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Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o


(1)	Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933 based upon the average of the high and low sale prices reported on the Nasdaq National Market on May 21, 2004.

(2)	Includes rights to purchase shares of our Series A Junior Participating Preferred Stock pursuant to the Rights Agreement dated January 25, 1999. No separate consideration is paid for these rights and, as a result, the registration fee for these rights is included in the fee for the common stock.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer is not permitted.

Our common stock is quoted on the Nasdaq National Market under the symbol “YORW.” On May 26, 2004, the last reported sale price of our common stock was $19.52 per share.

We have granted Janney Montgomery Scott LLC, as the sole underwriter, an option, exercisable within 30 days after the date of this prospectus, to purchase up to 62,250 additional shares of common stock upon the same terms and conditions as the shares offered by this prospectus to cover over-allotments, if any.

Investing in our common stock involves risk. See “Risk Factors” beginning on page 4 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus summary calls your attention to the most significant aspects of this document, but may not contain all the information that is important to you. Unless otherwise indicated, we have assumed in presenting information about outstanding shares of common stock, including per share information, that the Underwriter’s over-allotment option will not be exercised. The terms “we,” “our,” and “us” refer to The York Water Company. The term “you” refers to a prospective investor. To understand the offering fully and for a more complete description of the offering, you should read this entire document carefully, including particularly the “Risk Factors” section, as well as the documents we have referred you to in the section called “Where You Can Find More Information.”

We are the oldest investor-owned water utility in the United States and have operated continuously since 1816. We impound, purify and distribute water entirely within our franchised territory in York County, Pennsylvania. Our headquarters are located approximately 23 miles south of Harrisburg, Pennsylvania, 40 miles north of Baltimore, Maryland and 80 miles west of Philadelphia, Pennsylvania. We currently provide water service to approximately 52,000 customers. In 2003, 60% of our operating revenue was derived from residential customers, 27% was derived from commercial and industrial customers, and 13% was derived from other sources, primarily fire service.

Our service territory presently includes 33 municipalities in York County, covering approximately 150 square miles, and currently has an estimated population of 156,000. We have two reservoirs, Lake Williams and Lake Redman, which together hold up to 2.75 billion gallons of water. Our present average daily consumption is approximately 17.8 million gallons and our present average daily availability is approximately 23 million gallons.

The territory that we currently service is experiencing significant growth. According to the United States Census Bureau, the population of York County increased by 12.4% between 1990 and 2000, from 339,574 to 381,751, in comparison to a 3.4% increase for Pennsylvania during the same period. The York County Planning Commission projects that the population will reach 403,133 by 2010, an increase of 5.6% from 2000.

Our strategy is to continue to provide our customers with safe, dependable, high-quality water and excellent service at reasonable rates while maximizing shareholder value. We strive to accomplish this strategy by:


	•	maintaining and strengthening our position as a consistent and reliable source of high-quality water service;

	•	continuing to increase our customer base;

	•	pursuing the acquisition of other water systems;

	•	establishing additional long-term bulk water contracts with municipalities; and

	•	continuing to enhance our water supply.

On May 7, 2004, we announced our operating results for the first quarter of 2004. Our operating revenues for the first quarter of 2004 were $5,363,365, a $605,425, or 12.7%, increase from $4,757,940 for the first quarter of 2003. An 8.5% rate increase effective June 26, 2003 accounted for a majority of this increase. For the quarter ending March 31, 2004, we reported net income of $1.6 million, or $0.25 per share, compared with $0.8 million,

or $0.12 per share, in the first quarter of 2003. Higher net income of approximately $380,000 due to increased operating revenues and an after-tax gain on the sale of land of approximately $467,000 were the primary contributing factors to this increase. The average number of customers using our service increased in the first quarter of 2004 by 933 to 52,054 as compared to 51,121 for the same period in 2003. During the first quarter of 2004, our total per capita volume of water sold increased 3.5% compared to the first quarter of 2003.

On April 28, 2004, we filed an application for a rate increase with the Pennsylvania Public Utility Commission, or PPUC, seeking an increase of $4,869,970, which would represent a 22.1% increase in our rates. The rate request proposes increases in rates designed to provide return and depreciation on the investment in the Susquehanna River Pipeline Project. The request is currently under review. Any rate increase approved by the PPUC will be effective no later than January 27, 2005. There can be no assurance that the PPUC will grant our rate increase in the amount requested, if at all.

On April 1, 2004, the Pennsylvania Economic Development Financing Authority, or PEDFA, issued $7,300,000 aggregate principal amount of Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds, Series A of 2004 for our benefit. The PEDFA then loaned us the proceeds of the offering pursuant to a loan agreement. The loan agreement provides for a $4,950,000 loan bearing interest at 5.00% and a $2,350,000 loan bearing interest at 4.05%. The bonds and the related loans will mature on April 1, 2016. The bonds were issued as part of the financing plan for our Susquehanna River Pipeline Project. The proceeds, net of issuance costs, were used to pay down short-term indebtedness related to the project.

Our executive offices are located at 130 East Market Street, York, Pennsylvania 17401 and our telephone number is (717) 845-3601. Our website address is www.yorkwater.com. The information on our website is not part of this prospectus.


(1)	The shares of our common stock to be outstanding after the offering is based on the number of shares outstanding as of May 15, 2004.

We have derived the summary historical financial data as of and for each of the years ended December 31, 2003, 2002 and 2001, from our audited financial statements and related notes. We have derived the summary historical financial data as of March 31, 2004 and 2003, and for the three-month periods then ended, from our unaudited financial statements which, in the opinion of management, include all adjustments necessary for a fair presentation of the data. The results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the full fiscal year. You should read the information below in conjunction with our historical financial statements and related notes and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in this prospectus and in our Annual Report on Form 10-K for the year ended December 31, 2003 and our Quarterly Report on Form 10-Q for the three-month period ended March 31, 2004, both of which are incorporated by reference herein.

We have described for you below some risks involved in investing in our common stock. You should carefully consider each of the following factors and all of the information both in this prospectus and in the other documents we refer you to in the section called “Where You Can Find More Information.”

The rates we charge our customers are subject to regulation. If we are unable to obtain government approval of our requests for rate increases, or if approved rate increases are untimely or inadequate to cover our investments in utility plant and equipment and projected expenses, our results of operations may be adversely affected.

Our ability to maintain and meet our financial objectives is dependent upon the rates we charge our customers, which are subject to approval by the PPUC. We file rate increase requests with the PPUC, from time to time, to recover our investments in utility plant and equipment and projected expenses. Any rate increase or adjustment must first be justified through documented evidence and testimony. The PPUC determines whether the investments and expenses are recoverable, the length in time over which such costs are recoverable, or, because of changes in circumstances, whether a remaining balance of deferred investments and expenses is no longer recoverable in rates charged to customers. Once a rate increase application is filed with the PPUC, the ensuing administrative and hearing process may be lengthy and costly. The timing of our rate increase requests are therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase.

On April 28, 2004, we filed an application for a rate increase with the PPUC seeking an increase of $4,869,970, which would represent a 22.1% increase in our rates. The rate request proposes increases in rates designed to provide return and depreciation on our investment in the Susquehanna River Pipeline Project. The request is currently under review. Any rate increase approved by the PPUC will be effective not later than January 27, 2005. We can provide no assurances that this rate increase request, or future requests, will be approved by the PPUC; and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we sought the rate increase. If we are unable to obtain PPUC approval of our requests for rate increases, or if approved rate increases are untimely or inadequate to cover our investments in utility plant and equipment and projected expenses, our results of operations may be adversely affected.

We are subject to federal, state and local regulation that may impose costly limitations and restrictions on the way we do business.

Various federal, state and local authorities regulate many aspects of our business. Among the most important of these regulations are those relating to the quality of water we supply our customers and water allocation rights. Government authorities continually review these regulations, particularly the drinking water quality regulations, and may propose new or more restrictive requirements in the future. We are required to perform water quality tests that are monitored by the PPUC, the U.S. Environmental Protection Agency, or EPA, and the Pennsylvania Department of Environmental Protection, or DEP, for the detection of certain chemicals and compounds in our water. If new or more restrictive limitations on permissible levels of substances and contaminants in our water are imposed, we may not be able to adequately predict the costs necessary to meet regulatory standards. If we are unable to recover the cost of implementing new water treatment procedures in response to more restrictive water quality regulations through our rates that we charge our customers, or if we fail to comply with such regulations, it could have a material adverse effect on our financial condition and results of operations.

We are also subject to water allocation regulations that control the amount of water that we can draw from water sources. The Susquehanna River Basin Commission, or SRBC, and DEP regulate the amount of water withdrawn from streams in the watershed for water supply purposes to assure that sufficient quantities are available to meet our needs and the needs of other regulated users. In addition, government drought restrictions could cause the SRBC or DEP to temporarily reduce the amount of our allocations. If new or more restrictive water allocation regulations are implemented or our allocations are reduced due to weather

conditions, it may have an adverse effect on our ability to supply the demands of our customers, and in turn, on our revenues and results of operations.

Our business is subject to seasonal fluctuations, which could affect demand for our water service and our revenues.

Demand for our water during the warmer months is generally greater than during cooler months due primarily to additional requirements for water in connection with cooling systems, swimming pools, irrigation systems and other outside water use. Throughout the year, and particularly during typically warmer months, demand will vary with temperature and rainfall levels. If temperatures during the typically warmer months are cooler than expected, or there is more rainfall than expected, the demand for our water may decrease and adversely affect our revenues.

Weather conditions and overuse may interfere with our sources of water, demand for water services, and our ability to supply water to our customers.

We depend on an adequate water supply to meet the present and future demands of our customers and to continue our expansion efforts. Unexpected conditions may interfere with our water supply sources. Drought and overuse may limit the availability of surface water. These factors might adversely affect our ability to supply water in sufficient quantities to our customers and our revenues and earnings may be adversely affected. Additionally, cool and wet weather, as well as drought restrictions and our customers’ conservation efforts, may reduce consumption demands, also adversely affecting our revenue and earnings. Furthermore, freezing weather may also contribute to water transmission interruptions caused by pipe and main breakage. If we experience an interruption in our water supply, it could have a material adverse effect on our financial condition and results of operations.

Contamination of our water supply may cause disruption in our services and adversely affect our revenues.

Our water supply is subject to contamination from the migration of naturally-occurring substances in groundwater and surface systems and pollution resulting from man-made sources. In the event that our water supply is contaminated, we may have to interrupt the use of that water supply until we are able to substitute the flow of water from an uncontaminated water source through our interconnected transmission and distribution facilities. In addition, we may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities or development of new treatment methods. Our inability to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, may have an adverse effect on our revenues.

The necessity for increased security has and may continue to result in increased operating costs.

In the wake of the September 11, 2001 terrorist attacks and the ensuing threats to the nation’s health and security, we have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply. We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business. We have and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies. We are not aware of any specific threats to our facilities, operations or supplies. However, it is possible that we would not be in a position to control the outcome of such events should they occur.

We depend on the availability of capital for expansion, construction and maintenance.

Our ability to continue our expansion efforts and fund our construction and maintenance program depends on the availability of adequate capital. There is no guarantee that we will be able to obtain sufficient capital in the future or that the cost of capital will not be too high for future expansion and construction. In addition, approval from the PPUC must be obtained prior to our sale and issuance of securities. If we are unable to obtain approval from the PPUC on these matters, or to obtain approval in a timely manner, it may affect our ability to effect transactions that are profitable to us or our shareholders.

We may face competition from other water suppliers that may hinder our growth and reduce our profitability.

We face competition from other water suppliers that may limit our future growth. Once a utility regulator grants a franchise territory to a water supplier, that water supplier is usually the only one to service that territory. Although a territory offers some protection against competitors, the pursuit of franchise territories is competitive, especially in Pennsylvania, where new franchises may be awarded to utilities based upon competitive negotiation with municipalities and land developers. Competing water suppliers have challenged, and may in the future challenge, our applications for new franchise territories. Also, third parties entering into long-term agreements to operate municipal systems might adversely affect us and our long-term agreements to supply water on a contract basis to municipalities. If we are unable to compete successfully with other water suppliers for these franchise territories, it may impede our expansion goals and adversely affect our profitability.

We have restrictions on our dividends. There can also be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

The terms of our debt instruments impose conditions on our ability to pay dividends. We have paid dividends on our common stock each year since our inception in 1816 and have increased the amount of dividends paid each year since 1997. Our earnings, financial condition, capital requirements, applicable regulations and other factors, including the timeliness and adequacy of rate increases, will determine both our ability to pay dividends on our common stock and the amount of those dividends. There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

If we are unable to pay the principal and interest on our indebtedness as it comes due or we default under certain other provisions of our loan documents, our indebtedness could be accelerated and our results of operations and financial condition could be adversely affected.

Our ability to pay the principal and interest on our indebtedness as it comes due will depend upon our current and future performance. Our performance is affected by many factors, some of which are beyond our control. We believe that our cash generated from operations, and, if necessary, borrowings under our existing credit facilities, will be sufficient to enable us to make our debt payments as they become due. If, however, we do not generate sufficient cash, we may be required to refinance our obligations or sell additional equity, which may be on terms that are not as favorable to us. No assurance can be given that any refinancing or sale of equity will be possible when needed or that we will be able to negotiate acceptable terms. In addition, our failure to comply with certain provisions contained in our trust indentures and loan agreements relating to our outstanding indebtedness could lead to a default under these documents, which could result in an acceleration of our indebtedness.

We depend significantly on the services of the members of our senior management team, and the departure of any of those persons could cause our operating results to suffer.

Our success depends significantly on the continued individual and collective contributions of our senior management team. If we lose the services of any member of our senior management or are unable to hire and retain experienced management personnel, it could harm our operating results.

There is a limited trading market for our common stock; you may not be able to resell your shares at or above the price you pay for them.

Although our common stock is listed for trading on the Nasdaq National Market, the trading in our common stock has substantially less liquidity than many other companies quoted on the Nasdaq National Market. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the market of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. We cannot provide any assurance that the offering will increase the volume of trading in our common stock.

We discuss in this prospectus and in documents that we have incorporated into this prospectus by reference certain matters which are not historical facts, but which are “forward-looking statements.” Words such as “may,” “should,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify “forward-looking statements”. We intend these “forward-looking statements” to qualify for safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These “forward-looking statements” include, but are not limited to statements regarding:


	•	our expected profitability and results of operations;

	•	our goals, priorities and plans for, and cost of, growth and expansion;

	•	our strategic initiatives;

	•	the availability of our water supply;

	•	the water usage by our customers;

	•	the anticipated completion of our pipeline project to the Susquehanna River; and

	•	our ability to pay dividends on our common stock and the rate of those dividends.

The “forward-looking statements” in this prospectus reflect what we currently anticipate will happen. What actually happens could differ materially from what we currently anticipate will happen. We are not promising to make any public announcement when we think “forward-looking statements” in this prospectus are no longer accurate, whether as a result of new information, what actually happens in the future or for any other reason.

Important matters that may affect what will actually happen include, but are not limited to:


	•	changes in weather, including drought conditions;

	•	levels of rate relief granted;

	•	the level of commercial and industrial business activity within our service territory;

	•	construction of new housing within our service territory;

	•	changes in government policies or regulations;

	•	our ability to obtain permits for expansion projects;

	•	material changes in demand from customers, including the impact of conservation efforts which may impact the demand of our customers for water;

	•	changes in economic and business conditions, including interest rates, which are less favorable than expected; and

	•	other matters described in the “Risk Factors” section.

The net proceeds from the sale of the common stock offered by this prospectus, at an assumed offering price of $ , after deducting estimated offering expenses of $ and the Underwriter’s discounts and commissions, are estimated to be $ ($ if the Underwriter’s over-allotment option is exercised in full). We expect to use the net proceeds to repay a portion of our outstanding short-term indebtedness under our revolving credit facilities with Wachovia Bank National Association and Citizens Bank, N.A. Obligations under these credit facilities were primarily incurred to fund our Susquehanna River Pipeline Project.

Our revolving credit facility with Wachovia Bank National Association has a maximum borrowing amount of $5,000,000, of which $1,500,000 was outstanding at April 30, 2004. Loans under the credit facility bear interest at the London Interbank Offered Rate, or LIBOR, plus 100 basis points. Amounts outstanding are unsecured. The credit facility expires on September 30, 2004.

Our revolving credit facility with Citizens Bank, N.A. has a maximum borrowing amount of $7,500,000, of which $3,800,000 was outstanding at April 30, 2004. Loans under the credit facility bear interest at LIBOR plus 100 basis points. Amounts outstanding are unsecured. The credit facility is payable on demand.

The following table sets forth, as of March 31, 2004, our capitalization on an actual basis and on an adjusted basis to give effect to the sale of the shares of common stock in this offering at an assumed offering price of $ per share and the anticipated application of the net proceeds from this offering as described in “Use of Proceeds.” This table should be read in conjunction with our financial statements and the notes to those financial statements that are incorporated by reference herein.


(1)	Excludes current maturities.

(2)	Includes current maturities of long-term debt.

Our common stock is listed on the Nasdaq National Market and trades under the symbol “YORW.” On April 30, 2004, there were 1,391 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low sales prices for our common stock on the Nasdaq National Market and the cash dividends declared per share:

Cash dividends on our common stock have been paid each year since our inception in 1816, and the dividend rate has increased annually for the past seven years. The policy of our Board of Directors has been to pay cash dividends on our common stock on a quarterly basis at a target rate of 75% of earnings. On May 24, 2004, we declared a dividend of $0.145, payable on July 15, 2004 to shareholders of record on June 30, 2004. The purchasers of the common stock offered by this prospectus will not be entitled to receive the dividend payable on July 15, 2004. Future cash dividends will be dependent upon our earnings, financial condition, capital demands and other factors, and will be determined in accordance with policies established by our Board of Directors.

We have derived the selected historical financial data as of and for each of the years ended December 31, 2003, 2002, 2001, 2000 and 1999, from our audited financial statements and related notes. We have derived the summary historical financial data as of March 31, 2004 and 2003, and for the three-month periods then ended, from our unaudited financial statements which, in the opinion of management, include all adjustments necessary for a fair presentation of the data. The results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the full fiscal year. You should read the information below in conjunction with our historical financial statements and related notes and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in the prospectus and in our Annual Report on Form 10-K for the year ended December 31, 2003 and our Quarterly Report on Form 10-Q for the three-month period ended March 31, 2004, both of which are incorporated by reference herein.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial Data” and our financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2003 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2004, both of which are incorporated by reference in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. For additional information regarding some of the risks and uncertainties that affect our business and the industry in which we operate and that apply to an investment in our common stock, please read “Risk Factors.” Our actual results may differ materially from those estimated or projected in any of these forward-looking statements.

We impound, purify and distribute water. We operate entirely within our franchised territory, which covers 33 municipalities within York County, Pennsylvania. Our service territory currently has an estimated population of 156,000. Industry of the area served is diversified, manufacturing such items as fixtures and furniture, electrical machinery, food products, paper, ordnance units, textile products, air conditioning systems, barbells and motorcycles. We have two reservoirs, Lake Williams and Lake Redman, which together hold up to 2.75 billion gallons of water. Our present average daily consumption is approximately 17.8 million gallons, and our present average daily availability is approximately 23 million gallons.

Our business does not require large amounts of working capital and we are not dependent on any single customer or a very few customers. In April 2004, we provided water service to approximately 52,000 customers within our service territory. Our operating revenue is derived from the following sources and in the following percentages: residential, 60%; commercial and industrial, 27%; and other, 13%, which is primarily from the provision of fire service. Increases in our revenues are generally dependent on our ability to obtain rate increases from regulatory authorities and increasing our volumes of water sold through increased consumption and increases in the number of customers served.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Our accounting policies require us to make subjective judgments because of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include the determination of the useful life of our assets and the discount rate used in our pension plan calculations.

In connection with the determination of the useful life of our assets, we are required to estimate the book depreciation reserve and annual depreciation accruals related to our utility plant. We perform service life studies by assembling and compiling historical data related to utility plant, analyzing such data to obtain historical trends of survivor characteristics, and interpreting the data to form judgments of service life characteristics. The PPUC reviews and approves our determination of the useful life of our assets.

In connection with the discount rate used in our pension disclosure, we selected the 6.25% discount rate as of December 31, 2003 based on the Moody’s AA bond rate. This rate was selected to approximate the rate that would be used if the obligations were to be settled by purchasing annuities from an insurance carrier. This is consistent with the methodology used to select discount rates in the past.

Net income for the first three months of 2004 was $1,577,181, an increase of $819,611, or 108.2%, compared to net income of $757,570 for the same period of 2003. Higher net income of approximately $380,000 due to increased operating revenues and an after-tax gain on the sale of land of approximately $467,000 were the primary contributing factors.

