indenture (redacted to delete
property descriptions for counties in which such Original Indenture has already
been recorded), attached hereto as Exhibit B, is to be recorded in the counties
of Berks, Bradford, Bucks, Chester, Columbia, Delaware, Lawrence, Mercer,
Montgomery, Northumberland, Pike, Schuylkill and Wayne; and

WHEREAS, the Company and the Trustee, pursuant to Article XVIII of the
Original Indenture, wish, by means of this Thirty-Fifth Supplemental Indenture,
to amend the Thirty-Third Supplemental Indenture dated as of November 15, 1999
(the "Thirty-Third Supplemental Indenture"):

NOW, THEREFORE, THIS THIRTY-FIFTH SUPPLEMENTAL INDENTURE WITNESSETH:
That, in order to secure the payment of the principal and interest of all bonds
issued under the Original Indenture and all indentures supplemental thereto,
according to their tenor and effect, and according to the terms of the Original
Indenture and of any indenture supplemental thereto, and to secure the
performance of the covenants and obligations in said bonds and in the Original
Indenture and any indenture supplemental thereto respectively contained, and to
provide for the proper issuing, conveying and confirming unto the Trustee, its
successors in said trust and its and their assigns forever, upon the trusts and
for the purposes expressed in the Original Indenture and in any indenture
supplemental thereto, all and singular the estates, property and franchises of
the Company thereby mortgaged or intended so to be, the Company, for and in
consideration of the premises and of the sum of One Dollar ($1.00) in hand paid
by the Trustee to the Company upon the execution and delivery of this
Thirty-Fifth Supplemental Indenture, receipt whereof is hereby acknowledged, and
of other good and valuable consideration, and intending to be legally bound, has
granted, bargained, sold, aliened, enfeoffed, released and confirmed and by
these presents does grant, bargain, sell, alien, enfeoff, release and confirm
unto J.P. Morgan Trust Company, National Association, as Trustee, and to its
successors in said trust and its and their assigns forever:

All and singular the premises, property, assets, rights and franchises
of the Company, whether now or hereafter owned, constructed or acquired, of
whatever character and wherever situated (except as herein expressly excepted),
including among other things the following, but reference to or enumeration of
any particular kinds, classes, or items of property shall not be deemed to
exclude from the operation and effect of the Original Indenture or any indenture
supplemental thereto any kind, class or item not so referred to or enumerated:

7

I.

REAL ESTATE AND WATER RIGHTS.

The real estate described in the deeds from the grantors named in
Exhibit C hereto, dated and recorded as therein set forth, and any other real
estate and water rights acquired since the date of the Thirty-Fourth
Supplemental Indenture.

II.

BUILDINGS AND EQUIPMENT.

All mains, pipes, pipe lines, service pipes, buildings, improvements,
standpipes, reservoirs, wells, flumes, sluices, canals, basins, cribs,
machinery, conduits, hydrants, water works, plants and systems, tanks, shops,
structures, purification systems, pumping stations, fixtures, engines, boilers,
pumps, meters and equipment which are now owned or may hereafter be acquired by
the Company (except as herein expressly excepted), including all improvements,
additions and extensions appurtenant to any real or fixed property now or
hereafter subject to the lien of the Original Indenture or any indenture
supplemental thereto which are used or useful in connection with the business of
the Company as a water company or as a water utility, whether any of the
foregoing property is now owned or may hereafter be acquired by the Company.

It is hereby declared by the Company that all property of the kinds
described in the next preceding paragraph, whether now owned or hereafter
acquired, has been or is or will be owned or acquired with the intention of
using the same in carrying on the business or branches of the business of the
Company, and it is hereby declared that it is the intention of the Company that
all thereof (except property hereinafter specifically excepted) shall be subject
to the lien of the Original Indenture.

It is agreed by the Company that so far as may be permitted by law
tangible personal property now owned or hereafter acquired by the Company,
except such as is hereafter expressly excepted from the lien hereof, shall be
deemed to be and construed as fixtures and appurtenances to the real property of
the Company.

III.

FRANCHISES AND RIGHTS OF WAY.

All the corporate and other franchises of the Company, all water and
flowage rights, riparian rights, easements and rights of way, and all permits,
licenses, rights, grants, privileges and immunities, and all renewals,
extensions, additions or modifications of any of the foregoing, whether the same
or any thereof, or any renewals, extensions, additions or modifications thereof,
are now owned or may hereafter be acquired, owned, held, or enjoyed by the
Company.

8

IV.

AFTER ACQUIRED PROPERTY.

All real and fixed property and all other property of the character
hereinabove described which the Company may hereafter acquire.

TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any way appertaining to the aforesaid property or
any part thereof, with the reversion and reversions, remainder and remainders,
tolls, rents, revenues, issues, income, product and profits thereof, and all the
estate, right, title, interest and claim whatsoever, at law as well as in
equity, which the Company now has or may hereafter acquire in and to the
aforesaid premises, property, rights and franchises and every part and parcel
thereof.

EXCEPTING AND RESERVING, HOWEVER, certain premises, not used or useful
in the supplying of water by the Company, expressly excepted and reserved from
the lien of the Original Indenture and not subject to the terms thereof.

AND ALSO SAVING AND EXCEPTING from the property hereby mortgaged and
pledged, all of the following property (whether now owned by the Company or
hereafter acquired by it): All bills, notes and accounts receivable, cash on
hand and in banks, contracts, choses in action and leases to others (as distinct
from the property leased and without limiting any rights of the Trustee with
respect thereto under any of the provisions of the Original Indenture or of any
indenture supplemental thereto), all bonds, obligations, evidences of
indebtedness, shares of stock and other securities, and certificates or
evidences of interest therein, all automobiles, motor trucks, and other like
automobile equipment and all furniture, and all equipment, materials, goods,
merchandise and supplies acquired for the purpose of sale in the ordinary course
of business or for consumption in the operation of any properties of the Company
other than any of the foregoing which may be specifically transferred or
assigned to or pledged or deposited with the Trustee hereunder or required by
the provisions of the Original Indenture or any indenture supplemental thereto
so to be; provided, however, that if, upon the happening of a completed default,
as specified in Section 1 of Article XI of the Original Indenture, the Trustee
or any receiver appointed hereunder shall enter upon and take possession of the
mortgaged property, the Trustee or any such receiver may, to the extent
permitted by law, at the same time likewise take possession of any and all of
the property described in this paragraph then on hand and any and all other
property of the Company then on hand, not described or referred to in the
foregoing granting clauses, which is used or useful in connection with the
business of the Company as a water company or as a water utility, and use and
administer the same to the same extent as if such property were part of the
mortgaged property, unless and until such completed default shall be remedied or
waived and possession of the mortgaged property restored to the Company, its
successors or assigns.

9

SUBJECT, HOWEVER, to the exceptions, reservations and matters
hereinabove and in the Original Indenture recited, to releases executed since
the date of the Original Indenture in accordance with the provisions thereof, to
existing leases, to easements and rights of way for pole lines and electric
transmission lines and other similar encumbrances and restrictions which the
Company hereby certifies, in its judgment, do not impair the use of said
property by the Company in its business, to liens existing on or claims against,
and rights in and relating to, real estate acquired for right-of-way purposes,
to taxes and assessments not delinquent, to alleys, streets and highways that
may run across or encroach upon said lands, to liens, if any, incidental to
construction, and to Permitted Liens, as defined in the Original Indenture; and,
with respect to any property which the Company may hereafter acquire, to all
terms, conditions, agreements, covenants, exceptions and reservations expressed
or provided in such deeds and other instruments, respectively, under and by
virtue of which the Company shall hereafter acquire the same and to any and all
liens existing thereon at the time of such acquisition.

TO HAVE AND TO HOLD, all and singular the property, rights, privileges
and franchises hereby conveyed, transferred or pledged or intended so to be unto
the Trustee and its successors in the trust heretofore and hereby created, and
its and their assigns forever.

IN TRUST NEVERTHELESS, for the equal pro rata benefit and security of
each and every entity who may be or become the holders of bonds and coupons
secured by the Original Indenture or by any indenture supplemental thereto, or
both, without preference, priority or distinction as to lien or otherwise of any
bond or coupon over or from any other bond or coupon, so that each and every of
said bonds and coupons issued or to be issued, of whatsoever series, shall have
the same right, lien and privilege under the Original Indenture and all
indentures supplemental thereto and shall be equally secured hereby and thereby,
with the same effect as if said bonds and coupons had all been made, issued and
negotiated simultaneously on the date thereof; subject, however, to the
provisions with reference to extended, transferred or pledged coupons and claims
for interest contained in the Original Indenture and subject to any sinking or
improvement fund or maintenance deposit provisions, or both, for the benefit of
any particular series of bonds.

IT IS HEREBY COVENANTED, DECLARED AND AGREED, by and between the
parties hereto, that all such bonds and coupons are to be authenticated,
delivered and issued, and that all property subject or to become subject hereto
is to be held subject to the further covenants, conditions, uses and trusts
hereinafter set forth, and the Company, for itself and its successors and
assigns, does hereby covenant and agree to and with the Trustee and its
successor or successors in said trust, for the benefit of those who shall hold
said bonds and coupons, or any of them, issued under this Indenture or any
indenture supplemental hereto, or both, as follows:

10

ARTICLE I.

Succession

SECTION 1. The Company expressly assumes the due and punctual payment
of the principal and interest of all bonds issued under the Original Indenture
and all supplements thereto according to their tenor, and the due and punctual
performance and observance of all covenants and conditions of the Original
Indenture and of all supplements thereto to be performed and observed by the
Company.

SECTION 2. The Company further covenants that all additional plants
and properties and permanent improvements, extensions, betterments, or additions
(including equipment and appliances), which shall be acquired or constructed by
it to the extent to which the same or any undivided portion thereof shall from
time to time constitute in whole or in part appurtenances to the mortgaged
property or additions or accessions thereto reasonably necessary to the
maintenance or operation thereof, shall forthwith become subject to the lien of
the Original Indenture and all supplements thereto and subject to no mortgage
liens prior hereto except the lien of any mortgage subject to which the Company
shall acquire or construct such property.

ARTICLE II.

Maintenance or Improvement Deposit.

SECTION 1. The Company covenants that it will deposit with the Trustee
on or before the March 1 next occurring after the bonds of the 9.89% Series due
2008 cease to be outstanding, or on or before the March 1 next occurring after
the bonds of the 9.93% Series due 2013 cease to be outstanding, or on or before
the next March 1 next occurring after the bonds of the 9.97% Series due 2018
cease to be outstanding, or on or before the March 1 next occurring after the
bonds of the 9.12% Series due 2010 cease to be outstanding, or on or before the
March 1 next occurring after the bonds of the 9.29% Series due 2026 cease to be
outstanding, or on or before the March 1 next occurring after the bonds of the
9.17% Series due 2021 cease to be outstanding, or on or before the next March 1
next occurring after the bonds of the 9.17% Series due 2011 cease to be
outstanding, or on or before the March 1 next occurring after the bonds of the
6.50% Series due 2010 cease to be outstanding, or on or before the next March 1
next occurring after the bonds of the 5.95% Series due 2002 cease to be
outstanding, or on or before the March 1 next occurring after the bonds of the
7.15% Series due 2008 cease to be outstanding, or on or before the March 1 next
occurring after the bonds of any of the Subseries of the 1995 Medium Term Note
Series issued under the Twenty-Ninth Supplemental Indenture (consisting of the
7.72% Subseries A due 2025, the 6.82% Subseries B due 2005, the 6.89% Subseries
C due 2015, the 6.99% Subseries D due 2006, the 7.47% Subseries E due 2003, the
6.83% Subseries F due 2003, and the 7.06% Subseries G due 2004) shall cease to
be outstanding, or on or before the March 1 next occurring after bonds of the
6.35% Series due 2025 shall cease to be outstanding, on or before the March 1
next occurring after the bonds of any of the Subseries of the 1997 Medium Term
Note Series issued under the 

11

Thirty-First Supplemental Indenture (consisting of the 6.75% Subseries A due
2007, the 6.30% Subseries B due 2002, the 6.14% Subseries C due 2008, the 5.80%
Subseries D due 2003, the 5.85% Subseries E due 2004 and the 6.00% Subseries F
due 2004) cease to be outstanding, or on or before March 1 next occurring after
the bonds of 6.00% Series due 2029 cease to be outstanding, or on or before
March 1 next occurring after the Bonds of any of the Subseries of the 1999
Medium Term Note Series issued under the Thirty-Third Supplemental Indenture
(consisting of the 7.40% Subseries A due 2005, the 7.40% Subseries B due 2005
and the 6.21% Subseries C due 2011) cease to be outstanding, or on or before
March 1 next occurring after the bonds of the 5.35% Series due 2031 cease to be
outstanding, whichever is latest, an amount in cash (the "Maintenance or
Improvement Deposit") equal to 9% of the Gross Operating Revenues of the Company
during the preceding calendar year less, to the extent that the Company desires
to take such credits, the following:

(a) the amount actually expended for maintenance during such
calendar year; and

(b) the Cost or Fair Value, whichever is less, of Permanent
Additions acquired during such calendar year which at the time of
taking such credit constitute Available Permanent Additions; and

(c) the unapplied balance, or any part thereof, of the Cost or
Fair Value, whichever is less, of Available Permanent Additions
acquired by the Company during the five calendar years preceding such
calendar year and specified in the Officers' Certificates delivered to
the Trustee pursuant to Section 2 of this Article, but only to the
extent that the Permanent Additions with respect to which such Cost or
Fair Value was determined shall at the time of taking such credit
constitute Available Permanent Additions.

SECTION 2. The Company covenants that it will on or before March 1 in
each year, beginning with the first deposit made with the Trustee under the
provisions of Section 1 of this Article, as long as any of the Bonds are
outstanding, deliver to the Trustee the following:

(A) An Officers' Certificate, which shall state:

(i) The amount of the Gross Operating Revenues for the
preceding calendar year;

(ii) 9% of such Gross Operating Revenues;

(iii) The amount actually expended by the Company for
maintenance during such calendar year;

(iv) The amount set forth in subparagraph (xii) of each
Officers' Certificate delivered to the Trustee pursuant to the
provisions of this Section during the preceding five calendar years
(specifying each such Officers' Certificate), after deducting from
each such amount the aggregate of (a) the Cost or Fair Value,
whichever is less, of all Permanent Additions represented by such
amount which have ceased to be Available Permanent Additions; and (b)
any part of such amount for which the Company has previously taken
credit against any Maintenance or Improvement Deposit (specifying the
Officers' Certificate in which such credit was taken); and (c) any
part of such amount for which the Company then desires to take credit
against the Maintenance or Improvement Deposit;

12

(v) An amount which shall be the aggregate of all amounts
set forth pursuant to the provisions of clause (c) of the foregoing
subparagraph (iv);

(vi) The Cost or Fair Value, whichever is less, of Available
Permanent Additions acquired by the Company during the preceding
calendar year;

(vii) That part of the amount set forth in subparagraph (vi)
which the Company desires to use as a credit against the Maintenance
or Improvement Deposit;

(viii) The amount of cash payable to the Trustee under the
provisions of Section 1 of this Article, which shall be the amount by
which the amount set forth in subparagraph (ii) hereof exceeds the sum
of the amounts set forth in subparagraphs (iii), (v) and (vii) hereof;

(ix) The sum of all amounts charged on the books of the
Company against any reserve for retirement or depreciation during the
preceding calendar year representing the aggregate of the Cost when
acquired of any part of the Company's plants and property of the
character described in the granting clauses hereof which has been
permanently retired or abandoned;

(x) The aggregate of the amounts set forth in subparagraphs
(v) and (vii) hereof;

(xi) The amount by which the amount set forth in
subparagraph (x) exceeds the amount set forth in subparagraph (ix),
being the amount required to be deducted from the Cost or Fair Value
of Available Permanent Additions in order to determine a Net Amount of
Available Permanent Additions pursuant to the provisions of Section 9
of Article I of the Original Indenture;

(xii) The amount set forth in subparagraph (vi) after
deducting the amount, if any, set forth in subparagraph (vii); and

13

(xiii) That all conditions precedent to the taking of the
credit or credits so requested by the Company have been complied with.

(B) In the event that the Officers' Certificate delivered to the
Trustee pursuant to the provisions of paragraph (A) of this Section shall state,
pursuant to the requirements of subparagraph (vi), the Cost or Fair Value of
Available Permanent Additions acquired by the Company during the preceding
calendar year, the documents specified in paragraphs 2, 3, 5, 6 and 7 of
subdivision (B) of Section 3 of Article IV of the Original Indenture.

(C) An amount in cash equal to the sum set forth in subparagraph
(viii) of the Officers' Certificate provided for in paragraph (A) hereof.

SECTION 3. All cash deposited with the Trustee as part of any
Maintenance or Improvement Deposit provided for in Section 1 of this Article,
may, at the option of the Company, be applied to the purchase of bonds under the
provisions of Section 2 of Article X of the Original Indenture or to the
redemption of bonds under the provisions of Section 3 of Article X of the
Original Indenture or may be withdrawn by the Company at any time to reimburse
the Company for the cost of a Net Amount of Available Permanent Additions
(excluding, however, from any such Available Permanent Additions all Permanent
Additions included in any certificate delivered to the Trustee for the purpose
of obtaining a credit against any Maintenance or Improvement Deposit provided
for in Section 1 of this Article to the extent that such Permanent Additions
have been used for any such credit). The Trustee shall pay to or upon the
written order of the Company all or any part of such cash upon the receipt by
the Trustee of:

(a) A Resolution requesting such payment; and

(b) The documents specified in paragraphs 2, 5, 6 and 7 of
subdivision (B) of Section 3 of Article IV of the Original Indenture,
with such modifications, additions and omissions as may be appropriate
in the light of the purposes for which they are used.

ARTICLE III.

Covenants of the Company.

SECTION 1. The Company hereby covenants and agrees with the Trustee,
for the benefit of the Trustee and all the present and future holders of the
Bonds, that the Company will pay the principal of, and premium, if any, and
interest on, all bonds issued or to be issued as aforesaid under and secured by
the Original Indenture as hereby supplemented, as well as all bonds which may be
hereafter issued in exchange or substitution therefor, and will perform and
fulfill all of the terms, covenants and conditions of the Original Indenture and
of this Thirty-Fifth Supplemental Indenture with respect to the additional bonds
to be issued under the Original Indenture as hereby supplemented.

14

SECTION 2. The Company covenants and agrees that so long as any of the
Bonds are outstanding (a) the Company will not make any Stock Payment if, after
giving effect thereto, its retained earnings, computed in accordance with
generally accepted accounting principles consistently applied, will be less than
the sum of (i) Excluded Earnings, if any, since December 31, 2000, and (ii)
$20,000,000; (b) Stock Payments made more than 40 days after the commencement,
and prior to the expiration, of any Restricted Period shall not exceed 65% of
the Company's Net Income during such Restricted Period; and (c) the Company will
not authorize a Stock Payment if there has occurred and is continuing an event
of default under subsections (a) and (b) of Section 1 of Article XI of the
Original Indenture.

For the purposes of this Section 2 the following terms shall have the
following meanings:

"Capitalization" shall mean the sum of (i) the aggregate principal
amount of all Debt at the time outstanding, (ii) the aggregate par or stated
value of all capital stock of the Company of all classes at the time
outstanding, (iii) premium on capital stock, (iv) capital surplus, and (v)
retained earnings.

"Debt" means (i) all indebtedness, whether or not represented by
bonds, debentures, notes or other securities, for the repayment of money
borrowed, (ii) all deferred indebtedness for the payment of the purchase price
of property or assets purchased (but Debt shall not be deemed to include
Customer Advances for construction or any bonds issued under the Indenture which
are not Outstanding Bonds), (iii) leases which have been or, in accordance with
generally accepted accounting principles, should be recorded as capital leases
and (iv) guarantees of the obligations of another of the nature described in
clauses (i), (ii) or (iii) which have been or, in accordance with generally
accepted accounting principles, should be recorded as debt.

"Determination Date" shall mean the last day of each calendar quarter.
Any calculation with respect to any Determination Date shall be based on the
Company's balance sheet as of such date.

"Excluded Earnings" shall mean 35% of the Company's Net Income during
any Restricted Period.

"Net Income" for any particular Restricted Period shall mean the
amount of net income properly attributable to the conduct of the business of the
Company for such period, as determined in accordance with generally accepted
accounting principles consistently applied, after payment of or provision for
taxes on income for such period.

"Outstanding Bonds" shall mean bonds which are outstanding within the
meaning indicated in Section 20 of Article I of the Original Indenture except
that, in addition to the bonds referred to in clauses (a), (b) and (c) of said
Section 20, said term shall not include bonds for the retirement of which
sufficient funds have been deposited with the Trustee with irrevocable
instructions to apply such funds to the retirement of such bonds at a specified
time, which may be either the maturity thereof or a specified redemption date,
whether or not notice of redemption shall have been given.

15

"Restricted Period" shall mean a period commencing on any
Determination Date on which the total Debt of the Company is, or as the result
of any Stock Payment then declared or set aside and to be made thereafter will
be, more than 70% of Capitalization, and continuing until the third consecutive
Determination Date on which the total Debt of the Company does not exceed 70% of
Capitalization.

"Stock Payment" shall mean any payment in cash or property (other than
stock of the Company) to any holder of shares of any class of capital stock of
the Company as such holder, whether by dividend or upon the purchase,
redemption, conversion or other acquisition of such shares, or otherwise.

SECTION 3. The Company covenants and agrees that so long as any of the
Bonds are outstanding, neither the Company nor any subsidiary of the Company
will, directly or indirectly, lend or in any manner extend its credit to, or
indemnify, or make any donation or capital contribution to, or purchase any
security of, any corporation which directly or indirectly controls the Company,
or any subsidiary or affiliate (other than an affiliate which is a subsidiary of
the Company) of any such corporation.

ARTICLE IV.

The Trustee.

SECTION 1. The Trustee hereby accepts the trust hereby declared and
provided, and agrees to perform the same upon the terms and conditions in the
Original Indenture, as supplemented by this Thirty-Fifth Supplemental Indenture.

SECTION 2. Subject to the provisions of Article XIII of the Original
Indenture, the Trustee may execute any of the trusts or powers hereof and
perform any of its duties by or through and consult with attorneys, agents,
officers or employees selected by the Trustee in its sole discretion. The
Trustee shall be entitled to advice of counsel concerning all matters of trusts
hereof and the duties hereunder and may in all cases pay such reasonable
compensation to all such attorneys, agents, officers and employees as may
reasonably be employed in connection with the trusts hereof. The Trustee may act
or refrain from acting and rely upon and be free from all liability for so
relying upon the opinion or advice of any attorney (who may be the attorney or
attorneys for the Company). The Trustee may act and rely on written opinions of
experts employed by the Trustee and such advice shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by the Trustee hereunder in good faith and in reliance thereon. The Trustee
shall not be responsible for any loss or damage resulting from any action or
non-action in good faith taken in reliance upon such opinion or advice. The
Trustee shall not be bound to confirm, verify or make any investigation into the
facts or matters stated in any financial or other statements, resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order or other paper or document furnished pursuant to the terms
hereof.

16

SECTION 3. Before the Trustee shall be required to foreclose on, or to
take control or possession of, the real property or leasehold interest (the
"Premises") which may be the subject of any mortgage or mortgages for which the
Trustee is mortgagee in connection with the issuance of the Bonds, the Trustee
shall be indemnified and held harmless by the holders and/or beneficial owners
of the Bonds from and against any and all expense, loss, or liability that may
be suffered by the Trustee in connection with any spill, leak or release which
may have occurred on or invaded the Premises or any contamination by any
Hazardous Substance (hereinafter defined), whether caused by the Company or any
other person or entity, including, but not limited to, (1) any and all
reasonable expenses that the Trustee may incur in complying with any of the
Environmental Statutes (hereinafter defined), (2) any and all reasonable costs
that the Trustee may incur in studying or remedying any spill, leak or release
which may have occurred on or invaded the Premises or any contamination, (3) any
and all fines or penalties assessed upon the Trustee by reason of such
contamination, (4) any and all loss of value of the Premises or the improvements
thereon by reason of such contamination, and (5) any and all legal fees and
costs reasonably incurred by the Trustee in connection with any of the
foregoing. As used in this Section, contamination by any Hazardous Substance
shall include contamination, arising from the presence, creation, production,
collection, treatment, disposal, discharge, release, storage, transport or
transfer of any Hazardous Substance at or from the Premises or any improvements
thereon. As used in this Section, the term "Hazardous Substance" shall mean
petroleum hydrocarbons or any substance which (a) constitutes a hazardous waste
or substance under any applicable federal, state or local law, rule, order or
regulation now or hereafter adopted; (b) constitutes a "hazardous substance" as
such term is defined under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (42 U.S.C. ss.9601 et seq.) and the
regulations issued thereunder and any comparable state or local law or
regulation; (c) constitutes a "hazardous waste" under the Resource Conservation
and Recovery Act, (42 U.S.C. ss.6991) and the regulations issued thereunder and
any comparable state or local law or regulation; (d) constitutes a pollutant,
contaminant, chemical or industrial, toxic or hazardous substance or waste as
such terms are defined under Federal Clean Water Act, as amended (33 U.S.C.
ss.1251 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C.
ss.2601 et seq.), or any comparable state or local laws or regulations; (e)
exhibits any of the characteristics enumerated in 40 C.F.R. Sections 261.20 -
261.24, inclusive; (f) those extremely hazardous substances listed in Section
302 of the Superfund Amendments and Reauthorization Act of 1986 (Public Law
99-499, 100 Stat. 1613) which are present in threshold planning or reportable
quantities as defined under such act; (g) toxic or hazardous chemical substances
which are present in quantities which exceed exposure standards as those terms
are defined under Sections 6 and 8 of the Occupational Safety and Health Act, as
amended (29 U.S.C. ss.ss.655 and 657 and 29 C.F.R. Part 1910, subpart 2); and
(h) any asbestos, petroleum-based products or any Hazardous Substance contained
within or release from any underground or aboveground storage tanks. As used in
this Section, the term "Environmental Statutes" shall mean the statutes, laws,
rules, orders and regulations referred to in (a) through (h) inclusive in the
preceding sentence.

17

ARTICLE V.

Amendment of Thirty-Third Supplemental Indenture

The Thirty-Third Supplemental Indenture is amended as follows, by
inserting the following paragraph after the first paragraph of Section 3 of
Article I:

When any subseries of the Bonds is issued in order to secure the
Company's obligation under a Loan or Construction or Financing
Agreement with any municipal authority (a "Loan Agreement") securing
tax-exempt bonds of such authority, such obligation assumed by
operation of any merger, consolidation or acquisition, such subseries
of Bonds may contain such mandatory optional and extraordinary
optional redemption provisions as are required by any such Loan
Agreement. Furthermore, when any subseries of Bonds is issued as
Certificated Bonds as a substitute for mortgage bonds assumed by the
Company pursuant to any merger, succession or acquisition and such
mortgage bonds are secured by a lien on the real property acquired by
the Company pursuant to such merger, succession or acquisition, then
such subseries of Bonds may contain such redemption provisions as such
mortgage bonds contain therein, not inconsistent with the Original
Indenture or the supplements thereto and such bonds may be issued in
whatever whole dollar amount is remaining on such bonds,
notwithstanding the provisions of Section 1 of Article 1.

ARTICLE VI

Miscellaneous.

SECTION 1. This instrument is executed and shall be construed as an
indenture supplemental to the Original Indenture, and shall form a part thereof,
and except as hereby supplemented, the Original Indenture and the First, Second,
Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth,
Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth,
Nineteenth, Twentieth, Twenty-First, Twenty-Second, Twenty-Third, Twenty-Fourth,
Twenty-Fifth, Twenty-Sixth, Twenty-Seventh, Twenty-Eighth, Twenty-Ninth,
Thirtieth, Thirty-First, Thirty-Second, Thirty-Third and Thirty-Fourth
Supplemental Indentures are hereby confirmed. All references in this
Thirty-Fifth Supplemental Indenture to the Original Indenture shall be deemed to
refer to the Original Indenture as heretofore amended and supplemented, and all
terms used herein and not specifically defined herein shall be taken to have the
same meaning as in the Original Indenture, as so amended, except in the cases
where the context clearly indicates otherwise.

SECTION 2. Any notices to the Trustee under this Thirty-Fifth
Supplemental Indenture shall be delivered to the Trustee by registered or
certified mail, hand delivery or other courier or express delivery service (with
receipt confirmed) or by telecopy (with receipt confirmed) at the following
address:

J.P. Morgan Trust Company, National Association
Institutional Trust Services
1650 Market Street, Suite 5210
Philadelphia, PA  19103
Attention:  Pennsylvania Suburban Water Administrator
Telecopy:  (215) 972-1685

18

Any change in such address or telecopy number may be made by notice to the
Company delivered in the manner set forth above.

SECTION 3. All recitals in this Thirty-Fifth Supplemental Indenture
are made by the Company only and not by the Trustee; and all of the provisions
contained in the Original Indenture in respect of the rights, privileges,
immunities, powers and duties of the Trustee shall be applicable in respect
hereof as fully and with like effect as if set forth herein in full.

SECTION 4. Although this Thirty-Fifth Supplemental Indenture is dated
as of January 1, 2002 for convenience and for the purpose of reference, the
actual date or dates of execution hereof by the Company and the Trustee are as
indicated by their respective acknowledgments annexed hereto.

SECTION 5. In order to facilitate the recording or filing of this
Thirty-Fifth Supplemental Indenture, the same may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original and such
counterparts shall together constitute but one and the same instrument.

19

IN WITNESS WHEREOF the parties hereto have caused their corporate
seals to be hereunto affixed and their authorized officers have hereto affixed
their signatures, and their authorized officers have duly attested the execution
hereof, as of the 1st day of January, 2002.

[CORPORATE SEAL]                    PENNSYLVANIA SUBURBAN WATER
COMPANY, as successor by merger to
Philadelphia Suburban Water Company,
Consumers Pennsylvania Water Company -
Shenango Valley Division,
Consumers Pennsylvania Water Company -
Roaring Creek Division,
Consumers Pennsylvania Water Company - 
Susquehanna Division,
Waymart Water Company,
Fawn Lake Forest Water Company,
Northeastern Utilities, Inc., and
Western Utilities, Inc.

Attest: /s/ Roy H. Stahl                   By: /s/ Kathy L. Pape
---------------------------            ---------------------------
Secretary                              Vice President and Treasurer

[CORPORATE SEAL]                           J.P. MORGAN TRUST COMPANY,
NATIONAL ASSOCIATION,     
as Trustee                

Attest: /s/ Judy Wisniewski                By: /s/ Catherine Lenhardt
---------------------------            ---------------------------
Authorized Officer                     Authorized Officer

20

Exhibit A

Bonds Redeemed or Paid at Maturity

Principal Amount                                              
Paid or Redeemed                                              
(If less than all              Date                           
Series                        Bonds of Series)               Paid                Maturity   
------                        -----------------              ----                --------   

3.25% Series Due 1971                                       12/31/1970          Redemption   
9.63% Series Due 1975                                       06/15/1975          Maturity     
9.15% Series Due 1977                                       01/01/1977          Maturity     
3.00% Series Due 1978                                       07/01/1978          Maturity     
3.38% Series Due 1982                                       07/01/1982          Maturity     
3.90% Series Due 1983                                       07/01/1983          Maturity     
3.50% Series Due 1986                                       01/01/1986          Maturity     
4.50% Series Due 1987                                       01/01/1987          Maturity     
4.13% Series Due 1988                                       05/01/1988          Maturity     
5.00% Series Due 1989                                       09/01/1989          Maturity     
4.63% Series Due 1991                                       05/01/1991          Maturity     
4.70% Series Due 1992                                       04/01/1992          Maturity     
6.88% Series Due 1993                                       01/01/1993          Maturity     
4.55% Series Due 1994                                       03/01/1994          Maturity                                    
10.13% Series Due 1995        $6,300,000                             --          Sinking Fund
10.13% Series Due 1995        $3,700,000                     05/17/1993          Redemption 
9.20% Series Due 2001        $3,850,000                             --          Sinking Fund
9.20% Series Due 2001        $3,150,000                     05/01/1993          Redemption 
8.40% Series Due 2002        $5,850,000                             --          Sinking Fund
8.40% Series Due 2002        $4,150,000                     01/02/1996          Redemption 
5.95% Series Due 2002        $3,200,000                             --          Sinking Fund 
12.45% Series Due 2003        $1,000,000                     08/01/1993          Sinking Fund
12.45% Series Due 2003        $9,000,000                     08/02/1993          Redemption  
8.88% Series Due 2010        $  800,000                             --          Sinking Fund
8.88% Series Due 2010        $7,200,000                     06/30/1992          Redemption  
13.00% Series Due 2005                                       08/02/1995          Redemption
7.88% Series Due 1997                                       01/02/1996          Redemption  
10.65% Series Due 2006                                       04/02/1996          Redemption
5.50% Series Due 1996                                       11/01/1996          Maturity    
8.44% Series Due 1997                                       04/01/1997          Maturity   
7.15% Series Due 2008        $8,000,000                             --          Sinking Fund

EXHIBIT B

The Original Indenture (redacted to delete property descriptions contained
therein for property contained in Bucks, Chester, Delaware and Montgomery
Counties)

For purposes of filing this Annual Report on Form 10-K, the Indenture of
Mortgage dated as of January 1, 1941 was previously filed as Exhibit 4.1 to
Annual Report on Form 10-K for the year ended December 31, 1983.

Exhibit C

New Property

Additional Property Secured by the Lien of the Indenture Subsequent to the Date
of the 34th Supplemental Indenture

There is no new property in Berks County since the recording of the
Thirty-fourth Supplemental Indenture on October 31, 2001.

There is no new property in Chester County since the recording of the
Thirty-fourth Supplemental Indenture on October 31, 2001.

There is no new property in Delaware County since the recording of the
Thirty-fourth Supplemental Indenture on October 31, 2001.

Properties acquired from 8/31/99 to 9/30/01

----------------------------------------------------------------------------------------------------------------------------
Name                     Grantor                 County           Index No.      Deed Date      Book      Page
----                     -------                 ------           ---------      ---------      ----      ----

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

Bubbling Springs         Simpson Paper               Montgomery              VI-E-74        09/24/99       5293       1660
----------------------------------------------------------------------------------------------------------------------------
Reeser Parcel            Martin M. & Faye A. Reecer  Chester                 VIII-Q-1       09/20/99       4641       1163
----------------------------------------------------------------------------------------------------------------------------
East Marlborough         Township of East            Chester                 VI-E-75        12/07/99       4684       2168
Marlborough
----------------------------------------------------------------------------------------------------------------------------
Fenimore Parcel          Richard D. Fenimore         Chester                 VI-B-64        03/07/00       4724       1814
(Glenside)
----------------------------------------------------------------------------------------------------------------------------
Chatwood                 Chatwood Water Company      Chester                 R-1            10/18/00       4850         35
----------------------------------------------------------------------------------------------------------------------------
Chatwood                 Chatwood Water Company      Chester                 R-2            10/18/00       4850         35
----------------------------------------------------------------------------------------------------------------------------
Todd Cooke Parcel        Todd Cooke                  Delaware                I-A-28         05/01/00       2009       1451
----------------------------------------------------------------------------------------------------------------------------
Nase Booster             Ruth V. Nase                Berks                   VI-C-12        08/08/01       3382         47
----------------------------------------------------------------------------------------------------------------------------
Embreeville Tank         Com. Of PA.                 Chester                 VI-B-60        05/15/01       4980       1763
----------------------------------------------------------------------------------------------------------------------------

There is no new property in Montgomery County since the recording of the
Thirty-fourth Supplemental Indenture on October 31, 2001.

EXHIBIT "C"

Schedule of Real Estate Owned
By the Consumers Pennsylvania Water Company
Susquehanna Division in Bradford County Pennsylvania

Borough or                       Lot No. or                   Date of                   Bradford
Township                         Location                     Deed                      County
Deed Book and
Page or
Instrument No.

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

1.       Athens                  Lehigh Reservoir             03/30/1955                506/240
Township                Mills Street

2.       Athens                  Reservoir No. 1              11/11/1889                181/331
Township                                             02/16/1885                160/117

3.       Athens                  Soper Well                   04/05/1968                588/360
Borough                 Property

4.       Athens                  Stover Well                  03/26/1973                619/206
Borough                 Property                     03/26/1973                619/208

5.       Athens                  State Highway                07/18/1974                641/192
Township                No. 08077

6.       Athens                  Maple Street                 06/06/1973                640/362
Borough

7.       Athens                  South Main                   05/11/2001                #200104955
Borough                 Street

Properties Acquired from October 1, 2001 through November 30, 2001

Name                  Grantor                        County            Deed Date          Book            Page
----                  -------                        ------            ---------          ----            ----

Well #  8             Borough of Chalfont            Bucks             11/01/01           2477            1677
Well # 11             Borough of Chalfont            Bucks             11/01/01           2477            1682
Well # 12             Borough of Chalfont            Bucks             11/01/01           2477            1688
Tank #  2             Borough of Chalfont            Bucks             11/01/01           2477            1672

Other Real Estate Acquired

Real Estate Subject to the Lien of the Indenture in Columbia and
Northumberland Counties, Pennsylvania, owned on November 1, 1964 by predecessors
to Pennsylvania Suburban Water Company.

