EXHIBIT 10.3

SECTION 1.1. Definitions.

SECTION 1.2. Certain Rules of Interpretation.

SECTION 2.1. Representations and Findings of Issuer.

SECTION 2.2. Representations by the Company.

SECTION 3.1. Acquisition and Construction.

SECTION 3.2. Construction Fund.

SECTION 3.3. Establishment of Completion Date.

SECTION 4.1. Loan of Bond Proceeds.

SECTION 4.2. Repayment of Loan.

SECTION 4.3. Operation.

SECTION 4.4. Insurance.

SECTION 4.5. Maintenance and Repair.

SECTION 4.6. Right to Discontinue Operation of Project.

SECTION 4.7. Insurance and Condemnation Awards.

SECTION 4.8. Workers' Compensation Coverage.

SECTION 4.9. Taxes, Claims for Labor and Materials, Compliance with Laws.

SECTION 4.10. Issuer's Limited Liability.

SECTION 4.11. Right of Inspection.

SECTION 5.1. Issuance of Bonds.

SECTION 5.2. Security for the Bonds.

SECTION 5.3. Reserved.

SECTION 5.4. Investment of Funds.

SECTION 6.1. Company Approval of Issuance of Bonds.

SECTION 6.2. Refunding of Bonds.

SECTION 6.3. Redemption of Bonds.

SECTION 6.4. Installment Loan Payments.

SECTION 6.5. Administrative Expenses.

SECTION 6.6. Payments to Issuer and Issuer.

SECTION 6.7. Obligations of the Company Absolute and Unconditional.

SECTION 6.8. Option to Prepay Amounts Under Loan Agreement in Certain Events.

SECTION 6.9. Company's Performance Under Indenture.

SECTION 6.10. Covenants Regarding Tax Exemption.

SECTION 6.11. Bonds Purchased in Lieu of Redemption.

SECTION 6.12. Nondiscrimination - Sexual Harassment.

SECTION 7.1. Indemnified Party's Release and Indemnification Provisions.

SECTION 7.2. Maintenance of Corporate Existence.

SECTION 7.3. Financial Information.

SECTION 7.4. Agreement of Issuer Not to Assign or Pledge.

SECTION 7.5. Reference to Bonds Ineffective after Bonds Paid.

SECTION 7.6. Assignment, Sale or Lease of Project.

SECTION 7.7. Amendment of Loan Agreement or Indenture.

SECTION 7.8. Waiver of Vendor’s Lien.

SECTION 7.9. Limitations on Indebtedness.

SECTION 7.10. Limitation on Liens.

SECTION 7.11. Dividends, Stock Purchases.

SECTION 7.12. Termination of Pension Plans.

SECTION 8.1. Defaults and Remedies.

SECTION 8.2. Annulment of Acceleration.

SECTION 8.3. Agreement to Pay Attorneys’ Fees and Expenses.

SECTION 8.4. General Enforcement Provisions.

SECTION 8.5. Notice of Default.

SECTION 8.6. Unassigned Issuer’s Rights.

SECTION 9.1. Term of Loan Agreement.

SECTION 9.2. Notices.

SECTION 9.3. Benefit of Parties.

SECTION 9.4. Severability.

SECTION 9.5. Counterparts.

SECTION 9.6. Captions.

SECTION 9.7. Law Governing Construction of Loan Agreement.

SECTION 9.8. Payments on Non-Business Days.

SECTION 9.9. Payments to be Sufficient to Meet DTC Requirements.

SECTION 9.10. Reserved.

SECTION 9.11. Limitation of Liability; No Personal Liability.

This Loan Agreement dated as of October 1, 2006, between the York County Industrial Development 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"),

WHEREAS, the Act declares that there is a critical need for the production of water suitable for public use and consumption, that in order to insure continuing supplies of water resources at reasonable rates, it is necessary to provide additional means of financing projects directed to such production, and that to protect the health, safety and general welfare of the people of the Commonwealth and to further encourage economic development and efficiency within the Commonwealth by providing basic services and facilities, it is necessary to provide additional or alternative means of financing facilities for the furnishing of water; and

WHEREAS, the Issuer is authorized to enter into agreements providing for the loan financing of “projects” within the meaning of the Act that promote any of the public purposes set forth in the Act; and

WHEREAS, the Issuer has determined to issue $10,500,000 aggregate principal amount of its Exempt Facilities Revenue Bonds, Series 2006 (The York Water Company Project) (the “Bonds”) to provide funds to loan to the Company for the financing of (i) a portion of the Company’s 2006 Capital Budget, including, but not limited to the design, acquisition, construction, improvement, renovation, equipping and installation of (a) various structures, including distribution buildings, booster stations, pumping stations, and various plant and ancillary buildings, (b) spillway upgrades, standpipes, transmission and distribution mains, service lines, meters, fire hydrants, and pumping, water treatment and purification equipment, and (c) various other capital improvements, replacements and equipment for the Company’s water system located throughout York County, Pennsylvania, and (ii) the payment of all or a portion of the costs of issuance of the Bonds (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 October 1, 2006 (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

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:

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 or the Company in connection with the issuance and sale of the 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.

"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;

(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 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.

“Inducement Resolution” means the resolution of the governing body of the Issuer adopted on February 7, 2006 granting initial approval of the financing of the Project.

"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.

"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 and an equity contribution from the Company.

"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 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 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.

SECTION 2.1.    Representations and Findings of Issuer . 

(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 all or 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 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, 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 Issuer; 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 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 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 Company, (2) the Commissioners of the County, 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.

(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