Water operating revenues for the three months ended March 31, 2004 increased $605,425, or 12.7%, from $4,757,940 for the three months ended March 31, 2003 to $5,363,365 for the corresponding 2004 period. Increases in our revenues are generally dependent on our ability to obtain rate increases from regulatory authorities and increasing our volumes of water sold through increased consumption and increases in the number of customers served. An 8.5% rate increase effective June 26, 2003 accounted for approximately $420,000, or 69.4%, of the increase in water operating revenues in the first quarter of 2004. The average number of customers increased in the first quarter of 2004 by 933 to 52,054 as compared to 51,121 for the same period in 2003. This increase in customers, along with increased usage by our existing customers resulted in increased consumption in the first quarter of 2004 as compared to the corresponding 2003 period. During the first quarter of 2004, the total per capita volume of water sold increased 3.5% compared to the first quarter of 2003. Per capita consumption is highly dependent on weather conditions and is difficult to project. Historically, first quarter consumption is lower than each of the other three quarters. We expect this to be the case in 2004 as well.

Operating expenses for the first three months of 2004 increased $118,937, or 4.1%, from $2,891,145 for the first quarter of 2003 to $3,010,082 for the corresponding 2004 period. Higher depreciation expense of approximately $29,000 due to increased plant investment, higher health insurance premiums of approximately $22,000, higher contractual fees of approximately $25,000, and increased miscellaneous maintenance expenses for meter upgrades, hydrant repair parts, and phone and radio system repairs in the amount of approximately $49,000 were the primary reasons for the increase. Capital stock taxes also increased by approximately $16,000 and will continue to rise over prior year levels due to a projected increase in the number of shares of common stock outstanding during the second half of 2004. Reduced pension costs partially offset the increase of expenses by approximately $87,000.

Interest expense on short-term debt for the first quarter of 2004 was $25,252, or 153.4%, higher than the same period in 2003 due to an increase in short-term borrowings. The average short-term debt outstanding was $7,769,032 for the first three months of 2004 and $2,945,482 for the first three months of 2003.

Allowance for funds used during construction for the three months ended March 31, 2004 increased $152,499 from $50,892 in the first quarter of 2003 to $203,391 in the first quarter of 2004. An increase in capitalized interest on the Susquehanna River Pipeline Project of approximately $124,000 accounted for the majority of the increase.

A gain of $743,195 was recorded in the first quarter of 2004 for the sale of land. No other land sales or other unusual events are planned at this time. As a result, additional earnings such as these should not be expected in future quarters.

Other expense, net decreased by $28,233, or 33.7%, in the first quarter of 2004 as compared to the same period of 2003 primarily due to an increase in interest income on water district notes of approximately $23,000.

Federal and state income taxes increased by $565,648, or 152.9%, due to an increase in taxable income. The effective tax rate was 37.2% in the first quarter of 2004 and 32.8% in the first quarter of 2003.

Net income for 2003 was $4,448,296, an increase of $657,949, or 17.4%, compared to net income of $3,790,347 in 2002.

Water operating revenues for 2003 increased $1,335,325, or 6.8%, compared to 2002. The increase resulted primarily from the 8.5% rate increase effective June 26, 2003. Additional revenues came from the distribution surcharge, which was collected from all customers during the first half of 2003 for infrastructure improvements, and an increase in the average number of customers by 853.

Operating expenses for 2003 increased $334,965, or 3.0%, compared to 2002. The increase was due to higher depreciation, insurance, and rate case expense, along with higher contractual and directors’ fees amounting to $362,000. Reduced source of supply expenses, pumping station maintenance, main maintenance, and lower realty taxes partially offset the increase by $115,000.

Interest on short-term debt increased $11,984, or 16.7%, in 2003 compared to 2002 due to an increase in short-term debt outstanding throughout the year, which was partially offset by a decrease in rates paid on outstanding debt. The average short-term debt outstanding in 2003 and 2002 was $3,672,010 and $2,432,512, respectively.

Allowance for funds used during construction for 2003 increased $180,328, or 129.3%, when compared to 2002. Capitalized interest on the costs associated with the Susquehanna River Pipeline Project accounts for the majority of the increase.

Other income, net decreased $170,071, or 93.2%, when compared to 2002 due largely to a $197,000 increase in supplemental retirement expenses caused by a decrease in the discount rate provided by our pension actuary and used in the present value calculations. An $85,000 increase in interest income on water district notes receivable partially offset the decrease.

Federal and state income taxes increased by $341,065, or 16.8%, due to an increase in taxable income. The effective tax rates for 2003 and 2002 were 34.8% and 34.9%, respectively.

During the first quarter of 2004, we incurred $6,560,672 of construction expenditures. Approximately $4,900,000, or 74.7%, of the expenditures were for the Susquehanna River Pipeline Project. We financed such expenditures through internally generated funds, customers’ advances, short-term borrowings, and proceeds from the issuance of common stock under our dividend reinvestment plan and employee stock purchase plan. We also sold a parcel of land which provided cash of $792,021; this unusual event is not likely to recur in the foreseeable future and cannot be relied upon for future liquidity. We anticipate construction expenditures for the remainder of 2004 of approximately $22,000,000. We plan to finance future expenditures using the same sources as we did in the first quarter of 2004 supplemented by additional debt and stock issuances.

As of March 31, 2004, current liabilities exceeded current assets by $13,827,749. The increase was due to increased payables and short-term borrowings primarily related to the Susquehanna River Pipeline Project and the classification of $2.7 million of debt from long-term to short-term. Short-term borrowings under lines of credit as of March 31, 2004 were $9,780,586. We maintain lines of credit aggregating $26,500,000. Loans granted under these lines of credit bear interest at a range of LIBOR plus 100 to 125 basis points. All lines of credit are unsecured and payable upon demand. We are not required to maintain compensating balances on our lines of credit. We will use the net proceeds from this offering to pay down these lines of credit.

On April 1, 2004 the PEDFA issued $7,300,000 aggregate principal amount of Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds, Series A of 2004 for our benefit. The PEDFA then loaned us the proceeds of the offering pursuant to a loan agreement. The loan agreement provides for a $4,950,000 loan bearing interest at 5.00% and a $2,350,000 loan bearing interest at 4.05%. The bonds and the related loans will mature on April 1, 2016. The loan agreement contains various covenants and restrictions. We believe that we are currently in compliance with all of these restrictions. The bonds were issued as part of the financing plan for the Susquehanna River Pipeline Project. The proceeds, net of issuance costs, were used to pay down short-term borrowings related to the Project.

We are currently planning a $12 million tax-free bond issuance in the fourth quarter. The proceeds of this issuance are anticipated to be used to pay off additional short-term debt that will be incurred to finance the Susquehanna River Pipeline Project.

With the proceeds from this offering, the loans from the PEDFA, aggregating $7,300,000, and the contemplated $12 million tax-free bond issuance in the fourth quarter of this year, as well as our existing credit facilities and working capital, we believe we have sufficient funds to support our planned capital expenditures for 2004.

Our 4.40% Industrial Development Authority Revenue Refunding Bonds, Series 1994 had a mandatory tender date of May 15, 2004 and have been remarketed and the interest rate redetermined to 3.60%. Under the

terms of the bonds, existing bond holders may elect to retain their bonds at the 3.60% interest rate. All bonds not retained were remarketed. The newly issued bonds will mature on May 15, 2009.

We, like all other businesses, are affected by inflation, most notably by the continually increasing costs incurred to maintain and expand our service capacity. The cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flows. Our ability to recover this increased investment in facilities is dependent upon future revenue increases, which are subject to approval by the PPUC. We can provide no assurances that our rate increase requests will be approved by the PPUC; and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we sought the rate increase.

During the first quarter of 2004, we received DEP approval of a discharge permit, a GP-4 intake permit, and the amended construction permit to build the outfall at Lake Redman. The wet well for the pumping station was completed April 23, 2004. A micro-tunneling machine will now begin to tunnel out into the Susquehanna River. As of April 30, 2004, approximately 80% of the pipeline has been completed. The Project is expected to be completed by December 2004 at an estimated total cost of $23 million. Projected pipeline construction expenditures and other capital expenditures are expected to be funded through internally generated funds, customer advances, short-term borrowings, tax-exempt bond issues and the proceeds of this offering.

We do not use off-balance sheet transactions, arrangements or obligations that may have a material current or future effect on financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses. We do not use securitization of receivables or unconsolidated entities. We do not engage in trading or risk management activities, have no lease obligations, and do not have material transactions involving related parties.

The following table summarizes our contractual obligations by period as of December 31, 2003:


(1)	Represents obligations under construction contracts relating to our Susquehanna River Pipeline Project.

(2)	Represents obligations under our Supplemental Executive Retirement Plan and our Deferred Compensation Plan for our executives.

We are the oldest investor-owned water utility in the United States and have operated continuously since 1816. We impound, purify and distribute water entirely within our franchised territory in York County, Pennsylvania. Our headquarters are located approximately 23 miles south of Harrisburg, Pennsylvania, 40 miles north of Baltimore, Maryland and 80 miles west of Philadelphia, Pennsylvania. We currently provide water service to approximately 52,000 customers within our service territory. In 2003, 60% of our operating revenue was derived from residential customers, 27% was derived from commercial and industrial customers, and 13% was derived from other sources, primarily fire service. Presently, we have no plans to pursue the wastewater business.

Our strategy is to continue to provide our customers with safe, dependable, high-quality water and excellent service at reasonable rates while maximizing value for our shareholders. We strive to accomplish this strategy by:


	•	maintaining and strengthening our position as a consistent and reliable source of high-quality water service;

	•	continuing to increase our customer base;

	•	pursuing the acquisition of other water systems;

	•	establishing additional long-term bulk water contracts with municipalities; and

	•	continuing to enhance our water supply.

Our water meets or exceeds all primary regulatory requirements for water quality. We regularly upgrade our facilities in order to maintain and improve our ability to provide quality water in sufficient quantities to our customers. We have established a security program that protects our plants and distribution system so that we can continue to provide service and ensure the quality of the water we provide our customers. As part of this security program, we monitor our water in real-time as it moves through our distribution system in order to detect any sudden changes in the chemical composition of our water. We also intend to establish a pipe replacement program following the completion of the Susquehanna River Pipeline Project. This pipe replacement program will provide for the replacement of aged pipes and valves, which will allow us to improve the reliability of our distribution system and the quality of our water service.

Since 1999, we have increased our customer base in York County from 48,144 to 51,916 or approximately 8%, primarily as a result of population growth. We believe that we will continue to be able to grow our customer base due to the population growth that our service area is experiencing. Between 1990 and 2000, the

population in York County grew 12.4% and the York County Planning Commission projects that it will reach 403,133 by 2010, an increase of 5.6% from 2000. A result of York County’s growth has been the increased building of new homes and developments. We have targeted these new homes and developments as opportunities to increase our customer base. We have entered into contracts with land developers to serve 177 developments that are building additional housing units. As a result of these contracts, our customer base could grow by as much as 1,968 customers.

In order to further grow our customer base, we intend to pursue acquisitions of water systems both in our current service territory and in bordering areas. We will continue our efforts to identify both municipally-owned and investor-owned water systems as strategic acquisition candidates. These efforts include analyzing and investigating potential acquisitions and negotiating mutually agreeable terms with acquisition candidates. The acquisition of additional water systems will allow us to add new customers and increase our operating revenues.

We currently maintain long-term contracts with four municipalities in York County. The contracts allow us to sell bulk water to the municipalities, and they subsequently sell the water to their customers. The municipalities remain responsible for all billing, collection and maintenance in connection with the service. These municipalities are among our largest customers and together account for 2.7% of our total revenues. We intend to pursue similar long-term contracts with additional municipalities in order to improve our operating revenues and margins.

Our Susquehanna River Pipeline Project will enhance our water supply by providing an additional water source so that we may continue to supply our customers with water during periods of high usage, drought or other emergencies and to support future growth. The entire project is scheduled to be completed by December 2004 at an estimated total cost of $23 million. Upon completion of the project, our daily capacity will increase by approximately 12 million gallons, or 52%. We believe that, with the completion of this project, based on our current consumption rate and allocation rights, our water supply will be sufficient to meet our needs for the foreseeable future.

Our water utility plant consists of source of supply, energy supply, impounding basins, pumping stations, water treatment, transmission and distribution, and all appurtenances, including all connecting pipes.

Presently, we obtain our water supply from both the East Branch and South Branch of the Codorus Creek, which together have an average daily flow of 89 million gallons per day. This combined watershed area is approximately 117 square miles. The East Branch of the Codorus Creek, which drains 43 square miles, flows into our impounding basins. The South Branch of the Codorus Creek drains a 74 square mile area. Our water supply will be significantly enhanced by the Susquehanna River Pipeline Project, which includes the construction and installation of an intake in the Susquehanna River, a diesel-powered pumping station and a 15-mile transmission pipeline to connect the Susquehanna River to our Lake Redman impounding basin. We have received rights to withdraw 12 million gallons per day, from the Susquehanna River. The Susquehanna River Pipeline Project will provide us with an additional water source to be used during periods of high usage, drought or other emergencies and for future growth.

We presently fuel our major pumping station with both electric and diesel power. To date, we have not experienced any shortage of energy. Because of the availability of diesel power as an alternate source of supply, we have elected to take interruptible electric service for our pumping station at rates that are lower than market electric rates. During electric power stoppages, due to weather or requests for curtailment of electricity, we have used our diesel pumps to continue to supply water to our customers without interruption.

We own two impounding basins, Lake Williams and Lake Redman. Both impounding basins are located on the East Branch of the Codorus Creek slightly upstream from its junction with the South Branch of the Codorus Creek. Water is withdrawn from the combined east and south branches of the Codorus Creek at our Brillhart pumping station. The impounding basins supplement the flows in Codorus Creek as necessary to meet our requirements. The larger of our impounding basins is Lake Redman. Constructed in 1967 to provide a more adequate reserve, Lake Redman has a capacity of 1.6 billion gallons. The Lake Redman Impounding Dam is 1,000 feet long and 50 feet high. The spillway discharges into a 1,000 foot long trapezoidal concrete channel, which in turn empties into Lake Williams. Lake Williams, originally completed in 1912 and

expanded in the mid-1950’s, has a capacity of 1.0 billion gallons. The Lake Williams Impounding Dam is 660 feet long and 50 feet high with a concrete core wall, which is banked with earth on both sides.

Our Brillhart pumping station is located several miles downstream from the point where the East and South Branches of the Codorus Creek meet. Present pumping equipment consists of two diesel-driven pumps, one that pumps 20 million gallons per day and one that pumps 7 million gallons per day, and three electrically-driven centrifugal pumps. The pumping capacity at the Brillhart station is more than double peak requirements and is designed to provide an ample safety margin in the event of pump or power failure. The water is pumped through two 24-inch cast iron mains and one 36-inch concrete main to the filter plant approximately two miles away.

Our filter plant, located in Reservoir Park, Pennsylvania, has a processing capacity of 30 million gallons per day. The filter plant has two basins in which most of the suspended matter and the chemicals, added at the pumping station and in the filter plant, settle to the bottom. The water passes through the filter beds and is carried to two covered storage basins in Reservoir Park, which have a capacity of 34 million gallons of water and provide another safety margin in case of any mechanical breakdown at either the pumping station or the filter plant.

As of April 30, 2004, we were serving customers through approximately 752 miles of transmission and distribution mains, which range in size from two inches to 24 inches. The distribution system includes 21 booster stations and 20 standpipes and reservoirs. The standpipes and reservoirs range in size from 0.15 million to 2.0 million gallons. All booster stations are equipped with at least two pumps for protection in case of mechanical failure.

We are regulated as to the rates we charge our customers for water services, as to the quality of water service we provide and as to certain other matters. We are subject to rate regulation by the PPUC, water quality and other environmental regulations by the EPA, SRBC and DEP, and regulations with respect to our operations by the DEP. In addition, approval from the PPUC must be obtained, in the form of a certificate of public convenience, prior to our expansion of our certificated service territory, our acquisition of other water systems or the acquisition of control of us by a third party. Moreover, we must register a securities certificate with the PPUC prior to any incurrence of long-term debt or issuance of securities by us.

Our water service operations are subject to rate regulation by the PPUC. We file rate increase requests with the PPUC, from time to time, to recover our investments in utility plant and expenses. Any rate increase or adjustment must first be justified through documented evidence and testimony. The PPUC determines whether the investments and expenses are recoverable, the length in time over which such costs are recoverable, or, because of changes in circumstances, whether a remaining balance of deferred investments and expenses is no longer recoverable in rates charged to customers. On January 24, 2003, we filed an application for a rate increase with the PPUC seeking an increase of $2.8 million. On June 26, 2003, the PPUC approved a settlement under which we were permitted to increase our rates to produce additional operating revenues of $1.725 million. On April 28, 2004, we filed an application for a rate increase with the PPUC seeking an increase of $4,869,970, which would represent a 22.1% increase in rates. The rate request proposes increases in rates designed to provide return and depreciation on the investment in the Susquehanna River Pipeline Project. The request is currently under review by the various parties to the case. Any rate increase approved by the PPUC will be effective no later than January 27, 2005. There can be no assurance

that the PPUC will grant our rate increase in the amount requested, if at all. Between base rate filings, we are permitted to recover depreciation and return associated with our investment in infrastructure rehabilitation and replacement by applying a Distribution System Improvement Charge, or DSIC, to customers’ bills. The DSIC may not exceed 5% of the customer’s bill.

Under the requirements of the Pennsylvania Safe Drinking Water Act, or SDA, DEP monitors the quality of the finished water we supply to our customers. DEP requires us to submit weekly reports showing the results of daily bacteriological and other chemical and physical analyses. As part of this requirement, we conduct over 60,000 laboratory tests annually. We believe we comply with the standards established by the agency under the SDA. DEP also assists us by preventing and eliminating pollution in its watershed area by regulating discharges into the watershed.

DEP and the SRBC regulate the amount of water withdrawn from streams in the watershed to assure that sufficient quantities are available to meet our needs and the needs of other regulated users. Through its Division of Dam Safety, DEP regulates the operation and maintenance of our impounding dams. We routinely inspect our dams and prepare annual reports of their condition as required by DEP regulations. DEP reviews our reports and annually inspects our dams. DEP most recently inspected our dams in April 2003, and no significant operation or maintenance issues were identified in the inspection report.

Since 1980, DEP has required any new dam to have a spillway that is capable of passing the design flood without overtopping the dam. The design flood is either the Probable Maximum Flood, or PMF, or some fraction of it, depending on the size and location of the dam. PMF is very conservative and is calculated using the most severe combination of meteorological and hydrologic conditions reasonably possible in the watershed area of a dam.

DEP has been systematically reviewing dams constructed before the adoption of the 1980 requirements to assess whether the dams meet the design flood criteria. It prioritizes its review based on the size, condition, and location of the dams. As part of its review, DEP calculates the recommended design flood using current generic hydrologic and meteorological data and then requests the owner to perform an engineering study of the capacity of the dam’s spillway to pass the DEP-calculated design flood. The owner may propose adjustments to the design flood to incorporate more site-specific meteorological, hydrologic, and geographic data from the watershed in which the dam is located.

We have engaged a professional engineer to analyze the capacity of the spillways at Lake Williams and Lake Redman and to review and validate DEP’s recommended design floods for the dams. As part of this review, the engineer will evaluate and incorporate, as appropriate, hydrologic data being developed by the United States Army Core of Engineers for another part of the watershed in which the dams are located to assure that consistent hydrologic assumptions are used for the entire watershed. We expect to review the engineer’s preliminary report with DEP in the summer of 2004 and submit a final engineering report to the agency in the fall of 2004. Depending on the results of the study, our options could include no action, operation and maintenance changes, or structural modifications to the dams.

We do not depend upon any single customer or small number of customers for any material part of our business. No one customer makes purchases in an amount that equals or exceeds 10% of our revenue. Our business in our franchised territory is substantially free from direct competition with other public utilities, municipalities and other entities. However, our ability to provide our water service is subject to competition from other water suppliers. Although we have been granted an exclusive franchise for each of our existing community water systems, our ability to expand service territories may be affected by our competitors obtaining franchises to surrounding water systems by application or acquisition.

Our executive and accounting offices are located at 124 and 130 East Market Street in two two-story brick and masonry buildings containing approximately 21,861 square feet. Our distribution center and materials and supplies warehouse is located at 1801 Mt. Rose Avenue, Springettsbury Township, and is comprised of three one-story concrete block buildings totaling 29,400 square feet.

In 1976, we entered into a Joint Use and Park Management Agreement with York County under which we licensed use of certain of our lands and waters for public park purposes for a period of 50 years. This property includes two lakes and is located on approximately 1,600 acres in Springfield and York townships. Of the Park’s acreage, approximately 1,200 acres are subject to an automatically renewable one-year license. Under the Joint Use Agreement, York County has agreed not to erect a dam upstream on the East Branch of the Codorus Creek or otherwise obstruct the flow of the creek. The Joint Use Agreement subordinates the County’s use of the lands and waters for recreational purposes to our prior and overriding use of the lands and waters for utility purposes.

As of May 15, 2004, we employed 94 full-time employees. Of these employees, six were executive officers, 53 were employed as operations personnel, 29 were employed in general and administrative functions and six in engineering and construction positions. Thirty-five operations-related employees are represented by the United Steelworkers of America. The current contract with these employees expires in April 2007. Management considers its employee relations to be good.

Jeffrey S. Osman has served as our President and Chief Executive Officer since January 2003 and as a director since May 1995. Mr. Osman served as our Vice President-Finance, Secretary and Treasurer from May 1995 to December 2002.

