10-K 1 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K /X/ Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1994 or / / Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . Commission File Number 0-8084 CONNECTICUT WATER SERVICE, INC. (Exact name of registrant as specified in its charter) CONNECTICUT 06-0739839 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 93 WEST MAIN STREET, CLINTON, CT 06413 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (203) 669-8636 Securities registered pursuant to Section 12 (b) of the Act:
Title of each Class Name of each exchange on which registered NONE NOT APPLICABLE
Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229,405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / 2 Page 2 The aggregate market value of the registrant's voting Common Stock, computed on the price of such stock at the close of business on February 1, 1995 is $66,000,000. 2,877,899 Number of shares of Common Stock outstanding, February 1, 1995 DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which Document Document is Incorporated -------- ----------------------------- Definitive Proxy Statement, dated Part III March 13, 1995, for Annual Meeting of Shareholders to be held on April 21, 1995.
3 Page 3 PART I ITEM 1. BUSINESS a. GENERAL DEVELOPMENT OF BUSINESS The Registrant, Connecticut Water Service, Inc. (the Company), is the parent company of The Connecticut Water Company (CWC) which supplies water for residential, commercial, industrial and municipal purposes in various areas in the State of Connecticut through three operating regions. The Company and CWC represent the second largest investor-owned water system in Connecticut in terms of operating revenue and utility plant investment. The Company was organized in 1956 under the General Statutes of Connecticut as Suburban Water Service, Inc. and has been engaged in the business of acquiring and operating water companies through controlling stock ownership. In 1975, the Company changed its name to Connecticut Water Service, Inc. after acquiring all of the outstanding Common Stock of CWC. CWC's First Mortgage Bonds and Preferred Stock are held primarily by institutional investors. The Company is a non-operating company whose income is derived from the earnings on the Common Stock of CWC. The profitability of the operations of the water utility industry generally and of CWC (and hence the Company) is largely dependent on the timeliness and adequacy of the rate relief allowed by utility regulatory commissions. In addition, profitability is dependent on numerous factors over which CWC has little or no control, such as the quantity of rainfall and temperature in a given period of time, industrial demand, prevailing rates of interest for short and long-term borrowings, energy rates, and compliance with environmental and water quality regulations. In addition, inflation and other factors beyond the Company's or CWC's control impact on the cost of construction, materials and employee costs. See "Business - Financing", "Business - Rates", and "Business -Regulation". b. GENERAL DESCRIPTION OF BUSINESS The Company, a Connecticut corporation, owns all of the outstanding Common Stock of CWC. Substantially all of the Company's revenues and net income are attributable to the sale and distribution of water by the operating regions of CWC. See "Business - Consolidated Operating Statistics". CWC is specially chartered by the General Assembly of the State of Connecticut as a public service company, and the rates and operations of CWC are regulated by the Connecticut Department of Public Utility Control (DPUC). The Company is specifically prohibited from engaging in business or activities which are not regulated by the DPUC. See "Business - Rates" and "Business - Regulation". 4 Page 4 CWC has one subsidiary organized in 1969 to assist in the acquisition of real estate. The assets and operations of this subsidiary are not significant. CWC supplies water and, in most instances, provides fire protection through three separate operating regions in all or portions of 31 towns in Connecticut. The service areas have an estimated total population of approximately 211,000 based on DPUC population estimates of 3.5 people per average household. During the twelve months ended December 31, 1994, approximately 64% of the Company's consolidated operating revenues were received from residential customers, 13% from commercial customers, 5% from industrial customers, 2% from public authority customers, and 16% from public fire protection and other customers. Each of the operating regions serves a separate franchise area. Rates are the same for all regions. The systems of the three operating regions are not physically interconnected. The following table sets forth the percentage of the Company's utility plant in service at each of CWC's operating regions as of December 31, 1994:
Utility Plant Regions Dollars Percent --------- ------------ ------- Northern $ 82,380,000 45% Shoreline 49,355,000 28% Naugatuck 49,344,000 27% ------------ ---- $181,079,000 100% ============ ====
At December 31, 1994, 60,325 customers were served by CWC. At that date, all customers were metered except fire protection customers. The Company requires all applicants for new service, other than fire protection, to be metered. The Company's principal office is located at 93 West Main Street, Clinton, Connecticut 06413 and its telephone number is 203-669-8636. The business of CWC is subject to seasonal fluctuations. The demand for water during the warmer months is generally greater than during the cooler months due primarily to additional requirements for water in connection with cooling systems, private and public swimming pools and lawn sprinklers. Throughout the year, and particularly during the warmer months, demand will vary with rainfall and temperature levels. 5 Page 5 WATER SUPPLY The estimated minimum dependable yields of sources of water supply for each of the operating regions' transmission and distribution systems, as set forth under "Business - CWC Production Facilities as of December 31, 1994" are in excess of present average daily consumption. Except for a request for voluntary conservation in the summer of 1988, no restrictions on water use have been required in the past twenty years. Water is secured from both surface and subsurface supplies. In 1994, surface sources provided approximately 55% of the supply, and well supplies provided approximately 45%. Studies are made periodically to determine the supply and distribution needs of the regions. A major study, covering a fifty year planning period required of all water companies supplying 1,000 or more persons, was completed in 1987 and submitted to the Connecticut Department of Pubic Health and Addiction Services (DPHAS) for approval. An updated plan must be prepared every five years or as requested by the DPHAS. Updated plans for the Collinsville, Thomaston and Terryville Systems in the Naugatuck Region were submitted in 1992. The plan for the Collinsville System was approved in 1993. Plans for the Shoreline Region and the Naugatuck Central System were submitted in 1993 and 1994, respectively. A plan for all Northern Region Systems will be submitted in 1995. See "Business - Construction Program", "Business - Rates" and "Business - Regulation". OPERATING REGIONS NORTHERN The Northern Region is composed of nine separate systems, not interconnected, as listed below:
Number of Customers System Towns (or Portions Thereof) Served at 12/31/94 ------ ---------------------------------- ----------- Western Suffield, Windsor Locks, East Granby, Enfield, East Windsor, South Windsor, Vernon, Ellington, Tolland 27,864 Somers Somers 411 Crescent Lake Enfield 157 Stafford Springs Stafford 1,005 Tolland Aqueduct Tolland 95 Lakewood/Lakeview Coventry 176 Nathan Hale Coventry 39 Llynwood Bolton, Vernon 74 Reservoir Heights Vernon 22 ------ 29,843 ======
The territory served is primarily residential and commercial with some industry. CWC has entered into an agreement with the State of Connecticut, Department of Transportation, pursuant to which CWC operates and maintains, as part of its Western System, the State's water supply system for Bradley International Airport located in Windsor Locks, Suffield and East Granby, Connecticut. 6 Page 6 The Western System has three emergency standby interconnections with the water system of the Metropolitan District Commission (MDC) (a public water and sewer authority presently serving the City of Hartford and portions of surrounding towns), one in South Windsor and two in Windsor Locks. The Western System also has an emergency interconnection with the water system of the Hazardville Water Company in Enfield. See "Business - Franchises" with respect to proposals that the MDC expand its operations into the Northern Region and that MDC take over CWC's operations in South Windsor. SHORELINE The Shoreline Region is composed of three separate systems, not interconnected, as listed below:
Number of Customers System Towns (or Portions Thereof) Served at 12/31/94 ------ ---------------------------------- ----------- Guilford Guilford, Old Saybrook, Westbrook, Clinton, Madison 15,387 Chester Chester, Deep River, Essex 2,275 Chester Village West Chester 11 ------ 17,673 ======
The territory served is primarily residential with some commercial and industry. NAUGATUCK The Naugatuck Region is composed of four separate systems, not inter-connected, as listed below:
Number of Customers System Towns (or Portions Thereof) Served at 12/31/94 ------ ---------------------------------- ----------- Central Naugatuck, City of Waterbury, Beacon Falls, Bethany, Prospect 8,553 Terryville Plymouth 1,907 Thomaston Thomaston, Plymouth 1,176 Collinsville Canton, Avon, Burlington 1,173 ------ 12,809 ======
The territory served is residential and industrial including a municipality which represented approximately 7% of the region's 1994 revenues. Water for the Collinsville System is supplied under an agreement with the MDC from treatment facilities drawing from a large surface water reservoir owned by the MDC. See "Item 2. Properties" for a description of this agreement. 7 Page 7 Consolidated Operating Statistics
Year Ended December 31, 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Customers (Average) Residential Metered 54,464 53,988 53,509 53,119 52,767 Commercial Metered 3,827 3,797 3,790 3,769 3,713 Industrial Metered 364 366 323 312 316 Public Authorities Metered 467 466 429 418 434 Fire Protection and Other 960 941 915 896 858 ----------- ----------- ----------- ----------- ----------- Total 60,082 59,558 58,966 58,514 58,088 =========== =========== =========== =========== =========== Production (Millions of Gallons) Residential Metered Sales 3,874 3,915 3,734 3,858 3,849 Commercial Metered Sales 908 918 921 968 983 Industrial Metered Sales 460 438 507 570 635 Public Authorities Metered Sales 179 179 169 160 159 ----------- ----------- ----------- ----------- ----------- Total Metered Consumption 5,421 5,450 5,331 5,556 5,626 Fire Protection, Company Use and Unaccounted For 808 756 692 619 764 ----------- ----------- ----------- ----------- ----------- Total 6,229 6,206 6,023 6,175 6,390 =========== =========== =========== =========== =========== Operating Revenues (Thousands of Dollars) Residential Metered $24,488 $24,574 $23,541 $23,675 $20,245 Commercial Metered 4,696 4,745 4,729 4,853 4,112 Industrial Metered 1,922 1,851 2,100 2,239 2,049 Public Authorities Metered 893 903 856 836 736 Fire Protection and Other 6,130 6,058 5,964 5,769 5,159 ----------- ----------- ----------- ----------- ----------- Total $38,129 $38,131 $37,190 $37,372 $32,301 =========== =========== =========== =========== =========== Average Revenue per 1,000 Gallons Residential Metered $6.32 $6.28 $6.30 $6.14 $5.26 Commercial Metered $5.17 $5.17 $5.13 $5.01 $4.18 Industrial Metered $4.18 $4.23 $4.14 $3.93 $3.23 Public Authorities Metered $4.99 $5.04 $5.07 $5.23 $4.63 Miles of Distribution Mains (End of Period) 955 950 945 940 930
