Placement Agency Agreement

FIRST MORTGAGE BONDS
1997 MEDIUM TERM NOTE SERIES


Up to U.S. $150,000,000
Maturities from One Year to Thirty-Five Years


PLACEMENT AGENCY AGREEMENT


By and Among


PHILADELPHIA SUBURBAN WATER COMPANY
as Issuer


and


AGENTS LISTED ON SCHEDULE I ATTACHED HERETO


Dated as of July 11, 1997


PHILADELPHIA SUBURBAN WATER COMPANY


U.S. $150,000,000
First Mortgage Bonds
1997 Medium Term Note Series


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


Placement Agency Agreement
--------------------------


New York, New York
July 11, 1997


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


Gentlemen and Ladies:


Philadelphia Suburban Water Company, a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the "Issuer") which is a wholly-owned subsidiary of Philadelphia Suburban Corporation, a Pennsylvania corporation ("PSC"), confirms its agreement with you with respect to the issue and sale by the Issuer of its First Mortgage Bonds, 1997 Medium Term Note Series (the "Notes"). The Notes will be issued in one or more subseries under and secured in accordance with the Thirty-First Supplemental Indenture dated as of July 1, 1997 (the "Supplemental Indenture") to the Indenture of Mortgage dated as of January 1, 1941 (the "Indenture of Mortgage") between the Issuer and Mellon Bank, N.A. (as successor in interest to CoreStates Bank N.A. as successor in interest to The Pennsylvania Company for Insurance on Lives and Granting Annuities), as Trustee (the "Trustee"). The Notes may be sold during the two year period from June 6, 1997 through June 5, 1999 (the "Offering Period"), by the Issuer in an aggregate principal amount of up to U.S. $150,000,000. It is understood, however, that the Issuer may from time to time, if permitted under the Indenture of Mortgage and pursuant to subsequent supplemental indentures, authorize the issuance of additional notes and that such additional notes may be sold through or to you subject to and in accordance with the terms of this Placement Agency Agreement (the "Agreement"), all as though the issuance of such additional Notes or the sale of Notes after the expiration of the Offering Period were authorized as of the date hereof. The Notes will be offered during the Offering Period from time to time on a private placement basis without being registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the exemption therefrom provided by Section 4(2) of the Securities Act. The Notes will be offered only to "Qualified Institutional Buyers" (as defined in Rule 144A under the Securities Act)



pursuant to this Placement Agreement. All Notes having a common issue date, maturity date, interest rate and otherwise identical terms are referred to herein as a "Tranche". This Agreement is non-exclusive as the Notes of each Tranche may be offered through one or more Agents (hereinafter defined) pursuant to this Agreement. The Notes will be issued, and the terms thereof established, in accordance with the terms of the Indenture of Mortgage and the Supplemental Indenture, and in the case of Notes sold pursuant to Section 2(a), in accordance with the Medium Term Notes Administrative Procedures attached hereto as Exhibit A (the "Administrative Procedures"), the terms of which are incorporated herein by this reference as if set forth herein in their entirety. The Notes will be payable in accordance with a Paying Agency Agreement dated as of July 11, 1997 (the "Paying Agency Agreement"), among the Issuer, Mellon Bank, N.A., as paying agent (the "Paying Agent"), the Trustee and the Agents. The Administrative Procedures set forth in Exhibit A shall remain in effect with respect to sales solicited by the Agents until changed by the Issuer, the Agents and the Paying Agent. For the purposes of this Agreement, the term "Agent" shall refer to each addressee named on Schedule I hereto acting severally and not jointly in the sole capacity as agent for the Issuer pursuant to Section 2(a) and not as principal; the term "Agents" shall refer in general terms to all addressees named on Schedule I acting in the capacity as agent to the Issuer pursuant to Section 2(a); the term "Purchaser" shall refer to the same addressees named on Schedule I hereto acting severally and not jointly in the sole capacity as principal pursuant to Section 2(b) and not as agent; and the term "you" shall refer to each or any addressee named on Schedule I hereto acting severally and not jointly in both such capacities or in either such capacity.