Kathleen M. Miller has served as our Chief Financial Officer and Treasurer since January 2003. Ms. Miller served as our Controller from October 2001 to January 2003, Assistant Treasurer from May 2000 to January 2003 and Accounting Manager from January 1999 to October 2001.

Vernon L. Bracey has served as our Vice President-Customer Service since March 2003. Previously Mr. Bracey served as our Customer Service Manager from January 2000 to March 2003 and as our Meter Reading Manager from January 1999 to January 2000.

Jeffrey R. Hines, P.E. has served as our Vice President-Engineering since May 1995 and Secretary since January 2003.

Bruce C. McIntosh has served as our Vice President-Human Resources since May 1998 and Assistant Treasurer since January 2003.

William T. Morris, P.E. has served as Chairman of our Board of Directors since November 2001 and as a director since April 1978. Mr. Morris served as our President and Chief Executive Officer from May 1995 until his retirement in December 2002.

Irvin S. Naylor has served as the Vice Chairman of our Board since May 2000 and as a director since October 1960. Mr. Naylor served as Chairman of our Board from September 1993 to May 2000. Since June 1964, Mr. Naylor has owned and served as President of Snow Time, Inc., an owner and operator of ski areas. Mr. Naylor also owned and served as Vice Chairman of the Board of Directors of Cor-Box, Inc., a manufacturer of corrugated boxes, from June 1966 to November 1999.

Chloé R. Eichelberger has served as one of our directors since September 1995. Ms. Eichelberger is the owner and has served as President and Chief Executive Officer of Chloé Eichelberger Textiles, Inc., a company specializing in the dyeing and finishing of fabrics, since 1987.

John L. Finlayson has served as one of our directors since September 1993. Mr. Finlayson has served as Vice President-Finance and Administration of Susquehanna Pfaltzgraff Co., a company with a wide range of businesses including media and pottery manufacturing divisions, since 1978.

Michael W. Gang has served as one of our directors since January 1996. Mr. Gang is a partner with the law firm of Morgan, Lewis & Bockius LLP, counsel to The York Water Company.

George W. Hodges has served as one of our directors since June 2000. Mr. Hodges has served in the Office of the President of the Wolf Organization, Inc., a distributor of building products, since January 1986.

George Hay Kain, III has served as one of our directors since August 1986. Mr. Kain is a sole practitioner attorney in York, Pennsylvania.

Thomas C. Norris has served as one of our directors since June 2000. Mr. Norris served as Chairman of the Board of P.H. Glatfelter Company, a paper manufacturer, from July 1998 to May 2000.

Our authorized capital stock consists of 31,500,000 shares, of which 31,000,000 shares are common stock and 500,000 shares are preferred stock, each without par value. As of May 15, 2004, there were 6,430,838 shares of common stock outstanding held by 1,391 shareholders of record.

Immediately after the sale of the shares of common stock offered by this prospectus, there will be 6,846,500 shares of common stock issued and outstanding (6,908,750 shares if the Underwriter’s over-allotment option is exercised in full). There are no shares of preferred stock outstanding.

The following is a brief summary of certain information relating to our common stock and preferred stock. This summary does not purport to be complete and is intended to outline such information in general terms only.

Each share of common stock entitles the holder to one vote, except in the election of directors, where each holder has cumulative voting rights. Cumulative voting rights allow a shareholder to cast as many votes in an election of directors as shall equal the number of such shareholder’s shares multiplied by the number of directors to be elected, and such shareholder may cast all such votes for a single director nominee or distribute votes among two or more nominees in such proportion as such shareholder sees fit. Our Board of Directors consists of a total of nine directors, with three separate classes of directors and with each such class elected every three years to a staggered three-year term of office. As a result of this classification, a greater number of votes is required to elect a director than if the entire Board of Directors were elected at the same time, thus making it more difficult for shareholders, even with cumulative voting rights, to obtain board representation in proportion to their shareholdings.

All shares of common stock are entitled to participate pro rata in any dividends declared by our Board of Directors out of funds legally available therefor. Subject to the prior rights of creditors and of any shares of preferred stock which may be outstanding, all shares of common stock are entitled in the event of liquidation to participate ratably in the distribution of all our remaining assets.

Certain of our trust indentures and agreements relating to our outstanding indebtedness impose restrictions on the payment of dividends. In general, these restrictive provisions prohibit the payment of dividends on our common stock when cumulative dividend payments, over a specified period of time, exceed cumulative net income, over the same period, plus, in certain cases, a specified base amount. In view of our historic net income, management believes that these contractual provisions should not have any direct, adverse impact on the dividends we pay on our common stock. Notwithstanding these contractual provisions, our Board of Directors periodically considers a variety of factors in evaluating our common stock dividend rate. The continued maintenance of the current common stock dividend rate will be dependent upon (i) our success in financing future capital expenditures through debt and equity issuances, (ii) our success in obtaining future rate increases from the PPUC, (iii) future interest rates, and (iv) other events or circumstances which could have an effect on operating results.

We also have 500,000 shares of preferred stock authorized, which our Board of Directors has discretion to issue in such series and with such preferences and rights as it may designate. Such preferences and rights may be superior to those of the holders of common stock. For example, the holders of preferred stock may be given a preference in payment upon our liquidation, or for the payment or accumulation of dividends before any distributions are made to the holders of common stock. No shares of the preferred stock have been issued. The issuance of shares of preferred stock, while potentially providing desirable flexibility in connection with raising capital for our needs and other corporate purposes, could have the effect of making it more difficult for a third

party to acquire a majority of our outstanding voting stock. We have no present intention to issue shares of preferred stock.

Holders of our common stock own, and the holders of the shares of common stock issued in this offering will receive, one right to purchase Series A Junior Participating Preferred Stock for each outstanding share of common stock. These rights are issued pursuant to a shareholder rights plan. Upon the occurrence of certain events, each right would entitle the holder to purchase from us one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $37.50 per one-hundredth of a share, subject to adjustment. The rights are exercisable in certain circumstances if a person or group acquires 15% or more of our common stock or if the holder of 15% or more of our common stock engages in certain transactions with us. In that case, each right would be exercisable by each holder, other than the acquiring person, to purchase shares of our common stock at a substantial discount from the market price. In addition, if, after the date that a person has become the holder of 15% or more of our common stock, any person or group merges with us or engages in certain other transactions with us, each right entitles the holder, other than the acquirer, to purchase common stock of the surviving corporation at a substantial discount from the market price. These rights are subject to redemption by us in certain circumstances. These rights have no voting or dividend rights and, until exercisable, cannot trade separately from our common stock and have no dilutive effect on our earnings. This plan expires on February 24, 2009.

We are subject to various anti-takeover provisions of the Pennsylvania Business Corporation Law of 1988, as amended. Generally, these provisions are triggered if any person or group acquires, or discloses an intent to acquire, 20% or more of a corporation’s voting power, unless the acquisition is under a registered firm commitment underwriting or, in certain cases, approved by the board of directors. These provisions:


	•	provide the other shareholders of the corporation with certain rights against the acquiring group or person;

	•	prohibit the corporation from engaging in a broad range of business combinations with the acquiring group or person; and

	•	restrict the voting and other rights of the acquiring group or person.

In addition, as permitted by Pennsylvania law, an amendment to our articles of incorporation or other corporate action that is approved by shareholders may provide mandatory special treatment for specified groups of nonconsenting shareholders of the same class. For example, an amendment to our articles of incorporation or other corporate action may provide that shares of common stock held by designated shareholders of record must be cashed out at a price determined by the corporation, subject to applicable dissenters’ rights.

Certain provisions of bylaws may have the effect of discouraging unilateral tender offers or other attempts to take over and acquire our business. These provisions might discourage some potentially interested purchaser from attempting a unilateral takeover bid for us on terms which some shareholders might favor. Our bylaws require our Board of Directors to be divided into three classes that serve staggered three-year terms. The terms of Chloé R. Eichelberger, Thomas C. Norris and John L. Finlayson will expire at the 2005 Annual Meeting of Shareholders. The terms of George W. Hodges, George Hay Kain, III and Michael W. Gang will expire at the 2006 Annual Meeting of Shareholders. The terms of William T. Morris, P.E., Irvin S. Naylor and Jeffrey S. Osman will expire at the 2007 Annual Meeting of Shareholders.

The PPUC has jurisdiction over a change in control of us or the acquisition of us by a third party. The PPUC approval process can be lengthy and may deter a potentially interested purchaser from attempting to acquire a controlling interest in us.

The Transfer Agent and Registrar for the common stock is American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY 10273.

Subject to the terms and conditions of an underwriting agreement dated , 2004, Janney Montgomery Scott LLC has agreed to purchase, and we have agreed to sell to Janney Montgomery Scott LLC, the aggregate number of shares of common stock set forth below at the public offering price less the underwriting discount on the cover page of this prospectus.

The underwriting agreement provides that obligations of the underwriter to purchase the shares and accept the delivery of the shares of common stock that are being offered are subject to certain conditions precedent including the absence of any materially adverse change in our business, the receipt of certain certificates, opinions and letters from us, our attorneys and independent auditors. The underwriter is obligated to purchase all of the shares of the common stock being offered by this prospectus (other than shares of common stock covered by the over-allotment option described below) if it purchases any of the shares of common stock.

The underwriter proposes to offer some of the shares of common stock to the public initially at the offering price per share shown on the cover page of this prospectus and may offer shares to certain dealers at such price less a concession not in excess of $ per share. The underwriter may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the public offering of the common stock, the public offering price and the concessions may be changed by the underwriter.

The offering of common stock is made for delivery when, as and if accepted by the underwriter and subject to prior sale and to withdrawal, cancellation or modification of the offer without notice. The underwriter reserves the right to reject any order for the purchase of common stock in whole or in part.

The following table shows the per share and total underwriting discount to be paid to the underwriter by us. These amounts are shown assuming both no exercise and full exercise of the underwriter’s option to purchase the over-allotment shares:

We estimate that our out-of-pocket expenses for this offering, including the non-accountable expense allowance of $45,000 to be paid to Janney Montgomery Scott LLC, will be approximately $ .

We have granted to the underwriter an option, exercisable for up to 30 days after the date of this prospectus, to purchase up to 62,250 additional shares of common stock, at the same price per share as the public offering price, less the underwriting discounts and commissions shown on the cover page of this prospectus. The underwriter may exercise such option only to cover over-allotments in the sale of the shares of common stock offered by this prospectus. To the extent the underwriter exercises this option, the underwriter has a firm commitment, subject to certain conditions, to purchase all of the additional shares of common stock for which it exercises the option.

In connection with this offering and in compliance with applicable securities laws, the underwriter may over-allot (i.e., sell more shares of common stock than is shown on the cover page of this prospectus) and may effect transactions that stabilize, maintain or otherwise affect the market price of the common stock at levels above those which might otherwise prevail in the open market. Such transactions may include placing bids for the common stock or effecting purchases of the common stock for the purpose of pegging, fixing or maintaining the price of the common stock or for the purpose of reducing a short position created in

connection with the offering. A short position may be covered by exercise of the over-allotment option described above in place of or in addition to open market purchases. The underwriter is not required to engage in any of these activities and any such activities, if commenced, may be discontinued at any time.

In connection with this offering, the underwriter may make short sales of our shares of common stock and may purchase those shares on the open market to cover positions created by short sales. Short sales involve the sale by the underwriter of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriter’s over-allotment option to purchase additional shares in the offering. The underwriter may close out any covered short position by either exercising its over-allotment option or purchasing shares on the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase on the open market as compared to the price at which it may purchase shares through the over-allotment option. “Naked” short sales are sales in excess of the over-allotment option. The underwriter may close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriter is concerned that there may be downward price pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Similar to other purchase transactions, the underwriter’s purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market.

In connection with this offering, the underwriter or its respective affiliates who are qualified market makers on the Nasdaq National Market may engage in passive market making transactions in our common stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M under the Securities Exchange Act of 1934, as amended. Passive market makers must comply with applicable volume and price limitations and must be identified as such. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security. If all independent bids are lowered below the passive market maker’s bid, however, such bid must then be lowered when certain purchase limits are exceeded.

We and the underwriter make no representation or prediction as to the direction or magnitude of any effect that these transactions may have on the price of the common stock. In addition, we and the underwriter make no representation that the underwriter will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice.

The underwriter does not intend to confirm sales of the common stock to any accounts over which it exercises discretionary authority.

Our directors and executive officers have agreed that they will not, without Janney Montgomery Scott LLC’s prior written consent for a period of ninety (90) days after the effective date of the registration statement of which this prospectus is a part, sell, offer to sell, contract to sell, or otherwise dispose of, directly or indirectly, any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, our common stock (other than transfers of shares as a gift and transfers of shares to persons affiliated with the shareholder).

We have agreed to indemnify the underwriter against certain liabilities that may be incurred in connection with this offering, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments the underwriter may be required to make in respect thereof.

Certain legal matters relating to the validity of the shares of Common Stock being offered by this prospectus will be passed upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Michael W. Gang, Esq., a partner at the firm of Morgan, Lewis & Bockius LLP, is one of our directors and owns 4,450 shares of our common stock. Certain legal matters will be passed upon for the underwriter by Ballard Spahr Andrews & Ingersoll, LLP.

The financial statements of The York Water Company as of December 31, 2003 and for the year then ended have been incorporated by reference herein and in the registration statement in reliance upon the report of Beard Miller Company LLP, independent accountants, incorporated by reference herein, and upon the authority of such firm as experts in accounting and auditing.

The financial statements of The York Water Company as of December 31, 2002 and 2001 and for each of the years in the two-year period then ended have been incorporated by reference herein and in the registration statement in reliance upon the report of Stambaugh Ness, PC, independent accountants, incorporated by reference herein, and upon the authority of such firm as experts in accounting and auditing.

We file annual, quarterly and special reports and other information with the Securities and Exchange Commission, or SEC. You may read and copy any of the reports and other information we file at the SEC’s public reference facilities located in Washington at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. Copies of such material can also be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Our SEC filings are also available to the public over the Internet at the SEC’s web site which is located at the following address: http://www.sec.gov.

This prospectus is a part of a registration statement on Form S-3, which we filed with the SEC to register the securities we are offering. Certain information and details which may be important to specific investment decisions may be found in other parts of the registration statement, including its exhibits, but are left out of this prospectus in accordance with the rules and regulations of the SEC. To see more detail, you may wish to review the registration statement and its exhibits. Copies of the registration statement and its exhibits are on file at the offices of the SEC and may be obtained upon payment of the prescribed fee or may be examined without charge at the SEC’s public reference facilities or over the Internet at the SEC’s web site described above.

The SEC’s rules allow us to “incorporate by reference” the information we file with the SEC, which means we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus. We incorporate our Annual Report on Form 10-K for the year ended December 31, 2003, Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 and Current Reports on Form 8-K filed on March 16, 2004 and April 28, 2004.

In addition to the documents already filed, all reports and other documents which we file in the future with the Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities and Exchange Act of 1934, before this offering of common stock ends, shall also be incorporated by reference in this prospectus.

We will provide a copy of this filing to any person to whom a prospectus is delivered, including any beneficial owner. You should direct your oral or written request for a copy of this filing to: The York Water Company, Box 15089, York, Pennsylvania 17405, Attention: Kathleen M. Miller, Chief Financial Officer (telephone (717) 845-3601). You will not be charged for copies unless you request exhibits, for which we will charge you a minimal fee. However, you will not be charged for exhibits in any case where the exhibit you request is specifically incorporated by reference into another document which is incorporated by this prospectus.

We have not authorized any dealer, salesperson or other person to give any information or represent anything not contained in this prospectus. You must not rely on any unauthorized information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus does not offer to sell any shares in any jurisdiction where it is unlawful. The information in this prospectus is current as of the date shown on the cover page.

The following is a statement of the various expenses to be borne by us in connection with the issuance and distribution of the shares of Common Stock being registered. All of the amounts are estimates (and assume the underwriter’s over-allotment option is exercised in full) except the Securities and Exchange Commission registration fee, the National Association of Securities Dealers, Inc. filing fee, and the representative’s non-accountable expense allowance.

Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of 1988, as amended, or the BCL, provide that, unless otherwise restricted in its bylaws, a business corporation may indemnify directors and officers against liabilities they may incur as such provided that the particular person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. In general, the power to indemnify under these sections does not exist in the case of actions against a director or officer by or in the right of the corporation if the person otherwise entitled to indemnification shall have been adjudged to be liable to the corporation unless it is judicially determined that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnification for specified expenses. Section 1743 of the BCL requires a business corporation to indemnify directors and officers against expenses they may incur in defending actions against them in such capacities if they are successful on the merits or otherwise in the defense of such actions.

Section 1713 of the BCL permits the shareholders to adopt a bylaw provision relieving a director (but not an officer) of personal liability for monetary damages except where (i) the director has breached the applicable standard of care, and (ii) such conduct constitutes self-dealing, willful misconduct or recklessness. This Section also provides that a director may not be relieved of liability for the payment of taxes pursuant to any federal, state or local law or of liability or responsibility under a criminal statute. Section 4.01 of the Registrant’s bylaws limits the liability of any director of the Registrant to the fullest extent permitted by Section 1713 of the BCL.

Section 1746 of the BCL grants a corporation broad authority to indemnify its directors, officers and other agents for liabilities and expenses incurred in such capacity, except in circumstances where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness. Article VII of the Registrant’s bylaws provides indemnification of directors, officers and other agents of the Registrant broader than the indemnification permitted by Section 1741 of the BCL and pursuant to the authority of Section 1746 of the BCL.

Article VII of the bylaws provides, except as expressly prohibited by law, an unconditional right to indemnification for expenses and any liability paid or incurred by any director or officer of the Registrant, or any other person designated by the board of directors as an indemnified representative, in connection with any actual or threatened claim, action, suit or proceeding (including derivative suits) in which he or she may be involved by reason of being or having been a director, officer, employee or agent of the Registrant or, at the request of the Registrant, of another corporation, partnership, joint venture, trust, employee benefit plan or other entity. The bylaws specifically authorize indemnification against both judgments and amounts paid in settlement of derivative suits, unlike Section 1742 of the BCL which authorizes indemnification only of expenses incurred in defending and in settlement of a derivative action. In addition, Article VII of the bylaws also allows indemnification for punitive damages and liabilities incurred under the federal securities laws.

Unlike the provisions of BCL Sections 1741 and 1742, Article VII does not require the Registrant to determine the availability of indemnification by the procedures or the standard of conduct specified in Sections 1741 or 1742 of the BCL. A person who has incurred an indemnifiable expense or liability has a right to be indemnified independent of any procedures or determinations that would otherwise be required, and that right is enforceable against the Registrant as long as indemnification is not prohibited by law. To the extent indemnification is permitted only for a portion of a liability, the bylaw provisions require the Registrant to indemnify such portion. If the indemnification provided for in Article VII is unavailable for any reason in respect of any liability or portion thereof, the bylaws require the Registrant to make a contribution toward the liability. Indemnification rights under the bylaws do not depend upon the approval of any future board of directors.

Section 7.04 of the Registrant’s bylaws also authorizes the Registrant to further effect or secure its indemnification obligations by entering into indemnification agreements, maintaining insurance, creating a trust fund, granting a security interest in its assets or property, establishing a letter of credit, or using any other means that may be available from time to time. Section 1747 of the BCL also enables a business corporation to purchase and maintain insurance on behalf of a person who is or was serving as a representative of the corporation or is or was serving at the request of the corporation as a representative of another entity against any liability asserted against that representative in his capacity as such, whether or not the corporation would have the power to indemnify him against that liability under the BCL.

The Registrant maintains, on behalf of its directors and officers, insurance protection against certain liabilities arising out of the discharge of their duties, as well as insurance covering the Registrant for indemnification payments made to its directors and officers for certain liabilities. The premiums for such insurance are paid by the Registrant.

The following is a list of exhibits filed as part of this Registration Statement. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference.


**	To be filed by amendment or as an exhibit to a document to be incorporated by reference in the prospectus forming a part of this registration statement.

The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.


	(1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430(A) and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective; and

	(2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in York, Pennsylvania, on May 27, 2004.


	By:	/s/ JEFFREY S. OSMAN



	Jeffrey S. Osman
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

EACH PERSON IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS JEFFREY S. OSMAN AND KATHLEEN M. MILLER, AND EACH OF THEM ACTING ALONE, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, ANY AND ALL AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, AND INCLUDING ANY REGISTRATION STATEMENT FOR THE SAME OFFERING THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS OR HER SUBSTITUTE OR SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.

The following is a list of exhibits filed as part of this Registration Statement. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference.


**	To be filed by amendment or as an exhibit to a document to be incorporated by reference in the prospectus forming a part of this registration statement.