COMPREHENSIVE LIST OF PROPERTY OWNED BY
CONSUMERS PA. WATER COMPANY -
SHENANGO VALLEY DIVISION
MERCER COUNTY
2001 BOND FINANCING
December 17, 2001

----------------------------- ---------------------------------- ---------------- ---------------------------
Name                          Location                           Recorded         Place of Recording
----------------------------- ---------------------------------- ---------------- ---------------------------

Pumping Station and Filter    Lots in the McGilvary Addition     1926 through     N-21-458
Plant - Sharon                Lots 4, 5, 6, 7, 8, 9, 10, 11,     1969             Y20-58
12, 13, 14, 15, 16, 17, 18, 19,                     1969 D.R. 1288
20, 21, 22, 23, 25, 26, 27, 28,                     1968 D.R. 3283
29, 30, 31, 32, 33, 34, 35, 36,                     1964 D.R. 2626
37, 38, 39                                          Z-13-398
----------------------------- ---------------------------------- ---------------- ---------------------------
Mercer Avenue Standpipe -     4 Freeble Heights                  8/20/1947        Y-18-281 and corrected
Farrell                                                                           deed description at
I-19-579
----------------------------- ---------------------------------- ---------------- ---------------------------
Carnegie View Standpipe -     491, 492, 493, 494, south 10 ft    1/10/1952        I-20-79
Farrell                       of 459, 460, 461, part of south
10 ft. of 458, together with
vacated portions of Rhoda St.,
all in Carnegie View Plan
----------------------------- ---------------------------------- ---------------- ---------------------------
Homewood Drive Standpipe -    264 Buena Vista Heights Plan       7/12/1957        R-21-34
Hermitage                     265 and 266 Buena Vista Heights    11/3/1955        F-21-340
Plan
----------------------------- ---------------------------------- ---------------- ---------------------------
Boyd Drive Booster Station    Westerman Street Ext.              4/17/1958        U-21-501
- Hermitage
----------------------------- ---------------------------------- ---------------- ---------------------------
Rhoda Street Garage 16"       Carnegie View Plan, Lot 406        1/6/1960         1960 D.R. 25
Main - Farrell and Hermitage                                     12/5/1960        1960 D.R. 2654

North 50' Lot 459                  9/8/1959         1959 D.R. 2144

Carnegie View Lots                 10/12/1984       84 D.R. 3574
454,455,456,457,458
----------------------------- ---------------------------------- ---------------- ---------------------------
West Middlesex                Mitchell Road                      8/26/1965        1965 D.R. 2219
Standpipe-Shenango Twp
----------------------------- ---------------------------------- ---------------- ---------------------------
New Wilmington Standpipe -    Pa. Route No. 18                   9/2/1965         1965 D.R. 2317
Wilmington Township
----------------------------- ---------------------------------- ---------------- ---------------------------
East State Street             U.S. Route No. 62                  10/14/1965       1965 D.R. 2870
Standpipe-Hermitage
----------------------------- ---------------------------------- ---------------- ---------------------------
North Keel Ridge Booster      North Keel Ridge Road              11/12/1965       Part of 1965 D.R. 3197
Station-Hermitage
----------------------------- ---------------------------------- ---------------- ---------------------------
Gail Drive                    Gail Drive                         10/24/1984       84 D.R. 3574 (Parcel One)
Standpipe-Hermitage
----------------------------- ---------------------------------- ---------------- ---------------------------
Office Building - 665 South   South Dock Street (G.W. Becker)    8/3/1990         90 D.R. 08133
Dock Street
----------------------------- ---------------------------------- ---------------- ---------------------------
Mercer Standpipe Lot          Lot 1 Mandell Plan (Mandell)       6/14/1990        91 D.R. 7104
----------------------------- ---------------------------------- ---------------- ---------------------------

Mercer Booster Station        Lot 9 U.S. Route 62 (Holcroft)     7/24/1990        90 D.R. 07715
----------------------------- ---------------------------------- ---------------- ---------------------------
Mercer County                 Lot one Treimer, Plan 97           7/30/1997        97 D.R. 10426
PL9607-143
----------------------------- ---------------------------------- ---------------- ---------------------------
Meter Vault Property          Parcel 3 Special Warranty Deed     3/26/1999        99-05839
----------------------------- ---------------------------------- ---------------- ---------------------------

----------------------------- ---------------------------------- ---------------- ---------------------------
Western Utilities, Inc.       Coolspring Township, Lot 917 in    11/30/1990       90 D.R. 13011
Mercer County                 Lake Latonka Subdivision
----------------------------- ---------------------------------- ---------------- ---------------------------
Lot 230 in Lake Latonka            11/30/1990       90 D.R. 13011
Subdivision
----------------------------- ---------------------------------- ---------------- ---------------------------

FAWN LAKE FOREST WATER COMPANY

----------------------------------------------------------------------------------------------------------------------
Name                     Grantor                 County        Index/Tax No.    Deed Date     Book     Page
----                     -------                 ------        -------------    ---------     ----     ----

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

Fawn Lake Forest Water   Batco - 1989 - III, Inc.,   Pike County            1995-258       12/12/94     997       78
Company                  Philip Economv,
Attornery-in-Fact
----------------------------------------------------------------------------------------------------------------------
Tax Claim Bureau of Pike
Fawn Lake Forest Water   County, Wesley Hains and    Pike County            1985-14664     12/15/86    1094      265
Company                  Eileen Hains
----------------------------------------------------------------------------------------------------------------------
Fawn Lake Forest Water   American Central            Pike County            1980-5356      11/7/79      721      234
Company                  Corporation
----------------------------------------------------------------------------------------------------------------------
Pike County Tax Claim
Fawn Lake Forest Water   Bureau, James Weir and      Pike County            1983-3978      1/25/83      851      266
Company                  Margaret Weir
----------------------------------------------------------------------------------------------------------------------
Fawn Lake Forest Water   American Central            Pike County            1980-5358      11/7/79      721      240
Company                  Corporation
----------------------------------------------------------------------------------------------------------------------
Arthur Jebson, Sheriff,
Fawn Lake Forest Water   Joseph Hirko and Patricia   Pike County            1982-3566      1/6/81       814      223
Company                  Hirko 
----------------------------------------------------------------------------------------------------------------------
Fawn Lake Forest Water   Pike County Tax Claim       Pike County            1983-3977      1/25/83      851      263
Company                  Bureau, Francis Parrish
----------------------------------------------------------------------------------------------------------------------
Pike County Tax Claim
Fawn Lake Forest Water   Bureau, Brigitte Willis     Pike County            1993-12684     11/6/93      798      285
Company                  and Harry Willis
----------------------------------------------------------------------------------------------------------------------
Fawn Lake Forest Water   Clifford Holbert and        Pike County            1990-9863      12/15/89     296      284
Company                  Thelma Holbert
----------------------------------------------------------------------------------------------------------------------
Fawn Lake Forest Water   M.M. Fisher and Karen       Pike County            1992-11228     8/29/92      608       55
Company                  Fisher
----------------------------------------------------------------------------------------------------------------------
Fawn Lake Forest Water   Norman Prescott and Betty   Pike County            1995-10108     8/21/95     1104      306
Company                  Prescott
----------------------------------------------------------------------------------------------------------------------

ADDITIONAL PROPERTIES

All real property and interests in real property, wherever situated, of
the type and nature contemplated in the Original Indenture, acquired by the
Company subsequent to November1, 1964, including, without limitation, the real
property and interests in real property more particularly described in the
following deeds:

1.    Deed from Helker Construction Company to the Company dated August 12,
1992, and recorded in the Northumberland County Office for Recording of
Deeds in Book 869, Page 795;

2.    Deed from Northeaster Enterprises, Inc. to the Company dated December 31,
1992, and recorded in the Northumberland County Office for Recording of
Deeds in Book 889, Page 131;

3.    Deed from Northeaster Enterprises, Inc. to the Company dated August 12,
1992, and recorded in the Schuylkill County Office for Recording of Deeds
in Book 1491, Page 906;

4.    Deed from Ronald Narke, et al,. to the Company dated January 6, 1992, and
recorded in the Northumberland County Office for Recording of Deeds in
Book 897, Page 791;

5.    Deed from Susquehanna Coal Company to the Company dated January 6, 1992,
and recorded in the Northumberland County Office for Recording of Deeds in
Book 898, Page 876;

6.    Deed from Community Banks, N.A. to the Company dated September 26, 1994,
and recorded in the Northumberland County Office for Recording of Deeds in
Book 977, Page 319;

7.    Deed from County of Northumberland to the Company dated August 7, 1996,
and recorded in the Northumberland County Office for Recording of Deeds in
Book 1066, Page 863; and

8.    Deed from Shamokin Area Industrial Corporation to the Company dated March
25, 1998, and recorded in the Northumberland County Office for Recording
of Deeds in Book 1150, Page 126.

Excepting, however, all real property and interests in real property,
wherever situated, conveyed by the Company subsequent to November 1, 1964, in
accordance with the terms and provisions of the Original Indenture including,
without limitation, the real property and interests in real property more
particularly described in the following deeds:

1.   Deed from the Company to Northumberland County Authority dated
September 30, 1992, and recorded in the Northumberland County Office
for Recording of Deeds in Book 835, Page 428;
2.   Deed from the Company to Schuylkill Economic Development Corporation
dated January 13, 1996, and recorded in the Schuylkill County Office
for Recording of Deeds in Book 1644, Page 97; and
3.   Deed from the Company to Charles W. Remaley, Inc. dated July 31, 2000,
and recorded in the Schuylkill County Office for Recording of Deeds in
Book 1071, Page 151.

WAYMART WATER COMPANY

-----------------------------------------------------------------------------------------------------------------------------
Name                      Grantor                 County         Index/Tax No.    Deed Date      Book      Page
----                      -------                 ------         -------------    ---------      ----      ----

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

Waymart Water Company     The Dime Bank               Wayne County            28-3-99.3      1/27/92    645        108
-----------------------------------------------------------------------------------------------------------------------------
Waymart Water Company     Augustus L. Patterson       Wayne County            28-6-11        2/1/21     115        373
-----------------------------------------------------------------------------------------------------------------------------
Waymart Water Company     Frank R. and Susan Sargent  Wayne County            28-7-65.3      9/23/75    321        132
-----------------------------------------------------------------------------------------------------------------------------
Waymart Water Company     Vincent P. and Patricia E.  Wayne County            28-10-23       9/7/74     311        396
Spaulding
-----------------------------------------------------------------------------------------------------------------------------
Waymart Water Company     Edward Marsh and Carolyn    Wayne County            28-10-24       11/15/74   313        794
Marsh
-----------------------------------------------------------------------------------------------------------------------------
Waymart Water Company     Claire F. Carlin            Wayne County            28-10-25       12/4/74    314        137
-----------------------------------------------------------------------------------------------------------------------------
Waymart Water Company     Harold & Mary French        Wayne County            28-251-22.1    11/15/74   313        797
-----------------------------------------------------------------------------------------------------------------------------
Waymart Water Company     Armena Williams             Wayne County            28-251-23.1    11/15/74   313        800
-----------------------------------------------------------------------------------------------------------------------------

J.P. Morgan Trust Company National Association, Mortgagee and Trustee
named in the foregoing Thirty-Fifth Supplemental Indenture, hereby certifies
that its precise name and the post office address of its Institutional Trust
Services Group in Philadelphia, Pennsylvania are as follows:

J.P. Morgan Trust Company, National Association
Institutional Trust Services
1650 Market Street, Suite 5210
Philadelphia, PA  19103
Attention: Pennsylvania Suburban Water Administrator
Telecopy: (215) 972-1685

J.P. MORGAN TRUST COMPANY,
NATIONAL ASSOCIATION

By: /s/ Catherine Lenhardt       
----------------------
Authorized Officer

COMMONWEALTH OF PENNSYLVANIA

COUNTY OF MONTGOMERY

On the 18th day of December, 2001, before me, the Subscriber, a Notary
Public for the Commonwealth of Pennsylvania, personally appeared Kathy L. Pape,
who acknowledged herself to be the Vice President and Treasurer of Pennsylvania
Suburban Water Company, a corporation, and that she as such Vice President and
Treasurer, being authorized to do so, executed the foregoing Thirty-Fifth
Supplemental Indenture as and for the act and deed of said corporation and for
the uses and purposes therein mentioned, by signing the name of the corporation
by herself as such officer.

In Witness Whereof I hereunto set my hand and official seal.

[NOTARIAL SEAL]

/s/ Catherine A. Iezzi 
-----------------------
Notary

COMMONWEALTH OF PENNSYLVANIA

COUNTY OF PHILADELPHIA

On the 13th day of December, 2001 before me, the Subscriber, a Notary
Public for the Commonwealth of Pennsylvania, personally appeared Catherine
Lenhardt, who acknowledged herself to be a Vice President of J.P. Morgan Trust
Company, National Association, Trustee, a national banking association, and that
she as such Vice President, being authorized to do so, executed the foregoing
Thirty-Fifth Supplemental Indenture as and for the act and deed of said national
banking association and for the uses and purposes therein mentioned by signing
the name of said national banking association by herself as such officer.

In Witness Whereof I hereunto set my hand and official seal.

[NOTARIAL SEAL]

/s/ Sandra M. Abrahams 
-----------------------
Notary

This Thirty-Fifth Supplemental Indenture was recorded on December __,
2001 in the Office for the Recording of Deeds for each of the counties tabulated
below in the Mortgage Book and at the page indicated:

Mortgage
County                                    Book                            Page
------                                    ----                            ----
Berks                                     ____                            ____
Bradford                                  ____                            ____
Bucks                                     ____                            ____
Chester                                   ____                            ____
Columbia                                  ____                            ____
Delaware                                  ____                            ____
Lawrence                                  ____                            ____
Mercer                                    ____                            ____
Montgomery                                ____                            ____
Northumberland                            ____                            ____
Pike                                      ____                            ____
Schuylkill                                ____                            ____
Wayne                                     ____                            ____

For the recording information with respect to the Original Indenture and the
first thirty-four supplemental indentures, see pages 4-6 of this Thirty-Fifth
Supplemental Indenture.

Exhibit 10.35

BOND PURCHASE AGREEMENT

$30,000,000
DELAWARE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
Water Facilities Revenue Bonds
(Philadelphia Suburban Water Company Project) Series of 2001

Bond Purchase Agreement dated October 23, 2001, among the DELAWARE
COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), PHILADELPHIA SUBURBAN
WATER COMPANY, a Pennsylvania corporation (the "Company"), and THE GMS GROUP,
L.L.C., a Delaware limited liability company (the "Underwriter").

1. Background.

(a) The Authority proposes to enter into a Construction and
Financing Agreement (the "Financing Agreement") dated as of October 15, 2001
with the Company, under which the Authority will agree to loan to the Company
funds (1) to finance a portion of the costs of the acquisition, construction,
installation and equipping of the Facilities (as defined below), and (2) to pay
a portion of the costs of issuance of the Bonds (the "Project"). The Facilities
being financed using proceeds of the Bonds (the "Facilities") are located at
various sites throughout the Company's existing water supply and distribution
system and are described in the Financing Agreement. To finance the loan under
the Financing Agreement, the Authority proposes to issue and sell $30,000,000
aggregate principal amount of the bonds identified above (the "Bonds") to the
Underwriter, who will in turn reoffer the Bonds for sale to the public;

(b) The Bonds will be issued pursuant to the Pennsylvania Economic
Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and
supplemented (the "Act"), a resolution adopted by the Authority on September 21,
2001 (the "Authority Resolution") and under a Trust Indenture dated as of
October 15, 2001 (the "Trust Indenture"), between the Authority and First Union
National Bank, as trustee (the "Trustee"). The Bonds will have such terms as are
set forth in Schedule I attached hereto. The Bonds will be payable out of
payments by the Company under the Financing Agreement, including payments under
its First Mortgage Bond, to be issued in the principal amount of $30,000,000
(the "First Mortgage Bond") concurrently with the Bonds pursuant to the
Company's Indenture of Mortgage (the "Indenture of Mortgage") dated as of
January 1, 1941, from the Company to Chase Manhattan Trust Company, National
Association, as trustee (successor to The Pennsylvania Company for Insurance on
Lives and Granting Annuities, The Pennsylvania Company for Banking and Trusts,
The First Pennsylvania Banking and Trust Company, First Pennsylvania Bank, N.A.,
CoreStates Bank, N.A. and Mellon Bank, N.A.) (the "Mortgage Trustee"), as
presently amended and supplemented and as to be further supplemented by a
Thirty-Fourth Supplemental Indenture of Mortgage (the "Thirty-Fourth
Supplemental Mortgage," which together with the Indenture of Mortgage, as
amended and supplemented, is referred to hereinafter as the "Mortgage") to be
dated as of October 15, 2001. The First Mortgage Bond will be issued in the same
principal amount and will mature on the same date and bear interest at the same
rate as the Bonds. All of the Authority's rights under the Financing Agreement
to receive and enforce repayment of its loan to the Company and to enforce
payment of the Bonds, including all of the Authority's rights to the First
Mortgage Bond, except for the Authority's rights to certain fees and
reimbursements for expenses, indemnification and notice thereunder and rights
relating to amendments of and notices under the Financing Agreement, will be
assigned to the Trustee as security for the Bonds pursuant to the Trust
Indenture;

(c) The Project is intended to construct facilities for the
furnishing of water for purposes of Section 142(a)(4) of the Internal Revenue
Code of 1986, as amended (the "Code"), so that the interest on the Bonds will
not be includable in gross income for federal income tax purposes under the Code
and the Underwriter may offer the Bonds for sale without registration under the
Securities Act of 1933, as amended (the "1933 Act") or qualification of the
Trust Indenture under the Trust Indenture Act of 1939, as amended (the "1939
Act"); and

(d) A Preliminary Official Statement dated October 15, 2001,
including the Appendices thereto and all documents incorporated therein by
reference (the "Preliminary Official Statement"), has been supplied to the
parties hereto, and a final Official Statement to be dated as of the date
hereof, including the Appendices thereto and all documents incorporated therein
by reference, prepared for use in such offerings will be supplied to the parties
hereto as soon as it is available, subject to Section 10 hereof (such final
Official Statement, as it may be amended or supplemented with the consent of the
Authority, the Underwriter and the Company, is hereinafter referred to as the
"Official Statement").

2. Purchase, Sale and Closing. On the terms and conditions herein set
forth, the Underwriter will buy from the Authority, and the Authority will sell
to the Underwriter, all (but not less than all) of the Bonds at a purchase price
equal to 29,550,000, consisting of the aggregate principal amount of the Bonds
($30,000,000), less an underwriters' discount of $450,000. Payment shall be made
in immediately available funds to the Trustee for the account of the Authority.
Closing (the "Closing") will be at the offices of Reed Smith LLP, bond counsel,
at 10:00 a.m., Eastern Daylight Time, on November 1, 2001 or at such other date,
time or place or in such other manner as may be agreed on by the parties hereto.
The Bonds will be delivered as fully registered Bonds with one Bond for each
maturity, each in the aggregate principal amount of Bonds for each such maturity
as requested in the name of Cede & Co., as nominee for The Depository Trust
Company ("DTC"), with CUSIP numbers printed thereon, and shall conform in all
respects to DTC's Book-Entry-Only System. Delivery of the Bonds will be made at
the office of DTC in New York, New York, unless DTC's "FAST" program is
employed, in which case the delivery of the Bonds will be made at the offices of
Reed Smith LLP, bond counsel (or such other location as is acceptable to the
Underwriter). If the Underwriter so requests, the Bonds shall be made available
to the Underwriter (prior to their delivery to DTC) in Springfield, Pennsylvania
at least three full business day before the Closing for purposes of inspection.

The Underwriter agrees to make a bona fide public offering of the Bonds
at the initial offering prices or yields set forth in the Official Statement;
provided, however, that the Underwriter reserves the right (and the Authority
and the Company hereby expressly acknowledge such right): (i) to make
concessions to dealers; (ii) to effect transactions that stabilize or maintain
the market price of the Bonds above that which might otherwise prevail in the
open market and to discontinue at any time such stabilizing transactions; and
(iii) to change such initial offering prices, all as the Underwriter shall deem
necessary in connection with the marketing of the Bonds.

3. Authority's Representations and Warranties. The Authority makes the
following representations and warranties, all of which shall survive Closing;
that:

-2-

(a) The Authority is a body politic and corporate, duly created
and existing under the Constitution and laws of the Commonwealth of Pennsylvania
(the "Commonwealth"), and has, and at the date of Closing will have, full legal
right, power and authority to: (i) enter into this Bond Purchase Agreement; (ii)
execute and deliver the Bonds, the Trust Indenture, the Financing Agreement,
this Bond Purchase Agreement and the Authority's tax certificate and the other
various documents and certificates executed by the Authority in connection
therewith (collectively, the "Authority Financing Documents"); (iii) issue, sell
and deliver the Bonds to the Underwriter as provided herein; and (iv) carry out
and consummate the transactions contemplated by the Authority Financing
Documents and the Official Statement to be carried out and/or consummated by it;

(b) The sections entitled "INTRODUCTORY STATEMENT," "ABSENCE OF
MATERIAL LITIGATION" (insofar as each such section relates to the Authority) and
"THE AUTHORITY" contained in the Preliminary Official Statement as of its date
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in the light of the circumstances under which they
were made, not misleading;

(c) The sections entitled "THE AUTHORITY" and "ABSENCE OF MATERIAL
LITIGATION" (insofar as it relates to the Authority) contained in the Official
Statement as of its date does not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements contained therein, in the light of
the circumstances under which they were made, not misleading;

(d) The Authority has complied, and will at the Closing be in
compliance, in all material respects with the provisions of the Act;

(e) To the extent required by law, the Authority has duly
authorized and approved the Preliminary Official Statement and the Official
Statement; and has duly authorized and approved the execution and delivery of,
and the performance by the Authority of the obligations on its part contained
in, the Authority Financing Documents;

(f) To the best of the knowledge of the officer of the Authority
executing this Bond Purchase Agreement, the Authority is not in material breach
of or in default under any applicable law or administrative regulation of the
Commonwealth or the United States; and the execution and delivery of the
Authority Financing Documents, and compliance with the provisions of each
thereof, do not and will not conflict with or constitute a breach of or default
under any existing law, administrative regulation, judgment, decree, loan
agreement, note, resolution, agreement or other instrument to which the
Authority is a party or is otherwise subject;

(g) Except as previously disclosed to the Company and the
Underwriter, the Authority is not now in default, and has not at any time been
in default, as to principal or interest on any obligation issued or guarantee by
the Authority;

(h) All approvals, consents and orders of any governmental
authority, board, agency or commission having jurisdiction which would
constitute a condition precedent to the Authority's legal ability to issue the
Bonds or to the Authority's performance of its obligations hereunder and under
the Authority Financing Documents have been obtained or will be obtained prior
to the Closing;

-3-

(i) The Bonds, when issued, authenticated and delivered in
accordance with the Trust Indenture and sold to the Underwriter as provided
herein, will be validly issued and will be valid and binding limited obligations
of the Authority enforceable against the Authority in accordance with their
terms (except as an enforcement of remedies may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws or legal or equitable
principles affecting the enforcement of creditors' rights ("Creditors' Rights
Limitations"));

(j) The terms and provisions of the Authority Financing Documents
when executed and delivered by the respective parties thereto will constitute
the valid, legal and binding obligations of the Authority enforceable against
the Authority in accordance with their respective terms (except as enforcement
of remedies may be limited by Creditors' Rights Limitations);

(k) There is no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, or public board or
body, pending or, to the knowledge of the Authority after due inquiry,
threatened against the Authority, affecting the existence of the Authority or
the titles of its officers to their respective offices or seeking to prohibit,
restrain or enjoin the sale, issuance or delivery of the Bonds or of the
revenues or assets of the Authority pledged or to be pledged to pay the
principal of and interest on the Bonds, or the pledge thereof, or in any way
contesting or affecting the validity or enforceability of the Authority
Financing Documents or contesting in any way the completeness or accuracy of the
Preliminary Official Statement or the Official Statement, or contesting the
power or authority of the Authority with respect to the issuance of the Bonds or
the execution, delivery or performance of any of the Authority Financing
Documents, or wherein an unfavorable decision, ruling or finding would affect in
any way the validity or enforceability of any of the Authority Financing
Documents;

(l) The net proceeds received from the Bonds and applied in
accordance with the Trust Indenture and Financing Agreement shall be used in
accordance with the Act as described in the Official Statement;

(m) The Authority has not been notified of any listing or proposed
listing by the Internal Revenue Service to the effect that the Authority is a
bond issuer whose arbitrage certifications may not be relied upon; and

(n) Any certificate signed by any of the authorized officers of
the Authority and delivered to the Underwriter shall be deemed a representation
and warranty by the Authority to the Underwriter as to the statements made
therein.

4. Company's Representations and Warranties. The Company makes the
following representations and warranties, all of which will survive the Closing:

(a) The Company has not sustained since January 1, 2001 any
material loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree; and since the respective dates
as of which information is given in the Official Statement, there have not been
any material changes in the outstanding capital stock or the long-term debt of
the Company or any material adverse change, or a development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company, otherwise than as set forth or contemplated in the Official
Statement;

-4-

(b) The Company was organized, is in good standing and subsists as
a corporation under the laws of the Commonwealth, with power (corporate and
other) to own its properties and conduct its business as described in the
Official Statement;

(c) The First Mortgage Bond has been duly authorized; and, when
issued and delivered as contemplated by this Bond Purchase Agreement, will have
been duly executed, authenticated, issued and delivered and will constitute a
valid and legally binding obligation of the Company entitled to the benefits
provided by the Mortgage;

(d) The Original Indenture has been duly authorized, executed and
delivered by the Company and the Mortgage Trustee, and the Thirty-Fourth
Supplemental Mortgage has been duly authorized. When the Thirty-Fourth
Supplemental Mortgage, in substantially the form approved by the Company, has
been executed and delivered by the Company and the Mortgage Trustee and recorded
as required by law, the Mortgage (i) will constitute a valid and legally binding
instrument enforceable in accordance with its terms except as enforceability may
be limited by Creditors' Rights Limitations; and (ii) will constitute a direct,
valid and enforceable first mortgage lien (except as enforceability of such lien
may be limited by Creditors' Rights Limitations) upon all of the properties and
assets of the Company (not heretofore released as provided for in the Mortgage)
specifically or generally described or referred to in the Mortgage as being
subject to the lien thereof, excepting permitted liens under the Mortgage and
excepting property and assets that the Mortgage expressly excludes from the lien
thereof, and will create a similar lien upon all properties and assets acquired
by the Company after the execution and delivery of the Thirty-Fourth
Supplemental Mortgage and required to be subjected to the lien of the Mortgage
pursuant thereto when so acquired, except for permitted liens under the
Mortgage; the Original Indenture has been, and the Thirty-Fourth Supplemental
Mortgage will be, duly filed, recorded or registered in each place in the
Commonwealth in which such filing, recording or registration was or is required
to protect and preserve the lien of the Mortgage; and all necessary approvals of
regulatory authorities, commissions and other governmental bodies having
jurisdiction over the Company required to subject the mortgaged properties and
assets or trust estate (as defined in the Mortgage) to the lien of the Mortgage
have been duly obtained;

(e) In each of the following cases with such exceptions as are not
material and do not interfere with the conduct of the business of the Company,
the Company has good and marketable title to all of its real property currently
held in fee simple; good and marketable title to all of its other interests in
real property (other than certain rights of way, easements, occupancy rights,
riparian and flowage rights, licenses, leaseholds, and real property interests
of a similar nature); and good and marketable title to all personal property
owned by it; in each case free and clear of all liens, encumbrances and defects
except such as may be described in the Official Statement, the lien of the
Mortgage, permitted liens under the Mortgage or such as do not materially affect
the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company; and any real property and buildings
held under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company;

-5-

(f) In each of the following cases except for such exceptions
which are not material and do not interfere with the conduct of the business of
the Company, the Company has all licenses, franchises, permits, authorizations,
rights, approvals, consents and orders of all governmental authorities or
agencies necessary for the ownership or lease of the properties owned or leased
by it and for the operation of the business carried on by it as described in the
Official Statement, and all water rights, riparian rights, easements, rights of
way and other similar interests and rights described or referred to in the
Mortgage necessary for the operation of the business carried on by it as
described in the Official Statement; except as otherwise set forth in the
Official Statement, all such licenses, franchises, permits, orders,
authorizations, rights, approvals and consents are in full force and effect and
contain no unduly burdensome provisions; except as otherwise set forth in the
Official Statement, there are no legal or governmental proceedings pending or,
to its knowledge after due inquiry, threatened that would result in a material
modification, suspension or revocation thereof; and the Company has the legal
power to exercise the rights of eminent domain for the purposes of conducting
its water utility operations;

(g) The issue and sale of the Bonds, the issue and delivery of the
First Mortgage Bond and the compliance by the Company with all of the applicable
provisions of the First Mortgage Bond and the Mortgage and the execution,
delivery and performance by the Company of the Thirty-Fourth Supplemental
Mortgage, the Financing Agreement, this Bond Purchase Agreement and the
Continuing Disclosure Agreement (hereinafter defined) will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance (other than the lien of the Mortgage) upon any of the property or
assets of the Company pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property or assets
of the Company are subject, nor will such action result in a violation of the
provisions of the Articles of Incorporation, as amended, or the Bylaws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
property; and no consent, approval, authorization, order, registration or
qualification of or with any court or any such regulatory authority or other
governmental body (other than those already obtained) is required for the issue
and sale of the Bonds; the issue and delivery of the First Mortgage Bond; the
execution, delivery and performance by the Company of this Bond Purchase
Agreement, the Financing Agreement, the Thirty-Fourth Supplemental Mortgage, the
First Mortgage Bond and the Continuing Disclosure Agreement, or the consummation
by the Company of the other transactions contemplated by this Bond Purchase
Agreement or the Mortgage;

(h) The Pennsylvania Public Utility Commission by order has duly
authorized the issuance and delivery of the First Mortgage Bond on terms not
inconsistent with this Bond Purchase Agreement;

(i) The Company is not a holding company, a registered holding
company or an affiliate of a registered holding company within the meaning of
the Public Utility Holding Company Act of 1935, as amended;

-6-

(j) There are no legal or governmental proceedings pending to
which the Company is a party or to which any property of the Company is subject,
other than as set forth in the Official Statement and other than litigation
incident to the kind of business conducted by the Company, wherein an
unfavorable ruling, decision or finding is likely that would have a material
adverse effect on the financial position, stockholders' equity or results of
operations of the Company; and, to the best of the Company's knowledge after
due, no such proceedings are threatened by governmental authorities or
threatened by others;

(k) (i) The Project consists of either land or property of a
character subject to the allowance for depreciation for federal income tax
purposes and will be used to furnish water that is or will be made available to
members of the general public (including electric utility, industrial,
agricultural, or commercial users); (ii) the rates for the furnishing or sale of
the water have been established or approved by a State or political subdivision
thereof, by an agency or instrumentality of the United States, or by a public
service or public utility commission or other similar body of any State or
political subdivision thereof; and (iii) all other information supplied by the
Company to the Underwriter with respect to the exclusion from gross income
pursuant to Section 103 of the Code of the interest on the Bonds is correct and
complete;

(l) The Company has not, within the immediately preceding ten (10)
years, defaulted in the payment of principal or interest on any of its bonds,
notes or other securities, or any legally authorized obligation issued by it;
and

(m) The information with respect to the Company and the Project
and the descriptions of the Financing Agreement, the First Mortgage Bond, the
Mortgage and the Continuing Disclosure Agreement contained in the Preliminary
Official Statement and the Official Statement (including appendices A, B and C
thereto) do not contain an untrue statement of a material fact or omit to state
a material fact necessary to make such information and descriptions, in the
light of the circumstances under which they were made, not misleading.

5. Authority's Covenants. The Authority will:

(a) furnish such information, execute such instruments and take
such other action in cooperation with the Underwriter as the Underwriter may
reasonably request to qualify the Bonds for offer and sale under the Blue Sky or
other securities laws and regulations of such states and other jurisdictions in
the United States of America as the Underwriter may designate and will assist,
if necessary therefor, in the continuance of such qualifications in effect so
long as required for distribution of the Bonds; provided, however, that the
Authority shall in no event be required to file a general consent to suit or
service of process or to qualify as a foreign corporation or as a dealer in
securities in any such state or other jurisdiction;

(b) not, on its part, amend or supplement the Official Statement
without prior notice to and the consent of the Underwriter and the Company and
will advise the Underwriter and the Company promptly of the institution of any
proceedings by any governmental agency or otherwise affecting the use of the
Official Statement in connection with the offer and sale of the Bonds; and

(c) refrain from knowingly taking any action (and permitting any
action with regard to which the Authority may exercise control) which would
result in the loss of the exclusion from gross income for federal income tax
purposes of interest on the Bonds referred to under the caption "TAX MATTERS" in
the Official Statement.

-7-

6. Company's Covenants. The Company agrees that it will:

(a) refrain from knowingly taking any actions (and from permitting
any action with regard to which the Company may exercise control) that would
result in the loss of the exclusion from gross income for federal tax purposes
of interest on the Bonds referred to under the caption "TAX MATTERS" in the
Official Statement;

(b) indemnify and hold harmless the Authority, its members,
directors, officers, agents, attorneys, and employees and the Underwriter, its
officers, directors, officials, agents, attorneys, employees, and each person,
if any, who controls the Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), from and against all losses, claims, damages, liabilities and
expenses, joint or several, to which the Authority and the Underwriter, or
either of them, or any of their respective members, directors, officers, agents,
attorneys, and employees and each person, if any, who controls the Underwriter
within the meaning of the 1933 Act or 1934 Act as aforedescribed may become
subject, under federal laws or regulations, or otherwise, insofar as such
losses, claims, damages, liabilities and expenses (or actions in respect
thereof) arise out of or are based upon: (i) a breach of the Company's
representations included in this Agreement; (ii) any untrue statement or alleged
untrue statement of any material fact pertaining to the Project or the Company
set forth in the Official Statement, the Preliminary Official Statement or any
amendment to either, or (iii) the willful or negligent omission of (or the
alleged omission to state) a material fact in the Official Statement in the
Preliminary Official Statement, or in any amendment or supplement to either, as
such fact is required to be stated therein or necessary to make the statements
therein which pertain to the Company or the Project not misleading in the light
of the circumstances under which they were made, or (iv) arising by virtue of
the failure to register the Bonds under the 1933 Act or the failure to qualify
the Indenture under the 1939 Act;

(c) undertake, pursuant to the Continuing Disclosure Agreement
dated October 15, 2001 to be entered into between the Company and the Trustee
(the "Continuing Disclosure Agreement"), to provide annual reports and notices
of certain material events in accordance with Rule 15c2-12 under the 1934 Act,
as amended ("Rule 15c2-12"). A description of this undertaking and the
Continuing Disclosure Agreement is set forth in the Preliminary Official
Statement and will also be set forth in the Official Statement;

(d) not amend or supplement the Official Statement without prior
notice to, and the consent of, the Underwriter, and will advise the Underwriter
and the Authority promptly of the institution of any proceedings by any
governmental agency or otherwise affecting the use of the Official Statement in
connection with the offer and the sale of the Bonds; and

(e) Concurrently with the Authority's and the Company's acceptance
hereof, and as a condition to the obligation of the Underwriter hereunder, (a)
the Company will deliver or cause to be delivered to the Underwriter a letter or
letters from PricewaterhouseCoopers, LLP, dated a date not more than seven days
prior to the date of this Bond Purchase Contract, containing the results of the
performance of certain agreed upon procedures and consenting to the use of the
Company's audited financial statements prepared by PricewaterhouseCoopers, LLP,
in the Preliminary Official Statement and the Official Statement.

-8-

7. Underwriter's Covenant. By acceptance hereof the Underwriter agrees
to indemnify and hold harmless the Authority, its members, directors, officers,
agents, attorneys, and employees and the Company, its officers, directors,
agents, attorneys, and employees and each person if any, who controls the
Company within the meaning of Section 15 of the 1933 Act against all or several
claims, losses, damages, liabilities and expenses asserted against them, or any
of them, at law or in equity, in connection with (i) the offering and sale of
the Bonds on the grounds that the information under the caption "UNDERWRITING"
in the Preliminary Statement or the Official Statement (or any supplement or
amendment to said information) contains an untrue or allegedly untrue statement
of a material fact or omits or allegedly omits to state any material fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made (it being understood that the
Underwriters furnished only the information under such "UNDERWRITING" heading),
or (ii) failure on the part of the Underwriter to deliver an Official Statement
to any purchaser; and will reimburse any legal or other expenses reasonably
incurred by a party, person or entity indemnifiable under this Section 7 in
connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have. The Underwriter shall not be
liable for any settlement of any such action effected without its consent.

8. Notice of Indemnification; Settlement. Promptly after a party,
person or entity indemnifiable under Section 6 or 7 of this Bond Purchase
Agreement (an "Indemnitee") receives notice of the commencement of any action
against such Indemnitee in respect of which indemnity is to be sought by the
Indemnitee against the Company or the Underwriter, as the case may be (the
"Indemnifying Party"), the Indemnitee will notify the Indemnifying Party in
writing of such action and the Indemnifying Party may assume the defense
thereof, including the employment of counsel and the payment of all expenses;
but the omission so to notify the Indemnifying Party will not relieve the
Indemnifying Party from any liability which it may have to the Indemnitee
otherwise than hereunder. The Indemnifying Party shall not be liable for any
settlement of any such action effected without its consent, but if settled with
the consent of the Indemnifying Party or if there is a final judgment for the
plaintiff in any such action, the Indemnifying Party will indemnify and hold
harmless the Indemnitee from and against any loss or liability by reason of such
settlement or judgment. The indemnity agreements contained in this Bond Purchase
Agreement shall include reimbursement for expenses reasonably incurred by an
Indemnitee in investigating the claim and in defending it if the Indemnifying
Party declines to assume the defense and shall survive delivery of the Bonds.

9. Equitable Contribution. If the indemnification provided for in
Section 6(b) of this Bond Purchase Agreement is unavailable to the Underwriter
(or any controlling person thereof) in respect of any losses, claims, damages or
liabilities referred to therein, then the Company shall, in lieu of indemnifying
the Underwriter, contribute to the amount paid or payable by the Underwriter as
a result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Underwriter, respectively, from the offering of the Bonds. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then the Company shall contribute to such amount paid or payable
by the Underwriter in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the
Underwriter, respectively, in connection with the statements or omission which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefit received by the Company
or the Underwriter shall be deemed to be in the same proportion as the total
proceeds from the offering (before deducting issuance costs and expenses other
than underwriting fees and commissions) received by the Company, on the one
hand, bear to the total underwriting fees and commissions received by the
Underwriter, on the other hand. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact

-9-

related to information supplied by the Company or the Underwriter and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriter
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 9. The amount paid or payable by the Underwriter as a
result of the losses, claims, damages or liabilities referred to above in this
Section 9 shall be deemed to include any reasonable legal or other expenses
reasonably incurred by the Underwriter in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 9, the Underwriter shall not be required to contribute any amount in
excess of the amount by which the total price at which the Bonds underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which the Underwriter has otherwise been required to pay by
reason of such untrue or allegedly untrue statement or omission or alleged
omission.