8 Page 8 CONSTRUCTION PROGRAM The projected capital expenditures of CWC are established annually by management and are reviewed and revised from time to time to the extent necessary to meet changing conditions, including adequacy of rate relief, customer demand, revised construction schedules, water quality requirements, pollution control requirements and inflation. The Company currently estimates that CWC's 1995-1997 construction program, excluding plant financed by customer advances and contributions in aid of construction and amounts representing an allowance for funds used during construction (AFUDC), will aggregate approximately $26,000,000 which includes routine improvements to the water distribution system of approximately $4,500,000 each year, approximately $1,750,000 for clean-up of the Reynolds Bridge Well Field (see "Item 3. Legal Proceedings"), and $10,250,000 for initial construction costs of major modifications to the Rockville Water Treatment Plant. The preliminary construction cost estimate to complete the modifications to the Rockville Water Treatment Plant is at least $20,000,000 with an estimated completion date of 1999. The $26,000,000 construction expenditures for 1995 through 1997, mentioned above, includes all known costs for studies and construction of facilities to comply with existing Safe Drinking Water Act (SDWA) regulations. Construction expenditures which may be required in the future to comply with Federal and State regulations, which have not yet been issued but which are required under the SDWA, are excluded. FINANCING The Company and CWC expect to finance a significant portion of the anticipated $26,000,000 construction expenditures through 1997 with net funds generated from operations (net cash provided by operating activities less dividends paid). Net funds generated from operations were $6,220,000, $6,025,000, and $7,319,000 for the years 1994, 1993 and 1992, respectively (see Consolidated Statements of Cash Flows for additional information). Construction and other expenditures in excess of net funds generated from operations are expected to be financed through Common Stock issued under the Company's Dividend Reinvestment and Common Stock Purchase Plan (DRIP) and in part financed with short-term interim bank loans which will be refinanced through the sale of Preferred Stock and/or long or medium-term unsecured debt by CWC and/or the Company, and the sale of First Mortgage Bonds by CWC and of Common Stock by the Company when financial market conditions are considered favorable by management. CWC expects to receive the proceeds of any such financings by the Company in the form of advances or capital contributions. Up to 75% of the total present preliminary estimate of at least $20,000,000 for the costs of the modifications to the Rockville Water Treatment Plant are expected to be financed through external financings. 9 Page 9 The Company and CWC currently have lines of credit aggregating $9,000,000, consisting of conventional lines of credit with three banks, which management considers adequate at this time. As of December 31, 1994, the Company had slightly less than $3,000,000 of borrowings outstanding under these lines of credit. Because of changes in the Federal tax laws, the amount of new tax-exempt debt which may be issued by, or under the authority of, the State of Connecticut is limited. CWC has not received a tax exempt allocation since 1988. Although CWC has been able to refund all of its approximately $43,000,000 of existing tax-exempt borrowings with tax-exempt refunding borrowings since 1990, it is uncertain whether future tax-exempt allocations from the State will be available to CWC or the Company. The unavailability of tax-exempt financings will require the Company and/or CWC to issue traditional taxable debt securities and will increase the cost of long-term debt financing. During the period 1979 through 1988 approximately $43,000,000 of tax-exempt long-term debt was issued by CWC to finance construction expenditures. The Company has no legal restrictions on the issuance of its debt. The ability of CWC to issue additional long or medium-term secured debt to finance future construction expenditures depends in part on meeting the applicable provisions of CWC's First Mortgage Indenture with respect to the coverage of earnings over interest requirements. These provisions require, for the issuance of additional First Mortgage Bonds, minimum earnings coverage before income taxes of two times pro forma annual interest charges on such mortgage debt. The interest coverage under this formula at year end has been: 1994 - 4.12 times interest charges, 1993 - 4.17 times, 1992 - 3.97 times, 1991 - 5.07 times, and 1990 - 5.10 times. CWC's coverage of interest charges on all long-term debt at year end has been: 1994 - 4.12 times interest charges, 1993 - 4.17 times, 1992 - 3.56 times, 1991 - 3.15 times, and 1990 - 2.32 times. 10 Page 10 CWC's Times Coverage of Annual Interest On Long-Term Indebtedness
Year Ended December 31, 1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ (Thousands of Dollars) Utility Operating Income (a) $9,690 $10,018 $10,066 $10,435 $ 8,740 Federal and State Income Tax 4,756 4,673 4,050 3,607 2,177 State Income Tax - Capitalization (b) (150) ( 140) (140) (120) (120) ------- ------- ------ ------- ------- Net Operating Earnings $14,296 $14,551 $13,976 $13,922 $10,797 ======= ======= ======= ======= ======= Annual Interest on First Mortgage Bonds (c) $ 3,468 $ 3,492 $ 3,524 $ 2,747 $ 2,119 ======= ======= ======= ======= ======= Times Interest Coverage (d) 4.12 4.17 3.97 5.07 5.10 ==== ==== ==== ==== ==== Annual Interest on Unsecured Promissory Notes (c) -- -- 404 1,669 2,530 ------- ------- ------- ------- ------- Annual Interest on Long-Term Debt $ 3,468 $ 3,492 $ 3,928 $ 4,416 $ 4,649 ======= ======= ======= ======= ======= Times Interest Coverage (e) 4.12 4.17 3.56 3.15 2.32 ==== ==== ==== ==== ====
(a) Connecticut Water Service, Inc.'s utility operating income for the years 1994 to 1990 is $9,655, $9,983, $10,033, $10,402, and $8,712, respectively. (b) Amount of minimum State income tax based on the capitalization method. (c) Includes interest on current portion payable. (d) Net Operating Earnings / Annual Interest on First Mortgage Bonds per provisions of CWC's First Mortgage Indenture. (e) Net Operating Earnings / Annual Interest on Long-Term Debt per provisions of CWC's First Mortgage Indenture. During 1980 and 1981 the interest costs of long-term debt increased more rapidly than earnings so that the coverage requirements prevented CWC from effecting a planned issue of Bonds in mid 1981. Similar circumstances may in the future prevent the issue of, or require a reduction in the amount of, bonds CWC otherwise would have issued or will issue. As a consequence, the Company may be required to meet an increased portion of its financing needs through sales of unsecured funded debt or of additional shares of Common Stock. Sales of Common Stock would result in a dilution of the voting power and relative equity interests of the holders of Common Stock then outstanding. 11 Page 11 During the past five years CWC has sold the following issues of long-term debt: - During June, 1991, CWC issued a $10,000,000, 6.9%, Series Q, First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding Bonds maturing in 2021. The proceeds were used to repay CWC's tax-exempt 9.25% Water Facilities Bonds issued in 1985. - During August, 1992, CWC issued a $15,000,000, 5 7/8%, Series R, First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding Bonds maturing in 2022, the proceeds of which refunded CWC's 8%, $15,000,000, Promissory Note. - During June, 1993, CWC issued a $5,000,000, 5.75%, Series T, First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding Bonds maturing in 2028, the proceeds of which refunded CWC's 8.1%, $5,000,000, Promissory Note. - During September, 1993, CWC issued a $4,550,000, 5.30%, Series U, First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding Bonds maturing in 2028, the proceeds of which refunded CWC's 7.25%, $5,000,000, Series M, First Mortgage Bond. - During October, 1993, CWC issued a $8,000,000, 6.65%, Series S, First Mortgage Bond, which secures tax exempt Water Facilities Revenue Refunding Bonds maturing in 2020. The proceeds from this transaction were used to refund CWC's 8 3/8% (plus 1% Letter of Credit fee), Series N, $8,000,000, First Mortgage Bond. - On January 4, 1994, CWC issued a $4,050,000, 6.94%, Series V, First Mortgage Bond, maturing in 2029, the proceeds of which refunded CWC's 9 3/8%, Series L and 8 1/2%, Series O, First Mortgage Bonds. During March, 1994, an additional $8,000,000, 6.94% Series V, First Mortgage Bond was issued. The proceeds of this transaction were used to redeem CWC's $5,000,000, 10%, Series P, First Mortgage Bonds as well as all 30,000 shares of CWC's $100 par, 9 1/2% Preferred Stock. The Company has no restriction with respect to the issuance of additional shares of its Preferred Stock. However, the Preferred Stock Provisions contained in the Certificate of Incorporation of CWC require, as one of the conditions to the issuance of additional CWC Preferred Stock, that CWC's gross income (as defined and after income taxes) be at least 1.75 times pro forma annual interest charges on long-term debt and annual dividend requirements on Preferred Stock to be outstanding. On the basis of this formula, this coverage has been at year-end: 1994 - 2.83 times, 1993 - 2.70 times, 1992 - 2.43 times, 1991 - 2.24 times, and 1990 - 1.77 times. Any long-term debt issued by CWC would reduce the amount of Preferred Stock which could be issued. 12 Page 12 CWC's Times Coverage of Annual Interest and Annual Preferred Stock Dividends in Accordance with Articles of General Preference
Year Ended December 31, 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- (Thousands of Dollars) Utility Operating Income $9,690 $10,018 $10,066 $10,435 $ 8,740 Other Income (a) 155 193 187 144 184 ------ ------- ------- ------- ------- Gross Earnings Available for Coverage $9,845 $10,211 $10,253 $10,579 $ 8,924 ====== ======= ======= ======= ======= Annual Interest on Funded Debt (b) $3,468 $ 3,492 $3,928 $4,416 $4,649 Annual Dividend on Preferred Stock (c) 2 288 294 300 393 ------ ------- ------- ------- ------- Total Charges $3,470 $ 3,780 $ 4,222 $ 4,716 $ 5,042 ====== ======= ======= ======= ======= Times Interest Coverage 2.83 2.70 2.43 2.24 1.77 ==== ==== ==== ==== ====
(a) Other income, as defined by the Articles of General Preference, includes merchandising and jobbing income, interest and dividend income and miscellaneous rental income less applicable taxes. (b) Includes interest on current portion payable. (c) Includes dividends on currently redeemable shares. The Company's issuance of Common Stock over the past five years are as detailed below. The $12,387,000 net proceeds from these sales were invested in CWC in the form of capital contributions. - Pursuant to an underwritten public offering, the Company sold 460,000 shares of Common Stock on October 24, 1990. - The Company issued 39,030 shares of Common Stock during 1990, 43,247 shares during 1991, 37,868 shares during 1992, 33,803 during 1993 and 74,053 during 1994, pursuant to its DRIP. - The Company issued 2,338 shares of Common Stock during 1992, 3,074 shares during 1993, and 4,061 shares during 1994, pursuant to the Company's Performance Stock Program. - The Company issued 1,769 shares of Common Stock during 1993 and 2,468 shares during 1994, pursuant to the Company's Employee Savings 401-K Match Plan. There are currently no legal limits on the amount of short-term borrowings which may be incurred by the Company or CWC. Should construction expenditures exceed management's current expectations, the Company will continue to be dependent upon its ability to issue and sell additional amounts of Common Stock, mortgage bonds of CWC and (either through the Company or CWC) Preferred Stock and long or medium-term debt to limit short-term borrowing to appropriate levels. However, the availability of these methods of financing cannot be assured. The Company believes that the sale of such additional securities will continue to depend primarily on the adequacy and timeliness of regulatory action on future rate increase applications of CWC, on general conditions in securities markets and on favorable market appraisal of the securities of the Company and CWC, including the Company's Common Stock. 13 Page 13 RATES The rates of CWC have been established under the jurisdiction of, and approved by, the DPUC. It is the Company's policy to seek rate relief as necessary to enable CWC to achieve an adequate rate of return. In the most recent six years the following rate increases have been put into effect by CWC pursuant to authorization by the DPUC:
Estimated Additional Annual Revenue ----------------------------------- Effective Dates Requested Allowed --------------- --------- ------- 9/13/89 (a) $ 6,925,777 $5,185,069 5/30/90 (a) 564,000 552,317 3/25/91 (b) 10,067,000 6,107,948
(a) The rate increase effective September 13, 1989, was based upon an allowed rate of return of 13.6% on Common Stock equity and 10.83% on rate base. CWC had requested 14.5% and 11.16% respectively. An historical test year (1988) was used to establish the original cost rate base, which was adjusted for identified facilities expected to be placed in service during 1989 and 1990, but otherwise excluded construction work in progress. The rate decision directed CWC to discontinue depreciation charges on customer advances for construction received subsequent to January 1, 1989 and allowed CWC to recover costs associated with funding a 501(c) VEBA Trust for that portion of CWC's future liability for retiree medical benefits permitted by Federal income tax regulations. The rate decision approved the reorganization of CWC's operations from seven divisions to three regions. The rate decision also allowed for a reopening of the rate case to allow CWC to request an additional rate increase relating to the completion and in service operations of specific distribution system improvements deferred in the September 13, 1989 rate decision. Effective May 30, 1990, the DPUC approved a 1.66%, or $552,317, increase to reflect the completion of these improvements. (b) The rate increase effective March 25, 1991 was based upon an allowed rate of return of 12.7% on Common Stock equity and 10.74% on rate base. CWC had requested 14% and 11.3% respectively. A historical test year (12 months ended March 31, 1990) was used to establish the original cost rate base which was adjusted for identified facilities which were placed in service by December 31, 1990, but otherwise excluded construction work in progress. The decision disallowed both a proposed adjustment to revenues to reflect conservation based declines in sales and the requested provision for a Revenue Stabilization Clause to provide for revenues to be lost through customer participation in the Company's residential conservation kit program. The decision did allow recovery of certain of the conservation kit program costs over a two year amortization period. 