II-6 EX-4.1 2 w97795exv4w1.txt AMENDED AND RESTATED ARTICLES OF INCORPORATION Exhibit 4.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE YORK WATER COMPANY ARTICLE I. The name of the Corporation is The York Water Company. ARTICLE II. The address of the registered office of the Corporation in this Commonwealth is 130 East Market Street, York, Pennsylvania 17401. ARTICLE III. The purpose or purposes for which the corporation is incorporated are: (a) To engage in, and do any lawful act concerning, any or all lawful business for which a corporation may be incorporated under the Business Corporation Law. (b) To supply water to the public in the following municipalities or portions thereof in the Commonwealth of Pennsylvania, and to such persons residing therein or adjacent thereto as may desire the same: All of the City of York, the Boroughs of East Prospect, Glen Rock, Hellam, Jacobus, Jefferson, Loganville, Manchester, Mount Wolf, New Freedom, New Salem, North York, Railroad, Seven Valleys, Shrewsbury, Spring Grove, West York, Wrightsville, York Haven and Yorkanna and the Townships of East Manchester, Hellam, Manchester, Shrewsbury, Springfield, Spring Garden, Springettsbury and West Manchester, and parts of the Townships of Codorus, Conewago, Hopewell, Jackson, Lower Windsor, Newberry, North Codorus, North Hopewell, Windsor and York, all in the County of York and Commonwealth of Pennsylvania. (c) To divert, develop, pump, impound, distribute or furnish water from either surface or subsurface sources to or for the public in the territory described in clause (b) of this Article III and also in such additional territory within the Commonwealth of Pennsylvania as may be specifically described in Application Docket proceedings hereafter voluntarily commenced by the corporation (pursuant to appropriate resolutions of the Board of Directors duly entered upon the minutes of the corporation) before the Pennsylvania Public Utility Commission or its successor in office for the purpose of enlarging the territory in which the corporation may lawfully offer, render, furnish or supply water to the public. (d) To engage in all other matters incidental to any or all of such purposes. ARTICLE IV. The term for which the Corporation is to exist is perpetual. ARTICLE V. The aggregate number of shares which the Corporation shall have authority to issue is 31,500,000 shares, divided into 31,000,000 shares of Common Stock, without par value, and 500,000 shares of Series Preferred Stock, without par value. At any meeting of the shareholders, each holder of Common Stock shall be entitled to one vote per share. Holders of Common Stock shall have the right to cumulate their votes for the election of directors of the Corporation. The board of directors shall have the full authority permitted by law to determine the voting rights, if any, and designations, preferences, qualifications, limitations, restrictions, and the special or relative rights of any class or any series of any class of the Series Preferred Stock that may be desired. 2 EX-4.2 3 w97795exv4w2.txt LOAN AGREEMENT AND PURCHASE CONTRACT Exhibit 4.2 LOAN AGREEMENT BETWEEN PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY (THE "ISSUER") AND THE YORK WATER COMPANY (THE "COMPANY") DATED AS OF APRIL 1, 2004 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND CERTAIN RULES OF INTERPRETATION ......................... 2 SECTION 1.1. Definitions ....................................................... 2 SECTION 1.2. Certain Rules of Interpretation ................................... 7 ARTICLE II REPRESENTATIONS ........................................................ 8 SECTION 2.1. Representations and Findings of Issuer ............................ 8 SECTION 2.2. Representations by the Company .................................... 10 ARTICLE III THE PROJECT ........................................................... 12 SECTION 3.1. Acquisition and Construction ...................................... 12 SECTION 3.2. Construction Fund ................................................. 13 SECTION 3.3. Establishment of Completion Date .................................. 14 ARTICLE IV LOAN AND REPAYMENT; OPERATION OF PROJECT ............................... 15 SECTION 4.1. Loan of Bond Proceeds ............................................. 15 SECTION 4.2. Repayment of Loan ................................................. 15 SECTION 4.3. Operation ......................................................... 15 SECTION 4.4. Insurance ......................................................... 15 SECTION 4.5. Maintenance and Repair ............................................ 16 SECTION 4.6. Right to Discontinue Operation of Project ......................... 16 SECTION 4.7. Insurance and Condemnation Awards ................................. 16 SECTION 4.8. Workers' Compensation Coverage .................................... 16 SECTION 4.9. Taxes, Claims for Labor and Materials, Compliance with Laws ....... 16 SECTION 4.10. Issuer's Limited Liability ....................................... 17 SECTION 4.11. Right of Inspection .............................................. 17 ARTICLE V ISSUANCE OF BONDS; SECURITY; INVESTMENTS ................................ 18 SECTION 5.1. Issuance of Bonds ................................................. 18 SECTION 5.2. Security for the Bonds ............................................ 18 SECTION 5.3. Reserved .......................................................... 18 SECTION 5.4. Investment of Funds ............................................... 18 ARTICLE VI COMPANY OBLIGATIONS; PROVISIONS FOR PAYMENT; COVENANTS ................. 18 SECTION 6.1. Company Approval of Issuance of Bonds ............................. 18 SECTION 6.2. Refunding of Bonds ................................................ 19 SECTION 6.3. Redemption of Bonds ............................................... 19 SECTION 6.4. Installment Loan Payments ......................................... 19 SECTION 6.5. Administrative Expenses ........................................... 20 SECTION 6.6. Payments to Issuer and Local IDA .................................. 21 SECTION 6.7. Obligations of the Company Absolute and Unconditional ............. 21 SECTION 6.8. Option to Prepay Amounts Under Loan Agreement in Certain Events ... 21 SECTION 6.9. Company's Performance Under Indenture ............................. 22 SECTION 6.10. Covenants Regarding Tax Exemption ................................ 22

i SECTION 6.11. Company's Option to Remarket Bonds Purchased in Lieu of Redemption 22 SECTION 6.12. Nondiscrimination - Sexual Harassment ............................ 23 ARTICLE VII PARTICULAR AGREEMENTS ................................................. 23 SECTION 7.1. Indemnified Party's Release and Indemnification Provisions ........ 23 SECTION 7.2. Maintenance of Corporate Existence ................................ 24 SECTION 7.3. Financial Information ............................................. 25 SECTION 7.4. Agreement of Issuer Not to Assign or Pledge ....................... 26 SECTION 7.5. Reference to Bonds Ineffective after Bonds Paid ................... 26 SECTION 7.6. Assignment, Sale or Lease of Project .............................. 27 SECTION 7.7. Amendment of Loan Agreement or Indenture .......................... 28 SECTION 7.8. Waiver of Vendor's Lien ........................................... 28 SECTION 7.9. Limitations on Indebtedness ....................................... 28 SECTION 7.10. Limitation on Liens .............................................. 29 SECTION 7.11. Dividends, Stock Purchases ....................................... 30 SECTION 7.12. Termination of Pension Plans ..................................... 31 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES ....................................... 31 SECTION 8.1. Defaults and Remedies ............................................. 31 SECTION 8.2. Annulment of Acceleration ......................................... 33 SECTION 8.3. Agreement to Pay Attorneys' Fees and Expenses ..................... 33 SECTION 8.4. General Enforcement Provisions .................................... 33 SECTION 8.5. Notice of Default ................................................. 34 SECTION 8.6. Unassigned Issuer's Rights ........................................ 34 ARTICLE IX MISCELLANEOUS .......................................................... 34 SECTION 9.1. Term of Loan Agreement ............................................ 34 SECTION 9.2. Notices ........................................................... 34 SECTION 9.3. Benefit of Parties ................................................ 35 SECTION 9.4. Severability ...................................................... 36 SECTION 9.5. Counterparts ...................................................... 36 SECTION 9.6. Captions .......................................................... 36 SECTION 9.7. Law Governing Construction of Loan Agreement ...................... 36 SECTION 9.8. Payments on Non-Business Days ..................................... 36 SECTION 9.9. Payments to be Sufficient to Meet DTC Requirements ................ 36 SECTION 9.10. Reserved ......................................................... 36 SECTION 9.11. Limitation of Liability; No Personal Liability ................... 36 Exhibit A - Project Description Exhibit B - Nondiscrimination/Sexual Harassment Clause