10. Official Statement; Public Offering.

(a) In order to enable the Underwriter to comply with Rule
15c2-12: (i) the Company has prepared (or caused to be prepared) the Preliminary
Official Statement, which the Company and the Authority (but, in the case of the
Authority, only with respect to the information therein under the headings "THE
AUTHORITY" and, insofar as they relate to the Authority, "INTRODUCTORY
STATEMENT" and "ABSENCE OF MATERIAL LITIGATION") deem final and complete as of
its date; (ii) the Company shall provide to the Underwriter sufficient copies of
the Official Statement in sufficient time to accompany any confirmation that
requires payment from any customer and in any event within seven business days
after the date of this Bond Purchase Agreement; and (iii) if any event of which
the Company has or gains knowledge would render the Official Statement
misleading in any material respect in the period from the date of its delivery
to the Underwriter by the Company (as that phrase is defined in Rule 15c2-12)
then the Company shall promptly give the Underwriter notice thereof. The
Authority and the Company hereby authorize the use of the Preliminary Official
Statement and the Official Statement by the Underwriter in connection with the
offering of the Bonds.

(b) After the Closing, and until the Underwriter has informed the
Authority and the Company that the Underwriter has sold all the Bonds, the
Authority and the Company will not adopt or distribute any amendment of or
supplement to the Official Statement, except with the prior written consent of
the Underwriter; and if any event relating to or affecting the Authority, the
Company or the Bonds shall occur, the result of which shall make it necessary,
in the opinion of the Underwriter, to amend or supplement the Official Statement
in order to make it not misleading in the light of the circumstances existing at
that time, the Company shall forthwith prepare, and the Company and the
Authority shall approve for distribution, a reasonable number of copies of an
amendment of or supplement to the Official Statement, in form and substance
reasonably satisfactory to the Underwriter, so that the Official Statement then
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances existing at that time, not misleading. The Authority shall
cooperate with the Company in the issuance and distribution of any such
amendment or supplement.

-10-

(c) Upon Closing, the Underwriter shall promptly provide a
Nationally Recognized Municipal Securities Information Repository ("NRMSIR") and
the Municipal Securities Rulemaking Board ("MSRB") with a copy of the Official
Statement for filing in accordance with Rule 15c2-12 and will inform the
Authority and the Company in writing as to (i) the date and place of such filing
and (ii) the date of the end of the underwriting period.

11. Conditions of Underwriter's and Authority's Obligations. The
Underwriter's obligations to purchase and pay for the Bonds and the Authority's
obligation to issue and deliver the Bonds are subject to fulfillment of the
following conditions at or before Closing:

(a) The representations of the Authority and the Company herein
shall be true in all material respects on and as of the date of the Closing and
shall be confirmed by appropriate certificates at Closing;

(b) Neither the Authority nor the Company shall be in default in
the performance of any of their respective covenants herein;

(c) The Underwriter shall have received:

(i) Opinions of Reed Smith LLP, Bond Counsel, dated the date
of Closing, substantially in the forms attached as Appendix D to the
Preliminary Official Statement and Exhibit A hereto, addressed to (or
with reliance letters delivered in respect of) the Authority and the
Underwriter;

(ii) An opinion of Blank Rome Comisky & McCauley LLP, counsel
for the Authority, dated the date of Closing, with respect to the
matters set forth in Exhibit B hereto, addressed to the Underwriter and
in form and substance reasonably satisfactory to the Underwriter and
Bond Counsel;

(iii) Opinions of Dilworth Paxson LLP, counsel to the Company,
and the Company's general counsel, dated the date of Closing, with
respect to the matters set forth in Exhibit C hereto, addressed to the
Underwriter, the Authority and Bond Counsel, in form and substance
reasonably satisfactory to the Underwriter and to Bond Counsel;

(iv) An opinion of Klett Rooney Lieber & Schorling, A
Professional Corporation, counsel for the Underwriter, in form and
substance reasonably satisfactory to the Underwriter;

(v) An opinion of legal counsel to the Ambac Assurance
Corporation (the "Bond Insurer") in form and substance satisfactory to
the Underwriter, relating to the enforceability of a municipal bond
insurance policy from the Bond Insurer (the "Insurance Policy") and the
information concerning the Bond Insurer in the Official Statement;

-11-

(vi) An agreed upon procedures letter dated a date not more
than seven days prior to the Closing from PricewaterhouseCoopers, LLP,
the Company's auditors, with respect to the Official Statement, in form
and substance satisfactory to the Underwriter, updating the agreed upon
procedures required by Section hereof;

(vii) A certificate dated the date of Closing executed by the
an authorized officer of the Authority to the effect that:

(A) the representations and warranties of
the Authority contained herein, to the best of the knowledge
of such officer, are true and correct in all material respects
as of the date of Closing; and

(B) to the best of the knowledge of such
officer, the Authority has complied in all material respects
with all agreements executed by the Authority in connection
with issuance of the Bonds and satisfied in all material
respects the Authority's covenants contained in Section 5
herein and all of the conditions on its part to be performed
or satisfied at or prior to the Closing;

(viii) A certificate dated the date of Closing executed by the
chief financial officer of the Company to the effect that:

(A) the representations and warranties of
the Company in this Bond Purchase Agreement are true and
correct in all material respects as of the date of Closing;

(B) the Preliminary Official Statement and
the Official Statement, as of their respective dates, insofar
as they relate to the Company, do not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, under the circumstances in which they were
made, not misleading in any respect; and

(C) no event affecting the Company has
occurred since the date of the Bond Purchase Agreement which
is required to be disclosed in the Official Statement in order
to make the statements and information therein not misleading
in any material respect;

(ix) Two executed copies of the Trust Indenture, the Financing
Agreement, the Bond Purchase Agreement, the Thirty-Fourth Supplemental
Mortgage and the Continuing Disclosure Agreement;

(x) Two copies of the Articles of Incorporation and Bylaws of
the Company, as amended to the date of Closing, and of the resolutions
of the Board of Directors of the Company authorizing and approving the
execution and delivery of this Bond Purchase Agreement, the Financing
Agreement, the First Mortgage Bond, the Thirty-Fourth Supplemental
Mortgage, the Continuing Disclosure Agreement and the incurrence of
indebtedness with respect thereto and all transactions described in the
Official Statement and contemplated by this Bond Purchase Agreement,
all certified by its Secretary or Assistant Secretary;

-12-

(xi) Two copies of the Authority Resolution, a copy of the
Articles of Incorporation of the Authority certified by the Secretary
of the Commonwealth, a copy of the Bylaws of the Authority certified by
its Secretary, and a subsistence certificate from the Secretary of the
Commonwealth, dated as of a date within ten (10) days prior to the
Closing Date;

(xii) A letter from PricewaterhouseCoopers, LLP, dated the
date of Closing and addressed to the Underwriter; consenting to the use
of the financial statements prepared by such firm and all references to
such firm contained in the Preliminary Official Statement and the
Official Statement;

(xiii) Evidence of the issuance of the Insurance Policy by the
Bond Insurer, which policy shall unconditionally and irrevocably
guarantee the payment when due of the principal of and interest on the
Bonds;

(xiv) Evidence satisfactory to the Underwriter of a rating of
"AAA" assigned by Standard & Poor's with respect to the Bonds, and that
such rating is in full force and effect as of the date of Closing;

(xv) Evidence satisfactory to Bond Counsel and the Underwriter
of the receipt by the Authority of a Preliminary Allocation relating to
the Bonds from the Pennsylvania Department of Community and Economic
Development and of the registration of a Securities Certificate
relating to the First Mortgage Bond and the Bonds with the Pennsylvania
Public Utility Commission;

(xvi) a subsistence certificate with respect to the Company
from the Secretary of the Commonwealth, dated as of a date within ten
(10) days prior to the Closing Date; and

(xvii) Such additional documentation as the Underwriter or its
counsel or Bond Counsel may reasonably request to evidence compliance
with applicable law and the validity of the Bonds, the Financing
Agreement, the Trust Indenture, this Bond Purchase Agreement, the
Mortgage, the First Mortgage Bond and the Continuing Disclosure
Agreement, and to evidence that the interest on the Bonds is not
includable in gross income under the Code and the status of the
offering under the 1933 Act and the 1939 Act.

(d) At Closing there shall not have been any material adverse
change in the financial condition of the Company or any adverse development
concerning the business or assets of the Company which would result in a
material adverse change in the prospective financial condition or results of
operations of the Company from that described in the Official Statement which,
in the judgment of the Underwriter, makes it inadvisable to proceed with the
sale of the Bonds; and the Underwriter shall have received certificates of the
Company certifying that no such material adverse change has occurred or, if such
a change has occurred, full information with respect thereto; and

-13-

(e) The Underwriter shall deliver at Closing a certificate in form
acceptable to Bond Counsel to the effect that the Underwriter has sold to the
public (excluding bond houses and brokers) a substantial amount of the Bonds at
initial offering prices no higher than, or yields no lower than, those shown on
the cover page of the Official Statement and that such certificate may be relied
upon for purposes of determining compliance with Section 148 of the Code.

12. Events Permitting the Underwriter to Terminate. The Underwriter may
terminate its obligation to purchase the Bonds at any time before Closing if any
of the following occurs:

(a) A legislative, executive or regulatory action or proposed
action, or a court decision, which, in the reasonable judgment of the
Underwriter, casts sufficient doubt on the legality of, or the exclusion from
gross income for federal income tax purposes of interest on, obligations such as
the Bonds so as to materially impair the marketability or materially lower the
market price of the Bonds; or

(b) Any action by the Securities and Exchange Commission or a
court which would require registration of the Bonds or the First Mortgage Bond
under the 1933 Act or qualification of the Indenture under the 1939 Act; or

(c) Any general suspension of trading in securities on the New
York Stock Exchange or the establishment, by the New York Stock Exchange, by the
Securities and Exchange Commission, by any federal or state agency, or by the
decision of any court, of any limitation on prices for such trading, or any
outbreak of hostilities or other national or international calamity or crisis,
or any material escalation in any such hostilities, calamity or crisis, the
effect of which on the financial markets of the United States of America shall
be such as to materially impair the marketability or materially lower the market
price of the Bonds; or

(d) Any event or condition occurring or arising after the date
hereof which, in the reasonable judgment of the Underwriter, renders untrue or
incorrect, in any material respect as of the time to which the same purports to
relate, the information contained in the Official Statement, or which requires
that information not reflected in the Official Statement or Appendices thereto
should be reflected therein in order to make the statements and information
contained therein not misleading in any material respect as of such time;
provided that the Authority, the Company and the Underwriter will use their best
efforts to amend or supplement the Official Statement to reflect, to the
reasonable satisfaction of the Underwriter, such changes in or additions to the
information contained in the Official Statement; or

(e) Pending or threatened litigation affecting or arising out of
the ownership of the Project or any other facilities of the Company or the
issuance of the Bonds which in the reasonable judgment of the Underwriter would
materially impair the marketability or materially lower the market price of the
Bonds; or

(f) quantities of the Official Statement are not delivered to the
Underwriter in a timely manner as required by Section 10 hereof.

If the Underwriter terminates its obligation to purchase the Bonds
because any of the conditions specified in Section 11 hereof or this Section 12
shall not have been fulfilled at or before the Closing, such termination shall
not result in any liability on the part of the Authority, the Underwriter, or,
except for the payment of such costs of issuance described in Section 13 hereof
which are due and payable, the Company.

-14-

13. Expenses. All expenses and costs of the authorization, issuance,
sale and delivery of the Bonds including, without limitation, the preparation of
and furnishing to the Underwriter of the Preliminary Official Statement and the
Official Statement, the preparation and execution of the Bonds, the Financing
Agreement, the Trust Indenture, the First Mortgage Bond, the Thirty-Fourth
Supplemental Mortgage and this Bond Purchase Agreement, the Insurance Policy
premium, rating agency fees, the issuance and closing fees of the Authority, the
fees and disbursements of counsel to the Authority, the fees and disbursements
of Bond Counsel, the fees and disbursements of counsel to the Underwriter and
the expenses incurred in connection with qualifying the Bonds for sale under the
securities laws of various jurisdictions and preparing Blue Sky and legal
investment memoranda, shall be paid by the Company. The Authority shall bear no
out-of-pocket expense in connection with the transactions contemplated by this
Bond Purchase Agreement. The Underwriter will pay all other expenses of the
Underwriter in connection with the public offering of the Bonds.

14. Execution in Counterparts. This Bond Purchase Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and any of the parties hereto may
execute this Bond Purchase Agreement by signing any such counterpart.

15. Notices and Other Actions. All notices, requests, demands and
formal actions hereunder will be in writing mailed, faxed (with confirmation of
receipt) or delivered by nationally recognized, next-day delivery service to:

The Underwriter:

The GMS Group, L.L.C.
1489 Baltimore Pike
Building 200, Suite 245
Springfield, Pennsylvania 19064

Attention: George C. Werner, III
Senior Vice President

Fax #: (610) 690-7150

The Company:

Philadelphia Suburban Company
762 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010

Attention: Kathy L. Pape, Esq.,
Vice President, Treasurer & Rate Counsel

Fax #: (610) 519-0989

-15-

The Authority:

Delaware County Industrial Development Authority
200 East Street, Suite 205
Media, Pennsylvania 19063

Attention: J. Patrick Killian, Commerce Director

Fax #: (610) 566-7337

16. Governing Law. This Bond Purchase Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
excluding those relating to choice of laws or conflict of laws, and may not be
assigned by the Authority, the Company or the Underwriter.

17. Successors. This Bond Purchase Agreement will inure to the benefit
of and be binding upon the parties and their respective successors and, as to
Sections 6, 7 and 8 hereof, the Indemnitees, and will not confer any rights upon
any other person. The term "successor" shall not include any holder of any Bonds
merely by virtue of such holding.

18. Limitations on Liability. No personal recourse shall be had for any
claim based on this Bond Purchase Agreement or the Bonds against any board
member, officer, agent, employee, or attorney past, present or future, of the
Authority or any successor body as such, either directly or through the
Authority or any successor body, under any constitutional provision, statute, or
rule of law or by enforcement of any assessment or penalty or otherwise.
Notwithstanding any provision or obligation to the contrary in this Bond
Purchase Agreement, the liability of the Authority for payments of any kind,
nature or description provided for herein or in any other document executed
pursuant hereto shall be limited to the revenues derived by the Authority from
the Financing Agreement and the First Mortgage Bond.

-16-

IN WITNESS WHEREOF, the Authority, the Company and the Underwriter have
caused their duly authorized representatives to execute and deliver this Bond
Purchase Agreement as of the date first written above.

DELAWARE COUNTY INDUSTRIAL 
DEVELOPMENT AUTHORITY

By: /s/ Henry Coleman      
--------------------------------------------
(Vice) Chairman

PHILADELPHIA SUBURBAN WATER 
COMPANY

By: /s/ Kathy L. Pape                           
--------------------------------------------
(Vice) President

THE GMS GROUP, L.L.C.

By: /s/ George C. Werner                        
--------------------------------------------
George C. Werner, III Senior Vice President

-17-

SCHEDULE I

Terms of Bonds

Principal Amount:          $30,000,000*

Dated Date:                November 1, 2001

Maturity Date:             October 1, 2031 in the amount of $30,000,000

Interest  Payment  Dates:  Interest will be paid semiannually on April 1 and 
October 1 with payments commencing April 1, 2002

Rate of Interest:          5.35%

Redemption provisions:

The Bonds are subject to redemption as follows:

Optional Redemption. The Bonds are subject to redemption prior to
maturity by the Authority, at the direction of the Company, on or after October
1, 2012, as a whole or in part at any time, at a redemption price of one hundred
percent of the principal amount thereof, plus interest accrued to the date fixed
for redemption.

Extraordinary Optional Redemption. The Bonds are subject to redemption
by the Authority at the direction of the Company as a whole at any time prior to
maturity at a redemption price of 100% of the principal amount thereof plus
accrued interest to the redemption date upon the occurrence of the following
events:

(a) the Facilities are partially or totally damaged or
destroyed by fire or other casualty and (1) the Company fails to make
any determination within sixty (60) days after such damage or
destruction, as to the restoration of the Facilities; (2) the Company
determines within sixty (60) days after such damage or destruction that
satisfactory restoration of the Facilities may not be made; or (3)
after having made the determination to make such repair or restoration
as permitted by the Agreement, the Company fails to proceed promptly
with such restoration; or

(b) all or substantially all of the Facilities are taken or
condemned as a whole by a public body in the exercise of its power of
eminent domain, or any portion of the Facilities are so taken or
condemned and the Company determines that the remaining portion of the
Facilities is unsuitable for the Company's business; or

(c) if changes in the economic availability of raw materials,
operating supplies, labor or facilities necessary for the operation of
the Facilities or the water supply and distribution system of which
they are part as an efficient facility, or technological or other
changes shall have occurred which, in the Company's opinion, render the
Facilities or such system uneconomical for their intended purposes.

Excess Funds Redemption. The Bonds are subject to redemption as a whole
or in part at any time prior to maturity at a redemption price of 100% of the
principal amount thereof plus accrued interest to the redemption date to the
extent that excess funds on deposit in the Construction Fund are not needed to
pay Project Costs or costs of other permitted uses.

EXHIBIT A

Points to be covered in Supplemental Opinion of Bond Counsel

(Terms defined in Bond Purchase Agreement are used here with same 
meanings)

1. The Bonds are not subject to the registration requirements of the
1933 Act and the Indenture is not required to be qualified under the 1939 Act.

2. The Bond Purchase Agreement has been duly authorized, executed and
delivered by the Authority.

3. The execution and delivery of the Official Statement have been
authorized by the Authority,.

4. The information and statements contained in the Official Statement
under the sections captioned "INTRODUCTORY STATEMENT", "THE BONDS", "SECURITY
FOR THE BONDS" and in APPENDIX C thereto (insofar as such information and
statements purport to summarize provisions of the Bonds, the Trust Indenture and
the Financing Agreement) accurately summarize in all material respects the
provisions of the Bonds, the Trust Indenture and the Financing Agreement
purported to be summarized therein, and statements set forth in the section
captioned "TAX MATTERS" accurately summarizes in all material respects the
matters purported to be summarized therein.

EXHIBIT B

Points to be covered in Opinion of Counsel for the Authority

(Terms defined in Bond Purchase Agreement are used here with same
meanings)

1. The Authority is a body corporate and politic constituting an
instrumentality of the Commonwealth and is duly created and existing pursuant to
the Act.

2. The Authority has by proper action duly authorized the execution and
issuance of the Bonds and the execution and delivery of the Authority Financing
Documents. The Bonds have been duly and validly issued by the Authority and the
Authority Financing Documents have each been duly and validly executed and
delivered by the Authority and the Bonds and each of such documents are valid
and binding agreements of the Authority, enforceable against the Authority in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws or legal or
equitable principles affecting the enforcement of creditor's rights.

3. To the knowledge of such counsel, the execution and the issuance by
the Authority of the Bonds, the execution and delivery by the Authority of the
Authority Financing Documents and performance by the Authority of the
Authority's obligations under the Bonds and the Authority's Financing Documents,
do not conflict with or constitute on a part of the Authority a violation of,
breach of or default under any existing constitutional provision or statute of
the Commonwealth, or, to our knowledge without having undertaken any independent
investigation, any indenture, mortgage, deed of trust, resolution, note
agreement or other agreement or instrument to which the Authority is a party or
by which the Authority is bound, or, to our knowledge, any order, rule or
regulation of any court, governmental agency or body of the Commonwealth having
jurisdiction over the Authority or any of its activities or property.

4. To the knowledge of such counsel, there is no action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by any
court, public board or body, pending or threatened against the Authority,
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the transactions contemplated by the Bonds.

5. The Authority has approved the distribution of the Preliminary
Official Statement and the Official Statement by the Underwriter in connection
with the sale of the Bonds.

6. The information contained in the Preliminary Official Statement and
the Official Statement under the headings "THE AUTHORITY" and "ABSENCE OF
MATERIAL LITIGATION" has been reviewed by us and nothing has come to our
attention which would lead us to believe that such information contains any
untrue statement of a material fact or omits to state a material fact which is
required to be stated therein or which is necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading in any material respect.

EXHIBIT C

Points to be covered in Opinions of the Company's Legal and General
Counsel

(Terms defined in Bond Purchase Agreement are used here with same
meanings)

1. The Company was organized and subsists under the laws of the
Commonwealth, with power (corporate and other) to own its properties and conduct
its business as described in the Official Statement.

2. The Company has the corporate power and authority to enter into and
perform the Bond Purchase Agreement, the Financing Agreement, the First Mortgage
Bond, Thirty-Fourth Supplemental Mortgage, Tax Clearance Certificate and the
Continuing Disclosure Agreement. The execution, delivery and performance by the
Company of the Financing Agreement, the Bond Purchase Agreement, the First
Mortgage Bond, Thirty-Fourth Supplemental Mortgage, Tax Clearance Certificate
and the Continuing Disclosure Agreement have been duly authorized by all
requisite corporate action.

3. The Bond Purchase Agreement has been duly executed and delivered by
the Company and constitutes a legal, valid and binding obligation of the
Company. The Financing Agreement and the Continuing Disclosure Agreement, when
executed and delivered by the Company, will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights in general.

4. The execution and delivery of the Bond Purchase Agreement, the
Financing Agreement and the Continuing Disclosure Agreement and the performance
by the Company of its obligations thereunder will not violate, conflict with or
result in a breach of or constitute a default under the Articles of
Incorporation or Bylaws of the Company or any agreement, instrument, order,
writ, judgment or decree to which the Company is a party or to which it or any
of its property is subject.

5. The Company has obtained all approvals required in connection with
the execution and delivery of, and performance by the Company of its obligations
under, the Bond Purchase Agreement, the Financing Agreement, the First Mortgage
Bond, the Thirty-Fourth Supplemental Mortgage and the Continuing Disclosure
Agreement.

6. The First Mortgage Bond has been duly authorized, executed,
authenticated, issued and delivered and constitutes a valid and legally binding
obligation of the Company entitled to the benefits provided by the Mortgage.

7. The First Mortgage Bond is not subject to the registration
requirements of the 1933 Act.

8. The Original Indenture has been duly authorized, executed and
delivered by the Company and the Trustee and the Thirty-Fourth Supplemental
Mortgage has been duly authorized, executed and delivered by the Company and the
Trustee and recorded as required by law. The Mortgage (i) constitutes a valid
and legally binding instrument enforceable in accordance with its terms except
as enforceability may be limited by bankruptcy, insolvency, reorganization or
other laws relating to or affecting the enforcement of creditors' rights, and
(ii) constitutes a direct, valid and enforceable first mortgage lien (except as
enforceability of such lien may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights)
upon all of the properties and assets of the Company (not heretofore released as
provided for in the Mortgage) specifically or generally described or referred to
in the Mortgage as being subject to the lien thereof, except for permitted liens
under the Mortgage, and will create a similar lien upon all properties and
assets acquired by the Company after the execution and delivery of the
Thirty-Fourth Supplemental Mortgage and required to be subjected to the lien of
the Mortgage pursuant thereto when so acquired, except for permitted liens under
the Mortgage; the Mortgage has been duly filed, recorded or registered in each
place in the Commonwealth in which such filing, recording or registration was or
is required to protect and preserve the lien of the Mortgage; and all necessary
approvals of regulatory authorities, commissions and other governmental bodies
having jurisdiction over the Company required to subject to the lien of the
Mortgage the mortgaged property or trust estate (as defined in the Mortgage)
have been duly obtained.

9. In each of the following cases with such exceptions as are not
material and do not interfere with the conduct of the business of the Company,
the Company has good and marketable title to all of its real property currently
held in fee simple; good and marketable title to all of its other interests in
real property (other than to certain rights of way, easements, occupancy rights,
riparian and flowage rights, licenses, leaseholds, and real property interests
of a similar nature); and good and marketable title to all personal property
owned by it; in each case free and clear of all liens, encumbrances and defects
except such as maybe described in the Official Statement, the lien of the
Mortgage, permitted liens under the Mortgage or such as do not materially affect
the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company; and any real property and buildings
held under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company.

10. In each of the following cases with such exceptions as are not
material and do not interfere with the conduct of the business of the Company,
the Company has all licenses, franchises, permits, authorizations, rights,
approvals, consents and order of all governmental authorities or agencies
necessary for the ownership or lease of the properties owned or leased by it and
for the operation of the business carried on by it as described in the Official
Statement, and all water rights, riparian rights, easements, rights of way and
other similar interests and rights described or referred to in the Mortgage
necessary for the operation of the business carried on by it as described in the
Official Statement; except as otherwise set forth in the Official Statement, all
such licenses, franchises, permits, orders, authorizations, rights, approvals
and consents are in full force and effect and contain no unduly burdensome
provisions; to the best of such counsel's knowledge, except as otherwise set
forth in the Official Statement, there are no legal or governmental proceedings
pending or, to its knowledge, threatened that would result in a material
modification, suspension or revocation thereof; and the Company has the legal
power to exercise the rights of eminent domain for the purposes of conducting
its water utility operations.

11. The issue and sale of the Bonds; the issue and delivery of the
First Mortgage Bond and the compliance by the Company with all of the applicable
provisions of the First Mortgage Bond and the Mortgage; the execution, delivery
and performance by the Company of the Thirty-Fourth Supplemental Mortgage, the
Financing Agreement, this Bond Purchase Agreement and the Continuing Disclosure
Agreement will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance (other than the lien of the
Mortgage) upon any of the property or assets of the Company pursuant to the
terms of, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which the Company
is bound or to which any of the property or assets of the Company is subject,
nor will such action result in a violation of the provisions of the Articles of
Incorporation, as amended, or the Bylaws of he Company or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its property; and no consent, approval,
authorization, order, registration or qualification of or with any court or any
such regulatory authority or other governmental body not already obtained is
required for the issue and sale of the Bonds; the issue and delivery of the
First Mortgage Bond; the execution, delivery and performance of this Bond
Purchase Agreement, the Financing Agreement, the Thirty-Fourth Supplemental
Mortgage, the First Mortgage Bond and the Continuing Disclosure Agreement; or
the consummation of the other transactions contemplated by this Bond Purchase
Financing Agreement or the Mortgage.

12. The Company is not a holding company, a registered holding company
or an affiliate of a registered holding company within the meaning of the Public
Utility Company Holding Act of 1935, as amended.

13. There are no legal or governmental proceedings pending to which the
Company is a party or of which any property of the Company is the subject, other
than as set forth in the Official Statement and other than litigation incident
to the kind of business conducted by the Company, wherein an unfavorable ruling,
decision or finding is likely that would have a material adverse effect on the
financial position, stockholders' equity or results of operations of the
Company.

14. Such counsel shall also state that it has no reason to believe that
the information with respect to the Company and the Project and the descriptions
of the First Mortgage Bond and the Mortgage contained in the Preliminary
Official Statement and the Official Statement (including Appendix A and the
information incorporated therein by reference) contain any untrue statement of a
material fact or omit to state a material fact which is required to be stated
therein or which is necessary to make such information and descriptions, in the
light of the circumstances under which they were made, not misleading in any
material respect.

Exhibit 10.36

Execution Copy
CONSTRUCTION AND FINANCING AGREEMENT

between

DELAWARE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY

and

PHILADELPHIA SUBURBAN WATER COMPANY

Dated as of October 15, 2001

_______________________________________________________________________________
_______________________________________________________________________________

Relating to
$30,000,000 aggregate principal amount of
Delaware County Industrial Development Authority
Water Facilities Revenue Bonds
(Philadelphia Suburban Water Company Project), Series of 2001

_______________________________________________________________________________
_______________________________________________________________________________

SUBSTANTIALLY ALL OF THE RIGHTS OF THE DELAWARE COUNTY INDUSTRIAL DEVELOPMENT
AUTHORITY IN AND TO THIS AGREEMENT HAVE BEEN ASSIGNED TO FIRST UNION NATIONAL
BANK, AS TRUSTEE UNDER THE TRUST INDENTURE DATED AS OF OCTOBER 15, 2001 BETWEEN
SAID AUTHORITY AND SAID TRUSTEE.

TABLE OF CONTENTS

ARTICLE I

DEFINITIONS

SECTION 1.01.     Definitions................................................................................. 2

ARTICLE II

REPRESENTATIONS AND FINDINGS

SECTION 2.01.     Representations and Warranties of the Authority............................................. 3
SECTION 2.02.     Representation and Warranties of the Company................................................ 3
SECTION 2.03.     Findings of the Authority................................................................... 3

ARTICLE III

COMPLETION OF THE FACILITIES; ISSUANCE OF THE 2001 BONDS

SECTION 3.01.     Portions of Project Completed............................................................... 4
SECTION 3.02.     Acquisition, Etc., of the Facilities; Completion............................................ 4
SECTION 3.03.     Issuance of Bonds........................................................................... 4
SECTION 3.04.     Payments From Construction

Fund............................................................. 4
SECTION 3.05.     Requisitions................................................................................ 4
SECTION 3.06.     Plans and Specifications.................................................................... 4
SECTION 3.07.     Completion of Project....................................................................... 5
SECTION 3.08.     Company to Pay Additional Amounts If Required............................................... 5
SECTION 3.09.     Investment of Amounts in the Construction Fund.............................................. 5

ARTICLE IV

LOAN AND OTHER AMOUNTS

SECTION 4.01.     Loan by Authority to Company................................................................ 5
SECTION 4.02.     Repayment of Loan and Other Amounts......................................................... 6
SECTION 4.03.     Security For Payment........................................................................ 7
SECTION 4.04.     Assignment to Trustee....................................................................... 7
SECTION 4.05.     Operation and Maintenance................................................................... 7
SECTION 4.06.     Insurance................................................................................... 8
SECTION 4.07.     Liens ...................................................................................... 8
SECTION 4.08.     Facilities Used For Purpose of the Act...................................................... 8
SECTION 4.09.     Payment of Certain Costs.................................................................... 8
SECTION 4.10.     Obligation to Make Payments Absolute........................................................ 8

ARTICLE V

SPECIAL COVENANTS

SECTION 5.01.     No Warranty................................................................................. 9
SECTION 5.02.     Company to Maintain Corporate Existence, Etc................................................ 9
SECTION 5.03.     Operation of Facilities; Maintenance of Licenses and Permits................................ 9
SECTION 5.04.     Additional Permits.......................................................................... 9
SECTION 5.05.     Authority to Maintain Corporate Existence, Etc.............................................. 9
SECTION 5.06.     Compliance With Continuing Disclosure Agreement............................................. 9
SECTION 5.07.     Certain Tax Covenants.......................................................................10
SECTION 5.08.     Financial Statements and Other Reporting Requirements
of the Company.......................................................................10
SECTION 5.09.     Nondiscrimination Provisions................................................................10

ARTICLE VI

ASSIGNMENT, LEASING AND SALES

SECTION 6.01.     Assignment, Lease and Sale of Facilities....................................................10
SECTION 6.02.     Assignment of Rights Under Agreement........................................................11

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

SECTION 7.01.     Events of Default...........................................................................11
SECTION 7.02.     Remedies....................................................................................13
SECTION 7.03.     Remedies Not Exclusive......................................................................13
SECTION 7.04.     Reimbursement of Fees and Expenses..........................................................13
SECTION 7.05.     Waivers of Breaches.........................................................................13

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01.     Termination.................................................................................14
SECTION 8.02.     Notices.....................................................................................14
SECTION 8.03.     Benefit of Agreement........................................................................14
SECTION 8.04.     Amendments..................................................................................14
SECTION 8.05.     Counterparts................................................................................14
SECTION 8.06.     Invalidity of Certain Clauses...............................................................14
SECTION 8.07.     Governing Law...............................................................................14
SECTION 8.08.     Indemnification.............................................................................14
SECTION 8.09.     Limitation of Rights Against Authority......................................................16
SECTION 8.10.     Limitation of Recourse Against Authority....................................................17

EXHIBIT A          Description of the Facilities
EXHIBIT B          Nondiscrimination Provisions

-ii-

CONSTRUCTION AND FINANCING AGREEMENT

THIS CONSTRUCTION AND FINANCING AGREEMENT, dated as of October 15, 2001
(as it may be amended, supplemented or otherwise modified and in effect from
time to time, this "Agreement"), by and between the DELAWARE COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY, a body corporate and politic organized and existing under
and by virtue of the laws of the Commonwealth of Pennsylvania (the "Authority"),
and PHILADELPHIA SUBURBAN WATER COMPANY, a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania (the "Company").

WITNESSETH:

WHEREAS, the Authority was organized pursuant to the Economic
Development Financing Law of the Commonwealth of Pennsylvania, Act of August 23,
1967, P.L. 251, as amended (the "Act"), which Act declares it to be the policy
of the Commonwealth of Pennsylvania (the "Commonwealth") to promote the health,
safety, morals, employment, business opportunities and general welfare of the
people thereof by providing for the creation of industrial and commercial
development authorities which shall exist and operate as public
instrumentalities of the Commonwealth for the public purpose of alleviating
unemployment, maintaining employment at a high level, eliminating and preventing
blight and eliminating or reducing air and water pollution, and creating and
developing business opportunities by the construction, improvement,
rehabilitation, revitalization and financing of industrial, commercial,
manufacturing and research and development enterprises; and

WHEREAS, the Act declares that every authority incorporated under it
shall be for the purpose of acquiring, holding, constructing, improving,
maintaining, owning, financing and leasing, as lessor or as lessee, among other
things, facilities for the furnishing of water; and

WHEREAS, the Company is engaged primarily in the activity, under the
regulatory control of the Pennsylvania Public Utility Commission, of furnishing
water available on reasonable demand to members of the general public; and

WHEREAS, the Authority adopted resolutions on September 21, 2001
providing for the issuance and sale by the Authority of its revenue bonds to
provide funds to pay all or a portion of (i) the costs of the acquisition,
construction, installation and equipping of the Facilities (as defined in the
Indenture hereinafter mentioned) and (ii) the costs of issuance relating
thereto; and

WHEREAS , in connection with the issuance by the Authority of its
revenue bonds to provide funds for the cost of the Facilities, the Company is to
enter into this Agreement under which the Authority agrees to loan funds to the
Company for the construction and installation of the Facilities and the Company
agrees to pay to the Authority, in repayment of the loan, amounts sufficient to
pay the principal of and interest on such revenue bonds as and when due; and

WHEREAS, the Company has commenced the acquisition, construction,
installation and equipping of certain of the Facilities; and

WHEREAS, the Company now desires that the Authority proceed with the
issuance and sale of its revenue bonds to provide the funds to pay the costs of
the Project (as defined in the Indenture) and related financing costs; and

WHEREAS, the Authority has authorized the issuance and sale of up to
$30,000,000 aggregate principal amount of its Water Facilities Revenue Bonds
(Philadelphia Suburban Water Company Project), Series of 2001 (the "2001
Bonds"), the proceeds of which shall be applied to pay and to reimburse the
Company for its payment of the costs of the Project and related financing costs;
and

WHEREAS, the 2001 Bonds are to be issued under and secured by a Trust
Indenture, dated as of October 15, 2001 (as it may be amended, supplemented or
otherwise modified and in effect from time to time, the "Indenture"), between
the Authority and First Union National Bank, a national banking association
organized and existing under the laws of the United States of America and having
a corporate trust office and place of business in Philadelphia, Pennsylvania, as
trustee ("Trustee"); and

WHEREAS, the proceedings to be undertaken by the Authority in respect
of the acquisition, construction, installation and equipping of the Facilities
and the financing thereof have been approved by the Secretary of the Department
of Community and Economic Development of the Commonwealth;

NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby and in consideration of the mutual covenants hereinafter contained, DO
HEREBY AGREE as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions. Terms defined in the preambles hereof shall
have the meanings ascribed thereto in such preambles. Other capitalized terms
used herein and not otherwise defined herein shall have the meanings ascribed
thereto in the Indenture.

For all purposes of this Agreement, the terms defined in this Article I
shall have the respective meanings herein specified, unless the context clearly
otherwise requires:

"Completion Date" shall mean the date of completion of acquisition,
construction, installation and equipping of the Facilities, as that date shall
be certified pursuant to Section 3.07 hereof.

"Event of Default" shall mean any of the events specified as such
under Section 7.01 hereof.

"Loan" shall mean the financing provided by the Authority to the
Company pursuant to Section 4.01 hereof to provide funds for and toward the
Costs of the Project.

"Loan Repayments" shall mean the payments to be made by the Company to
the Authority pursuant to Section 4.02(a) hereof.

"Plans and Specifications" shall mean the plans and specifications
prepared for the Facilities, duly certified by an Authorized Company
Representative and on file at the principal office of the Company in Bryn Mawr,
Pennsylvania, as the same may be revised from time to time prior to the
Completion Date in accordance with Section 3.06 of this Agreement.

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ARTICLE II

REPRESENTATIONS AND FINDINGS

SECTION 2.01. Representations and Warranties of the Authority. The
Authority makes the following representations as the basis for the undertakings
on the part of the Company herein contained:

(a) The Authority is a public instrumentality of the
Commonwealth and a public body corporate and politic organized and existing
under and pursuant to the Act.

(b) The Authority has full power and authority to enter into
this Agreement and to perform and observe the agreements and covenants on its
part contained herein, and by proper corporate action has duly authorized the
execution and delivery hereof. The execution and delivery of this Agreement by
the Authority and the performance of its obligations hereunder, do not and will
not violate or constitute a default under the Authority's Articles of
Incorporation or bylaws or any agreement, indenture, mortgage, lease, note or
other obligation or instrument or order or regulation of any court or
administrative agency binding upon the Authority.

(c) Under existing law, no taxes on income or profits are 
imposed on the Authority.