14 Page 14 In 1979, the DPUC approved a surcharge to be applied to rates charged by water utilities in order to provide a current cash return on the major portion of a water utility's Construction Work In Progress (CWIP) applicable to facilities required by SDWA facilities. CWC has consistently been allowed to collect such a surcharge. CWC expects to apply for the application of similar surcharges with respect to any major future construction projects which may be required by the SDWA. There is no assurance that any future surcharges will be permitted. Under certain circumstances the DPUC, in consultation with the DPHAS, can order a water company with good managerial and technical resources to acquire the water system of another company to assure the availability and potability of water for customers of the company to be acquired. In 1989 the DPUC promulgated regulations permitting the DPUC to approve a surcharge to be applied to rates charged by water utilities in order to cover the costs incurred to acquire the other system and to make improvements as required. CWC expects to apply for the application of such a surcharge with respect to any mandated water system acquisition. There is no assurance that any such surcharge will be permitted. In 1993 the DPUC approved a limited rate adjustment to compensate for the effect of changes in certain costs for water companies. These costs include rate changes related to the cost of purchased water, energy, and taxes. CWC expects to apply for the application of this type of adjustment in the future when appropriate. There is no assurance that any such rate adjustment will be permitted. See also "Franchises and Competition" below for a discussion of 1994 Connecticut legislation dealing with the competitiveness of water rates. FRANCHISES AND COMPETITION Primarily because MDC is a tax-exempt entity, MDC's water rates are substantially lower than those of CWC. Legislation was proposed in the Connecticut General Assembly in 1987 which was intended to have the effect of permitting MDC to purchase the water company operations of CWC in South Windsor, a town which is presently served by both MDC and CWC. The Company opposed this legislation vigorously. The Connecticut General Assembly established a Task Force to report on various issues relating to towns served by both a privately-owned water company and a publicly-owned water company. Although the Task Force voted not to recommend legislation which would authorize such towns to hold referenda on consolidation and empower towns to force an investor-owned water company to sell its water system within that town to a governmentally-owned entity, it is not clear at this time whether such a proposal or similar legislation may be re-introduced and adopted by the Connecticut General Assembly. Further, even if such legislation were adopted, the amount of the compensation to be received by CWC for its assets in South Windsor, or the disposition of any such compensation, cannot be determined at this time. It is also possible that any legislation in this area could be written in a manner which would permit a similar acquisition of CWC's water operations in towns other than South Windsor. The Company has opposed, and will continue to oppose vigorously, any such proposed legislation. 15 Page 15 Legislation was passed in 1994 by the Connecticut General Assembly that requires the DPUC to adopt regulations regarding whether the rates that have been charged by a water company for a period of five consecutive years are so excessive in comparison to the rates charged by other water companies providing the same or similar service as to inhibit the economic development of the area serviced by the water company or impose an unreasonable cost to the customers of such company. The DPUC has established a docket for the adoption of regulations pursuant to this public act. CWC is participating in this docket and will oppose vigorously the establishment of regulations that could have an adverse effect on the Company. There is no assurance that the Company will be successful in this effort. In 1976, the Connecticut General Assembly created a study commission to evaluate the feasibility of expanding the water supply services of the MDC to include the towns of East Granby, East Windsor, Enfield, Somers, Suffield and Windsor Locks. These towns are in the service areas of and are served in part by CWC's Northern Region. On February 1, 1978, the study commission reported to the Governor and the General Assembly that the expansion was feasible and recommended that the General Assembly authorize the towns of East Granby, Suffield and Windsor Locks to take immediate steps to acquire water services from the MDC. It further recommended that the enabling legislation provide a mechanism for the towns of Enfield, East Windsor and Somers, after adequate technical, financial and institutional studies, to take the steps necessary to acquire water services from the MDC. The study commission made no recommendation in its report with respect to the method of implementation of any MDC expansion and did not discuss CWC's status or that of its water facilities should MDC provide such service. The General Assembly has not taken any action on the report. In 1990, CWC agreed, pursuant to the Connecticut Plan (see "Business - Regulation") that MDC would have the exclusive right to serve that part of East Granby which is not adjacent to Bradley International Airport and which is not presently being served by CWC. The Company will oppose vigorously any extension of MDC water operations within its service areas and any effort to permit the takeover by any municipal or other authority of any significant portion of CWC's service areas. It is not possible at this time to assess the likelihood of any legislation being enacted to implement these or similar recommendations or the impact of any such legislation on CWC and the Company, but such impact could be substantial. There can be no assurance that the Connecticut General Assembly will not take action to authorize such a takeover. As of December 31, 1994, CWC's Northern Region represented 45% of the Company's consolidated utility plant. In common with most water companies in Connecticut, CWC derives its rights and franchises to operate from special acts of the Connecticut General Assembly, which are subject to alteration, amendment or repeal by the General Assembly and which do not grant exclusive rights to CWC in its service areas. 16 Page 16 Subject to such power of alteration, amendment or repeal by the Connecticut General Assembly and subject to certain approvals, permits and consents of public authority and others prescribed by statute and by its charter, CWC has, with minor exceptions valid franchises free from burdensome restrictions and unlimited as to time, and is authorized to sell potable water in the towns (or parts thereof) in which water is now being supplied by CWC. In addition to the right to sell water as set forth above, the franchises of CWC include rights and powers to erect and maintain certain facilities on public highways and grounds, all subject to such consents and approvals of public authority and others as may be required by law. Under the Connecticut General Statutes, CWC, upon payment of compensation, may (subject to the various requirements described under "Business - Regulation") take and use such lands, springs, streams or ponds, or such rights or interests therein as the Connecticut Superior Court, upon application, may determine is necessary to enable CWC to supply potable water for public or domestic use in its franchise areas. CWC faces competition, presently not material, from a few private water systems operated within, or adjacent to, its franchise areas and from municipal and public authority systems whose service areas in some cases overlap portions of CWC's franchise areas. At the present time, except as noted above, there are no publicly owned utilities, cooperatives or other private utility companies competing with CWC in the areas now served, although within certain areas there are wells owned by individuals or private industries. See also "Business - Regulation" for a description of the so-called Connecticut Plan which is intended, among other things, to eliminate competition among water systems. 17 Page 17 REGULATION DEPARTMENT OF PUBLIC UTILITY CONTROL (DPUC) CWC is subject to regulation by the DPUC, which has jurisdiction over rates, standards of service, accounting procedures, issuance of securities, disposition of utility properties and related matters. The DPUC consists of five Commissioners, appointed by the Governor of Connecticut with the advice and consent of both houses of the Connecticut legislature. The DPUC is required by law to institute management audits, to be conducted periodically, of companies such as CWC. Such audits might result in the DPUC ordering implementation of new management practices or procedures. The DPUC has not conducted any such audit of CWC. The Company, which is not an operating utility company, is not a "public service company" within the meaning of the Connecticut General Statutes and is not generally subject to regulation by the DPUC. DPUC approval is necessary, however, before the Company may acquire or exercise control over any public service company. In connection with the affiliation with CWC, the Company amended its Certificate of Incorporation to prohibit the Company and any subsidiary of the Company from engaging, unless approved by the DPUC, in any business or activity which is not subject to regulation by the DPUC. The Company has no present intention of engaging, either directly or through any subsidiary, in any business or activity which is not subject to regulation by the DPUC. The Company is currently providing management and/or operating services to other water supply or waste water systems through CWC. CWC is contemplating providing these services through a new subsidiary. DPUC approval would be required for any such activity. DEPARTMENT OF ENVIRONMENTAL PROTECTION (DEP) While the construction of dams, reservoirs and other facilities necessary to the impounding, storage and withdrawal of water in connection with public water supplies is a permitted use under the Connecticut Inland Wetlands and Water Courses Act, CWC is required, pursuant to other statutory provisions, to obtain permits from the Connecticut Commissioner of Environmental Protection (Commissioner) for the location, construction or alteration of any dam or reservoir and to secure the approval of the Commissioner for the diversion and use of water from any river or underground source for public use. Various criteria must be satisfied under the respective statutes and regulations of the Connecticut Department of Environmental Protection (DEP) in order to obtain such permits or approvals and the Commissioner has the power to impose such conditions as he deems reasonably necessary in connection with such permits or approvals in order to assure compliance with such statutes. CWC has obtained, and complied with the terms of, all such requisite permits or approvals. 18 Page 18 Legislation was adopted in 1982 conferring upon the DEP authority to require a permit for any new diversion of water, including both surface and ground water, within the State of Connecticut. Any water diversion which might be effected by CWC in the future would require compliance by CWC with a lengthy permit application process and approval by the Commissioner. CWC has several potential well sites which are subject to this legislation and the DEP regulations thereunder. Such legislation requires the registration with the Commissioner of all diversions of water maintained prior to July 1, 1982. All of CWC diversions have been registered. Although the legislation provides that registered diversions are not subject to the permit requirement, DEP regulations adopted in March, 1990 are being used by DEP, on a case by case basis, to require compliance with the permit application process before some registered diversions can be used as a source of water supply. It is not possible at this time to fully assess the impact of DEP's application of this legislation and the DEP regulations on CWC and its operations, but such impact may be substantial, particularly on sources held for future use. The Federal Clean Water Act requires permits for discharges of effluents into navigable waters and requires that all discharges of pollutants comply with federally approved state water quality standards. The DEP has adopted, and the federal government has approved, water quality standards of receiving waters. A joint Federal and State permit system has been established to ensure that applicable effluent limitations and water quality standards are met in connection with the construction and operation of facilities which affect or discharge into state or interstate waters. CWC has received all such requisite permits. In 1984, all CWC's dams were registered with the Connecticut Department of Environmental Protection (DEP) as required under Public Act 83-38. DEP is required to investigate and periodically inspect most registered dams to ensure they are safely maintained. CWC was also subject to the requirements of the National Dam Inspection Act which required the United States Army Corps of Engineers to inspect certain dams. These inspections were completed in 1981 and the Army Corps' participation ended. Six of said dams have been inspected and, although certain modifications and further studies have been required, no material problems with respect to these dams have been reported. While the Company recognizes that a certain degree of risk is attached to CWC's ownership of dams in connection with its water collection system, the Company believes that all of CWC's dams are well maintained and are structurally stable. CWC believes that it will be able to comply with any modifications to its dams that are likely to be required as a result of these six inspections. CWC believes that the future cost of such compliance will be less than $5,000,000. These costs are considered in CWC's projected capital expenditures (see "Construction Program".) 