ii LOAN AGREEMENT This Loan Agreement dated as of April 1, 2004, between the Pennsylvania Economic Development Financing Authority (the "Issuer"), a public instrumentality of the Commonwealth of Pennsylvania and a public body corporate and politic organized and existing under the Pennsylvania Economic Development Financing Law, as amended (the "Act") of the Commonwealth of Pennsylvania (the "Commonwealth"), and The York Water Company, a Pennsylvania corporation (the "Company"), WITNESSETH: WHEREAS, the Issuer is empowered by the provisions of the Act to enter into agreements providing for the financing of the acquisition, construction and equipping of industrial, commercial and specialized enterprises for the public for purposes of alleviating unemployment, maintaining employment at a high level and encouraging economic development in the Commonwealth of Pennsylvania and promoting the health, safety and general welfare of the people of the Commonwealth of Pennsylvania within the meaning of the Act, including water utility facilities; and WHEREAS, the Issuer has determined to issue its Exempt Facility Revenue Bonds, (York Water Company Project) (the "Bonds") pursuant to the Indenture (hereinafter defined) to provide funds to loan to the Company for the financing of costs associated with the construction of a water intake pumping station adjacent to the Susquehanna River and a water main pipeline, together with related pumps, fittings, valves and other water infrastructure system improvements, all for the purpose of providing an additional source of surface water supply to meet the needs of the Company's residential, commercial and industrial customers (the "Project"), and paying some or all of costs of issuance of the Bonds; and WHEREAS, the Issuer has authorized the issuance of $7,300,000 aggregate principal amount of the Bonds designated "Series A of 2004" (the "Series A Bonds") which will fund a portion of the costs of the Project; and WHEREAS, the Issuer will enter into this Loan Agreement with the Company, under the terms of which the Company will agree to repay the loan of the proceeds of the Bonds by paying to the Issuer moneys sufficient to pay the principal of, and premium (if any) and interest on the Bonds as the same become due and payable and to pay certain administrative expenses in connection with the Bonds; and WHEREAS, as security for the payment of said Bonds, the Issuer will assign and pledge to Manufacturers and Traders Trust Company, as trustee (the "Trustee") under the terms of the Trust Indenture dated as of April 1, 2004 (the "Indenture") certain rights, title and interest of the Issuer in (i) this Loan Agreement (except for the indemnification rights and expense reimbursement rights contained herein), and (ii) all amounts on deposit from time to time in the various funds created in, and subject to the conditions set forth in, the Indenture; and 1 NOW THEREFORE, in consideration of the covenants and agreements herein made, and subject to the conditions herein set forth, the Issuer and the Company, intending to be legally bound, covenant and agree as follows: ARTICLE I Definitions And Certain Rules Of Interpretation SECTION 1.1. Definitions. All words and terms as used in this Loan Agreement shall have the same meanings given such words and terms in the Indenture, unless the context or use clearly indicates another or different meaning or intent. In addition, the terms defined in the recitals to this Loan Agreement shall have the meanings set forth therein and the following words and terms as used in this Loan Agreement shall have the following meanings, unless the context or use clearly indicates another or different meaning or intent: "Capitalized Lease" shall mean any lease, the obligation for Rentals with respect to which is required to be capitalized on a balance sheet of the lessee in accordance with generally accepted accounting principles. "Capitalized Rentals" shall mean as of the date of any determination the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which the Company is a lessee would be reflected as a liability on a balance sheet of the Company. "Consolidated Current Assets" and "Consolidated Current Liabilities" shall mean such assets and liabilities of the Company and its subsidiaries on a consolidated basis as shall be determined in accordance with generally accepted accounting principles to constitute current assets and current liabilities, respectively. "Costs of Issuance" means all costs and expenses incurred by the Issuer, the Local IDA or the Company in connection with the issuance and sale of the Series A Bonds or Additional Bonds, including without limitation (i) fees and expenses of accountants, attorneys, engineers, credit enhancers and financial advisors, (ii) materials, supplies, and printing and engraving costs, (iii) recording and filing fees, (iv) rating agency fees, (v) the initial and first year's annual fees and expenses (including, without limitation, counsel fees and expenses) of the Trustee, (vi) any underwriters' discount or fee and expenses and (vii) the Issuer's issuance fee and administrative and overhead expenses as provided in Section 6.6 of this Loan Agreement. "County" means the County of York, a political subdivision of the Commonwealth. "Department" means the Department of Community and Economic Development of the Commonwealth. 2 "Default" shall mean any event or condition, the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default as defined in Section 8.1 hereof. "Environmental Legal Requirement" shall mean any applicable law relating to public health, safety or the environment, including, without limitation, relating to releases, discharges or emissions to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use and handling of polychlorinated biphenyls or asbestos, to the disposal, treatment, storage or management of solid or hazardous wastes or to exposure to toxic or hazardous materials, to the handling, transportation, discharge or release of gaseous or liquid substances and any regulation, order, notice or demand issued pursuant to such statute or ordinance, in each case applicable to the Property of the Company or the operation, construction or modification of any thereof, including without limitation the following: the Clean Air Act, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Comprehensive Environmental Response Compensation and Liability Act as amended by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act as amended by the Solid and Hazardous Waste Amendments of 1984, the Occupational Safety and Health Act, the Emergency Planning and Community Right-to-Know Act of 1986, the Solid Waste Disposal Act, the Pennsylvania Safe Drinking Water Act and any other state statutes addressing similar matters, and any state statute providing for financial responsibility for cleanup or other actions with respect to the release or threatened release of hazardous substances and any state nuisance statute. "Excepted Encumbrances" shall mean any of the following: (a) liens for taxes, assessments or governmental charges not delinquent and liens for workers' compensation awards and similar obligations not delinquent and undetermined liens or charges incidental to construction; (b) any liens securing Indebtedness neither assumed nor guaranteed by the Company on which it customarily pays interest, existing in or relating to real estate acquired by the Company for transmission, distribution or right-of-way purposes; (c) easements or reservations in any Property of the Company created for the purpose of roads, railroads, railroad side tracks, water and gas transmission and distribution mains, conduits, water power rights of the Commonwealth of Pennsylvania or others, building and use restrictions and defects of title to, or leases of, any parts of the Property of the Company which do not in the opinion of the Company's counsel materiality impair the use of the Property as an entirety in the operation of the business of the Company; (d) undetermined liens and charges incidental to current construction, including mechanics', laborers', materialmen's and similar liens not delinquent; (e) any obligations or duties affecting the Property of the Company to any municipality or public authority with respect to any franchise, grant, license, permit or certificate; 3 (f) rights reserved to or vested in any municipality or public authority to control or regulate any Property of the Company or to use such Property in a manner which does not materially impair the use of such Property for the purposes for which it is held by the Company; or (g) judgments in course of appeal or otherwise in contest and secured by sufficient bond or security. "Excepted Property" shall mean (a) cash, bonds, stocks, obligations and other Securities; (b) choses in action, accounts and bills receivable, judgments and other evidences of Indebtedness and contracts, leases and operating agreements; (c) stock in trade, merchandise, equipment, apparatus, materials or supplies manufactured or acquired for the purpose of sale and/or resale in the usual course of business or consumable in the operation of any of the Properties of the Company or held for the purpose of repairing or replacing (in whole or in part) any rolling stock, business, motor coaches, trucks, automobiles or other vehicles or aircraft; (d) timber, gas, oil, minerals (including developed and undeveloped natural gas reserves and natural gas in underground storage or otherwise), mineral rights and royalties; (e) materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of its business; (f) rolling stock, buses, motor coaches, trucks, automobiles and other vehicles and all aircraft; and (g) the Company's franchise to be a corporation. "Funded Debt" of any Person shall mean (a) all Indebtedness for borrowed money or which has been incurred in connection with the acquisition of assets in each case having a final maturity of one or more than one year from the date of origin thereof (or which is renewable or extendible at the option of the obligor for a period or periods more than one year from the date of origin), including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not included in Consolidated Current Liabilities, (b) all Capitalized Rentals, and (c) all Guaranties of Indebtedness of others. "Guaranties" by any Person shall mean all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect, guaranteeing any Indebtedness, dividend or other obligation, of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any Property or assets constituting security therefor, (b) to advance or supply funds (1) for the purchase or payment of such Indebtedness or obligation, (2) to maintain working capital or other balance sheet condition or, otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, or (c) to lease Property or to purchase Securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (d) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a 4 Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Indebtedness" of any Person shall mean and include all obligations of such Person which in accordance with generally accepted accounting principles shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all (a) obligations of such Person for borrowed money or which has been incurred in connection with the acquisition of Property or assets, (b) obligations secured by any lien or other charge upon Property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (c) obligations created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of Property, and (d) Capitalized Rentals under any Capitalized Lease. For the purpose of computing the "Indebtedness" of any Person, there shall be excluded any particular Indebtedness to the extent that, upon or prior to the maturity thereof, there shall have been deposited with the proper depositary in trust the necessary funds (or evidences of such Indebtedness, if permitted by the instrument creating such Indebtedness) for the payment, redemption or satisfaction of such Indebtedness; and thereafter such funds and evidences of Indebtedness so deposited shall not be included in any computation of the assets of such Person. "Indemnified Parties" means the Issuer, the Trustee, the Paying Agent and any of their respective officers, directors, members, commissioners, employees, agents, servants and any other person acting for or on behalf of the Issuer, the Trustee or the Paying Agent. "Installment Loan Payment(s)" means payments required to be made by the Company to pay the Debt Service on the Bonds, as provided for in Section 6.4(b), (c), (d) and (f) of this Loan Agreement, including the principal of, premium, if any (whether at stated maturity, upon redemption prior to stated maturity, or upon acceleration of stated maturity), and interest on the Bonds when due. "Loan Agreement" means this Loan Agreement, and all amendments and supplements hereto. "Local IDA" means the York County Industrial Development Authority, a governmental entity of the Commonwealth in its capacity as an applicant sponsor for the Project. "Plant Account" shall mean the plant account under the Pennsylvania Public Utilities Commission Uniform System of Accounts for Water Utilities dated November 21, 1946, as the same may be amended from time to time. "Project" means the facilities described in the recitals hereto and "Exhibit A" to this Loan Agreement, as amended from time to time as provided herein, and which are being financed with the proceeds of the Bonds. 5 "Project Costs" means all costs incurred by the Company, whether before or after issuance of the Bonds, with respect to the acquisition, construction and installation of the Project, including but not limited to, the following items: (i) Obligations incurred or assumed for labor, materials and equipment (including obligations payable to the Company for expenditures made or costs incurred by the Company); (ii) Costs of any performance, payment, or surety bonds and insurance deemed necessary or appropriate by the Company; (iii) Costs of engineering and other services, including the costs incurred or assumed for preliminary design and development, surveys, estimates and plans and specifications, and for supervising construction and performing all other duties required by or consequent upon proper construction; (iv) Costs which the Company shall be required to pay under the terms of any contract or contracts in connection with the construction, acquisition and installation of the Project; (v) Amounts which are required to be paid for taxes, assessments and other similar charges payable during the period of construction; (vi) Expenses incurred in seeking to enforce any remedy against any contractor, subcontractor or other provider of labor, materials, equipment or services, in respect of any default, breach or dispute relating to the Project; (vii) Sums required to reimburse the Company for advances made for any of the above items, and for any other costs incurred for work done or caused to be done by the Company which are properly chargeable to the Project; (viii) Capitalized interest with respect to the Project; (ix) To the extent authorized by the Act, costs of all other items related to the acquisition, construction and installation of the Project; and (x) All Costs of Issuance. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Rentals" shall mean and include all fixed rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property) payable by the Company, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Company (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed 6 solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Seasonal Indebtedness" as of the date of any determination thereof shall mean (a) all Indebtedness for money borrowed other than Funded Debt and (b) Guaranties of Seasonal Indebtedness of others. "Security" or "Securities" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Unassigned Issuer's Rights" means all of the rights of the Issuer to receive insurance under Section 4.4 hereof, to inspect the Project under Section 4.11 hereof, to receive payments and to be reimbursed for attorney's and other fees and expenses under Sections 6.6 and 8.3 hereof, to be held harmless and indemnified under Section 7.1 hereof, to receive information under Section 7.3, and, to the extent provided in this Agreement, to give or withhold consent to or approval of amendments, modifications, and terminations of this Agreement. "Voting Stock" shall mean Securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). SECTION 1.2. Certain Rules of Interpretation. (a) The definitions set forth in Article I and in the Indenture shall be equally applicable to both the singular and plural forms of the terms therein defined and shall cover all genders. (b) "Herein," "hereby," "hereunder," "hereof," "hereinbefore," "hereinafter" and other equivalent words refer to this Loan Agreement and not solely to the particular Article, Section or Subdivision hereof in which such word is used. (c) Reference herein to an article number (e.g., Article IV) or a section number (e.g., Section 6.2) shall be construed to be a reference to the designated article number or section number hereof unless the context or use clearly indicates another or different meaning or intent. (d) Words of the masculine gender shall mean and include correlative words of the feminine and neuter genders and words importing the singular number shall mean and include the plural number and vice versa. (e) Words importing persons shall include firms, associations, partnerships (including limited partnerships), trusts, corporations and other legal entities, including public bodies, as well as natural persons. (f) Any headings preceding the text of the several Articles and Sections of this Loan Agreement, and any table of contents appended to copies hereof, shall be solely for 7 convenience of reference and shall not constitute a part of this Loan Agreement, nor shall they affect its meaning, construction or effect. (g) References to statutes or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending or replacing the statute or regulation referred to; and references to agreements and other contractual instruments shall be deemed to include any exhibits and appendices attached thereto and all amendments, supplements and other modifications to such instruments, but only to the extent such amendments, supplements and other modifications are not prohibited by the terms of this Loan Agreement. (h) Whenever in this Loan Agreement, the Issuer, the Company or the Trustee is named or referred to, it shall include, and shall be deemed to include, its respective successors and assigns whether so expressed or not. All of the covenants, stipulations, obligations and agreements by or on behalf of, and other provisions for the benefit of, the Issuer, the Company and the Trustee contained in this Loan Agreement shall inure to the benefit of such respective successors and assigns, bind and shall, inure to the benefit of any officer, board, commission, authority, agency or instrumentality to whom or to which there shall be transferred by or in accordance with law any right, power or duty of the Issuer or of its successors or assigns, the possession of which is necessary or appropriate in order to comply with any such covenants, stipulations, obligations, agreements or other provisions of this Loan Agreement. (i) Every "request," "order," "demand," "application," "appointment," "notice," "statement," "certificate," "consent," "direction" or similar action hereunder by persons referred to herein shall, unless the form thereof is specifically provided, be in writing and signed by an Authorized Representative of the person giving it. ARTICLE II Representations SECTION 2.1. Representations and Findings of Issuer. The Issuer hereby confirms its findings and represents that: (a) Organization. The Issuer is a public body corporate and politic established in the Commonwealth pursuant to the laws of the Commonwealth including the Act. Under the Act, the Issuer has the power to enter into the Indenture, this Loan Agreement and the Underwriting Agreement and to carry out its obligations thereunder and hereunder and to issue the Bonds to finance a portion of the Project Costs. (b) Pending Litigation. To the knowledge of the Issuer, there are no actions, suits, proceedings, inquiries or investigations pending or threatened against or affecting the Issuer in any court or before any governmental authority or arbitration board or tribunal, which involve the possibility of materially and adversely affecting the transactions contemplated by the Financing Documents or which, in any way, would adversely affect the validity or enforceability 8 of the Financing Documents or the ability of the Issuer to perform its obligations under the Financing Documents. (c) Economic Findings. Based on representations and information furnished to the Issuer by or on behalf of the Company and the Local IDA, the Issuer has found that the Company is engaged in industrial, commercial and/or specialized activities in the Commonwealth requiring substantial capital and creating or maintaining substantial employment opportunities, that the Company's operations contribute to economic growth and the creation or maintenance of employment opportunities in the Commonwealth, that the Company is financially responsible to assume its obligations prescribed by this Loan Agreement and the Act and that the Project will constitute facilities for the furnishing of water within the meaning of Section 142(a)(4) of the Code. (d) Public Purpose Findings. Based on representations and information furnished to the Issuer by or on behalf of the Company, the Issuer has found that (i) the Project will promote the health, safety and general welfare of the people of the Commonwealth and the public purposes of the Act by alleviating unemployment and maintaining employment at a high level and creating and developing business opportunities in the Commonwealth and aiding in the provision of water; (ii) the interests in land and other property which is part of the Project is located within the boundaries of the Commonwealth and within the boundaries of the County, which organized the Local IDA; and (iii) the Project will constitute a "project" within the meaning of the Act. (e) Private Activity Bond Allocations. The Issuer has received a Preliminary Allocation of the tax-exempt private activity bond authority of the Commonwealth in an aggregate amount at least equal to the aggregate principal amount of the Series A Bonds from the Department which certifies the preliminary approval of such allocation for the Project as required by Section 146 of the Code. Simultaneously with the issuance of the Series A Bonds, the Issuer shall request a Final Allocation from the Department which request will automatically convert the Preliminary Allocation to a Final Allocation of the Commonwealth's private activity bond authority to the Project. (f) Project Approvals. The Project has been approved by (1) the Local IDA, (2) the Governor or Lieutenant Governor of the Commonwealth as the "applicable elected representative," as that term is defined under the Code, of the Issuer after a public hearing held upon reasonable public notice, as required by the Code, and (3) the Issuer by adoption of resolutions including the Bond Resolution as required by the Act. (g) No Other Pledges. The Issuer has not and will not pledge the income and Revenues derived from this Loan Agreement or its other interests in this Loan Agreement or the Indenture other than pursuant to and as set forth in the Indenture. (h) No Conflicts. The execution, delivery and performance by the Issuer of this Loan Agreement and the Indenture and the issuance of the Bonds will not conflict with or create a breach of or default under the Act or other applicable law or any agreement or instrument to which the Issuer is a party or by which it is bound. 9 (i) Agreements Are Legal and Authorized. The adoption of the Bond Resolution, the issuance and sale of the Bonds and the execution and delivery by the Issuer of the Financing Documents, and the compliance by the Issuer with all of the provisions of each thereof and of the Bonds, (i) are within the powers and authority of the Issuer, (ii) have been done in full compliance with the provisions of the Act, are legal and will not conflict with or constitute on the part of the Issuer a violation of or a breach of or default under, or result in the creation of any lien, charge or encumbrance upon any property of the Issuer (other than as contemplated by this Loan Agreement and the Indenture) under the provisions of, any by-law or other agreement or instrument to which the Issuer is a party or by which the Issuer is bound, or any license, judgment, decree, law, statute, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Issuer or any of its activities or properties and (iii) have been duly authorized by all necessary action on the part of the Issuer. (j) Governmental Consents. Neither the nature of the Issuer nor any of its activities or properties, nor any relationship between the Issuer and any other Person, nor any circumstance in connection with the offer, issue, sale or delivery of any of the Bonds is such as to require the consent, approval or authorization of, or the filing, registration or qualification with, any governmental authority on the part of the Issuer in connection with the execution, delivery and performance of the Financing Documents or the offer, issue, sale or delivery of the Bonds, other than those already obtained as of the Issue Date; provided, however, no representation is made herein as to compliance with the securities or "blue sky" laws of any jurisdiction. (k) No Defaults. No event has occurred and no condition exists with respect to the Issuer which would constitute an "Event of Default" as defined in the Indenture or which, with the lapse of time or with the giving of notice or both, would become an "Event of Default" under the Indenture. (l) Limited Obligations. The Bonds shall be limited obligations of the Issuer and shall be payable by the Issuer solely out of the Revenues. The Bonds shall never be payable out of any other funds of the Issuer except the Revenues. Neither the faith and credit nor the taxing power of the Commonwealth, the Issuer, or any other political corporation, subdivision or agency thereof is pledged to the payment of the principal of and premium, if any, or interest on such Bonds. (m) Requirements Satisfied. All requirements and conditions specified in the Act and all other laws and regulations applicable to the adoption of the Bond Resolution, the execution and delivery of this Loan Agreement and the Indenture, and the issuance and delivery of the Bonds will be fulfilled prior to the initial delivery of the Bonds to the purchasers thereof. SECTION 2.2. Representations by the Company. The Company makes the following representations as the basis for the undertakings on its part herein contained: (a) Corporate Organization and Power. The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth, and 10 (ii) has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now being conducted and as presently proposed to be conducted. (b) Pending Litigation. Except as set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, there are no actions, suits, proceedings, inquiries or investigations pending, or to the knowledge of the Company threatened, against or affecting the Company in any court or before any governmental authority or arbitration board or tribunal which involve the possibility of materially and adversely affecting the transactions contemplated by the Financing Documents or which, in any way, would adversely affect the validity or enforceability of the Bonds or the Financing Documents or the legal ability of the Company to perform its obligations under this Loan Agreement. (c) Agreements Are Valid and Authorized. The execution and delivery by the Company of this Loan Agreement and the compliance by the Company with all of the provisions hereof (i) are within the corporate power of the Company, (ii) will not conflict with or result in any breach of any of the provisions of, or constitute a default under, any material agreement, charter document, by-law or other material instrument to which the Company is a party or by which it may be bound, or any license, judgment, decree, law, statute, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its activities or properties, and (iii) have been duly authorized by all necessary action on the part of the Company. This Agreement, upon the due execution and delivery thereof by the Company and the Issuer, will be a valid and binding obligation of the Company enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles of general application relating to or affecting the enforcement of creditors' rights generally. (d) Governmental Consents. No actions by the Company in connection with the execution, delivery and performance by the Company of this Loan Agreement is such as to require the consent, approval or authorization of, or the filing, registration or qualification with, any governmental authority on the part of the Company, other than those already obtained as of the Issue Date; provided, however, no representation is made herein as to compliance with the securities or "blue sky" laws of any jurisdiction. (e) No Defaults. No event has occurred and no condition exists with respect to the Company that would constitute an "Event of Default" under the Indenture or which, with the lapse of time or with the giving of notice or both, would become an "Event of Default" under the Indenture. (f) Tax Documents. The representations and statements made by the Company in the Tax Documents are true and correct. (g) Project Benefits. The acquisition, construction, development, design, equipping, testing and installing of the Project, as provided under this Loan Agreement, will promote the employment and the health, safety and general welfare of the residents of the Commonwealth by promoting the continuation and expansion of gainful employment 11 opportunities for such residents, will aid in the provision of water, and will not cause, directly or indirectly, the removal, either in whole or in part, of a plant, facility or establishment from one area of the Commonwealth to another. The Plant and other fixed property which is part of the Project is located within the boundaries of the County and has a substantial connection with the County. The Project is a "project" within the meaning of the Act and will be operated as such. The Project consists of land or property of a character subject to allowance for depreciation under Section 167 of the Code and constitutes "facilities for the furnishing of water" within the meaning of Section 142(a)(4) of the Code. (h) Operation of Project. The Company presently intends to use or operate the Project (or cause the Project to be operated) in a manner consistent with the Act for the provision and supply of water until the date on which the Bonds have been fully paid and knows of no reason why the Project will not be so used or operated. (i) Tax Information. The information furnished by the Company and used by the Issuer in preparing the tax certificate and information return pursuant to the Code is accurate and complete in all material respects as of the date of original issuance and delivery of the Bonds. The proceeds of the Bonds will not exceed the Project Costs. The Costs of Issuance financed with proceeds of the Bonds, including any bond discount on the sale of the Bonds, will not exceed 2% of the proceeds of the Bonds. (j) Commencement of Project. Prior to the adoption of the Bond Resolution (i.e., January 29, 2004), no properties included in the Project, that are to be financed with the proceeds of the Bonds, had been acquired by the Company or any Related Person (as defined in the Code), and no physical work on the Project had been commenced by the Company or any Related Person, except to the extent permitted in such Bond Resolution. (k) Disqualified Contractors. The Company is not a Disqualified Contractor. ARTICLE III The Project SECTION 3.1. Acquisition and Construction. The Company (a) has acquired, or has the requisite legal power to acquire, all interests in land required for construction of the Project, and shall construct, install, equip and improve the Project with all reasonable dispatch and in accordance with the description thereof in Exhibit A attached hereto and applicable law, (b) shall procure or cause to be procured all permits and licenses necessary for the prosecution of the work, and (c) shall pay when due all costs and expenses incurred in connection with that acquisition, construction, installation, equipment and improvement from funds made available therefor in accordance with this Loan Agreement or otherwise. The Company will revise Exhibit A and such supplemental information from time to time as necessary to reflect material additions to, deletions from and changes in the Project and will notify the Issuer and the Trustee in writing of such modifications so that the 12 Issuer and the Trustee will be able to ascertain the nature, location and estimated cost of the Project. It is understood that the Project is the property of the Company and that any contracts made by the Company with respect thereto and any work to be done on the Project is to be done by the Company in its own behalf and not as agent or contractor for the Issuer or the Trustee. In the event that Exhibit A hereto is to be amended or supplemented in accordance with the provisions of Section 9.3 of the Indenture, the Issuer will enter into, and will instruct the Trustee to consent to, an amendment of or supplement to Exhibit A hereto upon receipt by the Issuer and Trustee of: (i) a certificate of an Authorized Company Representative describing in detail the proposed changes; and (ii) a copy of the proposed form of amendment or supplement to Exhibit A hereto and such other documents, certificates and showings as may be required by counsel rendering the opinion in clause (iii) of this paragraph; and (iii) an opinion of Bond Counsel to the effect that such amendment complies with the requirements of this Section 3.1, is in proper form for execution and delivery by the Issuer and will not adversely affect the validity of the Bonds or the exemption from federal income taxes of the interest thereon. The Company recognizes that since the Project has been or will be acquired, constructed and equipped by the Company and by contractors and suppliers selected by the Company in accordance with the plans and specifications, the Issuer makes no representation or warranty, express or implied, with respect to the merchantability, condition or workmanship of any part of the Project or its suitability for the Company's purposes or the extent to which proceeds derived from the sale of the Bonds will pay the costs to be incurred in connection therewith. SECTION 3.2. Construction Fund. The Construction Fund shall be drawn on and used by the Company to pay the Costs of Issuance of the Bonds to the extent not paid from the settlement account pursuant to Section 2.1 of the Indenture and to pay other Project Costs when due and payable. Moneys in the Construction Fund shall be disbursed to the Company, or such other Person as may be designated, on requisitions substantially in the form of Exhibit C to the Indenture signed by the Authorized Company Representative and delivered to the Trustee, stating with respect to each payment to be made: (1) The amount and general purpose of such disbursement; and (2) That each obligation mentioned therein (i) has been properly incurred, (ii) is a proper charge against the Construction Fund in accordance with 13 the provisions of this Loan Agreement, the Tax Documents and the Indenture, and (iii) has not been the basis of any previous requisition. The Trustee shall rely fully on any such requisition delivered pursuant to this Section and shall not be required to make any investigation in connection therewith. All moneys remaining in the Construction Fund after all Project Costs have been paid or provided for shall at the written direction of the Company be used in accordance with Section 3.3 hereof. If moneys in the Construction Fund are not sufficient to pay all Project Costs, the Company nonetheless shall complete the Project in accordance with Exhibit A attached hereto (as revised and amended in accordance with this Loan Agreement) and shall pay all such additional Project Costs. The Company shall not be entitled to any reimbursement for any such additional Project Costs from the Issuer, the Trustee, or any Registered Owner; nor shall it be entitled to any abatement, diminution or postponement of the Installment Loan Payments or other amounts payable hereunder. SECTION 3.3. Establishment of Completion Date. As soon as practicable after the completion of construction of the Project, the Company shall furnish to the Trustee a certificate signed by an Authorized Company Representative stating (i) that construction of the Project described in Exhibit A hereto (as revised and amended in accord with this Loan Agreement) has been completed, and (ii) any portion of the Project Costs which has not yet then been paid. Such certificate may state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being. Moneys (including investment proceeds) remaining in the Construction Fund on the date of such certificate may be used, at the written direction of an Authorized Company Representative for the payment, in accordance with the provisions of this Loan Agreement, of any Project Costs not then paid as specified in such certificate. The Company agrees that any moneys (including investment proceeds) remaining in the Construction Fund on the date of the aforesaid certificate and not so set aside for the payment of such Project Costs shall be transferred or disbursed in accordance with Section 1.142-2 of the Regulations, or any successor thereto and that the Company shall give specific instructions to the Trustee as to the transfer or disbursement of such funds and certify that such transfer or disbursement complies with the provisions of Section 1.142-2 of the Regulations or any successor thereto at such time. The Company acknowledges that these provisions generally require that a portion of the Bonds be redeemed, or defeased to the first call date (with appropriate notice to the Internal Revenue Service), within 90 days of the earlier of (i) the date on which the Company determines that the Project will not be completed or (ii) the date on which the Project is Placed-in-Service (as defined in the Tax Agreement). 