(d) As required by the Act, the Secretary of the Department of
Community and Economic Development of the Commonwealth has determined that the
Facilities and the financing thereof are in apparent conformity with the Act and
any regulations, statements of policy, guidelines or rulings promulgated
pursuant to the Act, and said Secretary has, by instrument dated August 29,
2001, approved the same and certified such approval to the Authority.

SECTION 2.02. Representation and Warranties of the Company. The Company
makes the following representations as the basis for the undertakings on the
part of the Authority herein contained:

(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth, and has all
required corporate power and authority to enter into this Agreement and to
perform and observe the agreements and covenants on its part contained herein.
The Company by proper corporate action has duly authorized the execution and
delivery of this Agreement. The execution and delivery of this Agreement by the
Company and the performance of its obligations hereunder do not and will not
violate or constitute a default under the Corporation's articles of
incorporation or bylaws or any agreement, indenture, mortgage, lease, note or
other obligation or instrument or any order of any court or administrative
agency binding upon the Company.

(b) The "cost" of the Project, as defined in the Act, is
estimated by the Company as of the date hereof to be not less than $30,000,000.

(c) The Facilities are to be located in the Counties of
Delaware, Chester, Montgomery and Bucks in the Commonwealth, and within the
authorized service area of the Company.

SECTION 2.03. Findings of the Authority. The Authority hereby confirms
its findings that:

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(a) The Company is of a nature and size and is engaged in
activities which require substantial capital, is financially responsible to
assume all obligations prescribed by the Authority and the Act and is qualified
to be an "occupant" for purposes of the Act.

(b) The Project to be undertaken by the Authority hereunder
will promote the purposes of the Act by protecting the health, safety and
general welfare of the people of the Commonwealth and encouraging economic
development within the Commonwealth through the provision of basic services and
facilities, thereby alleviating unemployment, maintaining employment at a high
level and creating and developing business opportunities.

ARTICLE III

COMPLETION OF THE FACILITIES; ISSUANCE OF THE 2001 BONDS

SECTION 3.01. Portions of Project Completed. The acquisition or
construction of certain of the Facilities has been commenced and, in some cases,
completed.

SECTION 3.02. Acquisition, Etc., of the Facilities; Completion. The
Company will cause the acquisition, construction, installation and equipping of
the Facilities to be completed with all reasonable dispatch substantially in
accordance with the Plans and Specifications. In order to effectuate the
purposes of this Agreement, the Company will make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered, all such
contracts, orders, receipts, writings and instructions, in the name of the
Company or otherwise, with or to other Persons, and in general do or cause to be
done all such other things, as may be requisite or proper for acquiring,
constructing, installing and equipping the Facilities and fulfilling the
obligations of the Company under this Agreement.

The Company will maintain such records in connection with the
acquisition, construction, installation and equipping of the Facilities as to
permit ready identification of the Facilities and the Cost thereof.

SECTION 3.03. Issuance of Bonds. In order to provide funds for payment
of the Cost of the Project the Authority will issue and sell the 2001 Bonds and
deliver the proceeds thereof to the Trustee. A sum equal to the accrued
interest, if any, paid by the initial purchasers of the 2001 Bonds shall be
deposited in the Debt Service Fund and the balance of the proceeds received from
said sale shall be deposited in the Construction Fund. The Company hereby
approves all of the terms, provisions and other details of the 2001 Bonds and
the Indenture.

SECTION 3.04. Payments From Construction Fund. In the Indenture, the
Authority has authorized and directed the Trustee to make payments from the
Construction Fund to pay the Cost of the Project upon receipt of Requisitions
signed by an Authorized Company Representative, setting forth the matters
required pursuant to Exhibit "B" to the Indenture.

SECTION 3.05. Requisitions. The Company will cause such Requisitions to
be submitted to the Trustee as may be necessary to effect payments out of the
Construction Fund in accordance with the provisions of the Indenture; provided,
however, that the Company will not submit any Requisition for payment of any
item not properly included in the "cost" of the Project as defined in the Act or
which, if paid, would result in less than 95% of the proceeds from the 2001
Bonds being used to acquire, construct, install and equip the Facilities.

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SECTION 3.06. Plans and Specifications. The Company may revise the
Plans and Specifications, which revisions may add structures, equipment,
fixtures and machinery not described in Exhibit A hereto, and which revisions
may effect modifications or deletions of structures, equipment, fixtures and
machinery described therein, at any time and from time to time prior to the
Completion Date, provided that in the case of a material change, (a) an
Authorized Company Representative shall certify to the Trustee that the
Facilities provided for by the revised Plans and Specifications will constitute
facilities for the furnishing of water meeting the requirements of Section 142
(a) (4) of the Code; and (b) the Trustee shall be furnished with a Favorable
Opinion of Recognized Bond Counsel that the revision of the Plans and
Specifications and the expenditure of moneys from the Construction Fund to pay
the Cost of the Project in accordance with the revised Plans and Specifications
will not adversely affect the exclusion of interest on the 2001 Bonds from gross
proceeds of the holders thereof for federal income purposes.

SECTION 3.07. Completion of Project. When the Project has been
completed, the Company shall so notify the Authority and the Trustee by a
certificate of an Authorized Company Representative. Such certificate shall
establish the Completion Date and shall state that, except for amounts retained
by the Trustee at the Company's direction for any Costs of the Project not then
due and payable or the liability for payment of which is being contested or
disputed by the Company: (a) acquisition, construction, installation and
equipping of the Facilities have been completed substantially in accordance with
the Plans and Specifications, and all labor, services, materials and supplies
used therefor have been paid for; and (b) all other facilities necessary in
connection with the Facilities have been constructed, installed and equipped in
accordance with the Plans and Specifications, and all costs and expenses
incurred in connection therewith have been paid. Notwithstanding the foregoing,
such certificate may state that it is given without prejudice to any rights
against third parties which exist at the date thereof or which may subsequently
come into being.

SECTION 3.08. Company to Pay Additional Amounts If Required. If the
moneys in the Construction Fund shall not be sufficient to pay the Costs of the
Project in full, the Company will complete the Facilities and pay all that
portion of the Cost of Construction thereof in excess of the moneys available
therefor in the Construction Fund. The Authority does not make any warranty,
either express or implied, that the moneys which will be paid into the
Construction Fund will be sufficient to pay the Costs of the Project. If the
Company shall pay any portion of the Costs of the Project pursuant to the
provisions of this Section, it shall not be entitled to any reimbursement
therefor from the Authority, the Trustee or the holders of any of the 2001
Bonds, nor shall it be entitled to any diminution in or postponement of the Loan
Repayments required in Section 4.02 hereof to be paid by the Company.

SECTION 3.09. Investment of Amounts in the Construction Fund. Any
moneys held in the Construction Fund shall be invested or reinvested as provided
in Article VI of the Indenture. The Company shall not request any investment of
such moneys which would be in violation of the covenant of the Authority
contained in the final paragraph of Section 6.03 of the Indenture.

ARTICLE IV

LOAN AND OTHER AMOUNTS

SECTION 4.01. Loan by Authority to Company. Concurrently with the
execution and delivery of this Agreement and at the request of the Company, the
Authority is issuing the 2001 Bonds under the Indenture. The Authority hereby
agrees to make a loan to the Company in the principal amount of $30,000,000,
such amount being equal to the aggregate principal amount of the 2001 Bonds, and
the deposit by the Authority of the proceeds of the sale of the 2001 Bonds in
accordance with Section 3.03 hereof shall be deemed to constitute the advance by
the Authority to the Company of the full principal amount of the Loan.

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SECTION 4.02. Repayment of Loan and Other Amounts. (a) Loan Repayments.
The Company shall pay to the Authority, as and for the repayment of the Loan,
(i) on the second Business Day prior to each Interest Payment Date, maturity
date or date established for the redemption of the 2001 Bonds, as the case may
be, an amount which, together with other moneys available for the purpose in the
Debt Service Fund under the Indenture, will equal the sum of (x) the interest
which will become due on such date on the 2001 Bonds; plus (y) the principal
amount of the 2001 Bonds, if any, maturing on such date; plus (z) the principal
amount of and premium, if any, on the 2001 Bonds, if any, to be redeemed on such
date; and (ii) on any date on which the 2001 Bonds shall be declared to be and
shall become due and payable prior to their stated maturity pursuant to the
provisions of the Indenture, an aggregate amount equal to the sum of the
principal or redemption price of and interest so becoming due and payable on the
2001 Bonds (all of the foregoing are collectively referred to herein as the
"Loan Repayments").

Nothing herein contained shall be construed as imposing on the
Authority or on the Trustee any duty or responsibility of giving any prior
notice to the Company of the due date of any Loan Repayment hereunder, or of the
amount on deposit in the Debt Service Fund, or of the amount of any credits
available to the Company against any Loan Repayment, and failure by the Company
to receive any such prior notice, even if customarily given by the Authority or
the Trustee, shall not relieve the Company of its obligation to make any Loan
Repayment when it is due and payable.

All such payments shall be made in funds which will be immediately
available funds at the place of payment on the payment date in question. The
Company shall have the option to make prepayment, from time to time, in whole or
in part, of any amount due as aforesaid on account of the Loan, together with
interest accrued and to accrue with respect to such prepayment. The Authority
shall direct the Trustee in writing to apply such prepayments to the purchase or
redemption of 2001 Bonds in such manner, consistent with the provisions of the
Indenture, as may be directed by the Company.

In the event the Company shall fail to make any of the payments
required in this Section, the item or payment so in default shall continue as an
obligation of the Company until the amount in default shall have been fully
paid, and the Company will pay the same with interest thereon from the due date
until paid at the highest rate per annum borne by the 2001 Bonds.

The obligation of the Company to make Loan Repayments hereunder is
subject to acceleration as set forth in Section 7.02 hereof.

It is the intent of this Agreement that the Company shall make Loan
Repayments hereunder at such times and in such amounts as shall be sufficient to
enable the Authority to make full and timely payment of principal or Redemption
Price of, and interest on, the 2001 Bonds. Accordingly, notwithstanding any
other provision hereof to the contrary, if for any reason the amounts paid by
the Company pursuant to this Section 4.02(a) or pursuant to the other provisions
of this Agreement, together with any other amounts available therefor under the
Indenture, are at any time insufficient to make payments of the principal or
Redemption Price of and interest on the 2001 Bonds when due, whether at
maturity, upon redemption, by acceleration or otherwise, the Company will
forthwith pay to the Trustee the amount required to make up such deficiency.

(b) Other Amounts. The Company agrees to make additional payments as
follows:

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(i) to the Authority on the date of issuance and delivery of
the 2001 Bonds, a loan closing fee of $29,500 (less any portion of such fee paid
by the Company to the Authority as a deposit upon submission of the Company's
financing application), and to the Authority upon its submission of an invoice
therefor to the Company from time to time, an annual fee and a termination fee
of such amount as the Authority may customarily charge from time to time;

(ii) to the Authority upon its written request at any time, an
amount equal to the reasonable expenses incurred by the Authority in enforcing
the provisions of this Agreement or the Indenture, or incurred in defending any
action or proceeding with respect to the Facilities, this Agreement, the Tax
Compliance Agreement or the Indenture and not otherwise required to be paid by
the Company under this Agreement;

(iii) to the Trustee upon its written request, an amount equal
to the reasonable fees and charges of the Trustee for its services and the
reasonable expenses incurred by it in connection with the Indenture and this
Agreement (including without limitation the reasonable fees and expenses of any
attorneys retained by the Trustee), in accordance with any separate agreement
between the Company and the Trustee with respect thereto; and

(iv) to the Trustee, for deposit to the credit of the Rebate
Fund established under the Indenture, any amount required to be deposited in the
Rebate Fund pursuant to the Indenture and the Tax Compliance Agreement at the
times required under the Indenture and the Tax Compliance Agreement.

SECTION 4.03. Security For Payment. To further secure the obligation of
the Company to make Loan Repayments, the Company will execute and deliver its
First Mortgage Bond under the Mortgage Indenture in such principal amounts and
with such interest rate, interest payment and maturity dates and redemption
provisions as may correspond to such provisions of the 2001 Bonds issued and
sold by the Authority. Contemporaneously with the execution and delivery of this
Agreement the Company is executing and delivering, as security for its
obligation to make Loan Repayments, its First Mortgage Bond which contains
provisions with respect to interest rate, interest payment and maturity dates,
redemption and acceleration of maturity corresponding to such provisions of the
2001 Bonds.

SECTION 4.04. Assignment to Trustee. It is understood and agreed that
the obligations of the Company to make the Loan Repayments under this Agreement
and the payments under the First Mortgage Bond are to be assigned and pledged by
the Authority to the Trustee. The Company consents to such assignment and pledge
and agrees that, as to the Trustee, its obligation to make such Loan Repayments
and the payments required under the First Mortgage Bond shall be absolute and
unconditional and shall not be subject to any defense (other than full and
indefeasible payment) or to any right of set off, counterclaim or recoupment
arising out of any breach by the Authority of any obligation to the Company,
whether hereunder or otherwise, or out of any indebtedness or liability at any
time owing to the Company by the Authority.

The Authority hereby directs the Company and the Company agrees to pay
to the Trustee at its designated office in Philadelphia, Pennsylvania, all Loan
Repayments pursuant to this Agreement and the payments required under the First
Mortgage Bond.

SECTION 4.05. Operation and Maintenance. The Company shall maintain,
preserve, and keep the Facilities or cause the Facilities to be maintained,
preserved and kept, with the appurtenances and every part and parcel thereof, in
good repair, working order and condition and, from time to time, will make or
cause to be made all such repairs, replacements and renewals as it deems
necessary. The Authority shall not operate the Facilities or have any obligation
to maintain them.

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The Company shall have the privilege of remodeling the Facilities or
making substitutions, modifications and improvements to the Facilities from time
to time as it, in its discretion, may deem to be desirable for its uses and
purposes, the cost of which remodeling, substitutions, modifications and
improvements shall be paid by the Company and the same shall be the property of
the Company and be included under the terms of this Agreement as part of the
Facilities.

SECTION 4.06. Insurance. At all times during the term of this Agreement
the Company will keep the Facilities continuously insured in accordance with the
requirements of the Mortgage Indenture.

SECTION 4.07. Liens. The Company will pay or cause to be discharged or
make adequate provision to satisfy and discharge, within sixty (60) days after
the same shall accrue, any lien or charge (other than Permitted Encumbrances)
upon any Loan Repayments hereunder or upon the First Mortgage Bond and all
lawful claims or demands which, if unpaid, might be or become a lien upon any
Loan Repayments hereunder or upon the First Mortgage Bond. Notwithstanding the
foregoing, if the Company shall first notify the Authority and Trustee of its
intention so to do, the Company may in good faith contest any such lien or
charge or claim or demand in appropriate legal proceedings, and in such event
may permit the items so contested to remain undischarged and unsatisfied during
the period of such contest and any appeal therefrom, unless the Authority or the
Trustee shall notify the Company in writing that, in the opinion of Counsel, by
nonpayment of any such items the lien of the Indenture as to the Loan Repayments
or as to the First Mortgage Bond shall be materially endangered, in which event
the Company shall promptly pay and cause to be satisfied and discharged all such
unpaid items. The Authority will cooperate fully with the Company in any such
contest.

SECTION 4.08. Facilities Used For Purpose of the Act. So long as the
Company operates the Facilities, they will be used for purposes permitted by the
Act and as facilities for the furnishing of water.

SECTION 4.09. Payment of Certain Costs. The Company shall pay or cause
to be paid all of the expenses of operation of the Facilities, including,
without limitation, the cost of all necessary and proper repairs, replacements
and renewals made pursuant to Section 4.05 hereof.

SECTION 4.10. Obligation to Make Payments Absolute. The obligations of
the Company to make the Loan Repayments and other payments required pursuant to
this Agreement and to perform and observe the other agreements contained herein
shall be absolute and unconditional until such time as the principal of,
premium, if any, and interest on the 2001 Bonds are paid in full. The Company
will not suspend or discontinue, or permit the suspension or discontinuance of,
any payment provided for in this Agreement or the performance or observance of
any of the Company's obligations hereunder, for any reason or cause whatsoever,
including (without limiting the generality of the foregoing), any destruction of
or damage to, or any condemnation or taking by any public or private entity of,
all or any portion of the Facilities; the occurrence of any Final Determination
of Taxability with respect to any of the 2001 Bonds; any acts or circumstances
which may constitute failure of consideration or commercial frustration of
purpose; any change in the tax or other laws or administrative rulings of or
administrative actions by the United States or the Commonwealth or any political
subdivision of either; or any failure of the Authority, the Trustee, any other
Paying Agent or the Bond Insurer to perform and to observe any agreement,
whether express or implied, or any duty, liability or obligation, arising out of
or connected with this Agreement, the Indenture, the Financial Guaranty
Insurance Policy, the Tax Compliance Agreement or the 2001 Bonds, as the case
may be.

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ARTICLE V

SPECIAL COVENANTS

SECTION 5.01. No Warranty. The Authority makes no warranty, either
express or implied, as to the actual or designed capacity of the Facilities, as
to the suitability of the Facilities for the purposes specified in this
Agreement, or that the Facilities will be suitable for the Company's purposes or
needs.

SECTION 5.02. Company to Maintain Corporate Existence, Etc. The Company
shall maintain its corporate existence and its qualification to do business in
the Commonwealth, will not dissolve or otherwise dispose of all or substantially
all its assets and will not consolidate with or merge into another corporation
except as provided in this Section 5.02; provided, however, that the Company may
consolidate with or merge into another corporation, or sell or otherwise
transfer to another Company all or substantially all its assets as an entirety
and thereafter dissolve, if (a) the successor corporation assumes in writing all
the obligations of the Company in the Agreement and in the First Mortgage Bond,
(b) the Company delivers to the Authority, the Trustee and the Bond Insurer a
Favorable Opinion of Recognized Bond Counsel with respect to such action, and
(c) the successor corporation shall either qualify to do business in the
Commonwealth or file with the Trustee a consent to service of process in the
Commonwealth in form satisfactory to the Trustee if such successor is not a
Pennsylvania corporation.

If consolidation, merger or sale or other transfer is made as permitted
by this Section, the provisions of this Section shall continue in full force and
effect and no further consolidation, merger or sale or other transfer shall be
made except in compliance with the provisions of this Section.

SECTION 5.03. Operation of Facilities; Maintenance of Licenses and
Permits. The Company shall operate the Facilities as part of its system for the
furnishing of water to the general public at rates approved by the Public
Utility Commission of the Commonwealth, and to that end will maintain in force
and effect the requisite franchises, operating rights, certificates of public
convenience and all necessity tariffs, licenses and permits.

SECTION 5.04. Additional Permits. In the event it may be necessary for
the proper performance of this Agreement on the part of the Authority or the
Company that any application or applications for any permit or license to do or
to perform certain things be made to any governmental or other agency by the
Company or the Authority, the Company and the Authority shall execute upon the
request of the other such application or applications.

SECTION 5.05. Authority to Maintain Corporate Existence, Etc. The
Authority will maintain its corporate existence and duly will procure any
necessary renewals and extensions thereof; will use its best efforts to
maintain, preserve and renew all its rights, powers, privileges and franchises;
and will comply with all valid acts, rules, regulations, orders and directions
of any legislative, executive, administrative or judicial body applicable to the
Project and the 2001 Bonds. The Authority further covenants that it will not
voluntarily or knowingly take or fail to take any action that would result in
the loss of any exemption from taxes which it presently enjoys or to which it
may subsequently become entitled.

SECTION 5.06. Compliance With Continuing Disclosure Agreement. The
Company hereby covenants and agrees that it will comply with and carry out all
of the provisions of the Continuing Disclosure Agreement. Notwithstanding any
other provision of this Agreement, failure of the Company to comply with the
Continuing Disclosure Agreement shall not be considered an Event of Default
hereunder or under the Indenture. However, the Trustee may (and, at the request
of any Participating Underwriter (as defined in the Continuing Disclosure
Agreement) or the holders of at least 25% aggregate principal amount in
Outstanding 2001 Bonds and provision of indemnity satisfactory to the Trustee in
its sole discretion, shall) or any Bondholder may, take such actions as may be
necessary and appropriate, including seeking specific performance by court
order, to cause the Company to comply with its obligations under this Section
5.06 and the Continuing Disclosure Agreement.

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SECTION 5.07. Certain Tax Covenants. The Company will comply with all
provisions of the Tax Compliance Agreement applicable to it. The Company will
not take any action or fail to take any action (including the requirement to
make rebate payments to the United States as required under Section 148(f) of
the Code and the Tax Compliance Agreement and the obligations described in 5.05
of the Indenture) which would cause the 2001 Bonds to be "arbitrage bonds"
within the meaning of Sections 103(b) and 148(a) of the Code or would otherwise
cause interest on the 2001 Bonds to be includible in the gross income of the
holders thereof for federal income tax purposes (except with respect to the
interest on the 2001 Bonds during any period when such Bonds are held by a
"substantial user" of the Facilities financed by the 2001 Bonds or a "related
person" within the meaning of Section 147(a) of the Code); provided, however,
that if the Trustee receives an opinion of Recognized Bond Counsel that any
action or failure to take action will cause the interest on the 2001 Bonds to be
included in the gross income of Bondholders for federal income tax purposes, no
Event of Default shall be deemed to have occurred unless and until there is a
Final Determination of Taxability.

SECTION 5.08. Financial Statements and Other Reporting Requirements of
the Company. The Company shall furnish to the Authority, the Trustee and the
Bond Insurer within 120 days after the end of the Company's fiscal year copies
of the Company's audited financial statements for such fiscal year. The Company
shall also furnish to the Bond Insurer such additional information as the Bond
Insurer may reasonably request from time to time. The Company will permit the
Bond Insurer to discuss the affairs, finances and accounts of the Company or any
information the Bond Insurer may reasonably request regarding the security for
the 2001 Bonds with appropriate officers of the Company. The Company will permit
the Bond Insurer to have access to the Facilities and to have access to and to
make copies of all books and records relating to the 2001 Bonds at any
reasonable time.

SECTION 5.09. Nondiscrimination Provisions. In connection with the
Project and the operation of the Facilities, the Company shall comply with the
nondiscrimination provisions attached to this Agreement as Exhibit B and by this
reference made a part hereof.

ARTICLE VI

ASSIGNMENT, LEASING AND SALE OF FACILITIES

SECTION 6.01. Assignment, Lease and Sale of Facilities. The Company
shall not sell, lease or otherwise dispose of or encumber the Facilities except
as permitted in the Mortgage Indenture and in this Agreement. This Agreement may
be assigned in whole or in part and the Facilities may be sold or leased as a
whole or in part by the Company, subject, however, to the following conditions:

(a) The Company may sell or otherwise dispose of any
machinery, fixtures, apparatus, tools, instruments or other movable property
constituting part of the Facilities (collectively, "Moveable Property") which
the Company deems no longer to be needed or useful in its operation of the
Facilities; provided, that if the original cost of acquisition of such
machinery, fixtures, apparatus, tools, instruments or other movable property was
more than $100,000, the Company shall, in writing, certify to the Authority that
such items are no longer needed or useful in its operation of the Facilities.
Any proceeds thereof shall be paid to the Trustee for deposit in the
Construction Fund or used to purchase replacements for the Moveable Property
sold or disposed of pursuant to this Section 6.01(a).

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(b) No sale, assignment or leasing (other than pursuant to
Section 5.02 hereof) shall relieve the Company from primary liability for any of
its obligations hereunder, and in the event of any such sale, assignment or
leasing the Company shall continue to remain primarily liable for all Loan
Repayments and all other payment obligations under this Agreement and for
performance and observance of the other agreements on its part herein provided.

(c) The purchaser, assignee or lessee from the Company shall
assume the obligations of the Company hereunder to the extent of the interest
assigned or leased.

(d) The Company shall, at least fifteen (15) days prior to the
delivery thereof, furnish or cause to be furnished to the Authority, for its
information only, a true and complete copy of each such proposed sale agreement,
assignment or lease, as the case may be, and shall furnish to the Authority and
the Trustee an executed copy thereof following execution.

(e) The Company shall pay the Authority's and the Trustee's
reasonable costs and expenses incurred, and the reasonable fees charged thereby,
in connection with such sale, assignment or lease.

(f) The Company shall furnish to the Trustee a Favorable
Opinion to the effect that the proposed sale, assignment or lease, as the case
may be, is permissible under this Agreement, the Mortgage Indenture and the Act
and will not adversely affect the exclusion of interest on the 2001 Bonds from
gross income of the holders thereof from federal income tax purposes.

SECTION 6.02. Assignment of Rights Under Agreement. The Authority shall
assign its rights under and interest in this Agreement (except for the
Authority's Reserve Rights), and will pledge and assign all Loan Repayments and
security therefor, including the First Mortgage Bond of the Company pledged as
security therefor, and receipts and revenues receivable under or pursuant to
this Agreement, and income earned by the investment of funds held under the
Indenture, to the Trustee pursuant to the Indenture as security for payment of
the principal of, premium, if any, and interest on the Bonds.

Except as provided in this Section 6.02, the Authority will not
otherwise sell, assign, transfer, convey or dispose of the revenues from the
Facilities or the Loan Repayments or the First Mortgage Bond during the term of
this Agreement, nor will it take any action which may reasonably be construed as
tending to cause or induce the levy of special assessments against the
Facilities or such revenues or the First Mortgage Bond, nor will it create or
suffer to be created any lien or charge upon the Facilities or such revenues or
the First Mortgage Bond except Permitted Encumbrances.

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

SECTION 7.01. Events of Default. (a) Subject to the provisions set
forth in Section 7.01(c) hereof, each of the following shall be an "Event of
Default" under this Agreement, and the terms " Event of Default " or " Default "
shall mean, whenever they are used in this Agreement, any one or more of the
following events:

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(i) Failure by the Company to pay when due any Loan
Repayments; or

(ii) Failure by the Company to pay when due any
payment required to be made under this Agreement other than Loan Repayments,
which failure shall continue for a period of sixty (60) days after written
notice, specifying such failure and requesting that it be remedied, is given to
the Company by the Authority or the Trustee, unless the Company is contesting in
good faith its obligation to make the payment or the Authority and the Trustee
shall agree in writing to an extension of such time prior to the expiration of
such period; or

(iii) Failure by the Company to observe and perform
any covenant, condition or agreement on its part to be observed or performed,
other than as referred to in subsections (a) and (b) of this Section, which
failure shall continue for a period of sixty (60) days after written notice,
specifying such failure and requesting that it be remedied, is given to the
Company by the Authority or the Trustee, unless the Authority and the Trustee
shall agree in writing to an extension of such time prior to the expiration of
such period; or

(iv) The dissolution or liquidation of the Company or
the filing by the Company of a voluntary petition under the laws of the United
States relating to bankruptcy or failure by the Company promptly to procure the
dismissal of an involuntary petition in bankruptcy filed against it, or an
assignment by the Company for the benefit of its creditors, or the entry by the
Company into an agreement of composition with its creditors, or the appointment
by a court of competent jurisdiction of a receiver for the Company. The term
"dissolution or liquidation of the Company" as used in this subsection shall not
be construed to include the cessation of the corporate existence of the Company
resulting either from a merger or consolidation of the Company into or with
another Company or a dissolution or liquidation of the Company following a
transfer of all or substantially all its assets as an entirety under the
conditions permitting such actions contained in Section 5.02 hereof.

(b) A failure by the Authority to observe or perform any
covenant or agreement herein contained on its part to be observed or performed
shall not constitute an Event of Default hereunder, but the Company shall be
entitled to enforce the observance and performance by the Authority of any of
its covenants or agreements herein contained by such remedies at law or in
equity as it deems desirable, subject to the limitation of liability set forth
in Section 8.10 hereof.

(c) The foregoing provisions of this Section are subject to
the following limitations: if by reason of acts of God; strikes, lockouts or
other industrial disturbances; acts of public enemies; orders of any kind of the
government of the United States or of the Commonwealth or any department,
agency, political subdivision or official of either of them, or any civil or
military authority; insurrections; riots; epidemics; landslides; lightning;
earthquakes; fires; hurricanes; storms; floods; washouts; droughts; arrests;
restraint of government and people; civil disturbances; explosions; breakage or
accident to machinery; partial or entire failure of utilities; or any cause or
event not reasonably within the control of the Company, the Company is unable in
whole or in part to carry out its agreements herein contained, the Company shall
not be deemed in default during the continuance of such inability.

The Company agrees to use its best efforts to remedy with all
reasonable dispatch the cause or causes preventing it from carrying out its
agreements; provided, however, that the settlement of strikes, lockouts and
other industrial disturbances shall be entirely within the discretion of the
Company, and the Company shall not be required to make settlement of strikes,
lockouts and other industrial disturbances by acceding to the demands of the
opposing party or parties when such course, in the judgment of the Company, is
unfavorable to the Company.

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This Section 7.01(c) shall not apply to any Event of Default
described in Section 7.01(a)(i) or 7.01(a)(ii), and any failure of the Company
to perform its obligations under Section 4.02 hereof shall constitute an Event
of Default regardless of the reason for such failure to perform.

SECTION 7.02. Remedies. Whenever any Event of Default hereof shall have
happened and be continuing, any one or more of the following remedial steps may
be taken:

(a) The Authority or the Trustee, as the assignee of the
Authority, at its option, may declare the unpaid principal balance of the Loan
to be immediately due and payable, whereupon the same, together with all other
amounts due from the Company then accrued and unpaid, shall become immediately
due and payable; and

(b) The Authority or the Trustee, as the assignee of 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 Agreement and under
the First Mortgage Bond. All amounts collected pursuant to action taken under
this Section shall be applied in accordance with the Indenture.

SECTION 7.03. Remedies Not Exclusive. No remedy conferred upon or
reserved to the Authority by this Agreement 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
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 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 any notice
other than such notice as may be herein expressly required.

SECTION 7.04. Reimbursement of Fees and Expenses. If the Company shall
default under any of the provisions of this Agreement and the Authority shall
employ attorneys or incur other expenses for the collection of Loan Repayments
or for the enforcement of performance or observance of any obligation or
agreement on the part of the Company contained in this Agreement or in the First
Mortgage Bond, the Company, on demand therefor, will reimburse the Authority for
reasonable fees and expenses of such attorneys and such other reasonable
expenses so incurred.

SECTION 7.05. Waivers of Breaches. In the event any agreement contained
in this Agreement shall be breached by either party and such breach shall
thereafter be waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder. In view of the assignment of the Authority's rights under this
Agreement to the Trustee under the Indenture, the Authority shall have no power
to exercise any right hereunder or waive any default hereunder by the Company
(other than in respect of the Authority's Reserved Rights) without the written
consent of the Trustee to such exercise or waiver, or, if the maturity of the
Outstanding 2001 Bonds shall have been accelerated pursuant to the Indentures,
the consent of the holders of a majority in principal amount of the 2001 Bonds
then Outstanding. In the event any default by the Company hereunder shall have
been waived as a default under the Indenture by the holders of the requisite
majority in principal amount of the 2001 Bonds, no consent of the Trustee shall
be required, and the Authority shall be obligated to waive the Company's default
hereunder.

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ARTICLE VIII

MISCELLANEOUS

SECTION 8.01. Termination. This Agreement shall terminate upon payment
in full of the 2001 Bonds (including interest and premium, if any, thereon), or
the making of provision for payment thereof in accordance with the provisions of
the Indenture, and payment of all other amounts owing to the Authority and the
Trustee hereunder and under the Indenture.

Any amounts, other than amounts being held for payment of the
2001 Bonds or other payments referred to in the preceding sentence, then
remaining in the Debt Service Fund and other Funds established under the
Indenture shall belong to and be paid to the Company by the Trustee.

SECTION 8.02. Notices. All notices hereunder shall be given in the
manner and to the locations specified in Section 14.08 of the Indenture with
respect to notices given thereunder.

SECTION 8.03. Benefit of Agreement. This Agreement shall inure to the
benefit of and shall be binding upon the Authority, the Company and the Trustee
and their respective successors and assigns.

SECTION 8.04. Amendments. This Agreement may be amended in any respect
but only by written agreement of the parties hereto and subject to the
additional requirements relating to such amendments set forth in the Indenture.
Any provision of this Agreement expressly recognizing or granting rights in or
to the Bond Insurer may not be amended in any manner which affects the rights of
the Bond Insurer hereunder without the prior written consent of the Bond
Insurer.

SECTION 8.05. Counterparts. This Agreement may be executed in any
number of counterparts, each of which, when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same Agreement.

SECTION 8.06. Invalidity of Certain Clauses. If any clause, provision
or section of this Agreement be held illegal or invalid by any court, the
invalidity of such clause, provision or section shall not affect any of the
remaining clauses, provisions or sections hereof, and this Agreement shall be
construed and enforced as if such illegal or invalid clause, provision or
section had not been contained herein. In case any agreement or obligation
contained in this Agreement be held to be in violation of law, then such
agreement or obligation shall be deemed to be the agreement or obligation of the
Authority or the Company, as the case may be, only to the extent permitted by
law.

SECTION 8.07. Governing Law. The laws of the Commonwealth shall govern
the construction and interpretation of this Agreement.

SECTION 8.08. Indemnification.

(a) The Company agrees that at all times it will protect and
hold the Authority and its officers, members, employees and agents (including,
but not limited to, the Authority's legal counsel), past, present and future,
harmless and indemnified from and against all claims for losses, damages or
injuries to the Trustee or others, including death, personal injury and property
damage or loss, arising during the term hereof or during any other period when
the Authority has, had or shall have any interest in the Facilities or arising
out of the use thereof or any activity conducted thereon or in any other manner
connected therewith, directly or indirectly, including but not limited to claims
arising out of the acquisition, construction, installation, equipping and
operation of the Facilities; and the Authority and said officers, members,
employees and agents shall not be liable for any loss, damage or injury to the
person or property of the Company or its agents, servants or employees or any
other Person who or that may be upon the Facilities or damaged or injured as a
result of any condition existing or activity occurring upon the Facilities or
any other matter connected directly or indirectly therewith due to any act or
negligence of any Person, excepting only willful misconduct or gross negligence
of the Authority, and said officers, agents, members or employees.

-14-

(b) The Company hereby covenants and agrees that it will
indemnify and hold the Trustee and its directors, officers, agents and employees
(collectively, the "Indemnitees") harmless from and against any and all claims,
liabilities, losses, damages, fines, penalties, and expenses, including
out-of-pocket, incidental expenses, legal fees and expenses, the allocated costs
and expenses of in-house counsel and legal staff and the costs and expenses of
defending or preparing to defend against any claim (collectively "Losses") that
may be imposed on, incurred by, or asserted against, the Indemnitees or any of
them for following any instruction or other direction upon which the Trustee is
authorized to rely pursuant to the terms of this Agreement and the Indenture. In
addition to and not in limitation of the immediately preceding sentence, the
Company also covenants and agrees to indemnify and hold the Indemnitees and each
of them harmless from and against any and all Losses that may be imposed on,
incurred by, or asserted against the Indemnitees or any of them in connection
with or arising out of the Trustee's performance under this Agreement and the
Indenture, provided the Trustee has not acted with negligence or engaged in
willful misconduct. The provisions of this Section 8.08(b) shall survive the
termination of this Agreement and the Indenture, the defeasance of the 2001
bonds and the resignation or removal of the Trustee for any reason.

(c) The Company shall indemnify, hold harmless and defend the
Authority and the Trustee and the respective officers, members, directors,
employees and agents (including, but not limited to, the Authority's and the
Trustee's legal counsel) of each of them, past, present and future, against all
loss, costs, damages, expenses, suits, judgments, actions and liabilities of
whatever nature, including, specifically, (i) any liability under any state or
federal securities laws (including but not limited to attorneys fees, litigation
and court costs, amounts paid in settlement and amounts paid to discharge
judgments) and (ii) any and all costs and expense arising out of, or from, any
state or federal environmental laws (including, without limitation, costs of
remediation, attorney's fees and expenses, litigation and court costs, amounts
paid in settlement and amounts paid to discharge judgments) directly or
indirectly resulting from or arising out of or related to: (A) the design,
construction, installation, operation, use, occupancy, maintenance or ownership
of the Facilities (including compliance with laws, ordinances and rules and
regulations of public authorities relating thereto); or (B) any statements or
representations with respect to Company, the Project, this Agreement, the 2001
Bonds, the Indenture or any other document or instrument delivered in connection
with the issuance of the 2001 Bonds (including any statements or representations
made in connection with the offer or sale thereof) made or given to the
Authority, the Trustee or any underwriters or purchasers of any of the 2001
Bonds, by the Company or any of its directors, officers, agents or employees,
including but not limited to, statements or representations of facts, financial
information or corporate affairs.

The Company also will pay and discharge and indemnify and hold harmless
the Authority and the Trustee from (i) any lien or charge upon payments by the
Company to the Authority and the Trustee under this Agreement, and (ii) any
taxes (including, without limitation, any ad valorem taxes and sales taxes,
assessments, impositions and other charges) in respect of any portion of the
Facilities.

If any such claim is asserted, or 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 will give prompt notice to
the Company, and the Company shall have the sole right and duty to assume, and
will assume, the defense thereof, with full power to litigate, compromise or
settle the same in its sole discretion.

-15-

(d) The Company releases the Authority and the Trustee from,
agrees that the Authority and the Trustee shall not be liable for, and agrees to
indemnify and hold the Authority and the Trustee and their agents, employees and
servants, harmless from, any liability arising out of the construction of the
Facilities or the Loan. If any such claim is asserted, the Authority or the
Trustee will give prompt notice to the Company and the Company will assume the
defense thereof, with full power to litigate, compromise or settle the claim in
its sole discretion. The Company will reimburse the Authority or the Trustee, as
the case may be, for all direct costs, including reasonable attorney's fees and
expenses properly incurred in connection therewith.

(e) If the indemnification provided herein is for any reason
determined to be unavailable to the Authority or the Trustee, then, with respect
to any such loss, claim, demand or liability, including expenses in connection
therewith, the Authority and the Trustee, as appropriate, shall be entitled as a
matter of right to contribution by the Company. The amount of each contribution
shall be in such proportion as is appropriate to reflect relative culpability of
the parties.