19 Page 19 The DEP has promulgated regulations requiring that certain minimum flows be maintained in various waterways within the State of Connecticut. Pursuant to said regulations, CWC is exempt from compliance at certain of its facilities. However, DEP is considering making changes in the regulations. The Company cannot predict either the substance of those changes or their impact on the Company. However, it is possible that such changes could reduce the safe yield of CWC's sources. The cost to CWC to restore the lost safe yield is not now determinable but could be substantial. DEPARTMENT OF PUBLIC HEALTH AND ADDICTION SERVICES (DPHAS) CWC is also subject to regulation by the Connecticut DPHAS with respect to water quality matters. Plans for new water supply systems or enlargement of existing water supply systems also must be submitted to the DPHAS for approval. In 1985 the Connecticut General Assembly enacted comprehensive legislation (the so-called Connecticut Plan) designed to maximize the efficient and effective development of the state's public water supply systems. This legislation authorized DPHAS to administer procedures designed to coordinate the comprehensive planning of public water systems. The legislation mandates the establishment of public water supply management areas, with each such area having a water utility coordinating committee comprised of representatives of the various public water systems and regional planning agencies in the area. Each such committee is required to establish exclusive service areas for each public water system in the area, after taking into consideration a number of factors including existing water service areas, land use plans, etc., optimum utilization of existing water supplies and existing franchise rights of water companies. DPHAS is authorized to resolve any disagreements among members of the respective committees. This legislation is intended not only to promote cooperation among various water suppliers in each management area, but also to provide (through DPHAS' role) for the centralized planning of water supply. In implementing this legislation, DPHAS has created seven water supply management areas and is in the process of implementing the creation of the appropriate water utility coordinating committees. The operations of CWC, which cover many areas of the state, fall within four of the seven management areas. CWC is actively involved with the planning process in two of these management areas at this time. The remaining two areas of the Company's interest are expected to begin the planning process within the next several years. It is not possible at this time to predict the impact on the Company of the above described legislation, regulations and procedures, but the Company was an active participant in moving for the adoption of this scheme, and is presently hopeful that such centralized and cooperative planning will have a beneficial impact on its future water supply and water supply operations. 20 Page 20 SAFE DRINKING WATER ACT (SDWA) CWC is subject to regulation of water quality under the SDWA. The SDWA provides for the establishment of uniform minimum national quality standards by the Federal Environmental Protection Agency (EPA), as well as governmental authority to specify the type of treatment process to be used for public drinking water. The EPA regulations, pursuant to the SDWA, set limits, among other things, on certain organic and inorganic chemical contaminants, pesticides, turbidity, microbiological contaminants, and radioactivity. The DPHAS has adopted regulations which are in some cases more stringent than the Federal regulations. The 1986 SDWA amendments dictate that 83 new primary drinking water standards be established within three years of enactment. These new standards supersede the 22 interim standards which EPA established between 1977 and 1986. In addition to the 83 primary standards, the SDWA amendments require that EPA publish a list every three years of an additional 25 contaminants which it intends to regulate in drinking water. Although unable to meet the three year timetable required by the SDWA amendments, EPA has actively developed the 83 drinking water standards in six phases. Phase I, volatile organic chemicals, was promulgated in 1987 and initial and continued monitoring of sources has taken place. Phase II, which contains 26 synthetic organic chemicals including pesticides and seven inorganic chemicals, was promulgated in 1991 with initial monitoring for systems serving more than 500 people beginning in 1993. Phase IIB, the aldicarbs, was promulgated in 1992 but implementation is currently delayed by court order. Lead and copper, which were originally included in Phase II, were promulgated in 1991 and monitoring for large systems (serving more than 50,000 people) and medium systems (serving 3,301 to 50,000 people) began in 1992, small system monitoring (serving 3,300 people or less) began in July, 1993. Phase III, radionuclides, including radon, has been proposed but promulgation has been delayed by law and is now scheduled for the fall of 1995. Phase IV, the Surface Water Treatment Rule, was promulgated in 1989 and became effective June 29, 1993. Phase V, other synthetic organic chemicals and inorganic chemicals, was promulgated in 1992 and monitoring was implemented at the same time as Phase II. Phase VIA, disinfectants and disinfection by-products, is EPA's first list of 25 additional compounds to be regulated. Phase VIA is scheduled for promulgation in 1996. Phase VIB, additional organic and inorganic compounds, is not presently scheduled. 21 Page 21 The SDWA amendments also require EPA to establish criteria and rules which provide for filtration of surface water supplies and disinfection of all public water supplies. The Surface Water Treatment Rule mandates filtration for surface supplies which do not meet stringent requirements and establishes performance criteria for the operation of filtration plants. This rule also establishes guidelines which may redefine some public water supplies which have traditionally been considered groundwater as surface supplies subject to the provisions of the rule. The Company has tested its groundwater supplies. Determination by the State as to which groundwater supplies are considered to be under the direct influence of surface water, and therefore subject to the Surface Water Treatment Rule, has been completed. Only one system has been so determined as under the influence. That system, consisting of two caisson wells, has been scheduled for replacement prior to the compliance deadline of January 1, 1996. Connecticut has adopted the Surface Water Treatment Rule into its regulations and does not allow for exceptions to the filtration requirement. The draft Ground Water Disinfection Rule was published in 1992 and is currently scheduled to be proposed in 1995. This rule may require disinfection and increased disinfection contact time to be added to groundwater supplies. Through December 31, 1994, the Company has expended approximately $37,500,000 in constructing facilities and conducting aquifer mapping necessary to comply with the requirements of the SDWA. CWC believes that it is in substantial compliance with regulations promulgated by the EPA and DPHAS, as currently applied. Connecticut's aquifer protection legislation not only requires aquifer mapping, but also requires DEP, in consultation with DPHAS and DPUC, to prepare guidelines for acquisition by water companies of lands surrounding public water supply wellfields. The extent to which those guidelines, not yet prepared, might lead to regulations requiring the Company to purchase additional land around its wellfields is not known at this time. The Company anticipates spending an additional $2,000,000 on required aquifer mapping. Although the Company cannot predict either the substance of the regulations required by the 1986 SDWA amendments which have not yet been promulgated or their impact on CWC, the primary impact on CWC is expected to be in the area of increased monitoring and reporting with the potential for required modifications to existing filtration facilities. Construction of new facilities may be required for certain groundwater sources. It is possible that costs of compliance by CWC could be substantial. 22 Page 22 DISPOSITION OF PROPERTY Connecticut law presently imposes the following restrictions upon the disposition of property owned by water companies: (a) no property may be sold or otherwise transferred without the prior approval of the DPUC; (b) the sale, transfer and change in the use of watershed land (lands draining into a public water supply) and certain non-watershed lands which are contiguous to reservoirs and their tributaries are subject to regulation by the DPHAS; (c) when a water company intends to transfer or dispose of an interest in any present, potential or abandoned water supply source, other water companies which might reasonably be expected to utilize the source are given the opportunity through the DPHAS to seek to acquire such source; and (d) subject to such acquisition opportunities by other water companies as to water supply sources, when a water company intends to transfer or dispose of an interest in three or more contiguous acres of its unimproved real property, the municipality in which such property is located, the State of Connecticut and private, nonprofit land-holding organizations have prior options to acquire such interest in the context of priorities based on intended use, with open space use being favored; (e) if the municipality or the State chooses to exercise its option, and the purchase price cannot be established by agreement, the acquisition may be accomplished by eminent domain and (f) the proceeds from the sale of water company land must generally be reinvested in utility improvements or land necessary to protect water supply sources; and land may be sold only if consistent with the utility's water supply plan. Legislation enacted in 1988 provides that the DPUC use an accounting treatment which equitably allocates between the utility's ratepayers and its stockholders the economic benefits of the net proceeds from the sales of land which has ever been in the utility's rate base. Although CWC has plans to sell small, discrete parcels of land, CWC has no significant amounts of excess land which it presently expects to sell or otherwise dispose of. 23 Page 23 GENERAL Federal and State regulations and controls concerning water quality, pollution and the effluent from treatment facilities are still in the process of being developed and it is not possible to predict the scope or enforceability of regulations or standards which may be established in the future, or the cost and affect of existing and potential regulations and legislation upon any of the existing and proposed facilities and operations of CWC. Further, recent and possible future developments with respect to the identification and measurement of various elements in water supplies and concern with respect to the impact of one or more of such elements on public health may in the future require CWC to replace or modify all or portions of its various water supplies, to develop replacement supplies and/or to implement new treatment techniques. In addition, CWC anticipates that threatened and actual contamination of its water sources will become an increasing problem in the future. CWC has expended and will in the future be required to expend substantial amounts to prevent or remove said contamination or to develop alternative water supplies. See "Legal Proceedings" for a discussion of a recent contamination problem. Any of the aforesaid developments may significantly increase CWC's operating costs and capital requirements. Since the DPUC's rate setting methodology permits a utility to recover through rates prudently incurred expenses and investments in plant, based upon past DPUC practice, the Company expects that such expenditures and costs should ultimately be recoverable through rates for water service. EMPLOYEES As of December 31, 1994, CWC employed 164 full-time and part-time employees. The Company has no employees other than its officers, who are also officers of CWC and whose compensation is paid by CWC. All full-time employees of CWC who meet specified age and length of service requirements participate in an Employee's Retirement Plan which is a non-contributory trusteed pension plan and provides for a monthly income for employees at retirement. None of the employees is covered by a collective bargaining agreement. Management believes that its relationship with its employees is satisfactory. 24 Page 24 ITEM 2. PROPERTIES The properties of CWC consist of land, easements, rights (including water rights), buildings, reservoirs, standpipes, dams, wells, supply lines, treatment plants, pumping plants, transmission and distribution mains and conduits, mains and other facilities and equipment used for the collection, purification, storage and distribution of water. CWC owns its principal properties in fee, except that the Collinsville System's principal source of water supply is a water supply contract with the MDC. (See below for description of this contract.) The Company believes that CWC's properties are in good operating condition. Water mains are located, for the most part, in public streets and, in a few instances, are located on land owned by CWC in fee and land occupied under easements, most of which are perpetual and valid and sufficient for the purpose for which they are held. Although it is impractical to investigate the validity of the title to some of the easements held by CWC for distribution mains or to clear title in the cases where such distribution easement titles have been found defective, any such irregularities or defects in title which may exist do not materially impair the use of such properties in the business of CWC. Substantially all of CWC's property is subject to the lien of its Mortgage Indenture to secure CWC's First Mortgage Bonds. CWC owns ten water filtration treatment plants. Information about these facilities is contained in the following table.