14 ARTICLE IV Loan And Repayment; Operation Of Project SECTION 4.1. Loan of Bond Proceeds. To provide funds for the financing of Costs of Issuance and Project Costs, the Issuer will issue the Bonds upon the terms and conditions contained in this Loan Agreement and the Indenture and will loan the proceeds thereof to the Company by causing the Bond proceeds to be applied as provided in Article V hereof. The Company shall pay all Costs of completing the Project to the extent that such Costs exceed the loan proceeds, including interest earnings, available therefor. SECTION 4.2. Repayment of Loan. The Company will repay the loan of the Bond proceeds by making the payments required by Article VI hereof. SECTION 4.3. Operation. The Company shall acquire, construct, install, operate and maintain the Project in such manner as to comply in all material respects with the Act and all applicable requirements of federal, state and local laws and the regulations, rules and orders of any federal, state or local agency, board, commission or court having jurisdiction over the Project or the operation thereof, including without limitation applicable zoning, planning, building and environmental laws, regulations, rules and orders; provided that the Company shall be deemed in compliance with this Section so long as it is acting with due diligence to correct any violations of any of the foregoing or contesting in good faith any such requirement by appropriate legal proceedings. The Company shall pay all costs and expenses of operation and maintenance of the Project, including all applicable taxes. During such period as the Project is operated in accordance with the provisions of this Loan Agreement, the Company will, within the design capabilities thereof, cause the Project to be operated and maintained in accordance with all applicable, valid and enforceable rules and regulations; provided, that the Company reserves the right to contest in good faith any such rules or regulations or the application thereof to the Project. It is understood and agreed that the Issuer shall have no duties or responsibilities whatsoever with respect to the operation or maintenance of the Project, or the performance of the Project for its designed purposes. SECTION 4.4. Insurance. Subject to the provisions of Section 4.6 hereof, the Company agrees to maintain, or cause to be maintained, all necessary insurance with respect to the Project in accordance with its customary insurance practices and the practices of Persons operating similar facilities, which may include self-insurance. All costs of maintaining insurance with respect to the Project shall be paid by the Company, and the Issuer and the Trustee shall have no obligation or liability in this regard. All general liability insurance policies relating to the Project site or facilities shall name the Authority and the Trustee as additional insureds as their interests may appear. 15 SECTION 4.5. Maintenance and Repair. Subject to the provisions of Section 4.6 hereof, the Company agrees that it will (i) maintain, or cause to be maintained, the Project and all of its other properties in as reasonably safe condition as its operations shall permit and (ii) maintain, or cause to be maintained, the Project and all of its other properties in good repair and in good operating condition, ordinary wear and tear excepted, making from time to time all necessary repairs thereto and renewals and replacements thereof material to the integrity of the water system or to the provision of adequate service to the Company's customers. All costs of operating and maintaining the Project and all of its other properties shall be paid by the Company, and the Issuer shall have no obligation or liability in this regard. SECTION 4.6. Right to Discontinue Operation of Project. Although the Company intends to operate, or cause to be operated, the Project for its designed purposes until the date on which no Bonds are Outstanding, subject to the provisions of Section 6.10 hereof, the Company is not required by this Loan Agreement to operate, or cause to be operated, any portion of the Project after the Company shall deem in its sole discretion that such continued operation is not advisable and in such event it is not prohibited by this Loan Agreement from selling, leasing or retiring all or any such portion of the Project. Subject to the provisions of Section 6.10 hereof, the net proceeds from such sale, lease or other disposition, if any, shall belong to, and may be used for any lawful purpose by, the Company. Upon discontinuance of operation of the Project in accordance with this Section 4.6, the Company shall be discharged from its obligations to insure, maintain and repair the Project or to cause the Project to be insured, maintained and repaired as set forth in Sections 4.4 and 4.5 hereof. SECTION 4.7. Insurance and Condemnation Awards. Subject to the provisions of Sections 4.4 and 6.10 hereof, the net proceeds of any insurance or condemnation award as a result of the destruction or condemnation of the Project or any portion thereof shall belong to, and may be used for any lawful purpose by, the Company. SECTION 4.8. Workers' Compensation Coverage. Throughout the term of this Loan Agreement, the Company shall comply, or cause compliance, with applicable workers' compensation laws of the Commonwealth. SECTION 4.9. Taxes, Claims for Labor and Materials, Compliance with Laws. (a) The Company will promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon or in respect of all or any part of the Property or business of the Company, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which if unpaid might become a lien or charge upon any Property of the Company including the Installment Loan Payments; provided the Company shall not be required to pay any 16 such tax, assessment, charge, levy, account payable or claim if (1) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any Property of the Company or any material interference with the use thereof by the Company, and (2) the Company shall set aside on its books, reserves deemed by it to be adequate with respect thereto. (b) The Company will promptly comply with all laws, ordinances or governmental rules and regulations to which it is subject, including without limitation, the Occupational Safety and Health Act of 1970, the Employees Retirement Income Security Act of 1974, as amended, and all Environmental Legal Requirements, the violation of which would materially and adversely affect the Properties, business, prospects, profits or condition (financial or otherwise) of the Company or would result in any lien or charge upon any Property of the Company, subject, however, to the Company's right to contest in good faith the application of any such laws, rules or regulations to the Company or its operations so long as such contest does not result in a material threat to the operation of the Company's water system or its ability to make the payments due hereunder. SECTION 4.10. Issuer's Limited Liability. It is recognized that the Issuer's only source of funds with which to carry out its commitments under the Bonds or this Loan Agreement will be from the proceeds from the sale of the Bonds, the Installment Loan Payments, or from any available income or earnings derived therefrom, or from any funds which otherwise might be made available by the Company; and it is expressly agreed that the Issuer shall have no liability, obligation, or responsibility with respect to this Loan Agreement or the Project except to the extent of funds available from such sources. If, for any reason, the proceeds from the sale of the Bonds are not sufficient to pay all the costs of completing the acquisition, construction and installation of the Project, the Company shall complete the acquisition, construction and installation of the Project, and the Company shall pay such costs from its own funds, but it shall not be entitled to reimbursement therefor, or to any diminution in or postponement of any payments required to be made by the Company hereunder. SECTION 4.11. Right of Inspection. Subject to reasonable security and safety regulations and upon reasonable notice, the Issuer and the Trustee, and their respective agents and representatives, shall have the right during normal business hours to inspect the Project and the books and records of the Company pertaining to the Project; provided, however, that this right is subject to federal, state and local laws and regulations applicable to the site of the Project. The right of access hereby reserved to the Issuer and the Trustee may be exercised only after such agent or representative shall have executed release of liability and secrecy agreements (to the extent permitted by law, in the case of an Issuer representative) if requested by the Company in the form then currently used by the Company, and nothing contained in this Section or in any other provision of this Loan Agreement shall be construed to entitle the Issuer or the Trustee to any information or inspection involving the confidential expertise of the Company. 17 ARTICLE V Issuance Of Bonds; Security; Investments SECTION 5.1. Issuance of Bonds. In order to provide funds to finance the acquisition, construction and installation of the Project, the Issuer, concurrently with the execution of this Loan Agreement, will sell, issue and deliver to the initial purchasers thereof the Bonds, all in accordance with the Indenture. The Issuer will thereupon cause the accrued interest, if any, received upon the delivery of the Bonds to be deposited in the Debt Service Fund and the balance of the proceeds received from the sale of the Bonds to be deposited in the Construction Fund. SECTION 5.2. Security for the Bonds. The obligations of the Company under this Loan Agreement, including specifically the obligation to pay Installment Loan Payments and Administrative Expenses and its obligations under Article VI hereof shall be direct general obligations of the Company. Prior to or simultaneously with the issuance of the Bonds, the Issuer will assign to the Trustee under the terms of the Indenture all of the Issuer's right, title, and interest in and to this Loan Agreement including specifically the Installment Loan Payments but excepting all Unassigned Issuer's Rights. SECTION 5.3. Reserved. SECTION 5.4. Investment of Funds. The Issuer hereby gives its express written authority to the Company as provided in the Indenture to direct the investment of the Construction Fund, Debt Service Fund or any other Fund held by the Trustee pursuant to the Indenture. ARTICLE VI Company Obligations; Provisions For Payment; Covenants SECTION 6.1. Company Approval of Issuance of Bonds. The governing body of the Issuer has adopted the Bond Resolution authorizing the execution of this Loan Agreement and the Indenture and the issuance of the Bonds. The Company hereby approves the Bond Resolution and the Indenture. It is hereby agreed that the foregoing approval of the Bond Resolution and the Indenture constitutes the acknowledgment and agreement of the Company that the Bonds, when issued, sold and delivered as provided in the Bond Resolution and the Indenture, will be issued in accordance with and in compliance with this Loan Agreement, notwithstanding any other provisions of this Loan Agreement or any other contract or agreement to the contrary. Any Registered Owner is entitled to rely fully and unconditionally on the foregoing approval. Notwithstanding any provisions of this Loan 18 Agreement or any other contract or agreement to the contrary, the Company's approval of the Bond Resolution and the Indenture shall be the Company's agreement that all covenants and provisions in this Loan Agreement and the Indenture affecting the Company shall, upon the delivery of the Bonds and the Indenture, become valid and binding covenants and obligations of the Company so long as the Bonds, premium, if any, and the interest thereon are outstanding and unpaid. Particularly, the obligation of the Company to pay, promptly when due, all Installment Loan Payments specified in this Loan Agreement and the Indenture shall be absolute and unconditional, and said obligation may be enforced as provided in this Loan Agreement and the Indenture. SECTION 6.2. Refunding of Bonds. After the issuance of any Bonds, the Issuer shall not refund any of the Bonds or change or modify the Bonds in any way, except as provided for in the Indenture, without the prior written approval of an Authorized Company Representative; nor shall the Issuer redeem any Bonds prior to the maturity date except upon the written request of an Authorized Company Representative, unless such redemption is required or permitted by the Indenture without such request. SECTION 6.3. Redemption of Bonds. The Issuer, upon the written request of the Company (and provided that the affected Bonds are subject to redemption prior to maturity at the option of the Issuer or the Company, and provided that such request is received in sufficient time prior to the date upon which such redemption is proposed), shall promptly take or cause to be taken all action that may be necessary under the applicable redemption provisions to effect such redemption prior to maturity, to the full extent of funds either made available for such purpose by the Company or already on deposit in the Debt Service Fund and available for such purpose. The redemption of any Outstanding Bonds prior to maturity at any time shall not relieve the Company of its absolute and unconditional obligation to pay each remaining Installment Loan Payment with respect to any Outstanding Bonds, as specified in the Indenture. If a redemption of Bonds is required pursuant to the provisions of the Indenture, the Company agrees as provided herein to promptly make Installment Loan Payments sufficient to pay the principal of, premium, if any, and interest on the Bonds due on such redemption date. SECTION 6.4. Installment Loan Payments. (a) The Company hereby covenants and agrees to make the Installment Loan Payments, as hereinafter provided in subsections (b), (c), (d) and (f) of this Section, to the Trustee, on behalf of the Issuer, in accordance with this Loan Agreement. (b) The Company shall make Installment Loan Payments, subject to the limitations of subsection (e) below of this Loan Agreement, in immediately available funds directly to the Trustee for deposit in the Debt Service Fund at least two Business Days before each day on which any payment of Debt Service shall become due (whether at maturity or upon redemption or acceleration or otherwise) in an amount which, together with other money held by 19 the Trustee under the Indenture and available therefor, will enable the Trustee to make such payment in full when due. (c) In the event the Company should fail to make any of the payments required in this Section, the item or installment so in default shall continue as an obligation of the Company until the amount in default shall have been fully paid, and the Company agrees to pay the same with interest thereon, to the extent permitted by law, from the date when such payment was due as provided in the Indenture. (d) If, subsequent to a date on which the Company is obligated to pay the Installment Loan Payments (subject to the provisions of Article X of the Indenture), losses (net of gains) shall be incurred in respect of any investments, or any other event has occurred causing the money in the Debt Service Fund, together with any other money then held by the Trustee and available for the purpose, to be less than the amount sufficient at the time of such occurrence or other event to pay, in accordance with the provisions of the Indenture, all Debt Service due and payable or to become due and payable, the Trustee shall notify the Company of such fact and thereafter the Company, as and when required for purposes of such Debt Service Fund, shall pay in immediately available funds to the Trustee for deposit in the Debt Service Fund the amount of any such deficiency. (e) Notwithstanding the foregoing, it is the intention of the parties hereto to conform strictly to the usury laws now in force in the Commonwealth, and any provision for any payment contained herein and in the Bonds shall be held to be subject to reduction to the amount allowed under said usury laws as now or hereafter construed by the courts having jurisdiction. (f) The Company further agrees that in the event payment of the principal of and the interest on the Bonds is accelerated upon the occurrence of an Event of Default under the Indenture, all amounts payable under Section 6.4(b) for the remainder of the term hereof (other than interest not yet due) shall be immediately due and payable. (g) Any amount held in the Debt Service Fund on any payment date specified in subsection (b) above and not previously credited against Installment Loan Payments or designated for payments due on particular Bonds, shall be credited against the Installment Loan Payments required to be made by the Company on such date. SECTION 6.5. Administrative Expenses. The Company shall pay, or cause to be paid, an amount equal to the reasonable fees and charges of the Trustee for services rendered as Trustee under the Indenture and its reasonable expenses incurred as Trustee under the Indenture, including reasonable fees and expenses of its counsel. The Trustee's right to receive its reasonable fees, charges and expenses hereunder shall be secured by a lien on moneys held by it in the Debt Service Fund and, upon an Event of Default hereunder, the Trustee shall have a right of payment prior to the payment of the owners of the Bonds as provided in Section 8.11 of the Indenture. 20 SECTION 6.6. Payments to Issuer and Local IDA. The Company shall pay or cause to be paid all of the Issuer's and Local IDA's reasonable, actual out-of-pocket expenses and costs in connection with the issuance of the Bonds, including, without limitation, all financing, legal, printing, and other expenses and all Costs of Issuance incurred in issuing the Bonds (including the fees and expenses of bond counsel and the Issuer's financial advisor) and the Issuer's fee of .20% of the principal amount of the Bonds for issuing the Bonds. Also, in the future the Company shall pay to the Issuer upon receipt of statements therefor from time to time, such amounts as are necessary to pay or reimburse the Issuer and the Local IDA for their reasonable and necessary expenses and costs attributable to the Bonds and the Project. SECTION 6.7. Obligations of the Company Absolute and Unconditional. The obligations of the Company to make the payments required and to perform the covenants contained in Sections 6.4, 6.5, 6.6, 6.10, 7.1 and 8.3 and to perform and observe the other agreements on its part contained herein shall be absolute and unconditional and shall not be subject to diminution by set-off, counterclaim, abatement or otherwise. Until payment of all Debt Service relating to the Bonds has been made, the Company (a) will not suspend or discontinue any payments provided for in this Loan Agreement, except to the extent the same have been prepaid, (b) will perform and observe all its other agreements contained herein, and (c) except as provided in Section 9.1, will not terminate this Loan Agreement for any cause, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, sale, loss, eviction or constructive eviction, destruction of or damage to the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the Commonwealth or any political subdivision of either, or any failure of the Issuer to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or in connection herewith or with the Indenture. Nothing contained in this Section shall be construed to release the Issuer from the performance of any of the agreements on its part herein contained and in the event the Issuer shall fail to perform any such agreement on its part, the Company may take such action as the Company may deem necessary to perform or compel performance, provided that no such action shall violate the agreements on the part of the Company contained in this Loan Agreement or postpone or diminish the amounts required to be paid by the Company pursuant to this Loan Agreement. Upon the issuance and delivery of the Bonds to the initial purchasers thereof, the Company shall have received, and the Issuer shall have given, full and complete consideration for the Company's obligation hereunder to make Installment Loan Payments. SECTION 6.8. Option to Prepay Amounts Under Loan Agreement in Certain Events. The Company shall have, and is hereby granted, the option to prepay the amounts required to be paid by the Company under Section 6.4(b) in whole or in part and to direct the Trustee to redeem the Bonds in whole or in part, as the case may be, if the Company determines to exercise any optional redemption rights under the terms of the Bonds or if any of the events described in Article V of the Indenture requiring the redemption of Bonds shall have occurred. 21 The Company may at any time deliver money, and/or Government Obligations, to the Trustee with instructions to the Trustee to hold such money, and/or Government Obligations, pursuant to Article X of the Indenture in connection with a discharge of the Indenture. The Issuer agrees that, at the request at any time of the Company, it will cooperate with the Company to cause the Bonds or any portion thereof to be redeemed, or to cause the Indenture to be discharged, to the extent permitted by the Indenture. SECTION 6.9. Company's Performance Under Indenture. The Company agrees, for the benefit of the Owners, to do and perform all acts and things contemplated in the Indenture to be done or performed by it and to not interfere with the exercise of the power and authority granted to the Trustee in the Indenture. The Company further agrees to aid in furnishing any documents, certificates or opinions that may be required under the Indenture. SECTION 6.10. Covenants Regarding Tax Exemption. It is the intention of the Company and the Issuer that the interest on the Bonds be excludable from the gross income of the holders thereof for federal income tax purposes by reason of Section 103(a) of the Code, except for any Bond for any period that such Bond is owned by a person who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code, and that substantially all of the proceeds of the Bonds will be used to provide facilities for the furnishing of water within the meaning of Section 142(a)(4) of the Code and any Regulations promulgated with respect thereto. To that end, the Company and the Issuer (to the extent reasonably within the control of the Issuer) covenant with each other to refrain from any action which would adversely affect, or to take such action to assure, the treatment of the Bonds as obligations described in Section 103(a) of the Code, the interest on which is not includable in the gross income of the holders thereof (other than the income of a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code) for purposes of federal income taxation. None of the covenants and agreements herein contained shall require either the Company or the Issuer to enter an appearance or intervene in any administrative, legislative or judicial proceeding in connection with any changes in applicable laws, rules or regulations or in connection with any decisions of any court or administrative agency or other governmental body affecting the taxation of interest on the Bonds. SECTION 6.11. Company's Option to Remarket Bonds Purchased in Lieu of Redemption. Pursuant to Section 5.5 of the Indenture, the Company is given the right to purchase Bonds in lieu of redemption. In the event the Company exercises such option with respect to Bonds which have been called for redemption under Section 5.1 of the Indenture, the Company (or any Person acting on its behalf) (i) will not remarket such Bonds as tax exempt bonds without first obtaining an opinion of Bond Counsel that the interest on the Bonds to be remarketed is not includable in the gross income of the owners thereof for federal income tax purposes except for interest on any Bond for any period during which such Bond is owned by a 22 person who is a "substantial user" of the Project or any person considered to be related to such person within the meaning of Section 147(a) of the Code, and (ii) will not remarket such Bonds until the Company delivers to the Issuer and the Trustee an opinion of counsel, not unsatisfactory to the Issuer and Trustee in their reasonable judgment, that none of the Bonds or this Loan Agreement are subject to registration under the Securities Act of 1933, as amended. SECTION 6.12. Nondiscrimination - Sexual Harassment. The Company hereby accepts and agrees to be bound by the Nondiscrimination - Sexual Harassment clause set forth in Exhibit B attached hereto. ARTICLE VII Particular Agreements SECTION 7.1. Indemnified Party's Release and Indemnification Provisions. The Company agrees, whether or not the transactions contemplated by this Loan Agreement and the Indenture shall be consummated: (a) to pay, and save the Indemnified Parties harmless against liability for the payment of, all reasonable out-of-pocket expenses arising in connection with said contemplated transactions, including the reasonable fees and expenses of counsel to the Indemnified Parties; and (b) to defend, protect, indemnify and save the Indemnified Parties harmless from and against all liability, losses, damages, costs, reasonable expenses (including reasonable counsel fees), taxes, causes of action, suits, claims, demands and judgments of any nature or form, by or on behalf of any Person arising in any manner from the transactions of which this Loan Agreement or the Indenture is a part or arising in any manner in connection with the Project or the financing or refinancing of the Project, and, without limiting the generality of the foregoing, arising from (i) the issuance, offering, sale, or delivery of the Bonds, the Indenture, the Underwriting Agreement and this Loan Agreement and the obligations imposed on the Issuer hereby and thereby and the Trustee's performance of its obligations under the Indenture; or the design, construction, installation, operation, use, occupancy, maintenance, or ownership of the Project; (ii) any written statements or representations made or given by the Company or any of its officers or employees to the Indemnified Parties or any underwriters or purchasers of any of the Bonds, with respect to the Issuer, the Company, the Project, the Bonds or the Underwriting Agreement, including, but not limited to, statements or representations of facts, financial information, or corporate affairs; (iii) damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to the Project; (iv) any breach or default on the part of the Company in the performance of any of its obligations under this Loan Agreement; (v) any violation of contract, agreement or restriction by the Company relating to the Project; or (vi) any violation of law, ordinance or regulation by or permitted by the Company affecting the Project or any part thereof or the ownership or occupancy or use thereof. 23 In the event that any action or proceeding is brought against any Indemnified Party by reason of any such claim, such action or proceeding shall be defended against by counsel to the Company, unless the Indemnified Party shall determine, upon advice of counsel to the Indemnified Party, that the Indemnified Party's interests conflict with the interests of Company, in which event the Indemnified Party may select its own counsel. In the event such defense is by counsel to the Indemnified Party on behalf of the Indemnified Party, the Company shall indemnify the Indemnified Party for reasonable costs of counsel to the Indemnified Party allocated to such defense and charged to the Indemnified Party. The Company, upon notice from the Indemnified Party, shall resist and defend such an action or proceeding on behalf of the Indemnified Party. The Indemnified Party shall provide the Company prompt written notice of any claim or suit with respect to which it has a right of indemnity hereunder, but the failure to provide such notice shall not limit or impair the rights of any Indemnified Party hereunder except to the extent that such failure causes actual damage or loss to the Company. The Indemnified Party shall, at the Company's expense, provide all reasonable assistance requested by the Company in its defense and/or settlement of any such claim or suit. Neither party shall settle or pay any such claim or suit without the prior written consent of the other party, which shall not be unreasonably withheld. The provisions of this Section shall not apply to any claim or liability to the extent resulting from the Indemnified Party's acts of gross negligence, bad faith, fraud or deceit or for any claim or liability which the Company was not given the opportunity to contest (except as set forth in the preceding paragraph), due to the gross negligence of the Indemnified Party. The Company also agrees to pay the expenses (including reasonable attorneys' fees) of any Indemnified Party in enforcing this Section 7.1. The provisions of this Section shall survive the payment of the Bonds, the termination of this Loan Agreement, the termination of the Indenture, and, as to the Trustee, the removal or resignation of the Trustee. SECTION 7.2. Maintenance of Corporate Existence. The Company agrees that during the term of this Loan Agreement it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation; provided, however, that the Company may, without violating the agreement contained in this Section, consolidate with or merge into another corporation, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, if (a) the Issuer consents in writing, (b) the surviving, resulting or transferee corporation, as the case may be, assumes in a writing delivered to the Trustee all of the obligations of the Company herein and under the Tax Documents, is duly qualified to do business in the Commonwealth and is not a Disqualified Contractor, (c) at the time of such consolidation or merger and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, (d) after giving effect to such consolidation or merger the surviving corporation would be permitted to incur at least $1.00 of additional Funded Debt under the provisions of Section 7.9 hereof, and (e) the provisions of Section 7.6 are satisfied. 24 SECTION 7.3. Financial Information. The Company will keep proper books of record and account in which full and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the Company, in accordance with generally accepted accounting principles consistently maintained (except for changes disclosed in the financial statements furnished pursuant to this Section 7.3 and concurred in by the independent public accountants referred to herein), and will furnish to the Trustee and upon request, to the Issuer: (a) Quarterly Statements. As soon as available and in any event within 45 days after the end of each quarterly fiscal period (except the last) of each fiscal year, duplicate copies of: (1) a consolidated balance sheet of the Company as of the close of such quarter setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, (2) consolidated statements of income and shareholders' investment of the Company for such quarterly period, setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, and (3) consolidated statements of cash flows of the Company for the portion of the fiscal year ending with such quarter, setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified as complete and correct, by an authorized financial officer of the Company; (b) Annual Statements. As soon as available and in any event within 120 days after the close of each fiscal year of the Company, duplicate copies of: (1) a consolidated balance sheet of the Company as of the close of such fiscal year, (2) consolidated statements of income and shareholders' investment and cash flows of the Company for such fiscal year, in each case setting forth in comparative form the consolidated figures for the preceding fiscal year, all in reasonable detail and accompanied by an opinion thereon of a firm of independent public accountants of recognized national standing selected by the Company to the effect that the consolidated financial statements have been prepared in accordance with generally accepted accounting principles consistently applied (except for changes in application in which such accountants concur) and present fairly, in all material respects, the financial condition of the Company and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and 25 accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (c) Audit Reports. Promptly upon receipt thereof, one copy of each interim or special audit made by independent accountants of the books of the Company; (d) SEC and Other Reports. Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to stockholders generally and of each regular or periodic report, and any registration statement or prospectus filed by the Company with any securities exchange or the Securities and Exchange Commission or any successor agency, and copies of any orders in any proceedings substantially affecting the financial condition of the Company to which the Company is a party, issued by any governmental agency, Federal or state, having jurisdiction over the Company; (e) Officers' Certificates. Within the periods provided in paragraphs (a) and (b) above, a certificate of an authorized financial officer of the Company stating that he has reviewed the provisions of this Agreement and setting forth: (1) the information and computations (in sufficient detail) required in order to establish whether the Company was in compliance with the requirements of Sections 7.9 through 7.12, inclusive, at the end of the period covered by the financial statements then being furnished, and (2) whether there existed as of the date of such financial statements and whether, to the best of his knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Company is taking and proposes to take with respect thereto. To the extent not furnished pursuant to the foregoing provisions of this Section 7.3, the Company agrees to furnish to the Issuer and Trustee, copies of the annual financial statements and other information filed with Nationally Recognized Municipal Securities Information Repositories pursuant to the Company's continuing disclosure undertaking referred to in the Underwriting Agreement. Such statements and other information shall be filed with the Authority and the Trustee within ten (10) days of the filings made pursuant to such continuing disclosure undertaking. SECTION 7.4. Agreement of Issuer Not to Assign or Pledge. Except for the assignment and pledge described in the Indenture, the Issuer agrees that it will not attempt to further assign, pledge, transfer or convey its interest in or create any assignment, pledge, lien, charge or encumbrance of any form or nature with respect to the rights and interests herein described. SECTION 7.5. Reference to Bonds Ineffective after Bonds Paid. Upon payment of all Debt Service due relating to the Bonds, and payment of all fees and charges of the Issuer and the Trustee, all as provided in Article X of the Indenture, all references herein to the Bonds and the Trustee shall be ineffective and neither the Issuer, the 26 Trustee nor the holders of any of the Bonds shall thereafter have any rights hereunder and the Company shall have no further obligation hereunder, saving and excepting those that shall have theretofore vested and remain unsatisfied and any right of the Issuer or the Trustee to indemnification under Section 7.1 and payment of fees under Section 8.3, which rights shall survive the payment of all Debt Service due relating to the Bonds and the termination of this Loan Agreement and the Indenture. SECTION 7.6. Assignment, Sale or Lease of Project. (a) The Company shall not assign this Loan Agreement or any interest of the Company herein, either in whole or in part, without the prior written consent of the Trustee, which consent shall be given if the following conditions are fulfilled; (i) The assignee assumes in writing all of the obligations of the Company hereunder; (ii) The assignee provides the Trustee with an opinion of counsel satisfactory to the Trustee to the effect that neither the validity nor the enforceability of this Loan Agreement shall be adversely affected by such assignment; (iii) The Project shall continue in the opinion of Bond Counsel to be a "project" as such term is defined in the Act after such assignment; (iv) Such assignment shall not, in the opinion of Bond Counsel, have an adverse effect on the exclusion from gross income for federal income tax purposes of interest on the Bonds; (v) The assignee shall not be a Disqualified Contractor; and (vi) Consent by the Issuer, which consent shall not be unreasonably withheld. (b) The Company may, subject to the provisions of Section 6.10, lease the Project, in whole or in part, to one or more other Persons, provided that: (i) No such lease shall relieve the Company from its obligations under this Loan Agreement; (ii) In connection with any such lease the Company shall retain such rights of interests as will permit it to comply with its obligations under this Loan Agreement; (iii) No such lease shall impair materially the accomplishment of the purposes of the Act to be accomplished by operation of the Project as herein provided; (iv) Any such lease shall require the lessee to operate the Project as a "project" under the Act as long as the Bonds are outstanding; 27 (v) In the case of a lease to a new lessee or an assignment of an existing lease to a new lessee of substantially all of the Project, such new lessee: (A) shall not be a Disqualified Contractor; and (B) shall have been approved by the Issuer (such approval not to be unreasonably withheld); and (vi) The lessees under any such leases, shall be subject to the applicable terms and conditions of Section 6.10. (c) The Company shall not sell, assign or otherwise dispose of (whether in one transaction or in a series of transactions) its interest in the Project or any material portion thereof, other than is permitted by Section 7.6(a) and other than leases permitted under Section 7.6(b) or undertake or permit the demolition or removal of the Project or any material portion thereof without the prior written consent of the Issuer; provided that the Company shall be permitted to sell, transfer, assign or otherwise dispose of or remove any portion of the Project which is retired or replaced in the ordinary course of business. SECTION 7.7. Amendment of Loan Agreement or Indenture. No amendment, change, addition to, or waiver of any of the provisions of this Loan Agreement or the Indenture shall be made except pursuant to Article IX of the Indenture. SECTION 7.8. Waiver of Vendor's Lien. Notwithstanding anything in this Loan Agreement to the contrary, it is the intention of the parties hereto that no vendor's lien and/or privilege, mortgage, resolutory condition, right of rescission or stipulation for the benefit of a third party shall be created by execution of this Loan Agreement, and if any such lien, privilege, condition, or benefit should be deemed to have been created by execution of this Loan Agreement, they are expressly released, renounced, waived and abandoned by the parties hereto. SECTION 7.9. Limitations on Indebtedness. (a) The Company will not have outstanding, or in any manner be liable in respect of, any Indebtedness, except the following: (1) current operating liabilities and current or other obligations (other than for borrowed money) incurred in the ordinary course of business; (2) Seasonal Indebtedness, provided that such Seasonal Indebtedness has not existed for a period of at least 30 consecutive days in the twelve preceding months; and (3) Funded Debt (including the Bonds) in an amount not in excess of 60% of the Plant Account on the books of the Company at any one time outstanding. 28 (b) The renewal, extension or refunding of any Funded Debt issued or incurred in accordance with the limitations of this Section 7.9 shall constitute the issuance of additional Funded Debt, which is, in turn, subject to the limitations of the applicable provisions of this Section 7.9, but any Indebtedness paid or defeased from the proceeds of additional Funded Debt may be excluded from outstanding Indebtedness for purposes of this Section 7.9. (c) Subject to compliance with this Section 7.9, nothing contained in this Agreement shall prohibit the Company from having the Issuer issue in the future additional series of Bonds or incurring other types of Funded Debt. SECTION 7.10. Limitation on Liens. (a) The Company will not create or incur, or suffer to be incurred or to exist, any mortgage, pledge, security interest, encumbrance, lien or charge of any kind on its Property or assets, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any Property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire any Property or assets upon conditional sales agreements or other title retention devices, except Excepted Encumbrances; provided, however, that this requirement shall not be applicable to, nor prevent: (1) the pledging by the Company of its assets as security for the payment of any tax, assessment or other similar charge demanded of the Company by any governmental authority or public body as long as the Company in good faith contests its liability to pay the same, or as security to be deposited with any governmental authority or public body for any purpose at any time required by law or, governmental regulation as a condition to the transaction of any business or the exercise of any privilege, license or right; or (2) the pledging by the Company of any assets for the purpose of securing a stay or discharge or for any other purpose in the course of any legal proceeding in which the Company is a party; or (3) making good faith deposits in connection with tenders, contracts or leases to which the Company is a party; or (4) the pledging by the Company of its revenues to the Pennsylvania Infrastructure Investment Authority pursuant to that certain Loan Agreement dated as of August 24, 1999 in order to secure a loan in the original aggregate principal amount of $800,000 made by such Authority to the Company, such loan having an outstanding principal balance of approximately $652,100 as of December 31, 2003. (b) In the event any Property or assets of the Company are subject to a lien or charge not otherwise permitted by Section 7.10(a) above, the Company will make effective provision whereby the Bonds shall (so long as any other Indebtedness shall be so secured) be secured (along with any other Indebtedness similarly entitled to be equally and ratably secured) 29 by a direct lien (on all the Property, other than Excepted Property, owned by the Company just prior to the time such other lien shall have become a lien on any of the Property of the Company) prior to the lien or liens securing any and all such other Indebtedness. Compliance with the provisions of this paragraph shall not be deemed to constitute a waiver of, or consent to, any violation of Section 7.10(a). (c) The Company covenants that, so long as any Bonds shall be outstanding under the Indenture, if, upon any consolidation or merger of the Company with or into any other corporation, or upon any sale or conveyance of all or substantially all of the Property of the Company as an entirety, or upon any acquisition by the Company of the Property of another corporation substantially as an entirety or upon any merger of any other corporation into the Company, any of the Property (other than Excepted Property) owned by the Company just prior thereto, would thereupon become subject to any lien (other than Excepted Encumbrances), the Company, prior to such consolidation, merger, sale, conveyance or acquisition, will take appropriate action whereby the Bonds shall (so long as such Property shall be subject to such lien) be secured (along with any other Indebtedness similarly entitled to be equally and ratably secured) by a direct lien on such portion of the Property of the Company prior to all other liens, other than Excepted Encumbrances and other than any liens existing thereon just prior to such consolidation, merger, sale, conveyance or acquisition. (d) Any mortgage created pursuant to the requirements of paragraphs (b) or (c) above shall contain reasonable and customary provisions for the enforcement of the lien thereby created and for the release of, or substitution for, the Property so mortgaged. Such direct lien shall be evidenced by an appropriate instrument or instruments executed and delivered to the Trustee. SECTION 7.11. Dividends, Stock Purchases. The Company will not, except as hereinafter provided: (a) Declare or pay any dividends, either in cash or Property, on any shares of its capital stock of any class (except dividends or other distributions payable solely in shares of capital stock of the Company, including the portion of dividends reinvested in shares of the Company's common capital stock under the Company's Optional Dividend Reinvestment Plan); or (b) Directly or indirectly, purchase, redeem or retire any shares of its capital stock of any class or any warrants, rights or options to purchase or acquire any shares of its capital stock (other than in exchange for or out of the net proceeds to the Company from the substantially concurrent issue or sale of other shares of capital stock of the Company or warrants, rights or options to purchase or acquire any shares of its capital stock); or (c) Make any other payment or distribution, either directly or indirectly, in respect of its capital stock; or 30 (d) Make any payment, distribution, conveyance or transfer of any Property to any subsidiary or affiliate; (such declarations or payments of dividends, purchases, redemptions or retirements of capital stock and warrants, rights or options, and all such other distributions, conveyances and transfers being herein collectively called "Restricted Payments"), if after giving effect thereto the aggregate amount of Restricted Payments made during the period from and after December 31, 1982 to and including the date of the making of the Restricted Payment in question, would exceed the sum of (1) $1,500,000 plus (2) earned surplus of the Company, on a non-consolidated basis, accumulated after December 31, 1982, determined without any deduction on account of such Restricted Payments, provided, however, that notwithstanding the foregoing, in no event shall the Company make any distribution, conveyance or transfer to any subsidiary or affiliate of any Property constituting the Plant Account. The Company will not declare any dividend which constitutes a Restricted Payment payable more than 60 days after the date of declaration thereof. For the purposes of this Section 7.11, the amount of any Restricted Payment declared, paid or distributed in Property of the Company shall be deemed to be the greater of the book value or fair market value (as determined in good faith by the Board of Directors of the Company) of such Property at the time of the making of the Restricted Payment in question. SECTION 7.12. Termination of Pension Plans. The Company will not permit any employee benefit plan maintained by it to be terminated in a manner which could result in the imposition of a lien on any Property of the Company pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE VIII Events Of Default And Remedies SECTION 8.1. Defaults and Remedies. (a) The Company is advised and recognizes that the Issuer will assign all of its right, title, and interest in and to all of the Installment Loan Payments required to be made pursuant to this Loan Agreement, and the right to receive and collect same, to the Trustee under the Indenture. All rights of the Issuer (other than Unassigned Issuer's Rights) against the Company arising under this Loan Agreement or the Indenture may be enforced by the Trustee, or the Registered Owners of the Bonds, to the extent provided in the Indenture, without making the Issuer a party. (b) The following shall constitute an "Event of Default" hereunder: 31 (i) Payment of any Installment Loan Payment is not made when due and payable and such failure shall continue for one Business Day; or (ii) Payment of any amount due under this Loan Agreement other than Installment Loan Payments is not made when due and payable and such failure shall continue for fifteen (15) Business Days after the Trustee shall have given written notice to the Company specifying such default; or (iii) Failure to pay the principal of or interest on any Indebtedness of the Company for borrowed money, as and when the same shall become due and payable by the lapse of time, by declaration, by call for redemption or otherwise, and such default shall continue beyond the period of grace, if any, allowed with respect thereto; or (iv) Default or the happening of any event shall occur under any indenture, agreement, or other instrument under which any Indebtedness of the Company for borrowed money may be issued and such default or event shall continue for a period of time sufficient to permit the acceleration of the maturity of any Indebtedness of the Company outstanding thereunder; or (v) Default shall occur in the observance or performance of any covenant or agreement contained in Sections 7.9 through 7.12 hereof; (vi) Subject to Section 7.1(c) of the Indenture relating to force majeure, failure by the Company to observe or perform any other covenant, condition or agreement on its part to be observed or performed under the Indenture or the Loan Agreement, other than as referred to in subsections (i) through (v) inclusive above, for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, is given to the Company by the Issuer or the Trustee; provided, however, that if the failure stated in the notice is such that is can be remedied but not within such 60-day period, it shall not constitute an Event of Default if the default, in the judgment of the Trustee in reliance upon advice of counsel, is correctable without material adverse effect on the Bondholders and if corrective action is instituted by the Company, within such period and is diligently pursued until the default is remedied; or (vii) Final judgment or judgments for the payment of money aggregating in excess of $250,000 is or are outstanding against the Company or against any Property or assets of the Company and any one of such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 60 days from the date of its entry; or (viii) The occurrence of an Event of Default under the Indenture. (c) Upon the occurrence of an Event of Default, the Trustee (or in the case of an Event of Default arising out of Unassigned Issuer's Rights, the Issuer) shall have the power to proceed with any right or remedy granted by the Constitution and laws of the Commonwealth, as it may deem best, including without limitation any suit, action or special proceeding in equity or at law, including mandamus proceedings, for the specific performance of any agreement, 32 obligation or covenant contained herein or for the enforcement of any proper legal or equitable remedy as the Trustee shall deem most effectual to protect the rights of the Registered Owners, including without limitation, acceleration of all amounts payable hereunder; provided, however, any such proceedings shall be subject to the provisions of Section 7.1(c) of the Indenture relating to force majeure. Upon the occurrence of an Event of Default under Section 7.1(a)(ii) of the Indenture and upon the occurrence of any other Event of Default under the Indenture pursuant to the terms of which the Trustee shall have declared the Bonds immediately due and payable, then all payments required to be made by the Company under Section 6.4(b) (other than interest not yet accrued) shall become immediately due and payable. (d) Any amounts collected for non-payment of amounts described in Section 6.4 hereof pursuant to actions taken under this Section shall be paid into the Debt Service Fund and applied in accordance with the provisions of the Indenture. SECTION 8.2. Annulment of Acceleration. If, in compliance with the requirements of Section 7.2 of the Indenture, the Trustee shall annul an acceleration declared due to any Event of Default under the Indenture, such annulment shall be deemed to also rescind any acceleration of all payments required under Section 6.4. In case of any such annulment, or in case any proceeding taken by the Trustee on account of any such Event of Default shall have been discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Company, the Trustee and the Registered Owners shall be restored to their former positions and rights hereunder, but no such annulment shall extend to any subsequent or other Event of Default or impair any right consequent thereon. SECTION 8.3. Agreement to Pay Attorneys' Fees and Expenses. In the event the Company should default under any of the provisions of this Loan Agreement and the Issuer or the Trustee should employ attorneys or incur other expenses for the collection of payments required hereunder or the enforcement of performance or observance of any obligation or agreement on the part of the Company herein contained, the Company agrees that it will upon demand therefore pay to the Issuer or the Trustee the reasonable fees and expenses of such attorneys and such other expenses so incurred by the Issuer or the Trustee. SECTION 8.4. General Enforcement Provisions. (a) The terms of this Loan Agreement may be enforced as to one or more breaches either separately or cumulatively. (b) No remedy conferred upon or reserved to the Issuer, the Trustee, or the Registered Owners of the Bonds in this Loan 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 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, omission, or failure of performance hereunder 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 33 may be deemed expedient. In the event any provision contained in this Loan Agreement should be breached by the Company and thereafter duly waived, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach of this Loan Agreement. No waiver by any party of any breach by any other party of any of the provisions of this Loan Agreement shall be construed as a waiver of any subsequent breach, whether of the same or of a different provision of this Loan Agreement. SECTION 8.5. Notice of Default. The Company shall notify the Trustee and the Issuer in writing immediately if it becomes aware of the occurrence of any Event of Default hereunder or of any fact, condition or event which, with the giving of notice or passage of time or both, would become an Event of Default. SECTION 8.6. Unassigned Issuer's Rights. Notwithstanding any other provision hereof, upon the occurrence of an Event of Default arising out of Unassigned Issuer's Rights, the Issuer reserves the right to exercise or refrain from exercising remedies under the Loan Agreement with respect to such Event of Default and such Event of Default may not be waived or annulled without the prior written consent of the Issuer. ARTICLE IX Miscellaneous SECTION 9.1. Term of Loan Agreement. Subject to all provisions hereof which expressly state that the same shall survive termination hereof, this Loan Agreement shall terminate when payment of all Debt Service relating to the Bonds shall have been made and all fees, indemnities, expenses and charges of the Issuer, Local IDA and the Trustee have been fully paid or provision satisfactory to such parties made for such payment. SECTION 9.2. Notices. All notices, approvals, consents, requests and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand or overnight courier service or mailed by first class registered or certified mail, return receipt requested, postage prepaid, or sent by telecopy and addressed as follows: 34 (a) to the Company, to: The York Water Company 130 East Market Street York, PA 17401 Attention: President Telecopy No. (717) 852-0058 (b) to the Issuer, to: Pennsylvania Economic Development Financing Authority Department of Community and Economic Development Commonwealth Keystone Building 400 North Street, 4th Floor Harrisburg, PA 17120 Attention: Program Manager Telecopy No. (717) 787-0879 (c) to the Trustee, to: Manufacturers and Traders Trust Company 213 Market Street Harrisburg, PA 17101 Attn: Corporate Trust Department Telecopy No. (717) 231-2615 A duplicate copy of each notice, approval, consent, request or other communication given hereunder by the Issuer, the Company or the Trustee to any one of the others shall also be given to all of the others at the address furnished from time to time. The Issuer, the Company and the Trustee may, by notice given hereunder, designate any further or different addresses to which subsequent notices, approvals, consents, requests or other communications shall be sent or persons to whose attention the same shall be directed. SECTION 9.3. Benefit of Parties. This Loan Agreement is made for the exclusive benefit of the Issuer, the Trustee, the Registered Owners, the Beneficial Owners, the Company and their respective successors and assigns herein permitted, and not for any other third party or parties; and nothing in this Loan Agreement, expressed or implied, is intended to confer upon any party or parties other than the Issuer, the Trustee, the Registered Owners, the Beneficial Owners, the Company and their respective successors and assigns herein permitted, any rights or remedies under or by reason of this Loan Agreement. 35 SECTION 9.4. Severability. If any provision hereof shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. SECTION 9.5. Counterparts. This Loan Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SECTION 9.6. Captions. The captions and headings herein are for convenience only and in no way define, limit or describe the scope or intent of any provisions hereof. SECTION 9.7. Law Governing Construction of Loan Agreement. This Loan Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth. SECTION 9.8. Payments on Non-Business Days. If any payment required hereunder is due on a date that is not a Business Day, payment shall be made on the next succeeding Business Day with the same force and effect as if made on the date fixed for such payment, and no interest shall accrue on such amount for the period after such date. SECTION 9.9. Payments to be Sufficient to Meet DTC Requirements. The Company hereby acknowledges that the Bonds are intended to be issued in book-entry form through DTC and that DTC has certain timing requirements and notice requirements. The Company hereby agrees to make payments and give notices in a manner sufficient to comply from time to time with the DTC requirements, for so long as the Bonds are in book-entry form at DTC. SECTION 9.10. Reserved. SECTION 9.11. Limitation of Liability; No Personal Liability. (a) In the exercise of the powers of the Issuer or the Trustee hereunder or under the Indenture, including without limitation the application of moneys and the investment of funds, neither the Issuer or the Trustee nor their members, directors, officers, employees, attorneys or agents shall be accountable to the Company for any action taken or omitted by any of them in good faith and without gross negligence and with the belief that it is authorized or within 36 the discretion or rights or powers conferred. The Issuer and the Trustee and their members, directors, officers, employees, attorneys and agents shall be protected in acting upon any paper or document believed to be genuine, and any of them may conclusively rely upon the advice of counsel and may (but need not) require further evidence of any fact or matter before taking any action. In the event of any default by the Issuer hereunder, the liability of the Issuer to the Company shall be enforceable only out of the Issuer's interest under this Loan Agreement and there shall be no other recourse for damages by the Company against the Issuer, its members, directors, officers, employees, attorneys and agents, or any of the property now or hereafter owned by it or them. All covenants, obligations and agreements of the Issuer contained in this Loan Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any present or future member, director, officer, employee, attorney or agent of the Issuer, and no official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Loan Agreement or the Indenture. (b) No claim shall be made by the Company or any of the Company's affiliates against the Issuer or the Trustee or any of their affiliates, directors, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any breach or wrongful conduct (whether or not the claim therefore is based on contract, tort or duty imposed by law), in connection with, arising out of or in any way related to the transactions contemplated by this Loan Agreement, the Indenture or the other financing arrangements entered into in connection with the Project, or any act or omission or event occurring in connection therewith; and the Company hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 37 IN WITNESS WHEREOF, the Issuer and the Company have caused this Loan Agreement to be executed in their respective names by their authorized officers or representatives and their respective seals to be affixed hereto and have caused its execution hereof to be attested by its authorized officer, all as of the date first above written. PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY By: /s/ STEPHEN M. DRIZOS ------------------------------------ Executive Director [Seal] Attest: By: /s/ CRAIG S. PETRASIC ------------------------------------ Assistant Secretary THE YORK WATER COMPANY By: /s/ JEFFREY S. OSMAN ------------------------------------ Title: President and Chief Executive Officer ------------------------------ [Seal] Attest: By: /s/ BONNIE J. REXROTH ------------------------------------ Assistant Secretary 38 EXHIBIT A PROJECT DESCRIPTION Project to be financed: Construction of a water intake pumping station adjacent to the Susquehanna River (the "Intake Pumping Station") and a water main pipeline (the "Main") running a distance of approximately 15 miles from the Intake Pumping Station to an outfall location on the edge of the Company's Lake Redman along Iron Stone Hill Road, in York Township, York County, together with related pumps, fittings, valves and other water infrastructure system improvements, all for the purpose of providing an additional source of surface water supply to meet the needs of the Company's residential, commercial and industrial customers. EXHIBIT B NONDISCRIMINATION/SEXUAL HARASSMENT CLAUSE During the term of the contract, Contractor agrees as follows: 1. In the hiring of any employee(s) for the manufacture of supplies, performance of work, or any other activity required under the contract or any subcontract, the Contractor, subcontractor, or any person acting on behalf of the Contractor or subcontractor shall not, by reason of gender, race, creed, or color, discriminate against any citizen of this Commonwealth who is qualified and available to perform the work to which the employment relates. 2. Neither the contractor nor any subcontractor nor any person on their behalf shall in any manner discriminate against or intimidate any employee involved in the manufacture or supplies, the performance of work, or any other activity required under the contract on account of gender, race, creed, or color. 3. Contractors and subcontractors shall establish and maintain a written sexual harassment policy and shall inform their employees of this policy. The policy must contain a notice that sexual harassment will not be tolerated and employees who practice it will be disciplined. 4. Contractors shall not discriminate by reason of gender, race, creed, or color against any subcontractor or supplier who is qualified to perform the work to which the contracts relate. 5. The Contractor of each subcontractor shall furnish all necessary employment documents and records to and permit access to their books, records, and accounts by the contracting agency and the Bureau of Contract Administration and Business Development, for purposes of investigation, to ascertain compliance with provisions of this Nondiscrimination/Sexual Harassment Clause. If the Contractor or any subcontractor does not possess documents or records reflecting the necessary information requested, the Contractor or subcontractor shall furnish such information on reports forms supplied by the contracting agency or the Bureau of Contract Administration and Business Development. 6. The Contractor shall include the provisions of this Nondiscrimination/Sexual Harassment Clause in every subcontract so that such provisions will be binding upon each subcontractor. 7. The Commonwealth may cancel or terminate the contract, and all money due or to become due under the contract may be forfeited for a violation of the terms and conditions of this Nondiscrimination/Sexual Harassment Clause. In addition, the agency may proceed with debarment or suspension and may place the Contractor in the Contractor Responsibility file. EX-23.2 4 w97795exv23w2.txt CONSENT OF BEARD MILLER COMPANY LLP EXHIBIT 23.2 CONSENT OF BEARD MILLER COMPANY LLP, INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement of our report dated February 6, 2004, relating to the financial statements of The York Water Company appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ Beard Miller Company LLP York, Pennsylvania May 26, 2004 EX-23.3 5 w97795exv23w3.txt CONSENT OF STAMBAUGH NESS, PC Exhibit 23.3 Consent of Independent Accountants We consent to the reference to our firm under the caption "Experts" and the use of our report dated March 4, 2003 with respect to the financial statements of The York Water Company, referred to in the Registration Statement on Form S-3 of The York Water Company. /s/ Stambaugh Ness, PC York, Pennsylvania May 26, 2004 GRAPHIC 6 w97795w9779500.gif GRAPHIC begin 644 w97795w9779500.gif M1TE&.#EA)`A@T:6MS(L:/'A!@S9F3UL:3)DPM%JFQ`$J7+EQM#KAP)LZ9- MD#-GMKS)LZ;,G"(=]AQZ\B?0H$23=C1Z%*G2IQ%9-9W*$JK5@U*I3MUYU6I6 MK5.%=GW*%&Q.'%S'\C3+MH%:HJS&C&D+%(?)Z"AH'GX$05%B3AA):I9.&%#QEE MT(;H$<0@B!$5F!%X)-(WD(H:H3A<60>1>%Q]U_`E8T$PKECCAN:UU*./,@Z9 M$4(MLG+>0%1]J-M[B2%)HFLN/J:5DY)!>9F4&PK47TMF8?F7E9\@)9&248_U97)YP"I1FCFT)V)6@*Y5Y MC9X;*OBHI(RNV"!4<6FG$*022MJ?B6'56=B?#W&*H*1FBE>7J(3%9923IG;_ M&A^J(H)XYW#RM8BJ%3BZ5IN#KX$GW7PKY'JJAEPQY:AD-(XX(4FQ)EC0"J@2 MQ^JB.AIDA7&Z1M?K@M:)=J=*$K58I4+5H=;J::R:*^>#85TZ%*,3N1L5>?+6 M5.FR!-D;D7?7EE0I3>6:*U&ZL.7;T<#046?%PQ`_W)*__]+54,#Z6=QR:'TODW:H6CO:S30347R]VC[J(:4241^QV1`!>OB-%Z'WZ\#4KL#)WQ(]J;M&VGJ$^Z::F M0R3ZHZZEM^W'M%OQM$TG6YFPFQPPK67E#7+>NS<3SH\?="JWC7F[WK,ZW3]G0_Z[?0IGWZ:[;\;/ZHV MDQ2_H26BMS)UR_`4/=^4KT:=$ES*H''38/H:>$`$HDEV"[I+M,+R]4Y)Z>$=[Z;'1.0@L8-'[!/\=,@?:LUM M@E2*X`?#9T.(")&&2J*/G,)X(.4-*W1V2YX8I98F/6WPC6;ZE@8%2)\_*XN:&8YUM[%-WK`(2ZT0&QCQ61SI<@)J=&\HIVUE,D]42WM:Q\I*8+&7$'(D<#WIJ6Z]< 9I?]@&9U""A)V@3R>9X9'(6+R\I@%"0@`.S\_ ` end GRAPHIC 7 w97795w9779501.gif GRAPHIC begin 644 w97795w9779501.gif M1TE&.#EA4@+)`O?_````````,P``9@``F0``S```_P`S```S,P`S9@`SF0`S MS``S_P!F``!F,P!F9@!FF0!FS`!F_P"9``"9,P"99@"9F0"9S`"9_P#,``#, M,P#,9@#,F0#,S`#,_P#_``#_,P#_9@#_F0#_S`#__S,``#,`,S,`9C,`F3,` MS#,`_S,S`#,S,S,S9C,SF3,SS#,S_S-F`#-F,S-F9C-FF3-FS#-F_S.9`#.9 M,S.99C.9F3.9S#.9_S/,`#/,,S/,9C/,F3/,S#/,_S/_`#/_,S/_9C/_F3/_ MS#/__V8``&8`,V8`9F8`F68`S&8`_V8S`&8S,V8S9F8SF68SS&8S_V9F`&9F M,V9F9F9FF69FS&9F_V:9`&:9,V:99F:9F6:9S&:9_V;,`&;,,V;,9F;,F6;, MS&;,_V;_`&;_,V;_9F;_F6;_S&;__YD``)D`,YD`9ID`F9D`S)D`_YDS`)DS M,YDS9IDSF9DSS)DS_YEF`)EF,YEF9IEFF9EFS)EF_YF9`)F9,YF99IF9F9F9 MS)F9_YG,`)G,,YG,9IG,F9G,S)G,_YG_`)G_,YG_9IG_F9G_S)G__\P``,P` M,\P`9LP`FN6O/4EW!]J_A MPX@3*T:*=['CK&4!$'V\-7#5IY,I:][,N;/5QIY#[W0K6715RX.%1C7-NK7K MQZ!?NR8-0#;2M6^G+K7-N[=OKK%_>XXLW"?N%:N1NDU>O+GSYS.#0W<<.?/T MFKAS(QUZO;MWV=*_&_\F+5B\3,*JF[HUS[Z]X_#NZ?:M'1\F>NU&T]??S__N MU_YU1<:<>_>I5QB`""9(%7P*@G6?=?&A5UY1^C5HX84Z,8@A5K3=1-8*M)7U M863WD1B9:B"&*!F(U:$EH7*E;2CCC-=H2"-5Q-TT%%22]4C6CR*N^&"/A!$6 MB!5`]B@9:1!65M:`/OEUXY0*VDCE=B+J6-8U05;7)9)+N<4489F5=B*3:9$& M)4\_7NGF?E:^^1.:-O%8VXIN_9@DGF%N259RI27))7UI'8?EFG(F^ER.))W(48U!,D77-GQ6ZF*51'S:JEQ4I(@FB<4BR\JD5KM[_ MAN0UK+1::Y-5(=EJ8HR:FI.`-04B[*?#1C4945$E"Q.E1WYZC;"SKJ9LL<)6 M&U>'1QGI*UTJZLK*K;?JFEE@:[D*[K+>ODK4KC#YE>=:Z$X6;JOBPCIOK#!E M)^6YX/8K;DRZYFLKO?;.>E.OV]KT(((D'L5IPG*AFB>+`+@J%"LE$OKI4FR5 MR-299)8;TU`2MCDH?2'J:^F6,97<<63?#I4G;6>Q3.[%)!]8$\(0ST0>@MDA MJA.9/> M^2.\N$U6UM.TX;OS?T7[-%^"]TT8I<9QAW4TIANS_RS36FK3AW-UV,9T7(Y% M'FURBR'*Q!VM7M=<-N$G7D-F868U_?C!<.?-4XL,/^FPSIYOM?>2[IIE\$RG MCQU8ZJ..+/-N)U^\;(PRNRJU=2)^N!Z\2NJYML4PGZ'9 MXL<\5J>W6UOCK!/J\:#E"H\W>EX'JGJ1MP?>.^KEZ5MQIL9S)'QFOA-=VM/6 M9]CY]!X^"J":A^+/X>.S4Y+^^I89"1&O=GYQWGKR%#:HA2U$EF*@X4KV+?2L MZV*`6X_U+JBDOMT.;V];GO^TE#P`O6AT=ANA"OTCPA5FSWG/$UWT<.7"&F:% M9Z7[F6(\I21-9>Y/00D$1_]>52D?8G!J^2/=3[1EPR9J!8>>F]MB$M`Y9B@L*E=I'O0'@2(E36LR--Z42" MHP.A;:3G1%90P&W-06/>%K:8.PDK4IRJV:M`M"HS6:YL._';44KE&TJ:T8\4 M^"-T!!FWPB'F1V.\E,3VM)X5A&\H7[PC#(M"OMZ$L8F8S*0FG"'F=2)F,IQ%\7HDG.+@#2-M7LF2>_HTV?A4J7M!/-?%[IOW&2\Y[G?$TZ M>Z;_1O&T,WOA-`HA/9.Q>-;SG@B=9F_V";&!?N=;5$.F0:52-V\:9I[%5*$] M[ZG0WS`T8;WT9ZQ@)='>T=`GM#DI8@IZR^G%,I,OI4!'%SK,,DK1F*L#:$%5 MJI/Y!/2BF#J3"F,:3&@",Y^N^6C",@H@[F`,4SS%B4^_&=3*'32:L=JH+)'* M&J5NZYJA&Q>F?IH3.2[%HF:L2TPSJ="URI2KH?&JK];9'QB"$Y[T3*MAM/I+ MW=6&K[)$!#IK:L:6[F>5^B)K3NJF5UXEU#X5D>M["I-M)-_RWFFY"423IW`$1(`2-(^SA-'2J3A6K\M1 MK6!RU*0B.9/,GIBYZI-RKLV5:K;?7KHR8#9`S?&<\Q03%[ MF(P35B#BV`RF"6&`(F*@G+4NU_1QA./LSN+-A*.H54R,EWIC\TAZ)\<^=AY$87<&@O5N^U'$;G$).7/9SXHGV=-^QF,? 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MM6W2??KZA\_;SR]V8T'^1N$C51UN^A&(%WX%(GC4<-4B2_*1"*,,R*T7D'3*3@9 M6/)=M"*-/QHD(Y!`LK=A3L+M]^&02P8I%)-/.F3C>D5:86.5+2$Y5H3600FD MD%W^.-MZ`'PW&YEGL90E6=41!>:,7[H)8V!C%DD:CFGJR!8K2L8I(IQ]EFC% M"BM(QJ!DA[HD&YIM;2F0CX#:]R>D_Q>R,AT`@4GVW35DRM1A6SPZ.BF"DHI* MZ:,M>5FA^IK0YIXT.INK7G7*S"6MZKN=KW76"#8GHIL,`*^NMTF29$ MZUV-"N0BK]CM^FQZE\Y&*)F$#LK>IF?]5*9"RAHX%Y?2.A0)Z].F11*J MK;K7!):N0O'.UABHXYZ;G9/YO@A4L8'!2R5[PGXGJ)D*J:G8O6WRNYNY#4.W MWI0"4[Q1>T5*G%#"]HJ+*\2N/?PQD7E"=N^`(INW+\K2;ERRN*>NK+#*,>VI]^_?:2+:L68=ER>X4VWN71 M7;?;>W^E-^#<]>VWA(-O)3CBUQ5N>(^+)Z4XY,XU[GA,DQLE.>;)E?EN=H9M MSEO -----END PRIVACY-ENHANCED MESSAGE-----