(f) The Company shall not make any claim against the
Authority, nor shall the Authority be liable for any damage or injury to any
property of the Company or any other Person on the Facilities or to any part of
the Facilities due to any cause whatsoever, nor will the Company resist the
Authority's claim to indemnification on the ground that the right to such claim
is not set forth herein with sufficient particularity.

(g) The obligations and liabilities of the Company under this
Section 8.08 shall survive the termination of this Agreement and the payment of
the 2001 Bonds.

SECTION 8.09. Limitation of Rights Against Authority.

(a) The Company hereby expressly acknowledges that the
Authority is a conduit issuer and that all of the right, title and interest of
the Authority in and to this Agreement are to be assigned to the Trustee (except
for the Authority's Reserved Rights), naming the Trustee its true and lawful
attorney for and in its name to enforce the terms and conditions of this
Agreement. Notwithstanding any other provision contained herein, the Company
hereby expressly agrees, acknowledges and covenants that to the extent
practicable it shall duly and punctually perform or cause to be performed each
and every duty and obligation of the Authority hereunder and under the
Indenture.

(b) The Company shall neither sue the Authority, or any of its
members, officers, agents or employees, past, present or future, for any costs,
damages, expenses, suits, judgments, liabilities, claims, losses, demands,
actions or nonactions based upon this financing or sustained in connection with
or as a result of this financing, nor will be Company ever raise as a defense in
any proceedings whatsoever that the Authority is a true party in interest.

Notwithstanding any other provisions of this Agreement, the Company
shall be entitled to (i) bring an action of specific performance against the
Authority to compel any action required to be taken by the Authority hereunder
or an action to enjoin the Authority from performing any action prohibited by
this instrument, but no such action shall in any way impose pecuniary liability
against the Authority or any of its members, officers, agents or employees,
past, present and future, (ii) join the Authority in any litigation if such
joinder is necessary to pursue any of the Company's rights, provided that prior
to such joinder, the Company shall post such security as the Authority may
require to further protect the Authority from loss and (iii) pecuniary
remuneration from the Authority for damage or loss suffered by Company by reason
of the willful misconduct of the Authority or any of its members, officers,
agents or employees, past, present or future.

-16-

SECTION 8.10. Limitation of Recourse Against Authority.

(a) In the event of any default by the Authority hereunder,
and notwithstanding any provision or obligation to the contrary herein set
forth, the liability of the Authority, its incorporator, officers, members,
agents and employees, past, present or future, shall be limited to its interest
in the Trust Estate and the lien of any judgment shall be restricted thereto.
Other than as set forth hereinabove in this Section 8.10, there shall be no
other recourse for damages of any kind or nature by the Company or any other
Person against the Authority, its incorporator, officers, members, agents and
employees, past, present or future, or any of the property or other assets nor
or hereafter owned by it or them, either directly or indirectly; and all such
recourse or liability is hereby expressly waived and released as a condition of
and in consideration of execution and delivery of this Agreement by the
Authority.

(b) No recourse under or upon any obligation, covenant or
agreement contained herein or in any 2001 Bond shall be had against the
Authority or any member, officer, employee or agent, past, present or future, of
the Authority or of any successor of the Authority under this Agreement, any
other agreement, any rule of law, statute or constitutional provision, or by
enforcement of any assessment or by any legal or equitable proceeding or
otherwise, it being expressly agreed and understood that the obligations of the
Authority hereunder, and under the 2001 Bonds and elsewhere, are solely
corporate obligations of the Authority to the extent specifically limited in the
Act and that no personal liability whatsoever shall attach to or shall be
incurred by the Authority or such members, officers, employees or agents, past,
present or future, of the Authority or of any successor of the Authority, or any
of them, because of such indebtedness or by reason of any obligation, covenant
or agreement contained herein, in the 2001 Bonds on implied therefrom.

[The balance of this page is intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

DELAWARE COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY

By: /s/ Henry Coleman            
---------------------------------
(Vice) Chairman

PHILADELPHIA SUBURBAN
WATER COMPANY

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

[Signature Page to Construction and Financing Agreement]

-18-

EXHIBIT "A"

DESCRIPTION OF THE FACILITIES

(Attached)

EXHIBIT "B"

NONDISCRIMINATION PROVISIONS

During the term of this Agreement, the Company agrees as to
itself and each tenant of the Project controlling, controlled by or under common
control with the Company (each of the Company and each such tenant, a
"Contractor") as follows:

1. Contractor shall not discriminate against any employee,
applicant for employment, independent contractor or any other Person because of
race, color, religious creed, handicap, ancestry, national origin, age or sex.
Contractor shall take affirmative action to insure that applicants are employed,
and that employees or agents are treated during employment, without regard to
their race, color, religious creed, handicap, ancestry, national origin, age or
sex. Such affirmative action shall include, but not limited to: employment,
upgrading, demotion or transfer, recruitment or recruitment advertising; layoff
or termination; rates of pay or other forms of compensation; and selection for
training. Contractors shall post in conspicuous places available to employees,
agents, applicants for employment and other Persons a notice to be provided by
the contracting agency setting forth these nondiscrimination provisions.

2. Contractor shall in advertisements or requests for
employment placed by it or on its behalf, state that all qualified applicants
will receive consideration for employment without regard to race, color,
religious creed, handicap, ancestry, national origin, age or sex.

3. Contractor shall send each to labor union or workers'
representative with which it has a collective bargaining agreement or other
contract or understanding, a notice advising said labor union or workers'
representative of its commitment to these nondiscrimination provisions. Similar
notice shall be sent to every other source of recruitment regularly utilized by
Contractor.

4. It shall be no defense to a finding of noncompliance with
these nondiscrimination provisions that Contractor has delegated some of its
employment practices to any union, training program or other source of
recruitment which prevents it from meeting its obligations. However, if the
evidence indicates that Contractor was not on notice of the third-party
discrimination or made a good faith effort to correct it, such factor shall be
considered a mitigating circumstance in determining appropriate sanctions.

5. Where the practices of a union or of any training program
or other program of recruitment will result in the exclusion of minority group
Persons, so that Contractor will be unable to meet its obligations under these
nondiscrimination provisions, Contractor shall then employ and fill vacancies
through other nondiscriminatory employment procedures.

6. Contractor shall comply with all state and federal laws
prohibiting discrimination in hiring or employment opportunities. In the event
of Contractor's noncompliance with these nondiscrimination provisions or with
any such laws, an Event of Default under this Agreement shall be deemed to have
occurred and Contractor may be declared temporarily ineligible for further
Commonwealth of Pennsylvania contracts, and other sanctions may be imposed and
remedies invoked.

7. Contractor shall furnish all necessary employment documents
and records to, and permit access to its books, records and accounts by, the
Issuer for purposes of investigation to ascertain compliance with these
nondiscrimination provisions. If Contractor does not possess documents or
records reflecting the necessary information requested, it shall furnish such
information on reporting forms supplied by the Issuer.

8. Contractor shall actively recruit minority subcontractors
and women subcontractors or subcontractors with substantial minority or women
representation among their employees.

9. Contractor shall include these nondiscrimination provisions
in every subcontract, so that such provisions will be binding upon each
subcontractor.

10. Contractor obligations under these nondiscrimination
provisions are limited to Contractor's facilities within Pennsylvania or, where
the contract is for purchase of goods manufactured outside of Pennsylvania, the
facilities at which such goods are actually produced.

B-2

Exhibit 10.37

AMENDED AGREEMENT

THIS Amended Agreement made as of the 7th day of August 2001, by and
between Philadelphia Suburban Corporation, a Pennsylvania corporation ("PSC"),
and Nicholas DeBenedictis (the "Executive").

WHEREAS, the Executive is presently employed by PSC, as its Chairman,
Chief Executive Officer and President and provides executive services as an
officer of Philadelphia Suburban Water Company ("PSW"); and

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

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

WHEREAS, in order to induce the Executive to remain in the employ of
PSC, PSC and PSW, for which certain of the employees of PSC, such as the
Executive, provide key executive services, entered into an Agreement, effective
as of January 1, 1997, to provide that the Executive would receive certain
compensation in the event his employment with PSC or PSW is terminated
subsequent to a "Change of Control" (as defined in Section 1 hereof) of PSC as a
cushion against the financial and career impact on the Executive of any such
Change of Control; and

WHEREAS, the agreement was amended effective as of February 1, 1999, to
clarify the term of the Agreement; and

WHEREAS, PSC and PSW wish to amend and restate the Agreement at this
time to clarify certain rights of the Executive, incorporate the amendment that
was made to the Agreement effective as of February 1, 1999, and to make other
desirable changes; and

WHEREAS, PSW is willing to enter into this Agreement along with PSC in
light of Executive's role in the management of the affairs of PSW and its
subsidiaries;

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

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

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

(b) "Base Compensation" shall mean the average of the total of
cash base salary and annual bonus paid to, and dividend equivalents under the
Equity Compensation Plan accrued for, the Executive in each calendar year in all
capacities with PSC, PSW and their Subsidiaries or Affiliates, as would be
reported for Federal income tax purposes on Form W-2 if currently subject to
tax, together with (i) any amounts the payment of which has been deferred by the
Executive under any deferred compensation plan of PSC, PSW and their
Subsidiaries or Affiliates, or otherwise, (ii) any and all salary reduction
authorized amounts under any of the benefit plans or programs of PSC, PSW and
their Subsidiaries or Affiliates, (iii) the value, as shown in PSC's Proxy, for
each calendar year in which a grant was made, of the stock option grants made to
the Executive under the Equity Compensation Plan, but excluding any amounts
attributable to the exercise of stock options, and (iv) the value, based on the
average value of shares vesting in each year, of the grants of Restricted Stock
made to the Executive under the Equity Compensation Plan, for the three calendar
years (or such number of actual full calendar years of employment, if less than
three) immediately preceding the calendar year in which occurs a Change of
Control or the Executive's Termination Date, whichever period produces the
higher amount.

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

-2-

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

(e) "Change of Control" shall mean:

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

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

(iii) there occurs a sale of substantially all of the assets
of PSC or its liquidation is approved by a majority of its shareholders or PSC
is merged into or is merged with an unrelated entity such that following the
merger the shareholders of PSC no longer own more than 51% of the resultant
entity. Notwithstanding anything in this Section 1(e) to the contrary, a Change
of Control shall not be deemed to have taken place under clause (e)(i) above if
(a) such Person becomes the beneficial owner in the aggregate of 20% or more of
the Common Stock of PSC then outstanding as a result of an inadvertent
acquisition by such Person if such Person, as soon as practicable, divests
itself of a sufficient amount of its Common Stock so that it no longer owns 20%
or more of the Common Stock then outstanding, as determined by the Board of
Directors of PSC, or (ii) the shares of Common Stock required to be counted in
order to meet the 20% minimum threshold described under such clause (i) include
any of the shares described in subsections (i) through (iv) of section 2543(b)
of the Pennsylvania Business Corporation Law of 1988 (15 Pa.C.S.A. '2543(b)) as
in effect on the date of adoption of the Plan.

-3-

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

(g) "Equity Compensation Plan" shall mean PSC's 1994 Equity
Compensation Plan, and its predecessors and successors.

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

(i) any failure of PSC or PSW or their successor(s) to comply
with and satisfy any of the terms of this Agreement;

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

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

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

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

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

(vii) the Executive determines, in his sole discretion, at any
time within 12 months after the Change of Control, that circumstances have
changed with respect to PSC or PSW, and that he is no longer able to effectively
perform his duties and responsibilities.

-4-

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

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

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

(l) "Termination of Employment" shall mean the termination of the
Executive's actual employment relationship with PSC, PSW and any of their
Subsidiaries that actually employs the Executive.

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

3. Severance Compensation upon Termination.

(a) Subject to the provisions of Section 12 hereof, in the event
of the Executive's involuntary Termination of Employment for any reason other
than Cause or in the event of a Good Reason Termination, in either event within
two years after a Change of Control, PSC shall pay to the Executive, upon the
execution of a release in the form required by PSC or PSW of its terminating
executives prior to the Change of Control, within 15 days after the Termination
Date (or as soon as possible thereafter in the event that the procedures set
forth in Section 11(b) hereof cannot be completed within 15 days), an amount in
cash equal to three times the Executive's Base Compensation, subject to required
employment taxes and deductions. In the event that PSC does not satisfy its
obligation hereunder within the required time period, PSW shall pay or cause to
be paid all compensation, benefits and other amounts remaining due to the
Executive upon prompt written notice to PSW that PSC has not satisfied its
obligation (or a portion thereof) to the Executive.

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

-5-

4. Other Payments and Benefits. The payment due under Section 3 hereof
shall be in addition to and not in lieu of any payments or benefits due to the
Executive under any other plan, policy or program of PSC or PSW, and their
Subsidiaries or Affiliates. In addition, the Executive shall be entitled to (i)
a continuation of health, dental, life and welfare benefits, excluding
disability benefits, otherwise provided to senior level executives or employees
generally, as the same may be amended for all such individuals from time to
time, for the period of three years, (ii) for a one-year period after the
Termination Date, the provision by PSC or the Company of office space and
secretarial support equivalent to what was provided to the Executive in the
calendar year immediately preceding the Change of Control, (iii) continued use
of the automobile furnished to the Executive for the lesser of (1) three years
after the Termination Date or (2) the balance of the applicable lease term, if
any, in either case to the same extent as was provided to the Executive in the
calendar year immediately preceding the Change of Control and the ability to
purchase such automobile from PSC or PSW at its book value at the completion of
such period, (iv) fully-paid executive level outplacement services from the
provider of the Executive's choice for 12 months following the Termination Date,
and (v) a transfer, without requiring a cash payment from him, of any life
insurance policy maintained by PSC or PSW on his life pursuant to a split dollar
life insurance agreement.

5. Restrictive Covenant.

(a) In exchange for the payments and benefits provided under this
Agreement, for a period of 12 months after the Termination Date, the Executive
agrees that he will not, unless acting pursuant with the prior written consent
of the Board, directly or indirectly, own, manage, operate, join, control,
finance or participate in the ownership, management, operation, control or
financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise with or use or permit
his name to be used in connection with, any business or enterprise engaged in a
geographic area in which PSC or any of its Subsidiaries is operating on the
Termination Date (the "Geographic Area"), in any business that is competitive to
a business from which PSC and any of its Subsidiaries, taken as a whole, derived
at least ten percent of its respective annual gross revenues for the twelve (12)
months preceding the Termination Date. It is recognized by the Executive that
the business of PSC and its Subsidiaries and the Executive's connection
therewith is or will be involved in activity throughout the Geographic Area, and
that more limited geographical limitations on this non-competition covenant are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by the Executive of less than one percent of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934, provided that such ownership represents a passive
investment and that neither the Executive nor any group of persons including the
Executive in any way, either directly or indirectly, manages or exercises
control of any such corporation, guarantees any of its financial obligations,
otherwise takes any part in its business, other than exercising his rights as a
shareholder, or seeks to do any of the foregoing.

-6-

(b) The Executive acknowledges that the restrictions contained in
paragraph (a) are reasonable and necessary to protect the legitimate interests
of PSC and its Subsidiaries and Affiliates, and that any violation of those
provisions will result in irreparable injury to PSC. The Executive represents
that his experience and capabilities are such that the restrictions contained in
paragraph (a) will not prevent the Executive from obtaining employment or
otherwise earning a living at the same general level of economic benefit as is
the case as of the date hereof. The Executive agrees that PSC shall be entitled
to preliminary and permanent injunctive relief, without the necessity of proving
actual damages, which right shall be cumulative and in addition to any other
rights or remedies to which PSC may be entitled. In the event that any of the
provisions of paragraph (a) should ever be adjudicated to exceed the time,
geographic, service, or other limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, service, or other limitations permitted by
applicable law.

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

7. Enforcement.

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

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

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

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

-7-

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

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

12. Certain Conditional Payments.

(a) Anything in this Agreement to the contrary notwithstanding, in
the event that it shall be determined that any payment or distribution by PSC to
or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the
"Payment"), would constitute an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the
Executive shall be paid an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive after deduction of any excise tax
imposed under Section 4999 of the Code, and any federal, state and local income
and employment tax and excise tax imposed upon the Gross-Up Payment shall be
equal to the Payment. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax and employment
taxes at the highest marginal rate of federal income and employment taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence (or, if greater, the state and locality in
which the Executive is required to file a nonresident income tax return with
respect to the Payment) on the Termination Date, net of the maximum reduction in
federal income taxes that may be obtained from the deduction of such state and
local taxes.

(b) All determinations to be made under this Section 12 shall be
made by PSC's independent public accountant immediately prior to the Change of
Control (the "Accounting Firm"), which firm shall provide its determinations and
any supporting calculations both to PSC and the Executive within 10 days of the
Termination Date. Any such determination by the Accounting Firm shall be binding
upon PSC and the Executive. Within five days after the Accounting Firm's
determination, PSC shall pay (or cause to be paid) or distribute (or cause to be
distributed) to or for the benefit of the Executive such amounts as are then due
to the Executive under this Agreement.

(c) The Executive shall notify PSC in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by PSC
of the Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten business days after the Executive knows of such claim and
shall apprise PSC of the nature of such claim and the date on which such claim
is requested to be paid. The Executive shall not pay such claim prior to the
expiration of the thirty-day period following the date on which it gives such
notice to PSC (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If PSC notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:

-8-

(i)    give PSC any information reasonably requested by PSC
relating to such claim,

(ii)   take such action in connection with contesting such
claim as PSC shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney mutually agreed to by the Executive and PSC,

(iii)  cooperate with PSC in good faith in order to
effectively contest such claim, and

(iv)   permit PSC to participate in any proceedings relating
to such claim;

provided, however, that PSC shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax, income tax or employment tax, including interest and
penalties, with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 12, PSC shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearing and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
termination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as PSC shall determine;
provided, however, that if PSC directs the Executive to pay such claim and sue
for a refund PSC shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive harmless, on
an after-tax basis, from any Excise Tax, income tax or employment tax, including
interest or penalties with respect thereto, imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and
provided, further, that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, PSC's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by the Executive of an amount advanced
by PSC pursuant to this Section, the Executive receives any refund with respect
to such claim, the Executive shall (subject to PSC's complying with the
requirements of subsection (a)) promptly pay to PSC the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by PSC
pursuant to this Section, a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and PSC does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid as a result of the final determination.

-9-

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

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

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

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

-10-

If to PSC or to PSW, to:

Philadelphia Suburban Corporation
762 W. Lancaster Avenue
Bryn Mawr, PA 19010-3489
Attention: Chairman, Executive Compensation
and Employee Benefits Committee

If to the Executive, to:

Mr. Nicholas DeBenedictis
231 Golf View Road
Ardmore, PA 19003

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

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

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

18. No Right to Continued Employment. Nothing in this Agreement shall
be construed as giving the Executive any right to be retained in the employ of
PSC, PSW or any of their subsidiaries.

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

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

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

-11-

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

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

24. Sole Agreement. In the event of a Termination of Employment
following a Change of Control, a portion of the payment made to the Executive
under Section 3 above, equal to one year of the Executive's base salary, shall
be in lieu of the payment due to the Executive in the event his employment were
actually or constructively terminated by PSC or PSW under, and this Agreement
shall thereafter supersede, the next to the last paragraph of the Letter
Agreement dated May 20, 1992, between PSC and the Executive with respect to the
severance payment due to the Executive upon termination.

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

ATTEST:                                     PHILADELPHIA SUBURBAN CORPORATION

/s/  Suzanne Falcone                        By /s/  Roy H. Stahl
------------------------------------           --------------------------------
Secretary

ATTEST:                                     PHILADELPHIA SUBURBAN WATER COMPANY

/s/  Suzanne Falcone                        By /s/  Roy H. Stahl
------------------------------------           --------------------------------
Secretary

/s/  Maria Torres                           /s/  Nicholas DeBenedictis
------------------------------------        -----------------------------------
Witness                                     Nicholas DeBenedictis

-12-

Exhibit 10.38

AMENDED AGREEMENT

THIS Amended Agreement made as of the 7th day of August, 2001, by and
between Philadelphia Suburban Corporation, a Pennsylvania corporation ("PSC"),
and Roy H. Stahl (the "Executive").

WHEREAS, the Executive is presently employed by PSC, as its Executive
Vice President and General Counsel and also serves as an officer of Philadelphia
Suburban Water Company ("PSW"); and

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

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

WHEREAS, in order to induce the Executive to remain in the employ of
PSC, PSC and PSW, for which certain of the employees of PSC, such as the
Executive, provide key executive services, entered into an Agreement, effective
as of January 1, 1997, to provide that the Executive would receive certain
compensation in the event his employment with PSC or PSW is terminated
subsequent to a "Change of Control" (as defined in Section 1 hereof) of PSC as a
cushion against the financial and career impact on the Executive of any such
Change of Control; and

WHEREAS, the agreement was amended effective as of February 1, 1999, to
clarify the term of the Agreement; and

WHEREAS, PSC and PSW wish to amend and restate the Agreement at this
time to clarify certain rights of the Executive, incorporate the amendment that
was made to the Agreement effective as of February 1, 1999, and to make other
desirable changes; and

WHEREAS, PSW is willing to enter into this Agreement with PSC in light
of his role in the management of the affairs of PSW or its subsidiaries;

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

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

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

(b) "Base Compensation" shall mean the average of the total of
cash base salary and annual bonus paid to, and dividend equivalents under the
Equity Compensation Plan accrued for, the Executive in each calendar year in all
capacities with PSC, PSW and their Subsidiaries or Affiliates, as would be
reported for Federal income tax purposes on Form W-2 if currently subject to
tax, together with (i) any amounts the payment of which has been deferred by the
Executive under any deferred compensation plan of PSC, PSW and their
Subsidiaries or Affiliates, or otherwise, (ii) any and all salary reduction
authorized amounts under any of the benefit plans or programs of PSC, PSW and
their Subsidiaries or Affiliates, (iii) the value, as shown in PSC's Proxy, for
each calendar year in which a grant was made, of the stock option grants made to
the Executive under the Equity Compensation Plan, but excluding any amounts
attributable to the exercise of stock options, and (iv) the value, based on the
average value of shares vesting in each year, of any grants of Restricted Stock
made to the Executive under the Equity Compensation Plan, for the three calendar
years (or such number of actual full calendar years of employment, if less than
three) immediately preceding the calendar year in which occurs a Change of
Control or the Executive's Termination Date, whichever period produces the
higher amount.

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

-2-

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

(e) "Change of Control" shall mean:

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

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

(iii) there occurs a sale of substantially all of the assets
of PSC or its liquidation is approved by a majority of its shareholders or PSC
is merged into or is merged with an unrelated entity such that following the
merger the shareholders of PSC no longer own more than 51% of the resultant
entity. Notwithstanding anything in this Section 1(e) to the contrary, a Change
of Control shall not be deemed to have taken place under clause (e)(i) above if
(a) such Person becomes the beneficial owner in the aggregate of 20% or more of
the Common Stock of PSC then outstanding as a result of an inadvertent
acquisition by such Person if such Person, as soon as practicable, divests
itself of a sufficient amount of its Common Stock so that it no longer owns 20%
or more of the Common Stock then outstanding, as determined by the Board of
Directors of PSC, or (ii) the shares of Common Stock required to be counted in
order to meet the 20% minimum threshold described under such clause (i) include
any of the shares described in subsections (i) through (iv) of section 2543(b)
of the Pennsylvania Business Corporation Law of 1988 (15 Pa.C.S.A. '2543(b)) as
in effect on the date of adoption of the Plan.

-3-

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

(g) "Equity Compensation Plan" shall mean PSC's 1994 Equity
Compensation Plan, and its predecessors and successors.

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

(i) any failure of PSC or PSW or their successor(s) to comply
with and satisfy any of the terms of this the Agreement;

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

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

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

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

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

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

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

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

(l) "Termination of Employment" shall mean the termination of the
Executive's actual employment relationship with PSC, PSW and any of their
Subsidiaries that actually employs the Executive.

-4-

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

3. Severance Compensation upon Termination.

(a) Subject to the provisions of Section 11 hereof, in the event
of the Executive's involuntary Termination of Employment for any reason other
than Cause or in the event of a Good Reason Termination, in either event within
two years after a Change of Control, PSC shall pay to the Executive, upon the
execution of a release in the form required by PSC or PSW of its terminating
executives prior to the Change of Control, within 15 days after the Termination
Date (or as soon as possible thereafter in the event that the procedures set
forth in Section 11(b) hereof cannot be completed within 15 days), an amount in
cash equal to two times the Executive's Base Compensation, subject to required
employment taxes and deductions. In the event that PSC does not satisfy its
obligation hereunder within the required time period, PSW shall pay or cause to
be paid all compensation, benefits and other amounts remaining due to the
Executive upon prompt written notice to PSW that PSC has not satisfied its
obligation (or a portion thereof) to the Executive.

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

4. Other Payments and Benefits. The payment due under Section 3 hereof
shall be in addition to and not in lieu of any payments or benefits due to the
Executive under any other plan, policy or program of PSC or PSW, and their
Subsidiaries or Affiliates. In addition, the Executive shall be entitled to (i)
a continuation of health, dental, life and welfare benefits, excluding
disability benefits, otherwise provided to senior level executives or employees
generally, as the same may be amended for all such individuals from time to
time, for the period of two years, (ii) continued use of the automobile
furnished to the Executive for the lesser of (1) two years after the Termination
Date or (2) the balance of the applicable lease term, if any, in either case to
the same extent as was provided to the Executive in the calendar year
immediately preceding the Change of Control and the ability to purchase such
automobile from PSC or PSW at its book value at the completion of such period,
and (iii) fully-paid executive level outplacement services from the provider of
the Executive's choice for 6 months following the Termination Date.

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

-5-

6. Enforcement.

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

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

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

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

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

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

-6-

11. Certain Reduction of Payments.

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

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

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

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

-7-

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

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

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

-8-

If to PSC or to PSW, to:

Philadelphia Suburban Corporation
762 W. Lancaster Avenue
Bryn Mawr, PA 19010-3489
Attention: Chairman, Executive Compensation
and Employee Benefits Committee

If to the Executive, to:

Mr. Roy H. Stahl
1884 Black Rock Lane
Paoli, PA 19301

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

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

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

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

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

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

-9-

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

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

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

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

ATTEST:                                     PHILADELPHIA SUBURBAN CORPORATION

/s/  Suzanne Falcone                        By /s/  David P. Smeltzer
------------------------------------           ---------------------------------
Secretary

ATTEST:                                     PHILADELPHIA SUBURBAN WATER COMPANY

/s/  Suzanne Falcone                        By /s/  David P. Smeltzer
------------------------------------           ---------------------------------
Secretary

EXECUTIVE

/s/ Corinne J. Stahl                        /s/ Roy H. Stahl
------------------------------------        ------------------------------------
Witness

-10-

Exhibit 10.39
AMENDED AGREEMENT

THIS Amended Agreement made as of the 7th day of August, 2001,
by and between Philadelphia Suburban Corporation, a Pennsylvania corporation
("PSC"), and Richard R. Riegler (the "Executive").

WHEREAS, the Executive is presently employed by PSC, as its
Senior Vice President - Engineering and Environmental Affairs and also serves as
an officer of Philadelphia Suburban Water Company ("PSW"); and

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

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

WHEREAS, in order to induce the Executive to remain in the
employ of PSC, PSC and PSW, for which certain of the employees of PSC, such as
the Executive, provide key executive services, entered into an Agreement,
effective as of January 1, 1997, to provide that the Executive would receive
certain compensation in the event his employment with PSC or PSW is terminated
subsequent to a "Change of Control" (as defined in Section 1 hereof) of PSC as a
cushion against the financial and career impact on the Executive of any such
Change of Control; and

WHEREAS,  the agreement was amended  effective as of
February 1, 1999, to clarify the term of the Agreement; and

WHEREAS, PSC and PSW wish to amend and restate the Agreement
at this time to clarify certain rights of the Executive, incorporate the
amendment that was made to the Agreement effective as of February 1, 1999, and
to make other desirable changes; and

WHEREAS, PSW is willing to enter into this Agreement with PSC
in light of his role in the management of the affairs of PSW or its
subsidiaries;

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

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

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

(b) "Base Compensation" shall mean the average of the
total of cash base salary and annual bonus paid to, and dividend equivalents
under the Equity Compensation Plan accrued for, the Executive in each calendar
year in all capacities with PSC, PSW and their Subsidiaries or Affiliates, as
would be reported for Federal income tax purposes on Form W-2 if currently
subject to tax, together with (i) any amounts the payment of which has been
deferred by the Executive under any deferred compensation plan of PSC, PSW and
their Subsidiaries or Affiliates, or otherwise, (ii) any and all salary
reduction authorized amounts under any of the benefit plans or programs of PSC,
PSW and their Subsidiaries or Affiliates, (iii) the value, as shown in PSC's
Proxy, for each calendar year in which a grant was made, of the stock option
grants made to the Executive under the Equity Compensation Plan, but excluding
any amounts attributable to the exercise of stock options, and (iv) the value,
based on the average value of shares vesting in each year, of any grants of
Restricted Stock made to the Executive under the Equity Compensation Plan, for
the three calendar years (or such number of actual full calendar years of
employment, if less than three) immediately preceding the calendar year in which
occurs a Change of Control or the Executive's Termination Date, whichever period
produces the higher amount.

(c) A Person shall be deemed the "Beneficial Owner"
of any securities: (i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such right
is exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of securities tendered pursuant to a tender or exchange offer made by
such Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for payment, purchase or exchange; (ii) that such Person

-2-

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

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

(e) "Change of Control" shall mean:

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

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

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(iii) there occurs a sale of substantially
all of the assets of PSC or its liquidation is approved by a majority of its
shareholders or PSC is merged into or is merged with an unrelated entity such
that following the merger the shareholders of PSC no longer own more than 51% of
the resultant entity. Notwithstanding anything in this Section 1(e) to the
contrary, a Change of Control shall not be deemed to have taken place under
clause (e)(i) above if (a) such Person becomes the beneficial owner in the
aggregate of 20% or more of the Common Stock of PSC then outstanding as a result
of an inadvertent acquisition by such Person if such Person, as soon as
practicable, divests itself of a sufficient amount of its Common Stock so that
it no longer owns 20% or more of the Common Stock then outstanding, as
determined by the Board of Directors of PSC, or (ii) the shares of Common Stock
required to be counted in order to meet the 20% minimum threshold described
under such clause (i) include any of the shares described in subsections (i)
through (iv) of section 2543(b) of the Pennsylvania Business Corporation Law of
1988 (15 Pa.C.S.A. '2543(b)) as in effect on the date of adoption of the Plan.

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

(g) "Equity Compensation Plan" shall mean PSC's 1994
Equity Compensation Plan, and its predecessors and successors.

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

(i) any failure of PSC or PSW or their
successor(s) to comply with and satisfy any of the terms of this the Agreement;

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

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

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

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

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

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

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

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

(l) "Termination of Employment" shall mean the
termination of the Executive's actual employment relationship with PSC, PSW and
any of their Subsidiaries that actually employs the Executive.

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

3. Severance Compensation upon Termination.

(a) Subject to the provisions of Section 11 hereof,
in the event of the Executive's involuntary Termination of Employment for any
reason other than Cause or in the event of a Good Reason Termination, in either

-5-

event within two years after a Change of Control, PSC shall pay to the
Executive, upon the execution of a release in the form required by PSC or PSW of
its terminating executives prior to the Change of Control, within 15 days after
the Termination Date (or as soon as possible thereafter in the event that the
procedures set forth in Section 11(b) hereof cannot be completed within 15
days), an amount in cash equal to two times the Executive's Base Compensation,
subject to required employment taxes and deductions. In the event that PSC does
not satisfy its obligation hereunder within the required time period, PSW shall
pay or cause to be paid all compensation, benefits and other amounts remaining
due to the Executive upon prompt written notice to PSW that PSC has not
satisfied its obligation (or a portion thereof) to the Executive.

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

4. Other Payments and Benefits. The payment due under Section
3 hereof shall be in addition to and not in lieu of any payments or benefits due
to the Executive under any other plan, policy or program of PSC or PSW, and
their Subsidiaries or Affiliates. In addition, the Executive shall be entitled
to (i) a continuation of health, dental, life and welfare benefits, excluding
disability benefits, otherwise provided to senior level executives or employees
generally, as the same may be amended for all such individuals from time to
time, for the period of two years, (ii) continued use of the automobile
furnished to the Executive for the lesser of (1) two years after the Termination
Date or (2) the balance of the applicable lease term, if any, in either case to
the same extent as was provided to the Executive in the calendar year
immediately preceding the Change of Control and the ability to purchase such
automobile from PSC or PSW at its book value at the completion of such period,
and (iii) fully-paid executive level outplacement services from the provider of
the Executive's choice for 6 months following the Termination Date.

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

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6. Enforcement.

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

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

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

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

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

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

-7-

11. Certain Reduction of Payments.

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

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

(c) As a result of the uncertainty in the application
of Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Agreement Payments, as the case
may be, will have been made by PSC which should not have been made
("Overpayment") or that additional Agreement Payments which have not been made
by PSC could have been made ("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. Within two years after the
Termination of Employment, the Accounting Firm shall review the determination
made by it pursuant to the preceding paragraph and PSC shall cooperate and
provide all information necessary for such review. In the event that the
Accounting Firm determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the Executive which
the Executive shall repay to PSC together with interest from the date of payment

-8-

under this Agreement at the applicable Federal rate provided for in Section
7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount
shall be payable by the Executive to PSC if and to the extent such payment would
not reduce the limit on the amount that is deductible under Section 280G of the
Code. In the event that the Accounting Firm determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by PSC to or for the
benefit of the Executive together with interest from the date of payment under
this Agreement at the Federal Rate.

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

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

13. Successor Company. PSC shall require any successor or
successors (whether direct or indirect, by purchase, merger or otherwise) to all
or substantially all of the business and/or assets of PSC or PSW, or of any of
their Subsidiaries that actually employ the Executive, by agreement in form and
substance satisfactory to the Executive, to acknowledge expressly that this
Agreement is binding upon and enforceable against the successor or successors,
in accordance with the terms hereof, and to become jointly and severally
obligated with PSC and PSW to perform this Agreement in the same manner and to
the same extent that PSC and PSW would be required to perform if no such
succession or successions had taken place. Failure of PSC or PSW to notify the

-9-

Executive in writing as to such successorship, to provide the Executive the
opportunity to review and agree to the successor's assumption of this Agreement
or to obtain such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement. As used in this Agreement, PSC and the
Company shall mean PSC and PSW, respectively, and their Subsidiaries as
hereinbefore defined and any such successor or successors to their business
and/or assets, jointly and severally.

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

If to PSC or to PSW, to:

Philadelphia Suburban Corporation
762 W. Lancaster Avenue
Bryn Mawr, PA 19010-3489
Attention: Chairman, Executive Compensation
and Employee Benefits Committee

If to the Executive, to:

Mr. Richard R. Riegler
2592 Sibel Circle
Lansdale, PA 19446

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

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

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

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

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

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

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

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

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

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

ATTEST:                                     PHILADELPHIA SUBURBAN CORPORATION

/s/  Suzanne Falcone                        By /s/  Roy H. Stahl
------------------------------------------     ---------------------------------
Secretary

ATTEST:                                     PHILADELPHIA SUBURBAN WATER COMPANY

/s/  Suzanne Falcone                        By /s/  Roy H. Stahl
------------------------------------------     ---------------------------------
Secretary

EXECUTIVE

/s/  Branda A. Davis                        /s/  Richard R. Riegler
-----------------------------------------   ------------------------------------
Witness

-13-

Exhibit 10.40

AMENDED AGREEMENT

THIS Amended Agreement made as of the 7th day of August, 2001, by and
between Philadelphia Suburban Corporation, a Pennsylvania corporation ("PSC"),
and David P. Smeltzer (the "Executive").

WHEREAS, the Executive is presently employed by PSC, as its Senior Vice
President - Finance and Chief Financial Officer and also serves as an officer of
Philadelphia Suburban Water Company ("PSW"); and

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

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

WHEREAS, in order to induce the Executive to remain in the employ of
PSC, PSC and PSW, for which certain of the employees of PSC, such as the
Executive, provide key executive services, entered into an Agreement, effective
as of January 1, 1997, to provide that the Executive would receive certain
compensation in the event his employment with PSC or PSW is terminated
subsequent to a "Change of Control" (as defined in Section 1 hereof) of PSC as a
cushion against the financial and career impact on the Executive of any such
Change of Control; and

WHEREAS, the agreement was amended effective as of December 1, 1999,
and WHEREAS, PSC and PSW wish to amend and restate the Agreement at this time to
clarify certain rights of the Executive, incorporate the amendment that was made
to the Agreement effective as of February 1, 1999, and to make other desirable
changes; and

WHEREAS, PSW is willing to enter into this Agreement with PSC in light
of his role in the management of the affairs of PSW or its subsidiaries;

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

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

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

(b) "Base Compensation" shall mean the average of the total of
cash base salary and annual bonus paid to, and dividend equivalents under the
Equity Compensation Plan accrued for, the Executive in each calendar year in all
capacities with PSC, PSW and their Subsidiaries or Affiliates, as would be
reported for Federal income tax purposes on Form W-2 if currently subject to
tax, together with (i) any amounts the payment of which has been deferred by the
Executive under any deferred compensation plan of PSC, PSW and their
Subsidiaries or Affiliates, or otherwise, (ii) any and all salary reduction
authorized amounts under any of the benefit plans or programs of PSC, PSW and
their Subsidiaries or Affiliates, (iii) the value, as shown in PSC's Proxy, for
each calendar year in which a grant was made, of the stock option grants made to
the Executive under the Equity Compensation Plan, but excluding any amounts
attributable to the exercise of stock options, and (iv) the value, based on the
average value of shares vesting in each year, of any grants of Restricted Stock
made to the Executive under the Equity Compensation Plan, for the three calendar
years (or such number of actual full calendar years of employment, if less than
three) immediately preceding the calendar year in which occurs a Change of
Control or the Executive's Termination Date, whichever period produces the
higher amount.