Year Treatment Capacity Placed in (in million Filtration Plant Operation Region gallons per day) ---------------- --------- ------ ---------------- Guilford Well 1965 Shoreline 0.70 Rockville 1970 Northern 5.00 Westbrook Well 1975 Shoreline 0.23 Hunt Well Field 1976 Northern 2.50 MacKenzie 1980 Shoreline 4.00 Williams 1981 Shoreline 1.00 Stafford Springs 1984 Northern 1.00 Reynolds Bridge 1986 Naugatuck 1.00 Stewart 1989 Naugatuck 6.00 O'Bready Well 1994 Northern 0.50
25 Page 25 CWC has an agreement with the Metropolitan District Commission, a public water authority serving portions of Hartford County ("MDC"), to provide, among other things, the construction, operation and maintenance by MDC of a new filter plant to supply treated water for substantially all of CWC's Collinsville System, with a capacity of 650,000 gallons per day, and the provision by MDC to CWC's Collinsville System of up to 650,000 gallons per day of water from this plant meeting all applicable Federal and State requirements. CWC has paid 40% of the cost of construction of this plant and pays MDC an appropriate rate for water used by CWC in excess of 400,000 gallons per day. The water treatment plant went into service in December, 1990 following DPHAS approval. As of December 31, 1994, the transmission and distribution systems of CWC consisted of approximately 955 miles of main, of which approximately 30 miles have been laid in the past five years. On that date, approximately 75% of CWC's mains were eight-inch diameter or larger. Substantially all new main installations are cement-lined ductile iron pipe of eight-inch diameter or larger. Approximately 100 miles of the Company's pipelines are asbestos cement. From January 1, 1990 through December 31, 1994, CWC added $30,368,000 of gross plant additions (including plant financed by customer advances and contributions in aid of construction, allowance for funds used during construction and expenditures by CWC reimbursed by any other sources), and retired or sold property having a book value of $2,395,000, resulting in net additions during the period of $27,973,000. 26 Page 26 CWC PRODUCTION FACILITIES AS OF DECEMBER 31, 1994
Total Dependable Greatest 1994 Storage Yield (1) Avg. Daily Avg. Daily Capacity (thousands Delivery Delivery (thousands of gallons (thousands (thousands of gallons) per day) of gallons) of gallons) ----------- ------------ ------------ ------------- Northern Region: Western System Enfield-East Windsor System Wells 7,200 Suffield System Wells 200 South Windsor Wells 720 Ellsworth Wells 100 Lake Shenipsit 5,050,000 11,200 Talcottville Well 300 Vernon Wells 690 Windsor Locks Wells 300 --------- 20,710 9,026 (2) 8,398 --------- --------- --------- Somers System Wells 390 108 (3) 99 --------- --------- --------- Crescent Lake System (4) -- 31 (5) 31 --------- --------- --------- Reservoir Heights (6) -- 4 (7) 4 --------- --------- --------- Stafford Springs System #4 Reservoir 51,000 ) #3 Reservoir 15,000 ) 700 #2 Reservoir 60,000 ) --------- 700 629 (8) 499 --------- --------- --------- Tolland Aqueduct System Wells 42 25 (3) 21 --------- --------- --------- Llynwood System Wells 30 13 (3) 9 --------- --------- --------- Lakewood/Lakeview System Wells 49 30 (5) 30 --------- --------- --------- Nathan Hale System Wells 20 9 (8) 5 --------- --------- --------- Shoreline Region: Guilford System Killingworth & Kelseytown Reservoirs 273,000 2,300 Wells 4,540 --------- 6,840 3,676 (9) 3,475 --------- --------- --------- Chester System Upper and Lower Reservoirs 176,000 ) Turkey Hill Reservoir - Haddam 149,000 ) 1,200 Wilcox Reservoir - Chester 65,000 ) Deuse Pond - Chester 4,800 ) Well 190 --------- 1,390 900 (10) 636 --------- --------- --------- Chester Village West Wells 30 5 (5) 5 --------- --------- ---------
27 Page 27
Total Dependable Greatest 1994 Storage Yield (1) Avg. Daily Avg. Daily Capacity (thousands Delivery Delivery (thousands of gallons (thousands (thousands of gallons) per day) of gallons) of gallons) ----------- ----------- ----------- ----------- Naugatuck Region: Central System Long Hill Reservoir 506,000 ) Twitchell Reservoir 1,000 ) Candee Reservoirs (11) 7,000 ) 3,600 W. H. Moody Reservoir 335,000 ) Straitsville Reservoir 7,000 ) Mulberry Reservoir 50,000 ) Beacon Valley Brook Supply -- ) Meshaddock Brook Supply 300 Wells 1,000 --------- 4,900 4,970 (13) 2,674 --------- --------- --------- Terryville System Harwinton Ave. Reservoir (11) 14,800 50 Wells 910 --------- 960 498 (2) 484 --------- --------- --------- Thomaston System Thomaston Reservoir (11) 93,000 310 Wells 0 Waterbury Interconnection (12) 864 --------- 1,174 852 (14) 378 --------- --------- --------- Collinsville System Water Acquired by Contract (15) 650 Reservoir (distribution) 100 --------- 650 391 (3) 318 --------- --------- ---------
(1) Dependable yield is the maximum continuous rate of withdrawal available from a source of supply without seriously depleting the source. Dependable yield is based on long-term (99% dry year) rainfall records, storage capacity and watershed area. (2) Occurred in 1988. (3) Occurred in 1989. (4) Supplied by water purchased from the Town of East Longmeadow, Massachusetts. (5) Occurred in 1994. (6) Supplied by water purchased from the Town of Manchester. (7) First occurred in 1992. (8) Occurred in 1990. (9) Occurred in 1987. (10) Occurred in 1969. (11) Reservoir held in reserve and used for emergencies only. (12) Generally used for emergencies. However, see "Item 3. Legal Proceedings" for a discussion of the contamination of the Thomaston Wells. CWC presently uses the Waterbury emergency water connection to purchase substantially all of its water supply requirements for the Thomaston System from the Waterbury Municipal Water Department. (13) Occurred in 1964. (14) Occurred in 1966. (15) The Collinsville System has a right to up to 650,000 gallons per day through agreement with MDC. The source is Nepaug Reservoir with a storage capacity of 9.5 billion gallons. See "Item 2. Properties" for a description of this agreement. 28 Page 28 ITEM 3. LEGAL PROCEEDINGS During the latter part of 1992 it was discovered that the CWC's Reynolds Bridge well field in Thomaston, Connecticut, was contaminated with methyl tertiary butyl ether ("MTBE"), a gasoline additive. At this time CWC is implementing an appropriate remediation program to clean up the well site. In 1994 legal action was initiated against all parties deemed responsible for such contamination in order to obtain recovery of CWC's investigation, clean-up and water treatment and supply costs. The lawsuit is still in the discovery stage. The magnitude of such costs is unknown at this time, but it is presently estimated that such costs may exceed $4,700,000 of which approximately $1,400,000 has been incurred at December 31, 1994, and $500,000 is expected to be incurred in 1995. The clean-up process may take ten years or more to complete. The Company has reflected the total estimated clean-up costs as a deferred asset in the accompanying consolidated balance sheets representing costs which management believes will be recoverable from third parties or future ratepayers. An offsetting liability has been recorded, net of payments, through December 31, 1994. CWC is presently purchasing water from a public water supply system to provide service to its customers at normal levels. The Company and its legal counsel presently believe that any such costs which are not recovered from third parties should be allowed to be recovered through rates charged for water service and that the ultimate resolution of this matter will not have a material impact on the results of operations or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 29 Page 29 ITEM 4.1 EXECUTIVE OFFICERS OF THE COMPANY
Period Held or Term of Office Name Age Office Prior Position Expires --------------- --- ---------------- -------------- -------------- M. T. Chiaraluce 52 President and Chief Held position of President 1995 Annual Meeting Executive Officer since January, 1992 and Chief Executive Officer position with the Company since July, 1992 W. F. Guillaume 62 Vice President - Held current position or 1995 Annual Meeting Engineering and other executive position Planning with the Company since April, 1970 B. L. Lenz 55 Vice President - Held current position or 1995 Annual Meeting Finance and Accounting other executive position and Treasurer with the Company since March, 1979 J. R. McQueen 52 Vice President - Held current position or 1995 Annual Meeting Customer Service and other management or Government Affairs engineering position with the Company since October, 1965 K. W. Kells 51 Vice President - Design Held current position or 1995 Annual Meeting and Construction other engineering position with the Company since June, 1970 V. F. Susco, Jr. 43 Vice President - Held current position or 1995 Annual Meeting Administration and engineering position with Secretary the Company since May, 1978 T. P. O'Neill 41 Vice President - Held current position or 1995 Annual Meeting Operations other engineering position with the Company since February, 1980 P. J. Bancroft 45 Assistant Treasurer and Held current position or 1995 Annual Meeting Controller other accounting position with the Company since October, 1979
There are no family relationships between any of the Directors and Executive Officers of the Company. 30 Page 30 Part II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market under the symbol CTWS and is included in the NASDAQ National Market System. The following table sets forth, for the periods indicated, the high and low last sale prices of the Company's Common Stock in the over-the-counter market and the dividends paid by the Company during the two most recent calendar years. The quotations represent actual sales prices, but the sales reflected may be inter-dealer transactions which do not reflect retail mark-up, mark-down or commission. NASDAQ is the source of the quotations for all periods. Since its affiliation with CWC in 1975, the Company has paid quarterly cash dividends on its Common Stock.
Price ------------------------- Dividends Period High Low Paid ------ ---- --- ---------- 1994: First Quarter $28.00 $25.00 $ .41 Second Quarter 26.00 22.75 .41 Third Quarter 25.00 22.75 .41 Fourth Quarter 24.75 22.75 .42 1993: First Quarter $28.25 $25.25 $ .41 Second Quarter 29.00 26.75 .41 Third Quarter 31.875 27.25 .41 Fourth Quarter 30.75 27.00 .41
As of March 1, 1995, there were approximately 5,300 holders of record of the Company's Common Stock. Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors from funds legally available therefor. Future dividends of the Company will be dependent upon timely and adequate rate relief, consolidated and parent company net income, availability of cash to the Company and CWC, the financial condition of the Company and CWC, the ability of the Company and CWC to sell their securities, the requirements of the construction program of CWC and other conditions existing at the time. The Company is not permitted to pay any dividends on its Common Stock unless full cumulative dividends to the last preceding dividend date for all outstanding shares of Cumulative Preferred Stock of the Company have been paid or set aside for payment. 31 Page 31 The income of the Company is derived mainly from earnings on its equity investment in CWC. At December 31, 1994, the retained earnings of CWC aggregated $9,363,000. As a result of dividend restrictions contained in CWC's mortgage indenture and Preferred Stock provisions, the amount of cash dividends payable on CWC's common equity capital out of CWC's retained earnings was limited to $9,113,000. The terms of CWC's outstanding Preferred Stock prohibit payment of cash dividends on CWC's Common Stock in the event of an arrearage in the payment of cumulative dividends on the Preferred Stock. CWC is in compliance with these Preferred Stock restrictions. The Company has a Dividend Reinvestment and Common Stock Purchase Plan. Under the plan, customers and employees of CWC and holders of Common Stock who elect to participate may automatically reinvest all or specified percentages of their dividends in additional shares of Common Stock (at a price equal to 95% of the average market price for the five days preceding the purchase) and may also make optional cash payments of up to $10,000 per calendar quarter to purchase additional shares of Common Stock at 100% of said average market price. The Company issues authorized but unissued shares of Common Stock to meet the requirements of the plan, and 1,500,000 shares have been registered with the Securities and Exchange Commission for that purpose. Under the plan, approximately 655,000 shares had been issued by the Company as of December 31, 1994 The Company has a Performance Stock Program that provides for an aggregate maximum of up to 50,000 shares of Common Stock of the Company to be issued as awards of restricted stock to eligible employees of CWC, conditioned on the attainment of performance goals established by the Salary Committee. Under the plan approximately 9,500 shares, 5,900 of which are restricted, had been issued by the Company as of December 31, 1994. The Company has an Employee Savings 401-K Match Plan. Under the Plan approximately 4,000 shares of Common Stock had been issued by the Company as of December 31, 1994. 32 Page 32 ITEM 6. SELECTED FINANCIAL DATA (Not covered by Report of Independent Public Accountants)