Pennsylvania		23-1242500
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


Howard L. Meyers, Esquire		Justin P. Klein, Esquire
Morgan, Lewis & Bockius LLP		Ballard Spahr Andrews & Ingersoll, LLP
1701 Market Street		1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103		Philadelphia, Pennsylvania 19103
(215) 963-5000		(215) 665-8500






		Proposed Maximum	Proposed Maximum
	Amount to be	Offering Price Per	Aggregate Offering	Amount of
Title of Shares to be Registered	Registered	Unit(1)	Price(1)	Registration Fee


Common Stock, no par value(2)	477,250	$19.47	$9,292,058	$1,178


	Per Share	Total

Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds to The York Water Company	$	$


Common Stock, no par value		415,000 shares

Common Stock to be outstanding after the offering		6,846,500 shares⁽¹⁾

Nasdaq National Market symbol		YORW

Common Stock 52-week price range (through May 26, 2004)		Low: $15.65 High: $21.04

Annualized dividend rate		$0.58 per share

Use of Proceeds		We intend to use the net proceeds from this offering to repay a portion of our outstanding short-term indebtedness that was primarily incurred to fund our Susquehanna River Pipeline Project.

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Prospectus Summary			1
Risk Factors			4
Forward-Looking Statements			7
Use of Proceeds			8
Capitalization			8
Common Stock Price Range and Dividends			9
Selected Financial Data			10
Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Our Company			15
Management			21
Description of Capital Stock			23
Underwriting			26
Legal Matters			28
Experts			28
Where You Can Find More Information			28
Incorporation of Certain Documents by Reference			28



				For the Three
				Months Ended
				March 31,						For the Year Ended December 31,

				2004			2003			2003			2002			2001


				(Unaudited)						(In thousands, except per share
										amounts)
Statement of Operations:
	Operating revenues
		Water sales		$	5,363		$	4,758		$	20,889		$	19,553		$	19,403

			Total operating revenues	$	5,363		$	4,758		$	20,889		$	19,553		$	19,403
	Operating expenses
		Operating and maintenance			2,306			2,239			8,912			8,680			8,487
		Depreciation and amortization			474			445			1,779			1,663			1,571
		Property and other taxes			230			207			864			877			410

			Total operating expenses		3,010			2,891			11,555			11,220			10,468

	Operating income				2,353			1,867			9,334			8,333			8,935
	Other income (expense), net				688			(84	)		12			183			160
	Interest charges				(528	)		(655	)		(2,523	)		(2,692	)		(2,856	)

	Income before income taxes				2,513			1,128			6,823			5,824			6,239
	State and federal income taxes				936			370			2,375			2,034			2,233

	Net income			$	1,577		$	758		$	4,448		$	3,790		$	4,006

	Net income per share of common stock (basic and diluted)			$	0.25		$	0.12		$	0.70		$	0.60		$	0.65

	Average shares of common stock outstanding (basic and diluted)				6,421			6,367			6,386			6,330			6,153
	Cash dividends per share of common stock			$	0.145		$	0.135		$	0.550		$	0.525		$	0.505



		As of March 31,				As of December 31,

		2004		2003		2003		2002		2001


		(Unaudited)				(In thousands)
Balance Sheet:
	Utility plant and equipment, at original cost less accumulated depreciation	$	121,848	$	106,750	$	115,802	$	106,217	$	101,753
	Total assets		133,544		118,686		127,508		118,408		113,351
	Notes payable		9,781		2,640		7,153		2,738		2,000
	Long-term debt including current portion		32,642		32,681		32,652		32,690		32,728
	Shareholders’ equity		39,937		37,339		39,057		37,217		35,891
	Total capitalization		69,840		69,981		68,970		69,869		68,582



	As of March 31, 2004

	Actual		% of Capitalization			As Adjusted	% of Capitalization


	(In thousands)
Common shareholders’ equity	$	39,937		57.2	%
Long-term debt⁽¹⁾		29,903		42.8	%

Total capitalization	$	69,840		100.0	%

Short-term debt⁽²⁾	$	12,520


						Dividend
		High		Low		Per Share

2004
	Second Quarter (through May 26, 2004)	$	21.04	$	19.43	$	0.145
	First Quarter		20.79		17.95		0.145
2003
	Fourth Quarter	$	18.65	$	16.88	$	0.145
	Third Quarter		18.50		16.09		0.135
	Second Quarter		20.34		15.65		0.135
	First Quarter		17.14		14.00		0.135
2002
	Fourth Quarter	$	17.59	$	12.30	$	0.135
	Third Quarter		18.33		13.75		0.130
	Second Quarter		20.17		15.13		0.130
	First Quarter		16.50		12.83		0.130


			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years

Long-term debt obligations	$	32,652,086	$	2,738,641	$	4,378,451	$	80,036	$	25,454,958
Purchase obligations⁽¹⁾		17,503,417		17,503,417		0		0		0
Deferred employee benefits⁽²⁾		4,084,055		187,519		375,994		366,629		3,153,913

Total	$	54,239,558	$	20,429,577	$	4,754,445	$	446,665	$	28,608,871


	*Maintain and Strengthen Our Position as a Consistent and Reliable Source of High-Quality Water Service*


	*Establish Additional Long-Term Bulk Water Contracts With Municipalities*



			For the Years Ended December 31,

			2003		2002		2001		2000		1999


			(Dollars in thousands)
Revenues
	Residential		$	12,574	$	11,528	$	11,571	$	10,980	$	10,198
	Commercial and industrial			5,672		5,494		5,473		5,301		5,369
	Other			2,643		2,531		2,359		2,200		1,944

		Total	$	20,889	$	19,553	$	19,403	$	18,481	$	17,511

Number of customers				51,916		51,023		50,079		49,195		48,144
Population served				156,000		153,000		149,000		146,000		144,000
Average daily consumption (gallons)				17,498,000		17,901,000		19,734,000		19,542,000		20,928,000
Miles of main (at year end)				746		731		717		703		696


Name	Age		Position

Jeffrey S. Osman		61	President, Chief Executive Officer and Director
Kathleen M. Miller		41	Chief Financial Officer and Treasurer
Vernon L. Bracey		42	Vice President-Customer Service
Duane R. Close		58	Vice President-Operations
Jeffrey R. Hines, P.E.		42	Vice President-Engineering and Secretary
Bruce C. McIntosh		51	Vice President-Human Resources and Assistant Treasurer
William T. Morris, P.E.		66	Chairman of the Board
Irvin S. Naylor		68	Vice Chairman of the Board
Chloé R. Eichelberger		69	Director
John L. Finlayson		62	Director
Michael W. Gang		53	Director
George W. Hodges		53	Director
George Hay Kain, III		55	Director
Thomas C. Norris		65	Director


	*2003 Compared with 2002*


	*Continue to Increase Our Customer Base*


	*Continue to Enhance Our Water Supply*


	*Source of Supply*


		Number
Underwriter		of Shares

Janney Montgomery Scott LLC			415,000

	Total		415,000


Item 14.	*Other Expenses of Issuance and Distribution.*


Securities and Exchange Commission registration fee		$	1,178
National Association of Securities Dealers, Inc. filing fee			1,430
Nasdaq National Market fee			*
Representative’s non-accountable expense allowance			45,000
Transfer agent, registrar and custodian fees and expenses			*
Printing and engraving expenses			*
Legal fees and expenses			*
Accounting fees and expenses			*
Miscellaneous			*

	Total expenses	$	*


Item 15.	*Indemnification of Directors and Officers.*


Exhibit
Number			Description

	1	.1**	Form of Underwriting Agreement.
	4	.1*	Amended and Restated Articles of Incorporation.
	4	.2*	Loan Agreement between The York Water Company and Pennsylvania Economic Development Financing Authority, dated as of April 1, 2004.
	5	.1**	Opinion of Morgan, Lewis & Bockius LLP.
	23	.1	Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1).
	23	.2*	Consent of Beard Miller Company LLP.
	23	.3*	Consent of Stambaugh Ness, PC.
	24	.1	Powers of Attorney (included on signature pages).



Name	Capacity	Date


/s/ JEFFREY S. OSMAN Jeffrey S. Osman	President and Chief Executive Officer and Director (principal executive officer)	May 24, 2004

/s/ KATHLEEN M. MILLER Kathleen M. Miller	Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)	May 24, 2004

/s/ WILLIAM T. MORRIS, P.E. William T. Morris, P.E.	Chairman of the Board of Directors	May 24, 2004

/s/ IRVIN S. NAYLOR Irvin S. Naylor	Vice Chairman of the Board of Directors	May 24, 2004

/s/ CHLOÉ R. EICHELBERGER Chloé R. Eichelberger	Director	May 24, 2004

/s/ JOHN L. FINLAYSON John L. Finlayson	Director	May 24, 2004