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

-2-

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

(e) "Change of Control" shall mean:

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

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

(iii) there occurs a sale of substantially all of the assets of
PSC or its liquidation is approved by a majority of its shareholders or PSC is
merged into or is merged with an unrelated entity such that following the merger
the shareholders of PSC no longer own more than 51% of the resultant entity.
Notwithstanding anything in this Section 1(e) to the contrary, a Change of
Control shall not be deemed to have taken place under clause (e)(i) above if (a)
such Person becomes the beneficial owner in the aggregate of 20% or more of the
Common Stock of PSC then outstanding as a result of an inadvertent acquisition
by such Person if such Person, as soon as practicable, divests itself of a
sufficient amount of its Common Stock so that it no longer owns 20% or more of
the Common Stock then outstanding, as determined by the Board of Directors of
PSC, or (ii) the shares of Common Stock required to be counted in order to meet
the 20% minimum threshold described under such clause (i) include any of the
shares described in subsections (i) through (iv) of section 2543(b) of the
Pennsylvania Business Corporation Law of 1988 (15 Pa.C.S.A. '2543(b)) as in
effect on the date of adoption of the Plan.

-3-

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

(g) "Equity Compensation Plan" shall mean PSC's 1994 Equity
Compensation Plan, and its predecessors and successors.

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

(i) any failure of PSC or PSW or their successor(s) to comply
with and satisfy any of the terms of this the Agreement;

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

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

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

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

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

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

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

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

(l) "Termination of Employment" shall mean the termination of the
Executive's actual employment relationship with PSC, PSW and any of their
Subsidiaries that actually employs the Executive.

-4-

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

3. Severance Compensation upon Termination.

(a) Subject to the provisions of Section 11 hereof, in the event
of the Executive's involuntary Termination of Employment for any reason other
than Cause or in the event of a Good Reason Termination, in either event within
two years after a Change of Control, PSC shall pay to the Executive, upon the
execution of a release in the form required by PSC or PSW of its terminating
executives prior to the Change of Control, within 15 days after the Termination
Date (or as soon as possible thereafter in the event that the procedures set
forth in Section 11(b) hereof cannot be completed within 15 days), an amount in
cash equal to two times the Executive's Base Compensation, subject to required
employment taxes and deductions. In the event that PSC does not satisfy its
obligation hereunder within the required time period, PSW shall pay or cause to
be paid all compensation, benefits and other amounts remaining due to the
Executive upon prompt written notice to PSW that PSC has not satisfied its
obligation (or a portion thereof) to the Executive.

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

4. Other Payments and Benefits. The payment due under Section 3 hereof
shall be in addition to and not in lieu of any payments or benefits due to the
Executive under any other plan, policy or program of PSC or PSW, and their
Subsidiaries or Affiliates. In addition, the Executive shall be entitled to (i)
a continuation of health, dental, life and welfare benefits, excluding
disability benefits, otherwise provided to senior level executives or employees
generally, as the same may be amended for all such individuals from time to
time, for the period of two years, (ii) continued use of the automobile
furnished to the Executive for the lesser of (1) two years after the Termination
Date or (2) the balance of the applicable lease term, if any, in either case to
the same extent as was provided to the Executive in the calendar year
immediately preceding the Change of Control and the ability to purchase such
automobile from PSC or PSW at its book value at the completion of such period,
and (iii) fully-paid executive level outplacement services from the provider of
the Executive's choice for 6 months following the Termination Date.

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

-5-

6. Enforcement.

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

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

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

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

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

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

-6-

11. Certain Reduction of Payments.

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

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

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

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

-7-

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

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

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

If to PSC or to PSW, to:

Philadelphia Suburban Corporation
762 W. Lancaster Avenue
Bryn Mawr, PA 19010-3489
Attention: Chairman, Executive Compensation
and Employee Benefits Committee

If to the Executive, to:

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

-8-

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

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

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

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

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

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

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

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

-9-

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

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

ATTEST:                                     PHILADELPHIA SUBURBAN CORPORATION

/s/  Suzanne Falcone                        By /s/  Roy H. Stahl
------------------------------------           --------------------------------
Secretary

ATTEST:                                     PHILADELPHIA SUBURBAN WATER COMPANY

/s/  Suzanne Falcone                        By /s/  Roy H. Stahl
------------------------------------           --------------------------------
Secretary

EXECUTIVE

/s/  Robert Rubin                           /s/  David P. Smeltzer
------------------------------------        -----------------------------------
Witness

-10-

Exhibit 13.9

Philadelphia Suburban Corporation and Subsidiaries

Selected Portions of Annual Report to Shareholders for the year ended
December 31, 2001

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

FORWARD-LOOKING STATEMENTS
--------------------------

This report by Philadelphia Suburban Corporation ("we" or "us")
contains, in addition to historical information, forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements address, among other things: our use of cash;
projected capital expenditures; liquidity; as well as information contained
elsewhere in this report where statements are preceded by, followed by or
include the words "believes," "expects," "anticipates," "plans" or similar
expressions. These statements are based on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside our control. Actual results may differ materially from
such statements for a number of reasons, including the effects of regulation,
abnormal weather, changes in capital requirements and funding, and the success
of our growth strategy. We undertake no obligation to update or revise
forward-looking statements, whether as a result of new information, future
events or otherwise.

GENERAL INFORMATION
-------------------

Philadelphia Suburban Corporation is the holding company for regulated
utilities providing water or wastewater services to approximately 2 million
people in Pennsylvania, Ohio, Illinois, New Jersey, Maine and North Carolina.
Our two primary subsidiaries are Pennsylvania Suburban Water Company ("PSW"), a
regulated public utility that provides water or wastewater services to about 1.3
million residents in the suburban areas north and west of the City of
Philadelphia and in ten other counties in Pennsylvania, and Consumers Water
Company ("CWC"), a holding company for several regulated public utility
companies that provide water or wastewater service to about 700,000 residents in
various communities in the other states where we operate. We are among the
largest investor-owned water utilities in the United States based on the number
of customers. In addition, we provide water service to approximately 35,000
people through operating and maintenance contracts with municipal authorities
and other parties close to our operating companies' service territories. Some of
our subsidiaries provide wastewater services (primarily residential) to
approximately 40,000 people in Pennsylvania, Illinois, New Jersey and North
Carolina. During 2001 and each of the previous four years, the operating
revenues associated with wastewater services have been less than 3% of our
consolidated operating revenues.

In March 1999, we completed a merger with CWC. Shares of our common
stock were exchanged for all of the outstanding shares of CWC and CWC became a
wholly-owned subsidiary. The merger was accounted for under the
pooling-of-interests method of accounting. Accordingly, this report includes the
accounts and results of CWC as if the merger had been completed as of the
beginning of the earliest period presented.

In January 2002, Philadelphia Suburban Water Company and various of our
other Pennsylvania operating subsidiaries were merged together into Pennsylvania
Suburban Water Company. The purpose of the merger was to achieve certain legal,
financing and administrative efficiencies and benefits. For operational
purposes, these entities will continue to do business under their former names.
For discussion purposes, all references to PSW relate to Pennsylvania Suburban
Water Company or its predecessor companies.

1

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

Following are our selected five-year financial statistics:

Years ended December 31,                           2001         2000         1999         1998         1997
------------------------------------------------------------------------------------------------------------

Operating revenues (a)                         $307,280     $274,014     $256,546     $250,718     $235,162
------------------------------------------------------------------------------------------------------------

Income from continuing operations               $60,111      $52,890      $36,384      $45,015      $35,210
------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and
non-recurring items (b)                      $99,087      $82,954      $73,036      $68,453      $57,642
------------------------------------------------------------------------------------------------------------

Operating Statistics
Operating revenues                               100.0%       100.0%       100.0%       100.0%       100.0%
Costs and expenses:
Operations and maintenance                    36.4%        37.1%        38.5%        39.9%        41.1%
Depreciation and amortization                 13.1%        12.4%        12.4%        11.8%        11.9%
Taxes other than income taxes                  6.8%         8.2%         8.5%         8.7%         9.1%
Interest expense and other (c)                11.9%        12.9%        12.9%        12.8%        13.8%
Allowance for funds used during
construction                              (0.4)%       (0.9)%       (0.8)%       (0.5)%       (0.4)%
------------------------------------------------------------------------------------------------------------
Total costs and expenses                          67.8%        69.7%        71.5%        72.7%        75.5%
------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and
non-recurring items (b)                        32.2%        30.3%        28.5%        27.3%        24.5%
============================================================================================================
Effective tax rates (a)                           39.3%        39.2%        42.2%        40.1%        38.9%
============================================================================================================

(a)  Continuing operations only.
(b)  Non-recurring items include the 2000 gain of $2,236 ($4,041 pre-tax) for
the partial recovery of the merger costs related to the 1999 merger with
Consumers Water Company, 1999 charges of $8,596 ($10,121 pre-tax) for
transaction costs and restructuring costs related to the merger with
Consumers Water Company, and the 1998 gain of $3,903 ($6,680 pre-tax) on
the sale of Consumer Water Company's New Hampshire system.
(c)  Includes dividends on preferred stock of subsidiary and minority interest.

2

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

Following are our selected five-year operating and sales statistics:

Years ended December 31,                           2001           2000          1999           1998        1997
----------------------------------------------------------------------------------------------------------------

Customers          Residential water            526,776        512,442       497,937        478,160     473,309
Commercial water              29,745         29,317        29,241         27,612      26,369
Industrial water               1,454          1,446         1,430          1,327       1,386
Other water                    9,947          9,500         9,067          8,277       7,574
Wastewater                    19,615         12,441        11,262         10,583      10,522
Operating contracts           14,973         14,073         8,525          7,888       7,480
---------------------------------------------------------------------------------------------
Total                        602,510        579,219       557,462        533,847     526,640
=============================================================================================

Operating          Residential water           $188,303       $170,597      $154,881       $156,523    $148,323
Revenues           Commercial water              53,103         47,109        45,192         44,894      40,439
Industrial water              16,140         14,943        13,944         13,970      12,818
Other water                   35,682         29,582        31,999         25,672      25,132
Wastewater                     6,960          5,414         5,235          4,755       4,378
Other                          7,092          6,369         5,295          4,904       4,072
---------------------------------------------------------------------------------------------
Total                       $307,280       $274,014      $256,546       $250,718    $235,162
=============================================================================================

RESULTS OF OPERATIONS
---------------------

Our income from continuing operations has grown at an annual compound
rate of approximately 15.5% during the five-year period ended December 31, 2001.
During this same period, operating revenues grew at a compound rate of 7.3% and
total expenses, exclusive of income taxes, grew at a compound rate of 4.5%.

Operating Revenues
------------------

The growth in revenues over the past five years is a result of
increases in the customer base and in water rates. The number of customers
increased at an annual compound rate of 3.6% in the past five years primarily as
a result of acquisitions of local water systems. Acquisitions made during the
five-year period ended December 31, 2001 have provided water and wastewater
revenues of approximately $17,427 in 2001, $10,637 in 2000 and $5,606 in 1999.
Excluding the effect of acquisitions, our customer base increased at a five-year
annual compound rate of 0.9%. Rate increases implemented during the past three
years have provided additional operating revenues of approximately $13,100 in
2001, $15,400 in 2000 and $1,700 in 1999. In addition to water and wastewater
operating revenues, we had other non-regulated revenues that were primarily
associated with operating and management contracts, and data processing service
fees of $7,092 in 2001, $6,369 in 2000 and $5,295 in 1999.

Economic Regulation - Our water and wastewater utility operations are subject to
regulation by their respective state regulatory commissions, which have broad
administrative power and authority to regulate rates and charges, determine
franchise areas and conditions of service, approve acquisitions and authorize
the issuance of securities. The profitability of our utility operations is
influenced to a great extent by the timeliness and adequacy of rate allowances
in the various states in which we operate. Accordingly, we maintain a rate case

3

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

management capability to ensure that the tariffs of the utility operations
reflect, to the extent practicable, the timely recovery of increases in costs of
operations, capital, taxes, energy, materials and compliance with environmental
regulations. In assessing our rate case strategy, we consider the amount of
utility plant additions and replacements made since the previous rate decision,
the changes in the cost of capital, changes in the capital structure and changes
in other costs. Based on these assessments, our utility operations periodically
file rate increase requests with their respective state regulatory commissions.
The rates for some divisions of CWC's Ohio subsidiary can be fixed by negotiated
agreements with the municipalities that are served by those divisions in lieu of
regulatory approval from the Public Utility Commission of Ohio. Currently, two
of the six regulated divisions in Ohio are operating under such rate ordinances.

In November 2001, Pennsylvania Suburban Water Company filed an
application with the Pennsylvania Public Utility Commission ("PAPUC") requesting
a $28,000 or 13.4% increase in annual revenues. The application is currently
pending before the PAPUC and a final determination is anticipated by August
2002. In April 2000, the PAPUC approved a rate settlement reached between
Pennsylvania Suburban Water Company and the parties actively litigating the
joint rate application filed in October 1999. The settlement was designed to
increase annual revenues by $17,000 or 9.4% above the level in effect at the
time of the filing. The rates in effect at the time of the filing included
$7,347 in Distribution System Improvement Charges ("DSIC") ranging from 0.33% to
5%. Consequently, the settlement resulted in a total base rate increase of
$24,347 or 13.5% above the rates in effect before the DSIC was applied. The
settlement agreement also provided for the recovery of up to $5,295 (the merger
costs allocable to our Pennsylvania operations) of the $10,121 ($8,596
after-tax) in merger costs that were expensed in 1999 in connection with the CWC
merger. During 2000, a regulatory asset was established to reflect the amount to
be recovered as a result of the rate settlement. This resulted in a recovery of
$1,136 of restructuring costs and $2,905 of merger transaction costs as reported
on the Consolidated Statements of Income and Comprehensive Income.

The CWC operating subsidiaries were allowed annual rate increases of
$4,799 in 2001, $698 in 2000 and $390 in 1999 resulting from nine, four and two
rate decisions, respectively. Revenues from these increases realized in the year
of grant were approximately $4,200 in 2001, $450 in 2000 and $308 in 1999. The
CWC operating subsidiaries currently have four rate requests in process
requesting a $3,858 increase in annual revenues. The applications are currently
under review by the respective state regulatory commission.

Distribution System Improvement Charges - The PAPUC permits Pennsylvania water
utilities to add a surcharge to their water bills to offset the additional
depreciation and capital costs associated with certain capital expenditures
related to replacing and rehabilitating distribution systems. Prior to the DSIC
mechanism being approved in 1996, water utilities absorbed all of the
depreciation and capital costs of these projects between base rate increases
without the benefit of additional revenues. The gap between the time that a
capital project is completed and the recovery of its costs in base rates is
known as regulatory lag. The DSIC mechanism is intended to substantially reduce
regulatory lag that often acted as a disincentive to water utilities in
rehabilitating their distribution systems.

The DSIC is adjusted quarterly based on additional qualified capital
expenditures made in the previous quarter. The DSIC is capped at 5% of base
rates. The DSIC is reset to zero when new base rates that reflect the costs of
those additions become effective or when a utility's earnings exceed a PAPUC
benchmark that is determined quarterly. The DSIC in 2000 was set at 5% until new
base rates became effective in April 2000, at which point the DSIC was reset to
zero. The DSIC in 2001 ranged from the first quarter amount of 2.2% and
increased each successive quarter to 5% in the fourth quarter. The DSIC has been
set at 5% in the first quarter of 2002. The DSIC provided revenues of $6,672 in
2001, $2,301 in 2000 and $4,140 in 1999.

4

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

In 2001, the Illinois Commerce Commission issued regulations
implementing an infrastructure surcharge mechanism known as a Qualifying
Infrastructure Plant Surcharge ("QIPS") for use by Illinois water and wastewater
utilities. QIPS is similar to DSIC, however, it is established annually and
prospectively based on anticipated qualifying capital expenditures, and it
includes a broader range of qualifying capital expenditures, including certain
wastewater capital expenditures. Our operating subsidiary in Illinois received
approval to add a QIPS to its bills in three of its operating divisions
beginning January 1, 2002 at various rates ranging from 1.06% to 2.49%.

Rate Surcharges - In addition to its base rates and DSIC, our Pennsylvania
subsidiary has utilized a surcharge or credit on its bills to reflect certain
changes in Pennsylvania State taxes until such time as the tax changes are
incorporated in base rates. Operating revenues were reduced by rate credits of
$639 in 2001 and increased by rate surcharges of $74 in 2000 and $1,306 in 1999.
In the first quarter of 2002, the rate credit has been set at 0.35%.

Sendout - "Sendout" represents the quantity of treated water delivered to our
distribution systems. We use sendout as an indicator of customer demand. Weather
conditions tend to impact water consumption, particularly during the late spring
and summer months when nonessential and recreational use of water is at its
highest. Consequently, a higher proportion of annual operating revenues is
realized in the second and third quarters. In general during this period, an
extended period of dry weather increases water consumption, while above average
rainfall decreases water consumption. Also, an increase in the average
temperature generally causes an increase in water consumption. Conservation
efforts, construction codes which require the use of low flow plumbing fixtures
as well as mandated water use restrictions in response to drought conditions
also affect water consumption.

Our exposure to regional weather conditions is lessened by our
geographic diversity, as our customers are located in the following states: 65%
in Pennsylvania, 14% in Ohio, 11% in Illinois, 6% in New Jersey, 3% in Maine and
1% in North Carolina. In 2001, our territories in Pennsylvania and New Jersey
experienced hot, dry weather. As a result, water consumption in these portions
of our service territory increased during this period. In 2000, our service
territories in several states, in particular the southeastern Pennsylvania
territory, experienced cool and wet weather conditions during the summer months.
As a result, water consumption in these portions of our service territory
declined during this period.

On occasion, drought warnings and water use restrictions are issued by
governmental authorities for portions of our service territories in response to
extended periods of dry weather conditions. The timing and duration of the
warnings and restrictions can have an impact on our water revenues and net
income. In general, water consumption in the summer months is affected by
drought warnings and restrictions to a higher degree because nonessential and
recreational use of water is highest. At times other than the summer months,
warnings and restrictions generally have less of an effect on water consumption.
In February 2002, a drought emergency was declared in 24 counties, including
seven of the counties we serve in Pennsylvania. A drought emergency imposes a
ban on nonessential water use. A drought warning and drought watch had
previously been issued in November 2001 for portions of our service territory in
Pennsylvania. Water use restrictions were also issued during the summer of 1999,
in Pennsylvania and New Jersey, when we experienced abnormally dry weather in
our service areas resulting in governmental authorities declaring drought
warnings and water use restrictions in the affected areas. As a result of these
actions, water consumption and water revenues in these areas declined to levels
below those experienced in 1998. When the drought restrictions were lifted in
the fall of 1999, water revenues returned to normal levels. Throughout the
restriction periods, we generally had sufficient quantities of raw water and
maintained adequate storage levels of treated water.

5

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

Operations and Maintenance Expenses
-----------------------------------

Operations and maintenance expenses totaled $111,885 in 2001, $101,741
in 2000 and $98,758 in 1999. Most elements of operating costs are subject to the
effects of inflation, as well as the effects of changes in the number of
customers served, in water consumption and the degree of water treatment
required due to variations in the quality of the raw water. The principal
elements of operating costs are labor, electricity, chemicals and maintenance
expenses. Electricity and chemical expenses vary in relationship to water
consumption, raw water quality, and to a lesser extent the electric market in
some of the states in which we operate. Maintenance expenses are sensitive to
extremely cold weather, which can cause water mains to rupture. Operations and
maintenance expenses increased in 2001 as compared to 2000 by $10,144 or 10.0%
due to additional operating costs associated with acquisitions, increased water
production expenses associated with the higher water consumption, and increased
wage and benefit costs.

Operations and maintenance expenses increased in 2000 as compared to
1999 by $2,983 or 3.0% due to additional operating costs associated with
acquisitions, higher fuel and electric costs, and increased administrative
costs, offset in part by a reduction in corporate costs as part of our cost
containment initiatives. Administrative costs increased as a result of increases
in insurance costs and an increased allowance for doubtful accounts. The
reduction in corporate costs was related to the cost synergies resulting from
the Consumers Water Company merger in March 1999.

Depreciation and Amortization Expenses
--------------------------------------

Depreciation expense was $37,979 in 2001, $32,271 in 2000 and
$30,612 in 1999, and has increased principally as a result of the significant
capital expenditures made to expand and improve the utility facilities, and as a
result of acquisitions of water systems, offset in part by the effect in 2000 of
a change in depreciation rates.

Amortization expense was $2,189 in 2001, $1,829 in 2000 and $1,291 in
1999. The increase in 2001 and 2000 is due to the amortization of the costs
associated with, and other costs being recovered in, various rate filings.
Expenses associated with filing rate cases are deferred and amortized over
periods that generally range from one to three years.

Taxes Other than Income Taxes
-----------------------------

Taxes other than income taxes decreased by $1,633 or 7.3% in 2001
as compared to 2000 and increased by $687 or 3.1% in 2000 as compared to the
previous year. The decrease in 2001 is due to a reduction in state and local
taxes and a decrease in the Pennsylvania Capital Stock Tax. The increase in 2000
is associated with increased property taxes and an increase in Pennsylvania
Public Utility Realty tax due to a higher base on which the tax is calculated.

Restructuring costs (recovery)
------------------------------

During 2000, a recovery of restructuring costs of $1,136 resulted from
an April 2000 rate settlement. These costs were included in a 1999 charge of
$3,787 for restructuring costs that included severances of $2,940 and exit costs
associated with the closing of CWC's corporate office.

6

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

Interest Expense, net
---------------------

Net interest expense was $39,859 in 2001, $40,360 in 2000 and
$33,698 in 1999. Interest expense decreased in 2001 primarily as a result of
decreased interest rates on short-term borrowings, offset in part by increased
borrowings to fund capital expenditures and the acquisition of other utility
systems. Interest expense during 2001 was favorably impacted by a reduction in
the weighted cost of long-term debt from 7.2% at December 31, 2000 to 7.0% at
December 31, 2001. Interest expense increased in 2000 primarily as a result of
higher levels of borrowing in order to finance capital expenditures and the
acquisition of other water systems, offset partially by the effects of decreased
interest rates on short-term borrowings.

Gains on Sale of Other Assets
-----------------------------

Gains on sale of other assets totaled $3,384 in 2001, $5,076 in 2000 and
$780 in 1999. Gains on sale of land totaled $3,018 in 2001, $1,524 in 2000 and
$780 in 1999. Gains on sale of marketable securities totaled $366 in 2001 and
$3,552 in 2000. There were no marketable securities sold in 1999.

Dividends on Preferred Stock of Subsidiary and Minority Interest
----------------------------------------------------------------

Dividends on preferred stock of subsidiary and minority interest were $0
in 2001, $103 in 2000 and $93 in 1999. The change in 2001 is a result of
substantially eliminating the minority ownership of three operating subsidiaries
during 2001 and the redemption of the preferred stock of subsidiaries.

Allowance for Funds Used During Construction
--------------------------------------------

The allowance for funds used during construction ("AFUDC") was
$1,222 in 2001, $2,688 in 2000 and $1,995 in 1999 and has varied over the years
as a result of changes in the average balance of utility plant construction work
in progress ("CWIP"), to which AFUDC is applied, and to changes in the AFUDC
rate. The decrease in 2001 is a result of a reduction in the average balance of
CWIP, to which AFUDC is applied, due to the completion of a $35,000 water
treatment plant in the third quarter of 2000 and a decrease in the AFUDC rate.
The increase in 2000 is a result of an increased average balance of CWIP, to
which AFUDC is applied, due to the increased level of capital expenditures in
2000, particularly due to the construction of a $35,000 water treatment plant.
Construction commenced on this facility in 1997 and was completed in 2000.

Merger transaction costs (recovery)
-----------------------------------

During 2000, a recovery of merger transaction costs of $2,905 was
recognized resulting from the April 2000 rate settlement. These costs were
included in a $6,334 charge that was recorded in 1999 when the CWC merger was
completed. The charge represents the fees for investment bankers, attorneys,
accountants and other administrative charges.

Income Taxes
------------

Our effective income tax rate was 39.3% in 2001, 39.2% in 2000 and 42.2%
in 1999. The effective tax rate was higher in 1999 due to the estimated
non-deductible portion of the $6,334 of merger transaction costs recorded in
1999. Exclusive of the merger transaction costs and related tax benefits of
$200, the 1999 effective tax rate would have been 38.6%. The changes in the
effective tax rates in 2001 and 2000 are due to differences between tax
deductible expenses and book expenses.

7

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

Summary
-------

Operating income was $134,340 in 2001, $116,789 in 2000 and
$100,265 in 1999 and net income was $60,111 in 2001, $52,890 in 2000 and $36,384
in 1999. Our operating results have been affected by several non-operating items
in 2000 and 1999. Operating income and net income for 2000 includes the gain for
the partial recovery of restructuring costs related to the CWC merger of $1,136
($665 after tax or $0.01 per share) and for 1999 includes the charge for
restructuring costs related to the CWC merger of $3,787 ($2,462 after tax or
$0.04 per share). Net income for 2000 includes the gain for the partial recovery
of merger transaction costs related to the CWC merger of $2,905 ($1,571 after
tax or $0.02 per share) and for 1999 includes the charge for $6,334 ($6,134
after tax or $0.09 per share) of merger transaction costs associated with the
CWC merger. Diluted net income per share was $0.87 in 2001, $0.81 in 2000 and
$0.56 in 1999. Diluted income per share from operations, exclusive of the
aforementioned non-recurring items, was $0.87 in 2001, $0.77 in 2000 and $0.70
in 1999. The changes in the per share income in 2001 and 2000 over the previous
years were due to the aforementioned changes in income and impacted by a 5.1%
and 1.4% increase in the average number of common shares outstanding during 2001
and 2000, respectively.

Although we have experienced increased income in the recent past,
continued adequate rate increases reflecting increased operating costs and new
capital investments are important to the future realization of improved
profitability.

Fourth Quarter Results
----------------------

Net income available to common stock was $12,209 in the fourth quarter
of 2001 and $12,434 in the same period of 2000. The change in net income is due
to a $5,932 increase in operating revenues, and a reduction in interest expense
of $401, offset by $3,931 of increases in costs and expenses, and $2,213 of
lower gains realized from the sales of other assets in the fourth quarter of
2001 as compared to 2000. The increase in operating revenues was a result of an
increase in water rates, additional revenues from acquisitions and non-regulated
revenues associated with operating and management contracts and rental income.
The decreased interest expense is a result of lower interest rates primarily on
short-term borrowings. Operations and maintenance expenses increased primarily
due to operating costs associated with acquisitions, higher water production
expenses associated with higher water consumption, and increased wage and
benefit costs. Depreciation expense increased $1,303 due to utility plant
additions and acquisitions made since the fourth quarter of 2000. The change in
the gains realized from the sale of other assets is a result of a pre-tax gain
on the sale of marketable securities of $2,491 being realized in the fourth
quarter of 2000 compared to $211 realized in the fourth quarter of 2001.

Effects of Inflation
--------------------

As a regulated enterprise, our rates are established to provide recovery
of costs and a return on our investment. Recovery of the effects of inflation
through higher water rates is dependent upon receiving adequate and timely rate
increases. However, rate increases are not retroactive and often lag increases
in costs caused by inflation. During periods of moderate to low inflation, as
has been experienced for the past several years, the effects of inflation on our
operating results are not significant.

8

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

Security
--------

In light of recent concerns regarding security in the wake of the
September 11, 2001 terrorist attacks, we have increased security measures at our
facilities. These increased security measures were not made in response to any
specific threat. We are in contact with federal, state and local authorities and
industry trade associations regarding current information on possible threats
and security measures for water utility operations. The cost of the increased
security measures is expected to be fully recoverable in water rates and is not
expected to have a material impact on our results from operations or financial
condition.

FINANCIAL CONDITION
-------------------

Cash Flow and Capital Expenditures
----------------------------------

Net operating cash flow, dividends paid on common stock and capital
expenditures, including allowances for funds used during construction, for the
five years ended December 31, 2001 were as follows:

-------------------------------------------------------------------------------
Net Operating              Common            Capital
Cash Flow              Dividends         Expenditures
-------------------------------------------------------------------------------

1997       $  71,252              $  26,752           $  67,378
1998          84,362                 29,349              87,973
1999          74,103                 29,217              96,383
2000          86,972                 30,406             129,740
2001         102,165                 34,234             124,088
-------------------------------------------------------------------------------
$ 418,854              $ 149,958           $ 505,562
===============================================================================

Included in capital expenditures for the five-year period are:
expenditures for the modernization and replacement of existing treatment plants;
new water mains and customer service lines; rehabilitation of existing water
mains, hydrants and customer service lines; water meters; and the construction
of a divisional operations center. During this five-year period, we received
$29,052 of customer advances and contributions in aid of construction to finance
new water mains and related facilities. In addition, during this period, we have
made sinking fund contributions and retired debt in the amount of $53,921,
retired $7,747 of preferred stock, and have refunded $20,620 of customer
advances for construction. Despite an annual increase in the common dividends
declared and paid on our common stock over the past five years, the total common
dividends paid in 1999 declined as compared to 1998 due to the exchange of the
Consumers Water Company common stock for our common stock.

During the past five years, we have also expended $92,063 related to the
acquisitions of utility systems, primarily water utilities and some wastewater
utilities, including the issuance of 976,148 shares of common stock. These
acquisitions were accounted for as purchases. In March 1999, we completed a
merger with Consumers Water Company. On the date of the merger, we issued
20,334,398 shares of Common Stock in exchange for all of the outstanding shares
of CWC and CWC became our wholly-owned subsidiary. Our common shares issued in
the CWC merger have been restated for the effect of the 2001 5-for-4 common

9

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

stock split in the form of a 25% stock distribution. The CWC merger has been
accounted for as a pooling-of-interests. In 1998, CWC's New Hampshire operations
were sold under the New Hampshire condemnation statute for $33,728, net of
certain closing costs, which was used to pay down long-term debt.

Since net operating cash flow plus advances and contributions in aid of
construction have not been sufficient to fully fund cash requirements, we issued
approximately $228,752 of First Mortgage Bonds and obtained other short-term
borrowings during the past five years. In September 2000, we sold 2,066,406
shares of common stock in a public offering for net proceeds of $29,689. The
proceeds of this offering were used to make an equity contribution to PSW. In
1998, we sold 1,953,125 shares of common stock in a public offering for net
proceeds of $25,840. The proceeds of this offering were used to make a $19,000
equity contribution to PSW and to repay short-term debt. At December 31, 2001,
we had short-term lines of credit and other credit facilities of $195,500, of
which $85,832 was available. Our short-term lines of credit and other credit
facilities are either payable on demand or have a 364-day term.

We offer a Dividend Reinvestment and Direct Stock Purchase Plan
("Plan") that provides a convenient and economical way to purchase shares of
Philadelphia Suburban Corporation. Under the direct stock purchase portion of
the Plan, shares are sold throughout the year and the shares are obtained by our
transfer agent in the open market. The dividend reinvestment portion of the Plan
offers a 5% discount on the purchase of original issue shares of common stock
with reinvested dividends. As of the December 2001 dividend payment, holders of
17.5% of the common shares outstanding participated in the dividend reinvestment
portion of the Plan. During the past five years, we have sold 2,246,563 original
issue shares of common stock for net proceeds of $28,028 through the dividend
reinvestment portion of the Plan and the proceeds were used to invest in our
operating subsidiaries, to relieve our operating subsidiaries of the need to pay
a dividend to us, to repay short-term debt, and for general corporate purposes.

The Board of Directors has authorized us to purchase our common stock,
from time to time, in the open market or through privately negotiated
transactions. There were no shares repurchased in 2001 in the open market or
through privately negotiated transactions. We purchased 288,750 shares in 2000
and 127,188 shares in 1999 at a net cost of $3,500 in 2000 and $1,771 in 1999.
For comparative purposes the number of shares purchased is presented as if they
were adjusted for the effect of the 2001 5-for-4 common stock split in the form
of a 25% stock distribution. As of December 31, 2001, 328,967 shares remain
available for repurchase. Funding for future stock purchases, if any, is not
expected to have a material impact on our financial position.

As of December 31, 2001, our contractual cash obligations are as
follows:

Payments Due By Period
------------------------------------------------------------------------------------
2002        2003       2004        2005        2006  Thereafter        Total
-------------------------------------------------------------------------------------------------------------------

Long-term debt                    $ 14,935    $ 34,945   $ 39,972    $ 40,961    $ 17,130   $ 383,512    $ 531,455
Operating leases                     1,901       1,655      1,140         795         651      15,907       22,049
Unconditional purchase
obligations                       7,205       8,098      8,098       6,919       6,811      36,947       74,078
------------------------------------------------------------------------------------
Total                             $ 24,041    $ 44,698   $ 49,210    $ 48,675    $ 24,592   $ 436,366    $ 627,582
====================================================================================

The amounts reported as long-term debt in the above table
represent sinking fund obligations and debt maturities that are due in the
periods noted. We lease motor vehicles, buildings, land and other equipment
under operating leases that are noncancelable. The unconditional purchase
obligations represent our commitment to purchase minimum quantities of water as
stipulated in agreements with municipal authorities. We use purchased water to

10

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

supplement our water supply, particularly during periods of peak customer
demand. In addition to these obligations, we make refunds on Customers' Advances
for Construction over a specific period of time based on operating revenues
related to developer-installed water mains or as new customers are connected to
and take service from such mains. After all refunds are made, any remaining
balance is transferred to Contributions in Aid of Construction. The refund
amounts are not included in the above table because the refund amounts and
timing cannot be accurately estimated since future refund payments depend on
several variables, including new customer connections, customer consumption
levels and future rate increases. Portions of these refund amounts are payable
annually through 2017 and amounts not paid by the contract expiration dates
become non-refundable.

Our planned 2002 capital program, exclusive of the costs of new mains
financed by advances and contributions in aid of construction, is estimated to
be $120,021 of which $38,959 is for DSIC-qualified projects in Pennsylvania and
QIPS-qualified projects in Illinois. We have increased our capital spending for
infrastructure rehabilitation in response to the DSIC and QIPS and should these
infrastructure surcharge mechanisms be discontinued for any reason, which is not
anticipated, we would likely reduce our capital program significantly. Our 2002
capital program, along with $14,935 of sinking fund obligations and debt
maturities, and $9,106 of other contractual cash obligations, is expected to be
financed through internally-generated funds, our revolving credit facilities,
our equity investments and the issuance of new long-term debt.

Future utility construction in the period 2003 through 2006, including
recurring programs, such as the ongoing replacement of water meters, the
rehabilitation of water mains and additional transmission mains to meet customer
demands, exclusive of the costs of new mains financed by advances and
contributions in aid of construction, is estimated to require aggregate
expenditures of approximately $500,000. We anticipate that less than one-half of
these expenditures will require external financing including the additional
issuance of Common Stock through our dividend reinvestment plan and possible
future public equity offerings. We expect to refinance $133,008 of sinking fund
obligations and debt maturities during this period as they become due with new
issues of long-term debt. The estimates discussed above do not include any
amounts for possible future acquisitions of water systems or the financing
necessary to support them.

We continue to hold acquisition discussions with several water systems.
Acquisitions are expected to be financed through the issuance of equity or
funded initially with short-term debt with subsequent repayment from the
proceeds of long-term debt or proceeds from equity offerings.

Our primary source of liquidity is cash flows from operations,
borrowings under various short-term lines of credit and other credit facilities,
and advances and contributions in aid of construction. Our cash flow from
operations, or internally-generated funds, is impacted by the timing of rate
relief and water consumption. We fund our capital and acquisition programs
through internally-generated funds, supplemented by short-term borrowings. Over
time, we refinance our short-term borrowings with long-term debt and proceeds
from the issuance of common stock. The ability to finance our future
construction programs, as well as our acquisition activities, depends on our
ability to attract the necessary external financing and maintain or increase
internally-generated funds. Rate orders permitting compensatory rates of return
on invested capital and timely rate adjustments will be required by our
operating subsidiaries to achieve an adequate level of earnings to enable them
to secure the capital they will need and to maintain satisfactory debt coverage
ratios.

11

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

Market Risk
-----------

We are subject to market risks in the normal course of business,
including changes in interest rates and equity prices. The exposure to changes
in interest rates is a result of financings through the issuance of fixed-rate,
long-term debt. Such exposure is typically related to financings between utility
rate increases, since generally our rate increases provide a revenue level to
allow recovery of our current cost of capital. Interest rate risk is managed
through the use of a combination of long-term debt, which is at fixed interest
rates and short-term debt, which is at floating interest rates. As of December
31, 2001, the debt maturities by period and the weighted average interest rate
for fixed-rate, long-term debt are as follows:

Fair
2002       2003      2004      2005       2006 Thereafter       Total       Value
---------------------------------------------------------------------------------------------------------------

Long-term
debt (fixed rate)     $ 14,935   $ 34,945  $ 39,972  $ 40,961   $ 17,130  $ 383,512   $ 531,455   $ 562,740
Average interest rate       6.54%      6.75%     6.36%     7.22%      7.20%      7.02%       6.96%

From time to time, we make investments in marketable equity securities.
As a result, we are exposed to the risk of changes in equity prices for the
"available for sale" marketable equity securities. As of December 31, 2001, our
carrying value of marketable equity securities was $6,425, which reflects the
market value of such securities. The market risks that we are exposed to are
consistent with the risks that we were exposed to in the prior year.

Capitalization
--------------

The following table summarizes our capitalization during the past five
years:

December 31,                                             2001        2000         1999        1998         1997
----------------------------------------------------------------------------------------------------------------

Long-term debt*                                         52.9%       52.4%        53.8%       51.9%        56.9%
Preferred stock*                                         0.1%        0.2%         0.2%        0.4%         1.0%
Common stockholders' equity                             47.0%       47.4%        46.0%       47.7%        42.1%
----------------------------------------------------------------------------------------------------------------
100.0%      100.0%       100.0%      100.0%       100.0%
================================================================================================================

*Includes current portion.

The changes in the capitalization ratios primarily result from the
issuance of common stock over the past five years and the issuance of debt to
finance our acquisitions and capital program. It is our goal to maintain an
equity ratio adequate to support PSW's current Standard and Poors corporate
credit rating of "A+" and its senior secured debt rating of "AA-".