(THOUSANDS OF DOLLARS EXCEPT WHERE INDICATED) YEARS ENDED DECEMBER 31, 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- INCOME Operating revenues................................................ $38,129 $38,131 $37,190 $37,372 $32,301 Operating expenses................................................ $28,474 $28,148 $27,157 $26,970 $23,589 Operating Income.................................................. $9,655 $9,983 $10,033 $10,402 $8,712 Interest and debt expense......................................... $3,940 $4,338 $4,872 $5,321 $5,650 Net income applicable to common stock............................. $5,842 $5,529 $5,111 $4,839 $2,945 Weighted average common shares outstanding........................ 2,812,456 2,769,347 2,728,573 2,686,337 2,272,114 Earnings per average common share ................................ $2.08 $2.00 $1.87 $1.80 $1.30 Number of shares outstanding at year end.......................... 2,870,559 2,789,977 2,751,331 2,711,125 2,667,878 ROE on year end common equity..................................... 12.2% 12.2% 11.8% 11.7% 7.3% Cash dividends paid per common share.............................. $1.65 $1.64 $1.61 $1.60 $1.57 Dividend payout ratio............................................. 79.3% 82.0% 86.1% 88.9% 120.8% Interest coverage - long-term debt (a)............................ 4.1X 4.2X 3.5X 3.1X 2.3X Effective Federal income tax rate (percentage of pre-tax income).. 38.5% 38.3% 36.7% 34.8% 35.1% Accumulated depreciation to depreciable plant (b)................. 25.28% 24.49% 22.85% 21.25% 19.73% CASH FLOWS Dividends to common stockholders.................................. $4,637 $4,539 $4,391 $4,295 $3,612 Deferred income taxes and investment tax credits.................. $1,080 $994 $968 $963 $889 Depreciation...................................................... $3,236 $3,194 $3,126 $3,115 $3,009 Gross additions to utility plant.................................. $6,514 $5,688 $4,272 $5,218 $8,682 BALANCE SHEET Net utility plant................................................. $140,784 $137,568 $135,697 $135,132 $133,103 Total capitalization.............................................. $103,355 $100,508 $98,510 $97,771 $97,615 Long-term debt.................................................... $54,600 $51,600 $51,600 $52,412 $52,953 Preferred stock (consolidated, excluding current maturities)...... $772 $3,748 $3,772 $3,869 $4,516 Book value - per common share .................................... $16.72 $16.19 $15.68 $15.30 $15.05 Capitalization ratios: Common stockholders' equity..................................... 46% 45% 44% 42% 41% Preferred stock................................................. 1% 4% 4% 4% 5% Long-term debt.................................................. 53% 51% 52% 54% 54%
(a) Interest coverage represents the ratio of utility operating income plus Federal and State income tax to annualized interest expense on outstanding long-term debt. (b) Year end depreciable plant
OPERATING DATA 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- REVENUE CLASS (Thousands of dollars) Residential....................................................... $24,488 $24,574 $23,541 $23,675 $20,245 Commerical........................................................ 4,696 4,745 4,729 4,823 4,112 Industrial........................................................ 1,922 1,851 2,100 2,239 2,049 Public authority.................................................. 893 903 856 836 736 Fire protection................................................... 6,021 5,967 5,881 5,691 5,083 Other............................................................. 109 91 83 108 76 --------- --------- --------- --------- --------- Total operating revenues........................................ $38,129 $38,131 $37,190 $37,372 $32,301 ========= ========= ========= ========= ========= Number of customers (average)..................................... 60,082 59,558 58,966 58,514 58,088 Production (millions of gallons).................................. 6,229 6,206 6,023 6,175 6,390 Number of employees............................................... 164 168 179 177 204
33 Page 33 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto. LIQUIDITY AND CAPITAL RESOURCES During 1994 our Dividend Reinvestment and Common Stock Purchase Plan (DRIP) provided over $1,700,000 of new equity capital including approximately $750,000 of new equity from the over 750 customers participating in the Customer Stock Purchase Plan (CSPP), a recent amendment to the DRIP. These customers acquired common shares near the market price low for the year. The decline in market price during 1994 generally reflects the interest rate sensitivity of utility common stocks whereby the stock market price will decline when long-term interest rates rise. Utility plant additions were financed through cash provided by operating activities and funds received from others. Seasonal cash requirements were provided through interim bank borrowings. Interim bank loans payable at year end were approximately $1,250,000 lower than last year. Management considers the current $9,000,000 line of credit with three banks adequate to finance expected short-term borrowing requirements that may arise from operations during 1995. Interest expense charged on interim bank loans will fluctuate subject to financial market conditions experienced during the year. Management continued to reduce the Subsidiary's cost of capital through the issuance of $12,050,000, 6.94%, First Mortgage Bonds, the proceeds of which were used to refinance higher cost First Mortgage Bonds as well as the $3,000,000, 9 1/2%, Preferred Stock issue. A 12.5% return on average common equity was achieved again this year. Likewise, for the second consecutive year interest coverage, the ratio of utility operating income plus Federal and State income tax to annualized interest expense on outstanding long-term debt, exceeded 4.0 times coverage. RATE RELIEF AND INFLATION The Subsidiary's last rate increase was effective March 25, 1991. That rate decision included a 12.7% allowed return on common equity and a 10.74% allowed return on rate base. Future economic and financial market conditions, coupled with governmental regulations and fiscal policy, plus other factors which are unpredictable and often beyond the control of the Company, will influence when future rate relief will be required. Construction expenditures mandated to comply with the amendments to the 1986 Safe Drinking Water Act (SDWA) will also affect water rates charged to customers. 34 Page 34 A Construction Work in Progress (CWIP) rate surcharge calculated at the utility's last allowed return on rate base, applied to 90% of construction expenditures for new facilities mandated by the SDWA, is available to provide a cash return on the Subsidiary's mandated SDWA construction expenditures. The Subsidiary has collected a CWIP surcharge in the past and expects to receive approval of a similar surcharge with respect to any future significant SDWA projects. Likewise, the Department of Public Utility Control (DPUC) is currently authorized to approve an acquisition surcharge when it determines, in consultation with the Department of Public Health and Addiction Services (DPHAS), that a distressed water system should, or must, be acquired by a stockholder owned water company so as to assure the availability and potability of water and the provision of water at adequate volume and pressure to the customers served by the distressed water system. This surcharge is based on the acquisition costs and construction improvements necessary to rehabilitate the acquired water company's system and is calculated in a manner similar to the CWIP surcharge. The Subsidiary has previously not requested or received approval of such an acquisition surcharge. Although the Subsidiary is now requesting an acquisition surcharge in connection with its probable acquisition of a distressed water company and intends to apply for approval of an acquisition surcharge with respect to any other mandated water company acquisition, there is no assurance that the DPUC will permit such a surcharge. The Company, like all other businesses, is affected by inflation, most notably by the continually increasing costs required to maintain, improve, and expand its service capacity. The cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flow. The ability of the Company to recover this increased investment in facilities is dependent upon future revenue increases which are subject to approval by the DPUC. Management does not presently plan to petition the DPUC for an increase in permanent rates or to implement a CWIP surcharge in 1995. OUTLOOK FOR 1995 The Company's profitability is attributable to the sale and distribution of water, the amount of which is dependent on seasonal weather fluctuations throughout the year and particularly during the summer months when water demand will vary with rainfall and temperature levels. The Board of Directors has approved a $5,750,000 construction budget for 1995. Funds provided by operating activities, given normal weather patterns and related operating revenue billings, are expected to finance this construction program. Refer to Note 14, Utility Plant and Construction Program, in Notes to Consolidated Financial Statements for additional discussion of the Subsidiary's future construction program. The improvements to the Killingworth Reservoir, mentioned in last year's "Outlook", have been delayed due to environmental and other regulatory requirements and are not included in the current three year projection of construction costs. 35 Page 35 Through December 31, 1994, the Company has incurred approximately $1,400,000 in its effort to clean up the Reynolds Bridge Well Field (RBWF) contaminated with MTBE, a gasoline additive. Additional expenditures of approximately $500,000 related to this clean-up effort are expected to be incurred in 1995. Refer to Note 13, Recoverable Contamination Clean-Up Costs, for additional discussion of RBWF clean-up costs. Management believes that these costs and future related costs should be recovered from the responsible parties. The DPUC is expected to mandate the takeover of a distressed water system in 1995. This water system, with over 400 customers, will cost the Company approximately $1,300,000 to acquire and require approximately $1,500,000 of water system improvements over the next three years. The related rate impact on these customers is unknown at this time. However, the Company has requested that an acquisition surcharge be implemented on the customers of the distressed water system. A decision from the Department of Public Utility Control is expected in March or April, 1995. The outcome of this mandated acquisition is not expected to have a material impact on the Company's future financial results. The present dividend rate of $.42 per quarter, if maintained (subject to Board of Directors' approval) represents an annual common stock dividend rate of $1.68 per share. The RBWF clean-up costs, plus the acquisition and improvement costs of the distressed water system, in the amounts mentioned above, may be financed by a combination of interim bank debt and common equity proceeds received through the DRIP. RESULTS OF OPERATIONS 1994 COMPARED WITH 1993 Net income applicable to common stock for 1994 increased from that of 1993 by $313,000, or $.08 per average common share on an increased number of common shares outstanding providing a 12.2% return on year end common equity for the second consecutive year. This improvement to net income resulted from a $398,000 decrease in interest and debt expense, a $217,000 decline in preferred stock dividends of the Subsidiary, and a $26,000 increase in other income and deductions, partially offset by a $328,000 decrease in operating income. The decrease in interest and debt expense and preferred dividends is primarily due to the refinancing of 10%, 9 3/8%, and 8 1/2% First Mortgage Bonds and a 9 1/2% Preferred Stock issue with 6.94% First Mortgage Bonds in 1994, in addition to the interest savings from the refinancings completed in 1993. Details of these transactions are provided in Notes 7 and 8, Preferred Stock and Long-Term Debt, in Notes to the Consolidated Financial Statements. The increase in other income and deductions is primarily due to increased Allowance For Funds Used During Construction. 36 Page 36 Operating revenues were virtually the same as the prior year. Last year the Subsidiary experienced an unusually hot and dry summer that increased residential customers' water consumption. This year residential and commercial consumption both dropped 1% from 1993 levels while industrial consumption increased 5%. Fire protection and other revenues also increased by approximately $75,000. Details of the $326,000, or 1.2% increase in operating expense includes the following: Increase in expenses: - Maintenance Expense - The expense savings from the debt refinancings provided an opportunity to implement planned preventative maintenance and non-critical repairs to our utility plant . . . . . . . . $177,000 - Income Taxes - Higher taxable income is the primary reason for this increase. Refer to Notes 9 and 10, Federal Income Tax and Connecticut Corporation Business Tax Expense, in Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,000 - Operation Expense - These expenses increased in total only 1/2% from last year. Cost reduction and efficiencies offset the 4% average wage increase granted to employees . . . . . . . . . . . . . . . . $ 65,000 - Depreciation Expense - Primarily due to utility plant placed in service during 1994 and 1993 . . . . . . . . . . . . . . . . $ 49,000 - Payroll Taxes - Reflects the increase in FICA, Medicare, and State Unemployment taxable wage bases and a higher State Unemployment tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,000 Decrease in expenses: - Municipal Taxes - Reflects lower assessed valuations following revaluation in several towns . . . . . . . . . . . . . . . . $ 71,000 37 Page 37 1993 COMPARED WITH 1992 Net income applicable to common stock for 1993 increased from that of 1992 by $418,000, or $.13 per average common share on an increased number of common shares outstanding. This improvement resulted from a $534,000 decrease in interest and debt expense partially offset by a $50,000 decrease in operating income and a $66,000 decrease in other income and deductions. The $457,000 decrease in long-term debt expense reflects the refinancings of long-term debt through the issuance of Series R, T and U First Mortgage Bonds completed in 1992 and 1993. Additional details of these transactions are provided in Note 8, Long-Term Debt in Notes to Consolidated Financial Statements. The $77,000 decrease in other interest reflects a lower average balance of interim loans outstanding in 1993 at reduced interest rates. Operating revenues increased $941,000, or 2.5%, primarily due to a dry, hot 1993 summer season (as compared to a wet, cool 1992 summer) which increased residential customers' water consumption by approximately 4%, partially offset by a 14% decline in water volume consumed by industrial customers. The $991,000 increase in operating expense is primarily due to increased income and gross revenue taxes, $669,000 (principally due to higher taxable income), increased maintenance expense, $319,000 (due primarily to implementation of planned preventative maintenance and non-critical repairs to utility plant), increase in depreciation expense, $125,000, partially offset by a net reduction of $122,000 in all other expenses such as operation expenses and municipal property taxes. 