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


(a) The Issuer confirms that it has prepared a confidential
Offering Memorandum (defined below) and authorizes you to distribute
copies thereof in connection with the offering of Notes as provided
herein. The Offering Memorandum does not and will not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representation and warranty shall not apply
to statements or


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omissions in the Offering Memorandum made in reliance upon and in
conformity with information furnished to the Issuer in writing by you
or on your behalf which has been furnished by a person authorized to do
so, specifically for use therein. As used in this Agreement, the term
"Offering Memorandum" means the confidential offering memorandum dated
the same date as this Agreement relating to the Notes, as it may be
amended or supplemented from time to time, including with respect to
each Tranche, the related pricing supplement (each, a "Pricing
Supplement"), any documents expressly incorporated by reference therein
and any quarterly or annual reports of the Issuer or PSC delivered to
any Agent for delivery together with the Offering Memorandum, which
amendment or supplement may be in the form of a separate document that
does not state that it is a supplement to the Offering Memorandum, and
any reference to the terms "amend", "amendment" or "supplement" with
respect to the Offering Memorandum shall refer to and include the
filings with the Securities and Exchange Commission (the "Commission")
of any documents expressly incorporated by reference into the Offering
Memorandum after the date hereof.


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


(c) Subsequent to the respective dates as of which information
is given in the Offering Memorandum, except as otherwise set forth
therein, (i) there has been no material adverse change, or to the
knowledge of the Issuer any development involving a prospective
material adverse change, in the financial condition, earnings, business
or business prospects or properties of the Issuer and its subsidiaries,
considered as a single enterprise (a "Material Adverse Effect"), (ii)
neither the Issuer nor any of its subsidiaries have incurred any
material liabilities or obligations, direct or contingent, nor have any
of them entered into any material transactions other than pursuant to
this Agreement, the Supplemental Indenture and the Paying


3


Agency Agreement and the transactions referred to herein and therein
and (iii) no rating of any of the securities of the Issuer has been
lowered by any "nationally recognized statistical rating organization"
(as defined for purposes of Rule 436(g) of the Securities Act) (each, a
"Rating Agency"), nor has there been any notice given by any Rating
Agency of any intended or potential decrease in any such rating or of a
possible change in any such rating where such notice does not indicate
the direction of the possible change.


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


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


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


4


enforceability is considered in a proceeding in equity or at law). The
Supplemental Indenture and the Paying Agency Agreement conform in all
material respects to the descriptions thereof in the Offering
Memorandum.


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


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


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


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


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


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interfere with the use made and proposed to be made of such properties
by the Issuer and such subsidiaries.


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


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


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


(o) Assuming (A) compliance by you with the offering and
transfer procedures and restrictions described in the Offering
Memorandum, (B) the accuracy of the acknowledgments, representations,
warranties and agreements made in accordance with this Agreement and
the Offering Memorandum by you and the purchasers to whom you initially
offer, sell or resell the Notes and (C) purchasers to whom you
initially offer, sell or resell the Notes receive a copy of the
Offering Memorandum prior to such sale or resale, the offer, sale and
delivery of the Notes in the manner contemplated by this Agreement and
the Offering Memorandum will be exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof,
and the initial resale of the Notes in the manner contemplated by


7


this Agreement will be exempt from the registration requirements of the
Securities Act by reason of Rule 144A thereunder or Section 4(2)
thereunder, as the case may be, and the Notes are not required to be
issued pursuant to an indenture that qualifies under the Trust
Indenture Act of 1939, as amended.


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


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


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


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


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


(u) No statement, representation, warranty or covenant made
by the Issuer in this Agreement, or made in any certificate or document
required by this Agreement to be


8


delivered to any Agent was or will be, when made, inaccurate, untrue
or incorrect.


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


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


(ii) On the basis of the representations and warranties
and subject to the terms and conditions, set forth herein, upon
appointment pursuant to a Notice of Appointment each Agent agrees, as
agent of the Issuer, to use its reasonable efforts (commensurate with
those efforts customarily made in offerings of a similar nature) to
place the Notes on behalf of the Issuer upon the terms and conditions
described in the Notice of Appointment, the Offering Memorandum and in
the Administrative Procedures. In soliciting offers as agent, each
Agent is acting solely as agent of the Issuer and not as principal.
Each Agent shall use its reasonable efforts to ass ...