12

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

Dividends on Common Stock
-------------------------

We have paid common dividends consecutively for 57 years. In 2001, our
Board of Directors authorized an increase of 6.9% in the dividend rate over the
amount we previously paid. As a result of this authorization, beginning with the
dividend payment in December 2001, the annual dividend rate increased to $0.53
per share. We presently intend to pay quarterly cash dividends in the future, on
March 1, June 1, September 1 and December 1, subject to our earnings and
financial condition, regulatory requirements and such other factors as our Board
of Directors may deem relevant. During the past five years, after restatement
for the 1999 CWC pooling, our common dividends paid have averaged 65.3% of
income from continuing operations.

CRITICAL ACCOUNTING POLICIES
----------------------------

Our financial condition and results of operations are impacted by the
methods, assumptions, and estimates used in the application of critical
accounting policies. The following accounting policies are particularly
important to our financial condition or results of operations, and require
estimates or other judgements of matters of uncertainty. Changes in the
estimates or other judgements included within these accounting policies could
result in a significant change to the financial statements. We believe our most
critical accounting policies include revenue recognition, the use of regulatory
assets and liabilities as permitted by Statement of Financial Accounting
Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of
Regulation", the review for impairment of our long-lived assets which consist
primarily of Utility Plant in Service and regulatory assets, and our accounting
for pensions and other postretirement benefits.

Our utility revenues recognized in an accounting period include amounts
billed to customers on a cycle basis and unbilled amounts based on estimated
usage from the last billing to the end of the accounting period. The estimated
usage is based on our judgement and assumptions; our actual results could differ
from these estimates which would result in operating revenues being adjusted in
the period that the revision to our estimates are determined.

SFAS No. 71 stipulates generally accepted accounting principles for
companies whose rates are established by or are subject to approval by an
independent third-party regulator. In accordance with SFAS No. 71, we defer
costs and credits on the balance sheet as regulatory assets and liabilities when
it is probable that these costs and credits will be recognized in the
rate-making process in a period different from when the costs and credits were
incurred. These deferred amounts, both assets and liabilities, are then
recognized in the income statement in the same period that they are reflected in
our rates charged for water and wastewater service. In the event that our
assessment as to the probability of the inclusion in the rate-making process is
incorrect, the associated regulatory asset or liability would be adjusted to
reflect the change in our assessment or change in regulatory approval.

In accordance with the requirements of SFAS No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of", we review for impairment of our long-lived assets, including Utility Plant
in Service. We also review regulatory assets for the continued application of
SFAS No. 71. Our review determines whether there have been changes in
circumstances or events that have occurred that require adjustments to the
carrying value of these assets. In accordance with SFAS No. 71, adjustments to
the carrying value of these assets would be made in instances where the
inclusion in the rate-making process is unlikely.

13

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)

We have defined benefit plans that cover our full-time employees and we
offer certain postretirement benefits other than pensions to our employees
retiring with a minimum level of service. Accounting for pensions and other
postretirement benefits requires an extensive use of assumptions about the
discount rate, expected return on plan assets, the rate of future compensation
increases received by our employees, mortality, turnover and medical costs.
While our actuarial consultants provide guidance in establishing the
assumptions, the assumptions that we use may differ materially from actual
results due to changes in actual circumstances, conditions or experience. These
differences will impact the amount of pension and other postretirement benefit
expense that we recognize. We expect future changes in the amount of expense
recognized will be properly included in the rate-making process.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
------------------------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
and in June 1999 amended this standard by issuing SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." In September 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
an amendment to SFAS No. 133. SFAS No. 138 establishes accounting and reporting
standards for derivative instruments and for hedging activities and requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 137 changed the timing of the implementation of SFAS No. 133. The
adoption of these statements on January 1, 2001 did not have a material impact
on our results of operations or financial condition. As of December 31, 2001, we
had no derivative instruments or hedging activities.

In June 2001, the FASB approved SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill
from an amortization method to an impairment-only approach. We adopted SFAS No.
142 on January 1, 2002 as required, and this statement applies to all goodwill
and other intangible assets recorded on our balance sheet at that date,
regardless of when those assets were originally recorded. We adopted SFAS No.
141 on July 1, 2001 and it did not have a material impact on our results of
operations or financial position.

In July 2001, the FASB approved SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred. When the liability is initially recognized, the carrying
amount of the related long-lived asset is increased by the same amount. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, we may settle the obligation for its recorded
amount, or an alternative amount, thereby incurring a gain or loss upon
settlement. We intend to adopt this statement as required in 2003. We are
currently evaluating the provisions of this statement and have not yet
determined the effect of adoption on our results of operations or financial
position.

In August 2001, the FASB approved SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." We adopted SFAS No. 144 on January 1, 2002 as
required and it did not have a material impact on our results of operations or
financial position.

14

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Report of Management

The consolidated financial statements and related information for the
years ended December 31, 2001, 2000 and 1999 were prepared by management in
accordance with accounting principles generally accepted in the United States of
America and include management's best estimates and judgments, as required.
Financial information included in other sections of this annual report is
consistent with that in the consolidated financial statements.

The Company has an internal accounting control structure designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly authorized and recorded in accordance with established policies and
procedures. The internal control structure is supported by the selection and
training of qualified personnel, the delegation of management authority and
responsibility and dissemination of policies and procedures.

The Company's independent accountants, PricewaterhouseCoopers LLP,
provide an independent review of management's reporting of results of operations
and financial condition. PricewaterhouseCoopers has audited the financial
statements by conducting tests as they deemed appropriate and their report
follows.

The Board of Directors through the Audit Committee selects the
Company's independent auditors and reviews the scope and results of their
audits. The Audit Committee also reviews the adequacy of the Company's internal
control structure and other significant matters. The Audit Committee is
comprised of three outside Directors who meet periodically with management, our
internal audit director and the independent auditors. The Audit Committee held
two meetings in 2001.

/s/ Nicholas DeBenedictis                        /s/ David P. Smeltzer

Nicholas DeBenedictis                                    David P. Smeltzer
Chairman &                              Senior Vice President - Finance
President

15

Report of Independent Accountants

To the Board of Directors and Stockholders of
Philadelphia Suburban Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and comprehensive income, of capitalization
and of cash flow present fairly, in all material respects, the financial
position of Philadelphia Suburban Corporation and its subsidiaries at December
31, 2001 and 2000, and the results of their operations and their cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. The
financial statements of the Company as of December 31, 1999 and for the year
then ended were audited by other independent accountants whose report dated
January 31, 2000 expressed an unqualified opinion on those statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Philadelphia, PA
February 1, 2002

16

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Years ended December 31, 2001, 2000 and 1999

2001          2000         1999
--------------------------------------------

Operating revenues                                                            $307,280       $274,014     $256,546
Costs and expenses:
Operations and maintenance                                                 111,885        101,741       98,758
Depreciation                                                                37,979         32,271       30,612
Amortization                                                                 2,189          1,829        1,291
Taxes other than income taxes                                               20,887         22,520       21,833
Restructuring costs (recovery)                                                   -         (1,136)       3,787
--------------------------------------------
172,940        157,225      156,281

Operating income                                                               134,340        116,789      100,265
Other expense (income):
Interest expense, net                                                       39,859         40,360       33,698
Allowance for funds used during construction                                (1,222)        (2,688)      (1,995)
Gain on sale of other assets                                                (3,384)        (5,076)        (780)
Merger transaction costs (recovery)                                              -         (2,905)       6,334
Dividends on preferred stock of subsidiary
and minority interest                                                        -            103           93
--------------------------------------------
Income before income taxes                                                      99,087         86,995       62,915
Provision for income taxes                                                      38,976         34,105       26,531
--------------------------------------------
Net income                                                                      60,111         52,890       36,384
Dividends on preferred stock                                                       106            106          109
--------------------------------------------
Net income available to common stock                                          $ 60,005       $ 52,784     $ 36,275
============================================

Net income                                                                    $ 60,111       $ 52,890     $ 36,384
Other comprehensive income (loss), net of tax:
Unrealized gains on securities                                                  39            908        2,020
Reclassification adjustment for gains reported in net income                  (239)        (2,002)           -
--------------------------------------------
(200)        (1,094)       2,020

--------------------------------------------
Comprehensive income                                                          $ 59,911       $ 51,796     $ 38,404
============================================

Net income per common share:
Basic                                                                     $   0.88       $   0.82     $   0.57
============================================
Diluted                                                                   $   0.87       $   0.81     $   0.56
============================================
Average common shares outstanding during the period:
Basic                                                                       67,873         64,759       63,850
============================================
Diluted                                                                     68,755         65,414       64,539
============================================

See accompanying notes to consolidated financial statements.

17

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
December 31, 2001 and 2000

2001           2000
-------------------------------
Assets

Property, plant and equipment, at cost                                                     $ 1,677,061     $ 1,536,162
Less accumulated depreciation                                                                  308,946         284,735
-------------------------------
Net property, plant and equipment                                                        1,368,115       1,251,427
-------------------------------

Current assets:
Cash and cash equivalents                                                                    1,010           4,087
Accounts receivable and unbilled revenues, net                                              56,331          50,242
Inventory, materials and supplies                                                            4,446           4,352
Prepayments and other current assets                                                         8,085           7,054
-------------------------------
Total current assets                                                                        69,872          65,735
-------------------------------

Regulatory assets                                                                               79,669          67,470
Deferred charges and other assets, net                                                          22,915          25,129
Funds restricted for construction activity                                                      19,768           3,962
-------------------------------
$ 1,560,339     $ 1,413,723
===============================
Liabilities and Stockholders' Equity
Stockholders' equity:
6.05% Series B cumulative preferred stock                                              $     1,116     $     1,760
Common stock at $.50 par value, authorized 100,000,000 shares,
issued 69,300,346 and 67,939,281 in 2001 and 2000                                      34,650          27,260
Capital in excess of par value                                                             304,039         291,013
Retained earnings                                                                          149,682         123,911
Minority interest                                                                              787           2,823
Treasury stock, at cost, 913,877 and 844,376 shares in 2001 and 2000                       (17,167)        (15,346)
Accumulated other comprehensive income                                                         726             926
-------------------------------
Total stockholders' equity                                                                 473,833         432,347
-------------------------------

Long-term debt, excluding current portion                                                      516,520         468,769
Commitments                                                                                          -               -

Current liabilities:
Current portion of long-term debt                                                           14,935           3,943
Loans payable                                                                              109,668         100,994
Accounts payable                                                                            27,667          20,635
Accrued interest                                                                            10,199          10,199
Accrued taxes                                                                               22,865          15,815
Other accrued liabilities                                                                   17,301          21,310
-------------------------------
Total current liabilities                                                                  202,635         172,896
-------------------------------

Deferred credits and other liabilities:
Deferred income taxes and investment tax credits                                           167,577         151,718
Customers' advances for construction                                                        59,886          58,718
Other                                                                                        9,204           9,109
-------------------------------
Total deferred credits and other liabilities                                               236,667         219,545
-------------------------------

Contributions in aid of construction                                                           130,684         120,166
-------------------------------
$ 1,560,339     $ 1,413,723
===============================

See accompanying notes to consolidated financial statements.

18

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
December 31, 2001 and 2000

2001          2000
----------------------------

Stockholders' equity:
6.05% Series B cumulative preferred stock                                             $  1,116     $  1,760
Common stock, $.50 par value                                                            34,650       27,260
Capital in excess of par value                                                         304,039      291,013
Retained earnings                                                                      149,682      123,911
Minority interest                                                                          787        2,823
Treasury stock, at cost                                                                (17,167)     (15,346)
Accumulated other comprehensive income                                                     726          926
---------------------------
Total stockholders' equity                                                                  473,833      432,347
---------------------------

Long-term debt:
First Mortgage Bonds secured by utility plant:
Interest Rate Range
0.00% to  2.49%                                                                       8,325        4,368
2.50% to  4.99%                                                                       9,023        6,712
5.00% to  5.49%                                                                      50,545        6,667
5.50% to  5.99%                                                                      30,660       31,060
6.00% to  6.49%                                                                     160,525      145,570
6.50% to  6.99%                                                                      55,200       55,200
7.00% to  7.49%                                                                      60,000       62,007
7.50% to  7.99%                                                                      23,000       23,000
8.00% to  8.49%                                                                      17,595       16,621
8.50% to  8.99%                                                                       9,000       10,460
9.00% to  9.49%                                                                      53,535       53,615
9.50% to  9.99%                                                                      46,031       49,831
10.00% to  10.50%                                                                      6,000        6,167
---------------------------
Total First Mortgage Bonds                                                                  529,439      471,278
Note payable, 6.05%, due 2006                                                                   644            -
Installment note payable, 9%, due in equal annual payments through 2013                       1,372        1,434
---------------------------
531,455      472,712
Current portion of long-term debt                                                            14,935        3,943
---------------------------
Long-term debt, excluding current portion                                                   516,520      468,769
---------------------------
Total capitalization                                                                       $990,353     $901,116
===========================

See accompanying notes to consolidated financial statements.

19

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(In thousands of dollars)
Years ended December 31, 2001, 2000 and 1999

2001            2000           1999
-----------------------------------------------

Cash flows from operating activities:
Net income                                                                        $ 60,111       $ 52,890        $ 36,384
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization                                                   40,168         34,100          31,903
Deferred income taxes                                                           14,935         10,885           6,342
Gain on sale of other assets                                                    (3,384)        (5,076)           (780)
Net increase in receivables, inventory and prepayments                          (5,295)        (5,531)         (3,073)
Net increase in payables, accrued interest, accrued taxes
and other accrued liabilities                                                 7,045          4,247             444
Payment of Competitive Transition Charge                                       (11,465)             -               -
Other                                                                               50         (4,543)          2,380
Net cash flows from discontinued operations                                              -              -             503
-----------------------------------------------
Net cash flows from operating activities                                               102,165         86,972          74,103
-----------------------------------------------
Cash flows from investing activities:
Property, plant and equipment additions, including allowance for
funds used during construction of $1,222, $2,688 and $1,995                   (124,088)      (129,740)        (96,383)
Acquisitions of water and wastewater systems                                        (9,517)        (3,546)        (39,164)
Net increase in funds restricted for construction activity                         (15,806)        (3,962)              -
Net proceeds from the sale (purchases) of other assets                               5,211          5,896          (4,789)
Other                                                                                 (173)        (1,711)           (280)
-----------------------------------------------
Net cash flows used in investing activities                                           (144,373)      (133,063)       (140,616)
-----------------------------------------------
Cash flows from financing activities:
Customers' advances and contributions in aid of construction                         5,175          7,603           5,345
Repayments of customers' advances                                                   (4,652)        (4,642)         (4,077)
Net proceeds (repayments) of short-term debt                                         8,385        (14,075)         39,519
Proceeds from long-term debt                                                        64,024         67,791          54,412
Repayments of long-term debt                                                        (8,498)       (13,289)         (6,733)
Redemption of preferred stock of subsidiary                                         (1,349)             -               -
Redemption of preferred stock                                                         (644)             -          (1,460)
Proceeds from issuing common stock                                                  13,522         37,190           7,061
Repurchase of common stock                                                          (2,493)        (4,383)         (1,773)
Dividends paid on preferred stock                                                     (106)          (106)           (117)
Dividends paid on common stock                                                     (34,234)       (30,406)        (29,217)
Other                                                                                    1           (163)            (36)
-----------------------------------------------
Net cash flows from financing activities                                                39,131         45,520          62,924
-----------------------------------------------

Net decrease in cash and cash equivalents                                               (3,077)          (571)         (3,589)
Cash and cash equivalents at beginning of year                                           4,087          4,658           8,247
-----------------------------------------------
Cash and cash equivalents at end of year                                              $  1,010       $  4,087        $  4,658
===============================================
Cash paid during the year for:
Interest, net of amounts capitalized                                              $ 38,637       $ 36,507        $ 31,036
===============================================
Income taxes                                                                      $ 19,388       $ 23,008        $ 20,313
===============================================

See Summary of Significant Accounting Policies-Customers' Advances for
Construction, Merger with Consumers Water Company, Acquisitions and Water
Sale Agreements and Employee Stock and and Incentive Plans footnotes for
description of non-cash activities.
See accompanying notes to consolidated financial statements.

20

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)

Summary of Significant Accounting Policies
------------------------------------------

Basis of Presentation - On March 10, 1999, Philadelphia Suburban Corporation
(the "Company" or "PSC") completed a merger (the "Merger") with Consumers Water
Company ("CWC"). On the date of the Merger, the Company issued 20,334,398 shares
of Common Stock in exchange for all of the outstanding shares of CWC and CWC
became a wholly-owned subsidiary of the Company. The Company's common shares
issued and exchanged for CWC shares have been restated for the effect of the
2001 5-for-4 common stock split effected in the form of a stock distribution.
The Merger has been accounted for as a pooling-of-interests under Accounting
Principles Board Opinion No. 16. Accordingly, the Company's consolidated
financial statements and footnotes presented in this report include the accounts
and results of CWC as if the Merger had been completed as of the beginning of
the earliest period presented.

Nature of Operations - The business of Philadelphia Suburban Corporation is
conducted primarily through its wholly-owned subsidiary Pennsylvania Suburban
Water Company ("PSW") and the four operating companies of CWC (collectively
referred to as "operating companies"). The operating companies of PSC are
regulated public utilities which supply water and provide wastewater service to
602,510 customers in Pennsylvania, Ohio, Illinois, New Jersey, Maine and North
Carolina. The customers of our operating companies are residential, commercial
and industrial in nature. PSW, our largest subsidiary, is a regulated public
utility which supplies water to approximately 336,700 customers, principally in
the suburban areas north and west of the City of Philadelphia and in ten other
counties in western, north central and northeastern Pennsylvania. In January
2002, Philadelphia Suburban Water Company and various other wholly-owned
Pennsylvania operating subsidiaries were merged together into Pennsylvania
Suburban Water Company. For operational purposes, these entities will continue
to do business under their former names. For discussion purposes, all references
to PSW relate to Pennsylvania Suburban Water Company or its predecessor
companies. CWC owns 100% of the voting stock of three water companies and at
least 99% of the voting stock of one water company. In addition, the Company
provides water and wastewater service to approximately 15,000 customers through
operating and maintenance contracts in Pennsylvania, Illinois, New Jersey and
Maine.

Regulation - The operating companies that are regulated public utilities are
subject to regulation by the public utility commissions of the states in which
they operate. The respective public utility commissions have jurisdiction with
respect to rates, service, accounting procedures, issuance of securities,
acquisitions and other matters. Regulated public utilities follow Statement of
Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of
Certain Types of Regulation." SFAS No. 71 provides for the recognition of
regulatory assets and liabilities as allowed by state regulators for costs or
credits that are reflected in current rates or are considered probable of being
included in future rates. The regulatory assets or liabilities are then relieved
as the cost or credit is reflected in rates.

Consolidation - The consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated where appropriate.

Recognition of Revenues - Revenues include amounts billed to customers on a
cycle basis and unbilled amounts based on estimated usage from the latest
billing to the end of the accounting period. Non-utility revenues are recognized
when services are performed.

Property, Plant and Equipment and Depreciation - Property, plant and equipment
consist primarily of utility plant. The cost of additions includes contracted
cost, direct labor and fringe benefits, materials, overheads and, for certain
utility plant, allowance for funds used during construction. Water systems
acquired are recorded at estimated original cost of utility plant when first
devoted to utility service and the applicable depreciation is recorded to
accumulated depreciation. The difference between the estimated original cost,

21

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

less applicable accumulated depreciation, and the purchase price is recorded as
an acquisition adjustment within utility plant. At December 31, 2001, utility
plant includes a net credit acquisition adjustment of $9,043, which is being
amortized over 20 to 40 years. Consistent with the Company's rate settlements,
$545 was amortized during 2001, $541 was amortized during 2000 and $558 was
amortized during 1999.

Utility expenditures for maintenance and repairs, including minor
renewals and betterments, are charged to operating expenses in accordance with
the system of accounts prescribed by the public utility commissions of the
states in which the company operates. The cost of new units of property and
betterments are capitalized. When units of utility property are replaced,
retired or abandoned, the recorded value thereof is credited to the asset
account and such value, together with the net cost of removal, is charged to
accumulated depreciation.

The straight-line remaining life method is used to compute depreciation
on utility plant. Generally, the straight-line method is used with respect to
transportation and mechanical equipment, office equipment and laboratory
equipment.

In accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of", the long-lived
assets of the Company, which consist primarily of Utility Plant in Service and
regulatory assets, have been reviewed for impairment. There has been no change
in circumstances or events that have occurred that require adjustments to the
carrying values of these assets.

Allowance for Funds Used During Construction - The allowance for funds used
during construction ("AFUDC") is a non-cash credit which represents the
estimated cost of funds used to finance the construction of utility plant. In
general, AFUDC is applied to construction projects requiring more than one month
to complete. No AFUDC is applied to projects funded by customer advances for
construction or contributions in aid of construction. AFUDC includes the net
cost of borrowed funds and a rate of return on other funds when used, and is
recovered through water rates as the utility plant is depreciated. The amount of
AFUDC related to equity funds was $334 in 2000 and $57 in 1999. There was no
AFUDC related to equity funds in 2001.

Cash Equivalents - The Company considers all highly liquid investments with an
original maturity of three months or less, which are not restricted for
construction activity, to be cash equivalents.

Deferred Charges and Other Assets - Deferred charges and other assets consist of
financing expenses, other costs and marketable securities. Deferred bond
issuance expenses are amortized by the straight-line method over the life of the
related issues. Call premiums related to the early redemption of long-term debt,
along with the unamortized balance of the related issuance
expense, are deferred and amortized over the life of the long-term debt used to
fund the redemption. Other costs, for which the Company has received or expects
to receive prospective rate recovery, are deferred and amortized over the period
of rate recovery in accordance with SFAS No. 71.

Marketable securities are considered "available-for-sale" and
accordingly, are carried on the balance sheet at fair market value. Unrecognized
gains are included in other comprehensive income.

Income Taxes - The Company accounts for certain income and expense items in
different time periods for financial reporting than for tax reporting purposes.
Deferred income taxes are provided on the temporary differences between the tax

22

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

basis of the assets and liabilities and the amounts at which they are carried in
the consolidated financial statements. The income tax effect of temporary
differences not allowed currently in rates is recorded as deferred taxes with an
offsetting regulatory asset or liability. These deferred income taxes are based
on the enacted tax rates expected to be in effect when such temporary
differences are projected to reverse. Investment tax credits are deferred and
amortized over the estimated useful lives of the related properties.

Customers' Advances for Construction - Water mains or, in some instances, cash
advances to reimburse the Company for its costs to construct water mains, are
contributed to the Company by customers, real estate developers and builders in
order to extend water service to their properties. The value of these
contributions is recorded as Customers' Advances for Construction. The Company
makes refunds on these advances over a specific period of time based on
operating revenues related to the main or as new customers are connected to and
take service from the main. After all refunds are made, any remaining balance is
transferred to Contributions in Aid of Construction. Non-cash property, in the
form of water mains, has been received, generally from developers, as advances
or contributions of $10,196, $6,060 and $10,069 in 2001, 2000 and 1999.

Contributions in Aid of Construction - Contributions in aid of construction
include direct non-refundable contributions and the portion of customers'
advances for construction that become non-refundable.

Inventories, Materials and Supplies - Inventories are stated at cost. Cost is
determined using the first-in, first-out method and the average cost method.

Stock-Based Compensation - The Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", electing the provision of the statement allowing it
to continue its practice of not recognizing compensation expense related to
granting of stock options to the extent that the option price of the underlying
stock was equal to, or greater than, the market price on the date of option
grant. Disclosure of the impact on the results of operations, had the Company
elected to recognize compensation expense, is provided in the Employee Stock and
Incentive Plans footnote as required by the Statement.

Use of Estimates in Preparation of Consolidated Financial Statements - The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Reclassifications - Certain prior year amounts have been reclassified to conform
with current year's presentation.

Recent Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and in June 1999 amended this standard by
issuing SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." In
September 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," an amendment to SFAS No. 133. SFAS
No. 138 establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 137 changed the
timing of the implementation of SFAS No. 133. The adoption of these statements
on January 1, 2001 did not have a material impact on the Company's results of
operations or financial condition. As of December 31, 2001, the Company had no
derivative instruments or hedging activities.

23

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

In June 2001, the FASB approved SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill
from an amortization method to an impairment-only approach. The Company adopted
SFAS No. 142 on January 1, 2002 as required, and this statement applies to all
goodwill and other intangible assets recorded on our balance sheet at that date,
regardless of when those assets were originally recorded. The adoption of SFAS
No. 141 on July 1, 2001 did not have a material impact on the Company's results
of operations or financial position.

In July 2001, the FASB approved SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred. When the liability is initially recognized, the carrying
amount of the related long-lived asset is increased by the same amount. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, the Company may settle the obligation for its
recorded amount, or an alternative amount, thereby incurring a gain or loss upon
settlement. The Company intends to adopt this statement as required in 2003. The
Company is currently evaluating the provisions of this statement and has not yet
determined the effect of adoption on its results of operations or financial
position.

In August 2001, the FASB approved SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The adoption of SFAS No. 144 on January 1, 2002 did
not have a material impact on the Company's results of operations or financial
position.

Merger with Consumers Water Company
-----------------------------------

On March 10, 1999, the Company completed a merger ("the Merger") with
CWC. Pursuant to the merger agreement, the Company issued 20,334,398 shares of
Common Stock in exchange for all of the outstanding stock of CWC. CWC common
shareholders received 2.2 shares of the Company's Common Stock for each CWC
common share and CWC preferred shareholders received 8.8 shares of the Company's
Common Stock for each CWC preferred share. The Company's common shares issued
and exchanged for CWC shares have been restated for the effect of the 2001
5-for-4 common stock split effected in the form of a 25% stock distribution. As
a result of the Merger, CWC became a wholly-owned subsidiary of the Company.
CWC's water companies serve approximately 245,000 customers in service
territories covering parts of five states in which we operate.

During 1999, the Company recorded a charge of $6,334 ($6,134, after tax
benefits of $200) for merger transaction costs consisting primarily of fees for
investment bankers, attorneys, accountants and other administrative charges. In
addition, the Company recorded a restructuring reserve of $3,787 ($2,462, after
tax benefits of $1,325) in 1999 that includes severances of $2,940 and exit
costs associated with the closing of CWC's corporate office. Since the
restructuring reserve was established, cash payments have substantially
eliminated this reserve balance during the first half of 2000. In connection
with a rate settlement received in 2000, recovery of a portion of the merger
costs has been granted and a regulatory asset was established to reflect this
recovery. As a result, a gain on recovery of merger costs of $2,236 ($4,041
pre-tax) was recognized in 2000. The merger transaction costs and related
recovery have been reported in Other expenses and the restructuring costs and
related recovery have been reported as Costs and expenses in the Consolidated
Statements of Income and Comprehensive Income.

24

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

Acquisitions and Water Sale Agreements
--------------------------------------

During 2001, the Company completed 20 acquisitions or other growth
ventures in the various states in which the Company operates. The total purchase
price of $14,878 for the systems acquired in 2001 consisted of $9,517 in cash
and the issuance of 331,710 shares of the Company's common stock. The increase
in annual revenues resulting from the acquired systems approximate $4,699
(unaudited) and operating revenues included in the consolidated financial
statements during the period owned by the Company was $3,432.

During 2000, the Company completed 18 acquisitions or other growth
ventures, including the Company's entry into a sixth state, North Carolina. The
total purchase price of $11,840 for the systems acquired in 2000 consisted of
$3,546 in cash and the issuance of 578,813 shares of the Company's common stock.
Operating revenues included in the consolidated financial statements related to
the systems acquired in 2000 were $2,623 in 2001 and $394 in 2000.

During 1999, exclusive of the Merger, the Company completed 16
acquisitions or other growth ventures in the various states where the Company
operates. The total purchase price for the systems acquired in 1999 was $39,164
in cash. Operating revenues included in the consolidated financial statements
related to the systems acquired in 1999 were $5,101 in 2001, $4,808 in 2000 and
$559 in 1999.

Property, Plant and Equipment
-----------------------------

December 31,
----------------------------------
2001               2000
----------------------------------

Utility plant and equipment                    $ 1,622,788       $ 1,513,480
Utility construction work in progress               51,531            19,820
Non-utility plant and equipment                      2,742             2,862
----------------------------------
Total property, plant and equipment            $ 1,677,061       $ 1,536,162
==================================

Depreciation is computed based on estimated useful lives of 2 to 110
years for utility plant and 3 to 10 years for both utility transportation and
mechanical equipment and all non-utility plant, office equipment and laboratory
equipment.

Accounts Receivable
--------------------

December 31,
-----------------------------
2001          2000
-----------------------------

Billed utility revenue                              $ 33,476      $ 30,846
Unbilled utility revenue                              23,493        20,645
Other                                                  1,844           658
-----------------------------
58,813        52,149
Less allowance for doubtful accounts                   2,482         1,907
-----------------------------
Net accounts receivable                             $ 56,331      $ 50,242
=============================

The Company's customers are located in the following states: 65% in
Pennsylvania, 14% in Ohio, 11% in Illinois, 6% in New Jersey, 3% in Maine and 1%
in North Carolina. No single customer accounted for more than one percent of the
Company's operating revenues during the years ended December 31, 2001, 2000 or
1999.

25

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

Regulatory Assets
-----------------

The regulatory assets represent costs that are excluded from the
Company's rate base but are expected to be fully recovered in future rates. The
components of this asset are as follows:

December 31,
----------------------------
2001          2000
----------------------------
Income taxes                                        $ 61,080      $ 58,650
Competitive Transition Charge payment                 10,319             -
Postretirement benefits                                1,374         1,685
Merger costs                                           3,759         4,308
Water tank painting                                    2,088         1,657
Rate case filing expenses and other                    1,049         1,170
----------------------------
$ 79,669      $ 67,470
============================

Items giving rise to deferred state income taxes, as well as a portion
of deferred Federal income taxes related to certain differences between tax and
book depreciation expense, are recognized in the rate setting process on a cash
or flow-through basis and will be recovered as they reverse. The regulatory
asset associated with the Competitive Transition Charge payment represents the
full pay off in 2001, net of amortization, of the allocable share of a
Competitive Transition Charge ("CTC") as negotiated by PSW from its electric
distribution company, PECO Energy Company. The Pennsylvania Electricity
Generation Customer Choice and Competition Act permitted electric distribution
utilities to recover their stranded costs from its customers in the form of a
CTC. The $11,465 CTC payment is expected to be recovered in future water rates
over 10 years. Postretirement benefits include pension and other postretirement
benefits. The pension costs are deferred net pension expense in excess of
amounts funded which the Company believes will be recoverable in future years as
pension funding is required. The regulatory asset related to postretirement
benefits other than pensions represents costs that were deferred between the
time that the accrual method of accounting for these benefits was adopted in
1993 and the recognition of the accrual method in the Company's rates as
prescribed in subsequent rate filings. Amortization of the amount deferred for
postretirement benefits other than pensions began in 1994 and is currently being
recovered in rates. The regulatory asset related to the recovery of merger costs
represents the portion of the CWC merger costs that will be recovered in rates
as a result of a rate settlement in 2000 and is being amortized over the
recovery period. Expenses associated with water tank painting are deferred and
amortized over a period of time as approved in the regulatory process. The
regulatory asset related to rate case filing expenses represents the costs
associated with filing for rate increases that are deferred and amortized over
periods that generally range from one to three years.

26

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

Income Taxes
------------

The provision for income taxes consists of:

Years Ended December 31,
--------------------------------------------
2001          2000           1999
--------------------------------------------
Current:
Federal                              $ 18,935      $ 19,888       $ 15,233
State                                   5,106         4,900          3,695
--------------------------------------------

24,041        24,788         18,928
--------------------------------------------
Deferred:
Federal                                13,048         8,371          6,862
State                                   1,887           946            741
--------------------------------------------

14,935         9,317          7,603
--------------------------------------------
Total tax expense                      $ 38,976      $ 34,105       $ 26,531
============================================

The statutory Federal tax rate is 35% and the state corporate net
income tax rates range from 7.18% to 9.99% for all years presented. The
Company's Federal income tax returns for all years through 1997 have been
closed.

The reasons for the differences between amounts computed by applying
the statutory Federal income tax rate to income before income tax expense are as
follows:

Years Ended December 31,
-------------------------------------------
2001          2000          1999
-------------------------------------------

Computed Federal tax expense at statutory rate                     $ 34,680      $ 30,448      $ 22,020
Increase in tax expense for depreciation expense
to be recovered in future rates                                       452           353           387
Merger transaction costs                                                  -           120         2,017
Charitable contribution                                                   -           (83)         (479)
Gain on sale of land                                                      -             -            83
Amortization of deferred investment tax credits                        (276)         (287)         (279)
Prior year rate reductions                                             (322)         (311)         (313)
State income taxes, net of federal tax benefit                        4,545         3,799         2,883
Other, net                                                             (103)           66           212
-------------------------------------------
Actual income tax expense                                          $ 38,976      $ 34,105      $ 26,531
===========================================

27

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

The tax effects of temporary differences between book and tax
accounting that give rise to the deferred tax assets and deferred tax
liabilities are as follows:

December 31,
---------------------------
2001          2000
---------------------------
Deferred tax assets:
Customers' advances for construction               $ 18,060      $ 19,120
Costs expensed for book not deducted
for tax, principally accrued expenses
and bad debt reserves                               1,689         5,064
Other                                                   290             -
---------------------------
Total gross deferred tax assets                        20,039        24,184
---------------------------

Deferred tax liabilities:
Utility plant, principally due to
depreciation and differences in the basis
of fixed assets due to variation in tax
and book accounting                               156,332       143,615
Deferred taxes associated with the gross-up
of revenues necessary to recover, in rates,
the effect of temporary differences                23,626        23,344
Deferred investment tax credit                        7,219         7,498
Unrealized gain on marketable securities                439           547
Other                                                     -           898
---------------------------
Total gross deferred tax liabilities                  187,616       175,902
---------------------------

Net deferred tax liability                           $167,577      $151,718
===========================

Commitments
-----------

The Company maintains agreements with municipal authorities for the
purchase of water to supplement its water supply, particularly during periods of
peak demand. The agreements stipulate purchases of minimum quantities of water
to the year 2026. The estimated annual commitments related to such purchases are
expected to approximate $7,426 through 2006. The Company purchased approximately
$5,807, $5,592 and $3,172 of water under these agreements during the years ended
December 31, 2001, 2000 and 1999, respectively.

The Company leases motor vehicles, buildings and other equipment under
operating leases that are noncancelable. During the next five years, $4,271 of
future minimum lease payments are due: $1,526 in 2002, $1,281 in 2003, $766 in
2004, $421 in 2005 and $277 in 2006. PSW leases parcels of land on which its
Media treatment plant and other facilities are situated and adjacent parcels
that are used for watershed protection. The two operating leases are
noncancelable, expire in 2045 and 2052 and contain certain renewal provisions.
The leases are subject to an adjustment every five years based on changes in the
Consumer Price Index. During each of the next five years, $374 of lease payments
for land, subject to the aforesaid adjustment, are due.

Rent expense was $2,281, $1,815 and $1,894 for the years ended December
31, 2001, 2000 and 1999, respectively.

28

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

Long-term Debt and Loans Payable
--------------------------------

The Consolidated Statements of Capitalization provides a summary of
long-term debt and loans outstanding as of December 31, 2001 and 2000. The
supplemental indentures with respect to certain issues of the First Mortgage
Bonds restrict the ability of PSW and CWC to declare dividends, in cash or
property, or repurchase or otherwise acquire PSW's and CWC's stock. As of
December 31, 2001, approximately $203,000 of PSW's and $49,000 of CWC's retained
earnings were free of these restrictions. Certain supplemental indentures also
prohibit PSW and CWC from making loans to, or purchasing the stock of, the
Company.

Annual sinking fund payments are required for certain issues of First
Mortgage Bonds by the supplemental indentures. The future sinking fund payments
and debt maturities of the Company's long-term debt are as follows:

Interest Rate Range                  2002        2003        2004          2005         2006     Thereafter
------------------------------------------------------------------------------

0.00% to  2.49%                   $ 395       $ 387       $ 394         $ 396        $ 381        $ 6,372
2.50% to  4.99%                     347         357         362           372          381          7,204
5.00% to  5.49%                      60          60          70            70           75         50,210
5.50% to  5.99%                     400      10,000      10,000             -            -         10,260
6.00% to  6.49%                  10,000           -      15,000             -          644        135,525
6.50% to  6.99%                       -      10,400         400        10,400       10,400         23,600
7.00% to  7.49%                   2,000      12,000      12,000        28,000        2,000          4,000
7.50% to  7.99%                       -           -           -             -            -         23,000
8.00% to  8.49%                      31          33          31             -            -         17,500
8.50% to  8.99%                       -           -           -             -            -          9,000
9.00% to  9.49%                     548         554         561           568          576         52,100
9.50% to  9.99%                   1,154       1,154       1,154         1,155        2,673         38,741
10.00% to  10.50%                     -           -           -             -            -          6,000
------------------------------------------------------------------------------
Total                            $ 14,935    $ 34,945    $ 39,972       $40,961      $17,130      $ 383,512
==============================================================================

PSW has a five-year $300,000 medium-term note program through December
2004 that provides for the issuance of long-term debt with maturities ranging
between one and 35 years at fixed rates of interest, as determined at the time
of issuance. The notes issued under this program are secured by the Thirty-Third
Supplement to the trust indenture relating to PSW's First Mortgage Bonds. In
October 2001, PSW issued First Mortgage Bonds through the program of $15,000
6.21% Series due 2011. In January 2000, PSW issued First Mortgage Bonds through
the program of $15,000 7.40% Series due 2005, and in April 2000, $11,000 7.40%
Series due 2005. The proceeds from these issuances were used to fund
acquisitions, to reduce the balance of PSW's short-term debt and for PSW's
ongoing capital program.