38 Page 38 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Connecticut Water Service, Inc.: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Connecticut Water Service, Inc. (a Connecticut corporation) and Subsidiary as of December 31, 1994, 1993 and 1992, and the related consolidated statements of income and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Connecticut Water Service, Inc. and Subsidiary as of December 31, 1994, 1993 and 1992, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Notes 1 and 2 to the financial statements, effective January 1, 1993, the Company changed its methods of accounting for income taxes and postretirement benefits other than pensions. /s/ Arthur Andersen LLP Hartford, Connecticut February 10, 1995 39 Page 39 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ASSETS 1994 1993 1992 ------ --------- --------- --------- (THOUSANDS OF DOLLARS) Utility Plant Utility Plant.......................................................... $181,079 $176,308 $171,820 Construction Work in Progress.......................................... 3,369 2,596 1,617 Utility Plant Acquisition Adjustments.................................. (1,206) (1,206) (1,196) --------- --------- --------- 183,242 177,698 172,241 Accumulated Provision for Depreciation................................. (42,458) (40,130) (36,544) --------- --------- --------- Net Utility Plant.................................................... 140,784 137,568 135,697 --------- --------- --------- Investments Unconsolidated Subsidiary at Underlying Equity......................... 35 35 35 Other.................................................................. 846 727 614 --------- --------- --------- Total Investments.................................................... 881 762 649 --------- --------- --------- Current Assets Cash................................................................... 18 44 60 Accounts Receivable (Less Allowance, 1994 - $149; 1993 - $166; 1992 - $256)............................... 3,599 3,425 3,861 Accrued Unbilled Revenues.............................................. 2,800 2,798 2,841 Materials and Supplies, at Average Cost................................ 651 681 827 Prepayments and Other Current Assets................................... 864 255 323 --------- --------- --------- Total Current Assets................................................. 7,932 7,203 7,912 --------- --------- --------- Deferred Charges Unamortized Debt Issuance Expense...................................... 5,587 5,111 4,315 Taxes Recoverable Through Future Rates................................. 9,200 10,000 -- Postretirement Benefits Other Than Pension Recoverable Through Future Rates................................................. 757 640 -- Recoverable Contamination Clean-Up Costs............................... 4,700 912 200 Prepaid Income Taxes on Contributions in Aid of Construction........... 450 439 443 Other Costs............................................................ 950 445 480 --------- --------- --------- Total Deferred Charges............................................... 21,644 17,547 5,438 --------- --------- --------- Total Assets....................................................... $171,241 $163,080 $149,696 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 40 Page 40 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, CAPITALIZATION AND LIABILITIES 1994 1993 1992 ------------------------------ --------- --------- --------- (THOUSANDS OF DOLLARS) Capitalization (See Accompanying Statements) Common Stockholders' Equity............................................ $47,983 $45,160 $43,138 Preferred Stock........................................................ 772 772 772 Preferred Stock with Mandatory Redemption Provisions................... -- 2,976 3,000 Long-Term Debt ........................................................ 54,600 51,600 51,600 --------- --------- --------- Total Capitalization................................................. 103,355 100,508 98,510 --------- --------- --------- Current Liabilities Interim Bank Loans Payable............................................. 2,700 3,950 4,983 Current Portion of Long-Term Debt...................................... -- -- 150 Current Portion of Preferred Stock..................................... 30 30 102 Accounts Payable....................................................... 4,219 2,574 1,771 Accrued Taxes.......................................................... 1,810 1,466 1,787 Accrued Interest....................................................... 1,250 1,196 1,135 Accrued Recoverable Contamination Clean-Up Costs....................... 500 -- -- Other.................................................................. 1,544 1,263 1,082 --------- --------- --------- Total Current Liabilities............................................ 12,053 10,479 11,010 --------- --------- --------- Accrued Recoverable Contamination Clean-Up Costs......................... 2,811 -- -- --------- --------- --------- Advances for Construction................................................ 12,099 11,584 11,995 --------- --------- --------- Contributions in Aid of Construction..................................... 18,145 18,128 17,434 --------- --------- --------- Deferred Federal Income Taxes............................................ 10,547 9,408 8,355 --------- --------- --------- Unfunded Future Income Taxes............................................. 9,200 10,000 -- --------- --------- --------- Unfunded Postretirement Benefits Other Than Pension...................... 757 640 -- --------- --------- --------- Unamortized Investment Tax Credits....................................... 2,274 2,333 2,392 --------- --------- --------- Total Capitalization and Liabilities............................... $171,241 $163,080 $149,696 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 41 Page 41 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1994 1993 1992 --------- --------- --------- Common Stockholders' Equity (THOUSANDS OF DOLLARS) Common Stock Without Par Value; Authorized - 7,500,000 Shares; Shares Issued and Outstanding: 1994 - 2,870,559; 1993 - 2,789,977; 1992 - 2,751,331................................. $40,126 $38,218 $37,186 Stock Issuance Expense............................................... (1,183) (1,150) (1,150) Retained Earnings.................................................... 9,040 8,092 7,102 --------- --------- --------- Total Common Stockholders' Equity................................ 47,983 45,160 43,138 --------- --------- --------- Cumulative Preferred Stock of Connecticut Water Service, Inc. Series A Voting, $20 Par Value; Authorized, Issued and Outstanding 15,000 Shares............................... 300 300 300 Series $.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares, Issued and Outstanding 29,499 Shares.......................................... 472 472 472 --------- --------- --------- Total Preferred Stock of Connecticut Water Service, Inc.................................. 772 772 772 --------- --------- --------- Cumulative Preferred Stock of The Connecticut Water Company, with Mandatory Redemption Provisions, Voting, $100 Par Value; Authorized 50,000 Shares, Issued and Outstanding: SHARES -------------------------- SERIES 1994 1993 1992 ------------- -------- ------- ------- 4 3/4% 300 600 900 30 60 90 5 7/8% 0 0 400 -- -- 40 7% 0 0 320 -- -- 32 9 1/2% 0 30,000 30,000 -- 3,000 3,000 Stock Issuance Expense............................................... -- (54) (60) --------- --------- --------- 30 3,006 3,102 Less Current Portion of Preferred Stock............................. 30 30 102 --------- --------- --------- Total Preferred Stock of The Connecticut Water Company................................... -- 2,976 3,000 --------- --------- --------- Long-Term Debt The Connecticut Water Company First Mortgage Bonds 9 3/8% Series L, due 1997......................................... -- 1,800 1,875 7 1/4% Series M, due 2004......................................... -- -- 4,625 8 3/8% Series N, due 1993......................................... -- -- 8,000 8 1/2% Series O, due 1999......................................... -- 2,250 2,250 10% Series P, due 2004......................................... -- 5,000 5,000 6.9% Series Q, due 2021......................................... 10,000 10,000 10,000 5 7/8% Series R, due 2022......................................... 15,000 15,000 15,000 6.65% Series S, due 2020......................................... 8,000 8,000 -- 5 3/4% Series T, due 2028......................................... 5,000 5,000 -- 5.3% Series U, due 2028......................................... 4,550 4,550 -- 6.94% Series V, due 2029......................................... 12,050 -- -- --------- --------- --------- 54,600 51,600 46,750 8.1% Unsecured Promissory Note, due 2008............................. -- -- 5,000 --------- --------- --------- 54,600 51,600 51,750 Less Current Portion of Long-Term Debt............................... -- -- 150 --------- --------- --------- Total Long-Term Debt............................................. 54,600 51,600 51,600 --------- --------- --------- Total Capitalization........................................... $103,355 $100,508 $98,510 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 42 Page 42 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992 --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Operating Revenues....................................................... $38,129 $38,131 $37,190 --------- --------- --------- Operating Expenses Operation.............................................................. 12,929 12,864 12,950 Maintenance............................................................ 1,970 1,793 1,474 Depreciation........................................................... 3,086 3,037 2,912 Federal Income Taxes................................................... 3,769 3,710 3,163 Connecticut Corporation Business Taxes................................. 987 963 887 Taxes Other Than Income Taxes.......................................... 5,733 5,781 5,771 --------- --------- --------- Total Operating Expenses.......................................... 28,474 28,148 27,157 --------- --------- --------- Utility Operating Income................................................. 9,655 9,983 10,033 --------- --------- --------- Other Income (Deductions) Interest............................................................... 100 105 113 Allowance for Funds Used During Construction........................... 89 71 108 Preferred Stock Dividends of Subsidiary................................ (73) (290) (296) Other.................................................................. 23 (29) 75 Taxes on Other Income.................................................. 26 65 (12) --------- --------- --------- Total Other Income (Deductions)................................... 165 (78) (12) --------- --------- --------- Interest and Debt Expense Interest on Long-Term Debt............................................. 3,457 3,855 4,340 Other Interest Charges................................................. 295 273 350 Amortization of Debt Expense........................................... 188 210 182 --------- --------- --------- Total Interest and Debt Expense................................... 3,940 4,338 4,872 --------- --------- --------- Net Income Before Preferred Dividends.................................... 5,880 5,567 5,149 Preferred Stock Dividend Requirement..................................... 38 38 38 --------- --------- --------- Net Income Applicable to Common Stockholders............................. $5,842 $5,529 $5,111 ========= ========= ========= Weighted Average Common Shares Outstanding............................... 2,812 2,769 2,729 ========= ========= ========= Earnings Per Average Common Share........................................ $2.08 $2.00 $1.87 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 43 Page 43 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992 --------- --------- --------- (THOUSANDS OF DOLLARS) Operating Activities: Net Income Before Preferred Dividends of Parent........................ $5,880 $5,567 $5,149 --------- --------- --------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $150 in 1994, $157 in 1993 and $214 in 1992 charged to other accounts)............................ 3,236 3,194 3,126 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues........................................ (176) 479 744 (Increase) Decrease in Other Current Assets........................ (579) 214 172 (Increase) Decrease in Other Non-Current Items..................... (870) (570) 207 Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities........................... 2,324 724 1,382 Increase (Decrease) in Deferred Income Taxes and Investment Tax Credits, Net...................................... 1,080 994 968 --------- --------- --------- Total Adjustments.............................................. 5,015 5,035 6,599 --------- --------- --------- Net Cash Provided by Operating Activities...................... 10,895 10,602 11,748 --------- --------- --------- Investing Activities: Gross Additions to Utility Plant (including Allowance for Funds Used During Construction of $89 in 1994, $71 in 1993 and $108 in 1992)........................... (6,514) (5,688) (4,272) --------- --------- --------- Financing Activities: Proceeds from Interim Bank Loans....................................... 2,700 3,950 4,983 Repayment of Interim Bank Loans........................................ (3,950) (4,983) (6,413) Proceeds from Issuance of Long-Term Debt............................... 12,050 17,550 15,000 Reduction of Long-Term Debt Including Current Portion.................. (9,050) (17,700) (17,001) Proceeds from Issuance of Common Stock................................. 1,908 1,032 930 Retirement of Preferred Stock.......................................... (3,030) (102) (102) Charges Related to Redemption of Subsidiary's 9 1/2% Series Preferred Stock...................................................... (257) -- -- Advances, Contributions and Funds From Others for Construction, Net......................................... 594 906 1,182 Costs Incurred to Issue Long-Term Debt, Preferred Stock, and Common Stock............................................. (697) (1,006) (1,690) Cash Dividends Paid.................................................... (4,675) (4,577) (4,429) --------- --------- --------- Net Cash Provided by (Used in) Financing Activities............ (4,407) (4,930) (7,540) --------- --------- --------- Net Increase (Decrease) in Cash.......................................... (26) (16) (64) Cash at Beginning of Year................................................ 44 60 124 --------- --------- --------- Cash at End of Year...................................................... $18 $44 $60 ========= ========= ========= Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (Net of Amounts Capitalized)................................ $3,698 $4,189 $5,035 State and Federal Income Taxes....................................... $3,480 $3,945 $2,270