In September 2001, one of CWC's operating subsidiaries issued $12,000
of tax-exempt bonds due in 2031 at a rate of 5.00%. In November 2001, PSW issued
$30,000 in First Mortgage Bonds 5.35% Series due 2031 as security for an equal
amount of Bonds issued by the Delaware County Industrial Development Authority.
The proceeds from these bonds are restricted to funding the costs of certain
capital projects. At various times during 2001, PSW and other operating
subsidiaries issued notes payable in aggregate of $6,725 at a weighted average
interest rate of 2.8% due at various times in 2006, 2021, 2022 and 2031. The
proceeds from the notes payable issued in 2001 were used to reduce a portion of
the balance of short-term debt at each of the respective operating subsidiaries,
to redeem $2,400 of 9.6% First Mortgage Bonds of one of CWC's operating
subsidiaries through an early redemption, and redeem PSC preferred stock of

29

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

$644. As of December 31, 2001, the Trustees for seven issues held $19,768
pending completion of the projects financed with the issues and are reported in
the consolidated balance sheet as funds restricted for construction activity.

In June 2000, PSW issued $18,360 of tax-exempt bonds due in 2030 at a
rate of 6.00%. At various times during 2000, PSW and other operating
subsidiaries issued notes payable in aggregate of $12,583 at various rates of
interest ranging from 0% to 5.4% due at various times in 2019, 2020, and 2030.
The proceeds from the other issues were used to reduce a portion of the balance
of short-term debt at each of the respective operating subsidiaries. In
connection with various acquisitions completed during 2000, the Company acquired
$3,102 of long-term debt at various rates of interest ranging from 1% to 10.5%
due in various years. During 2001, a substantial portion of this debt has been
refinanced with lower-cost debt. The pro forma weighted cost of long-term debt
at December 31, 2001 and 2000 was 7.0% and 7.2%, respectively.

PSW has a $70,000 364-day revolving credit facility with four banks and
CWC has a $20,000 364-day bank revolving credit facility. Funds borrowed under
these agreements are classified as loans payable and are used to provide working
capital. The PSW facility replaced an expiring facility of $50,000 and has been
increased in order to consolidate borrowings of the Pennsylvania operating
subsidiaries and reduce the short-term lines of credit. As of December 31, 2001
and 2000, funds borrowed under the PSW revolving credit agreements were $64,882
and $46,270, respectively, and $13,500 and $12,000 were borrowed under the CWC
revolving credit agreement, respectively. Interest under these facilities is
based, at the borrower's option, on the prime rate, an adjusted federal funds
rate, an adjusted London Interbank Offered Rate corresponding to the interest
period selected, an adjusted Euro-Rate corresponding to the interest period
selected or at rates offered by the banks. These agreements restrict the total
amount of short-term borrowings of PSW and CWC. A commitment fee ranging from
1/4 to 1/10 of 1% is charged on the unused portion of the revolving credit
agreements. The average cost of borrowing under these facilities was 4.5% and
6.8%, and the average borrowing was $60,417 and $56,541, during 2001 and 2000,
respectively. The maximum amount outstanding at the end of any one month was
$78,382 in 2001 and $64,000 in 2000.

At December 31, 2001 and 2000, the Company had combined short-term
lines of credit of $105,500 and $120,000, respectively. Funds borrowed under
these lines are classified as loans payable and are used to provide working
capital. The average borrowing under the lines was $61,232 and $49,901 during
2001 and 2000, respectively. The maximum amount outstanding at the end of any
one month was $76,858 in 2001 and $58,878 in 2000. Interest under the lines is
based at the Company's option, depending on the line, on the prime rate, an
adjusted Euro-Rate, an adjusted federal funds rate or at rates offered by the
banks. The average cost of borrowings under all lines during 2001 and 2000 was
5.2% and 7.3%, respectively.

30

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

Preferred Stock of Subsidiaries
-------------------------------

The Company's subsidiaries have preferred stock ($100 par value)
authorized as of December 31, 2001:

Cumulative      Current
Dividend   Call Price         Shares          Shares
Rate    Per Share     Authorized     Outstanding
---------------------------------------------------------

Consumers Illinois Water Company                   5.50%          107          5,000           3,575
Consumers Maine Water Company                          -         None          4,000               -

During 2001, Consumers Maine Water Company called and retired 2,739
shares of its preferred stock for an aggregate amount of $288 and Consumers
Pennsylvania - Shenango Valley Division called and substantially retired 9,646
shares of preferred stock for an aggregate amount of $1,061.

Fair Value of Financial Instruments
-----------------------------------

The carrying amount of current assets and liabilities that are
considered financial instruments approximates their fair value as of the dates
presented. The carrying amount and estimated fair value of the Company's
long-term debt are as follows:

December 31,
--------------------------
2001         2000
--------------------------

Carrying amount                           $ 531,455     $472,712
Estimated fair value                        562,740      475,330

The fair value of long-term debt has been determined by discounting the
future cash flows using current market interest rates for similar financial
instruments of the same duration. The Company's customers' advances for
construction and related tax deposits have a carrying value of $59,886 and
$58,718 at December 31, 2001 and 2000, respectively. Their relative fair values
cannot be accurately estimated since future refund payments depend on several
variables, including new customer connections, customer consumption levels and
future rate increases. Portions of these non-interest bearing instruments are
payable annually through 2017 and amounts not paid by the contract expiration
dates become non-refundable. The fair value of these amounts would, however, be
less than their carrying value due to the non-interest bearing feature.

31

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

Stockholders' Equity
--------------------

At December 31, 2001, the Company had 1,770,819 shares of Series
Preferred Stock with a $1.00 par value authorized, of which 100,000 shares are
designated as Series A Preferred Stock. During 1996, the Company designated
32,200 shares as Series B Preferred Stock, $1.00 par value. The Series A
Preferred Stock, as well as the undesignated shares of Series Preferred Stock,
remains unissued. In 1996, the Company issued all of the 6.05% Series B
Preferred Stock in connection with an acquisition. The Series B Preferred Stock
is recorded on the balance sheet at its liquidation value of $100 per share.
Dividends on the Series B Preferred Stock are cumulative and payable quarterly.
PSC may not pay dividends on common stock unless provision has been made for
payment of the preferred dividends. Under the provisions of this issue, the
holders may redeem the shares, in whole or in part, at the liquidation value
beginning December 1, 1998 and the Company may redeem up to 20% of this issue
each year beginning December 1, 2001 and, at the holders' option, this
redemption may be made in cash or through the issuance of debt with a five year
maturity at an interest rate of 6.05%. As of December 31, 2001, all dividends
have been provided for. In January 1999, 14,600 shares of Series B Preferred
Stock were redeemed in cash at the liquidation value of $100 per share. In
December 2001, 6,440 shares of Series B Preferred Stock were redeemed at the
liquidation value of $100 per share and the holder chose to receive a five year
note for the redemption proceeds of $644 at an interest rate of 6.05%. In
January 2002, an additional 3,000 shares were redeemed at the holders' option in
cash at the liquidation value of $100 per share.

In August 2001, the Company's Board of Director's declared a 5-for-4
common stock split effected in the form of a 25% stock distribution for all
common shares outstanding, to shareholders of record on November 16, 2001.
Common shares outstanding do not include shares held by the Company in treasury.
The new shares were distributed on December 1, 2001. The Company's par value of
$0.50 per share remained unchanged and $6,829 was transferred from Capital in
Excess of Par Value to Common Stock to record the split. All share and per share
data for all periods presented have been restated to give effect to the stock
split.

At December 31, 2001, the Company had 100,000,000 shares of common
stock authorized; par value $0.50. Shares outstanding at December 31, 2001, 2000
and 1999 were 68,386,469, 67,094,905 and 64,082,197 respectively. Treasury
shares held at December 31, 2001, 2000 and 1999 were 913,877, 844,376, and
615,038, respectively.

32

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

The following table summarizes the activity of common stockholders'
equity:

Accumulated
Capital in                   Other
Common     Treasury    excess of    Retained    Comprehensive
stock       stock     par value    earnings        Income        Total
------------------------------------------------------------------------------

Balance at December 31, 1998              $ 20,617    $ (9,478)    $244,457    $ 91,683          $    -     $347,279
Net income                                       -           -            -      36,275               -       36,275
Other comprehensive income,
net of income tax of $1,433                   -           -            -           -           2,020        2,020
Dividends                                        -           -            -     (26,425)              -      (26,425)
Sale of stock                                  114         354        4,807           -               -        5,275
Repurchase of stock                              -      (2,146)           -           -               -       (2,146)
Equity Compensation Plan                         2           -           98           -               -          100
Exercise of stock options                       81           -        1,873           -               -        1,954
Tax benefit from exercise of
employee stock options                        -           -          205           -               -          205
------------------------------------------------------------------------------
Balance at December 31, 1999                20,814     (11,270)     251,440     101,533           2,020      364,537
------------------------------------------------------------------------------
Net income                                       -           -            -      52,784               -       52,784
Other comprehensive income,
net of income tax of $489                     -           -            -           -             908          908
Reclassification adjustment for
gains reported in net income,
net of income tax of $1,375                   -           -            -           -          (2,002)      (2,002)
Dividends                                        -           -            -     (30,406)              -      (30,406)
Stock split                                  5,319           -       (5,319)          -               -            -
Stock issued for acquisitions                  228           -        8,067           -               -        8,295
Sale of stock                                  803         307       34,318           -               -       35,428
Repurchase of stock                              -      (4,383)           -           -               -       (4,383)
Equity Compensation Plan                        12           -          545           -               -          557
Exercise of stock options                       84           -        1,677           -               -        1,761
Tax benefit from exercise of
employee stock options                        -           -          285           -               -          285
------------------------------------------------------------------------------
Balance at December 31, 2000                27,260     (15,346)     291,013     123,911             926      427,764
------------------------------------------------------------------------------
Net income                                       -           -            -      60,005               -       60,005
Other comprehensive income,
net of income tax of $19                      -           -            -           -              39           39
Reclassification adjustment for
gains reported in net income,
net of income tax of $127                     -           -            -           -            (239)        (239)
Dividends                                        -           -            -     (34,234)              -      (34,234)
Stock split                                  6,829           -       (6,829)          -               -            -
Stock issued for acquisitions                  133           -        5,228           -               -        5,361
Sale of stock                                  128         672        5,783           -               -        6,583
Repurchase of stock                              -      (2,493)           -           -               -       (2,493)
Equity Compensation Plan                         3           -          141           -               -          144
Exercise of stock options                      297           -        6,642           -               -        6,939
Tax benefit from exercise of
employee stock options                        -           -        2,061           -               -        2,061
------------------------------------------------------------------------------
Balance at December 31, 2001              $ 34,650    $(17,167)    $304,039    $149,682          $  726     $471,930
==============================================================================

33

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

In September 2000, the Company issued 2,066,406 shares of common stock
through a public offering, providing net proceeds of $29,689 which were used to
make an equity contribution to PSW. PSW used the contribution from the Company
to reduce the balance of its revolving credit loan.

In December 1999, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the offering and sale of up to
2,000,000 shares of common stock and 500,000 shares of preferred stock. During
2001 and 2000, 331,710 and 578,813 shares of common stock totaling $5,361 and
$8,295, respectively, were issued to acquire water and wastewater systems. The
Company expects to offer from time to time, the remainder of these shares for
acquisitions. The precise amount and timing of the application of such proceeds
will depend upon our funding requirements and the availability and cost of other
funds.

The Company reports comprehensive income in accordance with SFAS No.
130, "Reporting Comprehensive Income." Accordingly, the Company's accumulated
other comprehensive income for unrealized gains on securities is reported in the
Stockholders' Equity section of the Consolidated Balance Sheets and the related
other comprehensive income is reported in the Consolidated Statements of Income
and Comprehensive Income.

The Company has a Dividend Reinvestment and Direct Stock Purchase Plan
("Plan") that allows reinvested dividends to be used to purchase original issue
shares of common stock at a five percent discount from the current market value.
Under the direct stock purchase program, shares are purchased by investors at
market price and the shares are purchased by the Company's transfer agent in the
open-market at least weekly. During 2001, 2000 and 1999, under the dividend
reinvestment portion of the Plan, 303,906, 419,766 and 358,556 original issue
shares of common stock were sold providing the Company with proceeds of $5,980,
$5,482 and $5,044, respectively.

The Board of Directors has authorized the Company to purchase its common
stock, from time to time, in the open market or through privately negotiated
transactions. During 2000 and 1999, 288,750 and 127,188 shares have been
purchased at a net cost of $3,500 and $1,771, respectively. There were no shares
repurchased in 2001 in the open market or through privately negotiated
transactions. For comparative purposes the number of shares purchased is
presented as if they were adjusted for the effect of the 2001 5-for-4 common
stock split in the form of a 25% stock distribution. As of December 31, 2001,
328,967 shares remain available for purchase by the Company.

34

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

Net Income per Common Share and Equity per Common Share
-------------------------------------------------------

Basic net income per share is based on the weighted average number of
common shares outstanding. Diluted net income per share is based on the weighted
average number of common shares outstanding and potentially dilutive shares. The
dilutive effect of employee stock options is included in the computation of
Diluted net income per share. The following table summarizes the shares, in
thousands, used in computing Basic and Diluted net income per share:

Years ended December 31,
-----------------------------------
2001       2000        1999
-----------------------------------
Average common shares outstanding during
the period for Basic computation               67,873     64,759      63,850
Dilutive effect of employee stock options            882        655         689
-----------------------------------
Average common shares outstanding during
the period for Diluted computation             68,755     65,414      64,539
===================================

Equity per common share was $6.90 and $6.38 at December 31, 2001 and
2000, respectively. These amounts were computed by dividing common stockholders'
equity by the number of shares of common stock outstanding at the end of each
year.

Shareholder Rights Plan
-----------------------

The Company has a Shareholder Rights Plan designed to protect the
Company's shareholders in the event of an unsolicited unfair offer to acquire
the Company. Each outstanding common share is entitled to one Right which is
evidenced by the common share certificate. In the event that any person acquires
20% or more of the outstanding common shares or commences a tender or exchange
offer which, if consummated, would result in a person or corporation owning at
least 20% of the outstanding common shares of the Company, the Rights will begin
to trade independently from the common shares and, if certain circumstances
occur, including the acquisition by a person of 20% or more of the outstanding
common shares, each Right would then entitle its holder to purchase a number of
common shares of the Company at a substantial discount. If the Company is
involved in a merger or other business combination at any time after the Rights
become exercisable, the Rights will entitle the holder to acquire a certain
number of shares of common stock of the acquiring company at a substantial
discount. The Rights are redeemable by the Company at a redemption price of $.01
per Right at any time before the Rights become exercisable. The Rights will
expire on March 1, 2008, unless previously redeemed.

Employee Stock and Incentive Plans
----------------------------------

Under the 1994 Equity Compensation Plan ("1994 Plan"), as amended and
restated effective March 3, 1998, the Company may grant qualified and
non-qualified stock options to officers, key employees and consultants. Officers
and key employees may also be granted dividend equivalents and restricted stock.
Restricted stock may also be granted to non-employee members of the Board of
Directors ("Board"). In November 1998, the Shareholders authorized an increase
to the number of shares from 1,900,000 shares to 2,900,000 shares of common
stock for issuance under the 1994 Plan. The maximum number of shares that may be
subject to grants under the 1994 Plan to any one individual in any one year is
100,000. Awards under this plan are made by the Board of Directors or a
committee of the Board.

35

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

Options under the 1994 plan, as well as the earlier 1988 Stock Option
Plan were issued at the market price of the stock on the day of the grant.
Options are exercisable in installments of 33% annually, starting one year from
the date of the grant and expire 10 years from the date of the grant.

The following table summarizes stock option transactions for the two
plans:

As of or For the Years Ended December 31,
---------------------------------------------------------------------------------
2001                       2000                        1999
--------------------------  -------------------------  --------------------------
Weighted                   Weighted                     Weighted
Average                    Average                     Average
Exercise                   Exercise                    Exercise
Shares        Price         Shares       Price         Shares        Price
--------------------------  -------------------------  --------------------------

Options:
Outstanding, beginning of year         2,263,803       $10.69      2,005,194      $10.12      1,771,730       $ 8.80
Granted                                  535,679        19.10        560,609       11.75        472,656        13.71
Terminated                               (18,183)       12.13        (70,911)      13.17        (11,807)       13.12
Exercised                               (733,489)        9.39       (231,089)       7.58       (227,385)        7.15
--------------------------  -------------------------  --------------------------
Outstanding, end of year               2,047,810       $13.32      2,263,803      $10.69      2,005,194       $10.12
==========================  =========================  ==========================

Exercisable, end of year               1,015,708       $10.79      1,295,561      $ 9.21      1,132,550       $ 7.71
==========================  =========================  ==========================

Options exercised during 2001 ranged in price from $4.60 per share to
$15.28 per share. At December 31, 2001, 991,937 options under the 1994 Plan were
still available for grant. The following table summarizes the price ranges of
the options outstanding and options exercisable as of December 31, 2001:

Options Outstanding                  Options Exercisable
-----------------------------------------    ----------------------------
Weighted     Weighted                         Weighted
Average      Average                          Average
Remaining     Exercise                         Exercise
Shares     Life (years)    Price             Shares         Price
-----------------------------------------    ----------------------------

Range of prices:
$ 5.78 -  8.99        281,185          3.6      $ 6.47             281,185       $ 6.47
$ 9.00 - 11.99        670,089          7.3        11.13            313,472        10.44
$12.00 - 14.99        562,083          6.8        13.88            421,051        13.94
$15.00 - 19.10        534,453          9.2        19.09                  -            -
-----------------------------------------    ----------------------------
2,047,810          7.1      $ 13.32          1,015,708       $10.79
=========================================    ============================

Under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company elects to continue to apply the provisions of APB Opinion No. 25 and to
provide the pro forma disclosure provisions of this statement. Accordingly, no
compensation cost has been recognized in the financial statements for stock
options that have been granted. Had the Company determined compensation cost

36

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

based on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net income available to common stock and Basic and Diluted
net income per share would have been reduced to the pro forma amounts indicated
below:

Years Ended December 31,
--------------------------------------
2001         2000        1999
--------------------------------------
Net income available to common stock:
As reported                             $ 60,005      $ 52,784     $ 36,275
Proforma                                  57,013        51,206       35,398
Basic net income per share:
As reported                               $ 0.88        $ 0.82       $ 0.57
Proforma                                    0.84          0.79         0.55
Diluted net income per share:
As reported                               $ 0.87        $ 0.81       $ 0.56
Proforma                                    0.83          0.78         0.55

The per share weighted-average fair value at the date of grant for
stock options granted during 2001, 2000 and 1999 was $5.58, $2.82, and $3.42 per
option, respectively. The fair value of options at the date of grant was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions:

2001       2000        1999
---------------------------------
Expected life (years)                                5.2         10          10
Interest rate                                       5.0%       6.4%        5.4%
Volatility                                         32.7%      21.1%       20.9%
Dividend yield                                      2.6%       3.9%        3.2%

Restricted stock awards provide the grantee with the rights of a
shareholder, including the right to receive dividends and to vote such shares,
but not the right to sell or otherwise transfer the shares during the
restriction period. During 2001, 2000 and 1999, 7,875, 36,875 and 6,875 shares
of restricted stock were granted with a restriction period ranging from six to
36 months. The value of restricted stock awards, which are "compensatory", is
equal to the fair market value of the stock on the date of the grant less
payments made by the grantee and is amortized ratably over the restriction
period.

Pension Plans and Other Postretirement Benefits
-----------------------------------------------

The Company has defined benefit pension plans that cover its full-time
employees. Retirement benefits under the plans are generally based on the
employee's total years of service and compensation during the last five years of
employment. The Company's policy is to fund these plans annually at a level
which is deductible for income tax purposes and which provides assets sufficient
to meet its pension obligations. To offset certain limitations imposed by the
Internal Revenue Code with respect to payments under qualified plans, the
Company has a non-qualified Excess Benefit Plan for Salaried Employees in order
to prevent certain employees from being penalized by these limitations. The
Company also has non-qualified Supplemental Executive Retirement Plans for
current and retired employees. The net pension costs and obligations of the
qualified and non-qualified plans are included in the tables which follow.

37

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

In addition to providing pension benefits, the Company offers certain
Postretirement Benefits other than Pensions ("PBOPs") to employees retiring with
a minimum level of service. These PBOPs include continuation of medical and
prescription drug benefits for all eligible retirees and life insurance benefits
for certain eligible retirees. The Company funds its gross PBOP cost through
various trust accounts.

The Company's pension expense (credit) includes the following
components:

Years Ended December 31,
--------------------------------------------
2001           2000          1999
--------------------------------------------

Benefits earned during the year                             $ 2,986        $ 2,553       $ 3,232
Interest cost on projected benefit obligation                 8,261          7,612         7,214
Expected return on plan assets                              (10,891)       (11,281)      (10,304)
Net amortization and deferral                                  (206)        (1,283)         (105)
Capitalized costs                                               (49)           (56)          (47)
Rate-regulated adjustment                                      (553)         1,403           430
Special termination benefits                                      -             43           716
--------------------------------------------
Net pension cost (credit)                                    $ (452)      $ (1,009)      $ 1,136
============================================

The rate-regulated adjustment set forth above is required in order to
reflect pension expense (credit) for the Company in accordance with the method
used in establishing water rates. During 2000 and 1999, the Company instituted
early retirement and restructuring programs. These actions resulted in
additional termination benefits of $43 in 2000 and $716 in 1999.

The Company's costs for postretirement benefits other than pensions
includes the following components:

Years Ended December 31,
----------------------------------
2001        2000       1999
----------------------------------
Benefits earned during the year                 $ 705      $ 555      $ 645
Interest cost                                   1,427      1,267      1,249
Expected return on plan assets                   (947)      (920)      (699)
Net amortization and deferral                     567        417        628
Special termination benefits                        -          -        209
Amortization of regulatory asset                  136        208        208
----------------------------------
Gross PBOP cost                                 1,888      1,527      2,240
Capitalized costs                                (475)      (512)      (464)
----------------------------------
Net PBOP cost                                  $1,413     $1,015     $1,776
==================================

38

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

The changes in the benefit obligation and fair value of plan assets,
the funded status of the plans and the assumptions used in the measurement of
the company's benefit obligation are as follows:

Other
Pension Benefits              Postretirement Benefits
-------------------------------  -------------------------------
2001             2000            2001             2000
--------------   --------------  --------------   --------------

Change in benefit obligation:                                                                             
Benefit obligation at January 1,                         $ 110,214       $  98,228        $  18,581        $  17,292
Service cost                                                 2,986           2,553              705              555
Interest cost                                                8,261           7,612            1,428            1,267
Special termination benefits                                     -              43                -              282
Plan amendments                                                  -               -           (1,205)               -
Actuarial loss                                               3,645           6,963            3,680                -
Benefits paid                                               (5,439)         (5,185)            (872)            (815)
---------       ---------        ---------        ---------
Benefit obligation at December 31,                         119,667         110,214           22,317           18,581
---------       ---------        ---------        ---------

Change in plan assets:                                                                                    
Fair value of plan assets at January 1,                    123,715         128,367           11,896           11,097
Actual return on plan assets                                (5,001)            479             (688)            (323)
Employer contributions                                          55              54            1,880            1,937
Benefits paid                                               (5,439)         (5,185)            (872)            (815)
---------       ---------        ---------        ---------
Fair value of plan assets at December 31,                  113,330         123,715           12,216           11,896
---------       ---------        ---------        ---------

Funded status of plan:                                                                                    
Funded status at December 31,                                6,337         (13,501)          10,101            6,685
Unrecognized actuarial gain (loss)                          (2,051)         18,014              854            6,345
Unrecognized prior service cost                             (2,581)         (3,012)             704              761
Rate-regulated adjustment                                     (516)             37                -                -
Unrecognized net transition obligation                       1,645           1,755           (8,838)         (10,846)
---------       ---------        ---------        ---------
Accrued benefit costs                                    $   2,834       $   3,293        $   2,821        $   2,945
=========       =========        =========        =========

Weighted-average assumptions                                                                              
as of December 31,                                                                                      
Discount rate                                                 7.25%           7.50%            7.25%            7.50%
Expected return on plan assets                                9.00%           9.00%       6.00-9.00%       6.00-9.00%
Rate of compensation increase                            4.50-5.50%      4.50-5.50%            4.50%            4.50%

The accumulated benefit obligation is in excess of plan assets for
certain non-qualified plans. The projected benefit obligation, accumulated
benefit obligation and fair value of plan assets for these plans were $3,551,
$2,341 and $0, and $3,490, $2,078 and $0, respectively as of December 31, 2001
and 2000.

The assumed medical inflation rates under the PSC and CWC plans are
12.0%, reducing to 5.0% by 2006. The effect of a 1% increase in the assumed
medical inflation rates would be to increase the accumulated postretirement
benefit obligation as of December 31, 2001 and the 2001 PBOP costs by $664 and
$71, respectively. The effect of a 1% decrease in the assumed medical inflation
rates would be to decrease the accumulated postretirement benefit obligation as
of December 31, 2001 and the 2001 PBOP costs by $866 and $154, respectively. The
benefits of retired officers and certain other retirees are paid by the Company
and not from plan assets due to limitations imposed by the Internal Revenue
Code.

39

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)

The Company has 401(k) savings plans that cover substantially all
employees. The Company makes matching contributions that are invested in PSC
common stock based on a percentage of an employee's contribution, subject to
certain limitations. The Company's matching contribution, recorded as
compensation expense, was $798, $786 and $741 for the years ended December 31,
2001, 2000 and 1999, respectively.

Water Rates
-----------

In November 2001, PSW filed an application with the Pennsylvania Public
Utility Commission ("PAPUC") for our Pennsylvania subsidiaries requesting a
$28,000 or 13.4% increase in annual revenues. The application is currently
pending before the PAPUC and a final determination is anticipated by August
2002.

On April 27, 2000, the PAPUC approved a rate settlement reached between
PSC's Pennsylvania utility subsidiaries, and the parties actively litigating the
joint rate application filed in October 1999. The settlement was designed to
increase annual revenue by $17,000 or 9.4% above the level in effect at the time
of the filing. The rates in effect at the time of the filing included $7,347 in
Distribution System Improvement Charges ("DSIC") ranging from 0.33% to 5%.
Consequently, the settlement resulted in a total base rate increase of $24,347
or 13.5% above the rates in effect before the DSIC was applied. As a part of the
rate settlement, the DSIC was reset to zero. The settlement agreement also
provided for the recovery of up to $5,295 (the merger costs allocable to our
Pennsylvania operations) of the $10,121 ($8,596 after-tax) in merger costs that
were expensed in the first quarter of 1999 in connection with the Merger. As a
result, a regulatory asset was established to reflect the amount to be recovered
as a result of the rate settlement.

The CWC operating subsidiaries were allowed annual rate increases of
$4,799 in 2001, $698 in 2000 and $390 in 1999, represented by nine, four and two
rate decisions, respectively. Revenues from these increases realized in the year
of grant were approximately $4,200, $450 and $308 in 2001, 2000 and 1999,
respectively.

The DSIC enables water utilities in Pennsylvania to add a surcharge to
customer bills reflecting the capital costs and depreciation related to certain
distribution system improvement projects completed and placed into service
between base rate filings. PSW is permitted to request adjustments to the DSIC
quarterly to reflect subsequent capital expenditures and it is reset to zero
when new base rates that reflect the costs of those additions become effective
or when PSW's pro forma earnings exceed a PUC benchmark. The maximum DSIC that
can be in effect at any time is 5%. The DSIC in 2001 ranged from 2.21% in the
first quarter to 5% in the fourth quarter, and has been set at 5% in the first
quarter of 2002. The DSIC provided revenues in 2001, 2000 and 1999 of $6,672,
$2,301 and $4,140, respectively.

In 2001, the Illinois Commerce Commission issued regulations
implementing an infrastructure surcharge known as a Qualifying Infrastructure
Plant Surcharge ("QIPS") for use by Illinois water and wastewater utilities.
QIPS is similar to DSIC, however, it is established annually and prospectively
based on anticipated qualifying capital expenditures, and it includes a broader
range of qualifying capital expenditures, including certain wastewater capital
expenditures. Our operating subsidiary in Illinois received approval to add a
QIPS to its bills in three of its operating divisions beginning January 1, 2002
at various rates ranging from 1.06% to 2.49%.

In addition to its base rates and DSIC, PSW has utilized a surcharge or
credit on its bills to reflect certain changes in Pennsylvania State taxes until
such time as the tax changes are incorporated in base rates. A rate credit
reduced operating revenues in 2001 by $639, and various surcharge rates provided
operating revenues of $74 in 2000 and $1,306 in 1999.

40

Selected Quarterly Financial Data (Unaudited)               Philadelphia Suburban Corporation and Subsidiaries
---------------------------------------------
(in thousands of dollars, except per share amounts)

First        Second        Third        Fourth        Year
------------------------------------------------------------------

2001
--------------------------------------------------------------------------------------------------------------------
Operating revenues                                     $70,193      $77,240       $84,726      $75,121     $307,280
Operations and maintenance expense                      26,186       26,462        28,994       30,243      111,885
Net income available to common
stock                                                 13,085       15,432        19,279       12,209       60,005
Basic net income per common share                         0.19         0.23          0.28         0.18         0.88
Diluted net income per common share                       0.19         0.22          0.28         0.18         0.87
Dividend paid per common share                           0.124        0.124         0.124      0.13248        0.504
Dividend declared per common share                       0.124        0.124       0.25648            -        0.504
Price range of common stock
- high                                                 19.39        20.40         23.28        24.64        24.64
- low                                                  15.65        16.60         18.66        20.80        15.65

2000
--------------------------------------------------------------------------------------------------------------------
Operating revenues                                     $64,208      $68,494       $72,123      $69,189     $274,014
Operations and maintenance expense                      24,928       24,350        25,037       27,426      101,741
Net income available to common
stock                                                 10,246       13,565        16,539       12,434       52,784
Basic net income per common share                         0.16         0.21          0.26         0.19         0.82
Diluted net income per common share                       0.16         0.21          0.25         0.18         0.81
Dividend paid per common share                          0.1152       0.1152        0.1152        0.124       0.4696
Dividend declared per common share                      0.1152       0.1152        0.2392            -       0.4696
Price range of common stock
- high                                                 14.08        15.96         15.56        19.95        19.95
- low                                                  10.56        11.60         12.80        13.56        10.56

All per share data as presented has been adjusted for the 2001 5-for-4
common stock split effected in the form of a 25% stock distribution. High and
low prices of the Company's common stock are as reported on the New York Stock
Exchange Composite Tape. The cash dividends paid in December 2001 of $0.13248
and December 2000 of $0.124 were declared in August 2001 and August 2000,
respectively.

Net income available to common stock and net income per common share
for 2000 includes the partial recovery of the merger costs related to the Merger
as follows: $972 ($1,059 pre-tax) or $0.02 per share in the second quarter and
$1,264 ($2,982 pre-tax) or $0.02 per share in the third quarter.

41

Summary of Selected Financial Data                                           Philadelphia Suburban Corporation and Subsidiaries
(in thousands of dollars, except per share amounts)

--------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                           2001         2000*         1999*         1998*         1997*
--------------------------------------------------------------------------------------------------------------------------------

PER COMMON SHARE:
Income from continuing operations (a)
Basic                                              $     0.88    $     0.82    $     0.57    $     0.71    $     0.58
Diluted                                                  0.87          0.81          0.56          0.70          0.58
Net income (a)
Basic                                                    0.88          0.82          0.57          0.71          0.54
Diluted                                                  0.87          0.81          0.56          0.70          0.53
Cash dividends paid (b)                                       0.50          0.47          0.45          0.43          0.40
Cash dividends declared (b) (c)                               0.50          0.47          0.45          0.32          0.50
Return on average stockholders' equity (a) (d)               13.3%         13.2%         10.1%         13.6%         11.8%
Book value at year end                                       $6.90         $6.38         $5.69         $5.46         $4.93
Market value at year end                                     22.55         19.60         13.24         18.92         14.13
--------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT HIGHLIGHTS:
Operating revenues (d)                                  $  307,280    $  274,014    $  256,546    $  250,718    $  235,162
Depreciation and amortization (d)                           40,168        34,100        31,903        29,464        27,977
Interest expense (d) (e)                                    38,637        37,775        31,796        30,785        32,317
Income before income taxes (d)                              99,087        86,995        62,915        75,133        57,642
Provision for income taxes (d)                              38,976        34,105        26,531        30,118        22,432
Income from continuing operations (a)                       60,111        52,890        36,384        45,015        35,210
Net income available to common stock (a)                    60,005        52,784        36,275        44,820        32,278
--------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS:
Total assets                                            $1,560,339    $1,413,723    $1,280,805    $1,156,733    $1,083,162
Property, plant and equipment, net                       1,368,115     1,251,427     1,135,364     1,016,194       952,626
Stockholders' equity                                       473,833       432,347       368,901       353,088       306,816
Preferred stock with mandatory redemption (f)                    -             -             -             -       4,214
Long-term debt (f)                                         531,455       472,712       425,946       377,355       407,526
Total debt                                                 641,123       573,706       529,015       440,905       436,756
--------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION:
Net cash flows from operating activities                $  102,165    $   86,972    $   74,103    $   84,362    $   71,252
Capital additions (d) (g)                                  124,088       129,740        96,383        87,973        67,378
Dividends on common stock                                   34,234        30,406        29,217        29,349        26,752
Number of customers served                                 602,510       579,219       557,462       533,847       526,640
Number of shareholders of common stock                      20,920        20,978        21,187        20,553        19,902
Common shares outstanding (000)                             68,386        67,095        64,082        63,597        61,112
Employees (full-time)                                          951           943           945           973           979
--------------------------------------------------------------------------------------------------------------------------------

*Share and per share data has been restated for the 2001 5-for-4 stock split.
(a) The 2000 amounts include a net gain of $2,236 ($4,041 pre-tax) or $0.04 per share for the partial recovery
of the merger costs related to the Merger.  The 1999 amounts include a net charge of $8,596 ($10,121
pre-tax) or $0.13 per share for the Merger transaction costs and related restructuring costs.  The 1998
amounts include a net gain of $3,903 ($6,680 pre-tax) or $0.06 per share on the sale of Consumers
Water Company's New Hampshire system pursuant to the State's condemnation statute.
(b) Amount represents PSC's historical dividends per common share.
(c) The cash dividend of $0.10, paid in March 1998, was declared in December 1997.
(d) Continuing operations only.
(e) Includes dividends on preferred stock of subsidiary and minority interest; net of allowance for funds
used during construction.
(f) Includes current portion.
(g) Excludes payments for acquired water systems of $9,517 in 2001, $3,546 in 2000, $39,164 in 1999,
$24,498 in 1998, and $1,226 in 1997.

42

PHILADELPHIA SUBURBAN CORPORATION
--------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(In thousands of dollars, except per share amounts)
--------------------------------------------------------------------------------------------------------------
2001           2000       % Change
--------------------------------------------------------------------------------------------------------------

Operating revenues                                                   $  307,280     $  274,014           12.1
Income from operations, exclusive of
nonrecurring item (a)                                                60,005         50,548           18.7
Net income available to common stock (b)                                 60,005         52,784           13.7
Diluted income per common share from operations,
exclusive of nonrecurring items (a) (c)                                0.87           0.77           13.0
Diluted net income per common share (b) (c)                                0.87           0.81            7.4
Annual dividend rate per common share (c)                                  0.53           0.50            6.0
Dividends paid per common share (c)                                        0.50           0.47            6.4
Common stockholders' equity per share (c)                                  6.90           6.38            8.2
Stockholders' equity                                                    473,833        432,347            9.6
Total assets                                                          1,560,339      1,413,723           10.4
Capital additions (d)                                                   124,088        129,740           (4.4)
Number of customers served                                              602,510        579,219            4.0
--------------------------------------------------------------------------------------------------------------

(a) Excludes 2000 net gain of $2,236 ($0.04 per share) for the partial recovery of the
merger costs related to the Consumers Water Company merger.
(b) Includes nonrecurring items noted in (a) above.
(c) Restated for 2001 5-for-4 stock split.
(d) Excludes payments for acquired water systems: $9,517 in 2001 and $3,546 in 2000.

43

Exhibit 21
(unaudited)

PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES

The following table lists the significant subsidiaries and other active
subsidiaries of Philadelphia Suburban Corporation at December 31, 2001:

Pennsylvania Suburban Water Company (Pa.)
Suburban Environmental Services, Inc. (Pa.)
Little Washington Wastewater Company (Pa.)
Consumers Water Company (Pa.)
Consumers Ohio Water Company (Ohio)
Consumers Applegrove Water Company (Ohio)
Consumers Illinois Water Company (Illinois)
Consumers New Jersey Water Company (New Jersey)
Consumers Maine Water Company (Maine)
Consumers North Carolina Water Company, Inc. (North Carolina)
Hawley Water Company (Pa)
Utility & Municipal Services, Inc. (Pa)

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-61772 and 333-42275), on Form S-4 (No.
333-93243), and on Form S-8 (Nos. 333-61768, 333-70859, 033-52557, 33-27032,
2-81757, 333-81085) of Philadelphia Suburban Corporation of our report dated
February 1, 2002 relating to the consolidated financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
March 19, 2002

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Philadelphia Suburban Corporation:

We consent to incorporation by reference in the Registration Statements on Form
S-8 (1994 Equity Compensation Plan No. 333-70859), (Amended and Restated 2001
Employee Stock Purchase Plan No. 333-61768), (1994 Employee Stock Purchase Plan
No. 033-52557), (1988 Stock Option Plan No. 33-27032), (1982 Stock Option Plan
No. 2-81757), (Employees 401(k) Savings Plan and Trust No. 333-81085); on Form
S-4 (shelf registration No. 333-93243); and on Form S-3 (Dividend Reinvestment
and Direct Stock Purchase Plan Nos. 333-61772 and 333-42275) of Philadelphia
Suburban Corporation of our report dated January 31, 2000, relating to the
consolidated statements of income and comprehensive income and cash flow of
Philadelphia Suburban Corporation and subsidiaries for the year ended December
31, 1999, which report is included in the December 31, 2001 Annual Report on
Form 10-K of Philadelphia Suburban Corporation.

/s/ KPMG LLP

Philadelphia, Pennsylvania
March 19, 2002