The accompanying notes are an integral part of these financial statements. 44 Page 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION - Connecticut Water Service, Inc. (the Company) is the parent company of The Connecticut Water Company (the Subsidiary). Intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements. REGULATION - The Subsidiary's accounting policies conform to the Uniform System of Accounts prescribed by the State of Connecticut Department of Public Utility Control (DPUC) and to generally accepted accounting principles. REVENUES - The Subsidiary accrues an estimate for the amount of revenues relating to sales unbilled at the end of each quarter. Generally, all customers are billed quarterly, except larger commercial and industrial customers, and public fire protection customers, who are billed monthly. All customers, except fire protection customers, are metered. Public fire protection charges are based on the length and diameter of the water main and number of hydrants in service. Private fire protection charges are based on the diameter of the connection to the water main. UTILITY PLANT - Utility plant is stated at original cost of such property when first devoted to public service. The difference between the original cost and the cost to the Subsidiary is charged or credited to utility plant acquisition adjustments. Utility Plant accounts are charged with the cost of improvements and replacements of property including an allowance for funds used during construction. Retired or disposed of depreciable plant is charged to accumulated provision for depreciation together with any costs applicable to retirement, less any salvage received. Maintenance of utility plant is charged to expense. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION - The Allowance for Funds Used During Construction (AFUDC) represents the estimated cost of funds used to finance the construction of the Subsidiary's utility plant. Generally, utility plant under construction is not recognized as part of the Subsidiary's rate base for ratemaking purposes until facilities are placed into service, and accordingly, the Subsidiary charges AFUDC to the construction cost of utility plant. Capitalized AFUDC, which does not represent current cash income, is recovered through rates over the service lives of the facilities. The AFUDC rate applied by the Subsidiary was 10.74% for all years reported. 45 Page 45 DEPRECIATION - Depreciation is computed on a straight line basis at various rates, approved by the DPUC, estimated to be sufficient to provide for the recovery of the investment in utility plant over its useful life. Water treatment facilities are depreciated using a 2.5% composite rate while most other utility plant items use a composite rate of 1.64%. The provisions for depreciation based on the average balance of depreciable property were 2.0% for 1994, 1993 and 1992. CUSTOMERS' ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION AND RELATED PREPAID INCOME TAXES - Under the terms of construction contracts with real estate developers and others, the Subsidiary receives advances for the costs of new main installations. Refunds are made, without interest, as services are connected to the main, over periods not exceeding fifteen years and not in excess of the original advance. Unrefunded balances, at the end of the contract period, are credited to Contributions in Aid of Construction (CIAC) and are no longer refundable. Advances and CIAC received from developers subsequent to 1986 are taxable to the Subsidiary for income tax purposes when received. The DPUC allows partial recovery of this tax from real estate developers and other third parties. The tax collected from third parties is discounted by the present value of the tax depreciation benefits. The difference between the tax paid by the Subsidiary and the tax collected is recorded as a prepaid tax asset. This will be recovered through future tax depreciation deductions. INCOME TAXES - Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", which requires the use of the liability method in accounting for income taxes. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting and tax bases of assets and liabilities. Such temporary differences are the result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements. To the extent such income taxes are recoverable or payable through future rates, an offsetting regulatory asset and liability have been recorded in the accompanying Consolidated Balance Sheets. Since the offsetting deferred asset and liability have no cash flow implications, there is no impact shown on the Company's Cash Flow Statements. The Company believes that all deferred income tax assets will be realized in the future. Approximately $1,500,000 and $2,575,000, respectively, of the December 31, 1994 and 1993 Unfunded Future Income Taxes is related to deferred Federal income taxes. The remaining $7,700,000 and $7,425,000, respectively, of the Unfunded Future Income Taxes on the balance sheet at December 31, 1994 and 1993, is related to deferred State income taxes. 46 Page 46 Prior years' financial statements have not been restated for the adoption of SFAS 109. Deferred Federal income taxes have been provided for Federal investment tax credits and accelerated depreciation subsequent to 1981, as required by Federal income tax regulations. Deferred taxes have also been provided for temporary differences in the recognition of certain expenses for tax and financial statement purposes as allowed by DPUC ratemaking policies. The total of these "Deferred Federal Income Taxes" are listed separately on the balance sheet from the Unfunded Future Income Taxes which arose from the implementation of SFAS 109. Connecticut Corporation Business Tax (CCBT) has been reflected using the flow-through method of accounting for all tax accounting timing differences in accordance with required DPUC ratemaking policies. MUNICIPAL TAXES - Municipal taxes are expensed over the 12 month period beginning on July 1 following the lien date, corresponding with the period in which the municipal services are provided. OTHER DEFERRED COSTS - In accordance with DPUC ratemaking procedures, costs benefiting future periods, such as tank painting, are expensed over the periods they benefit. UNAMORTIZED DEBT ISSUANCE EXPENSE - The issuance costs of long-term debt, including the remaining balance of issuance costs on long-term debt issues that have been refinanced prior to maturity and related call premiums, are amortized over the respective life of the outstanding debt, as approved by the DPUC. 47 Page 47 NOTE 2: PENSION COST AND OTHER EMPLOYEE BENEFITS PENSION - The Subsidiary has a trusteed, non-contributory defined benefit retirement plan (the Pension Plan) which covers all employees who have completed one year of service. Benefits under the Pension Plan are based on credited years of service and "average earnings", as defined in the Pension Plan. The Subsidiary's policy is to fund accrued pension costs as permitted by Federal income tax regulations. No funding was permitted for 1994 and 1993. The table below sets forth the Pension Plan's funded status and amounts recognized in the Company's year end Balance Sheets.
1994 1993 1992 ------ ------ ------ (Thousands of dollars) Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . . . . . . . . . . . $ 6,044 $ 6,776 $ 5,355 Accumulated benefit obligation . . . . . . . . . . . . . . . . . . 6,322 6,909 5,431 Projected benefit obligation . . . . . . . . . . . . . . . . . . . 8,184 9,568 7,694 Pension Plan assets at fair value, primarily equity securities and U.S. bonds . . . . . . . . . . . . . . . . . 8,825 9,412 8,753 Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . (8,184) (9,568) (7,694) ------- ------- ------- Pension Plan assets in excess of (under) projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . 641 (156) 1,059 Add (Deduct): Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions . . . . . . . . . . . . . . . . . . . (1,768) (534) (1,791) Unrecognized net transition asset at January 1, 1986 being recognized over 15 years . . . . . . . . . . . . . . (226) (259) (291) Unrecognized prior service cost . . . . . . . . . . . . . . . . . . 347 388 421 ------- ------- ------- Prepaid (accrued) pension cost as of December 31 . . . . . . . . . $(1,006) $ (561) $ (602) ======= ======= =======
Net periodic pension cost for 1994, 1993, and 1992 included the following components: Service cost-benefits earned during the period . . . . . . . . . . . . $ 469 $ 388 $ 331 Interest cost on projected benefit obligation . . . . . . . . . . . . . 631 618 578 Actual return on Pension Plan assets . . . . . . . . . . . . . . . . . 144 (796) (696) Deferred investment gain (loss) . . . . . . . . . . . . . . . . . . . . (813) 117 114 Amortization of: Unrecognized net transition asset . . . . . . . . . . . . . . . . . . (32) (32) (32) Unrecognized net (gain) loss . . . . . . . . . . . . . . . . . . . . 14 (89) (106) Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . 32 33 33 ------- ------- ------- Net periodic pension cost . . . . . . . . . . . . . . . . . . . . . . . $ 445 $ 239 $ 222 ======= ======= =======
48 Page 48 The actuarial present value of the projected benefit obligation was determined based on the following assumptions:
1994 1993 1992 ---- ---- ---- Weighted average discount rate . . . . . . 7.75% 6.5% 8.0% and Rate of increase in future compensation levels. . . . . . . . . . . . 5.3% 5.3% 6.6% The long-term expected rate of return on plan assets used in the determination of pension costs . . . . . . . . . . . . . . 8.0% 8.5% 8.0%
The weighted average discount rate assumption is based on the return provided by high quality fixed income investments at year end. This rate of return assumption will more than likely change annually. The wage rate assumption and the rate of return on plan assets are longer out-looking assumptions which may be revised to reflect changes in economic conditions. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - The Subsidiary provides additional pension benefits to senior management through a supplemental executive retirement plan. At December 31, 1994 the actuarial present value of the projected benefit obligation was $190,000. Expense associated with this plan was $72,000 for 1994, $123,000 for 1993, and $95,000 for 1992. POSTRETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing pension benefits, the Subsidiary provides certain medical, dental and life insurance benefits to retired employees partially funded by a 501(c)(9) Voluntary Employee Beneficiary Association Trust (VEBA) that has been approved by the DPUC. Substantially all of the Subsidiary's employees may become eligible for these benefits if they retire from the Company on or after age 55 with 10 years of service with the Subsidiary. The contributions for calendar years 1994, 1993, and 1992 were $250,000, $250,000, and $345,000, respectively and were deductible by the Subsidiary for Federal Income Tax purposes. 49 Page 49 The Financial Accounting Standards Board (FASB) issued new standards of accounting for postretirement health care benefits (SFAS 106) which the Company adopted in 1993. A deferred regulatory asset has been recorded on the Company's books to reflect the amount which represents the future operating revenues expected to be collected in customer rates when the associated liabilities become payable, including appropriate income and gross earnings taxes. The Company believes that the deferred asset recorded from the adoption of this statement will be recovered in the future through the ratemaking process as the DPUC has issued decisions for other water companies authorizing rate recovery of SFAS 106 expense and has allowed the recording of a regulatory asset for the portion of the costs to be recovered through future rates. Since the offsetting deferred asset and liability have no cash flow implications, there is no impact shown on the Company's cash flow statements. For SFAS 106, the Company has elected to recognize the transition obligation on a delayed basis over a period equal to the plan participants' 21.6 years of average future service. Prior years' financial statements have not been restated for the adoption of SFAS 106. During 1993, three changes in the Company's policy of providing PBOP's provisions were adopted effective January 1, 1994 and are reflected in the Accumulated Postretirement Benefit Obligation (APBO) as of December 31, 1993. These changes are summarized below: - Participants retiring on or after January 1, 1994 will contribute 20% of the annual medical premium for medical coverage. - Active employees will be eligible to participate at age 45. - Participants hired on or after January 1, 1994 will receive full PBOP benefits after 30 years of service. Benefits will be prorated for less than 30 years of service. 50 Page 50 The table below sets forth the PBOP plan's funded status and unfunded amounts recognized in the Company's 1994 and 1993 year end Balance Sheets.
1994 1993 ---- ---- (Thousands of dollars) Accumulated Postretirement Benefit Obligation (APBO): Current retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,757) $(2,345) Active employees fully eligible for benefits . . . . . . . . . . . . . . . . (401) (354) Other active employees . . . . . . . . . . . . . . . . . . . . . . . . . . . (784) (1,145) ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,942) (3,844) Fair value of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 901 836 ------- ------- APBO in excess of fair value of assets . . . . . . . . . . . . . . . . . . . . . . (2,041) (3,008) ------- ------- Unrecognized amounts: Transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,968 2,616 Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- Net loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,684) (248) ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,284 2,368 ------- ------- Unfunded PBOP at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 757 $ 640 ======= ======= Net periodic PBOP costs include the following components: Service cost - benefits attributed to service during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 158 $ 273 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 429 Actual return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) (24) Amortization of transition obligation . . . . . . . . . . . . . . . . . . . . . . . 165 221 Amortization of Losses (Gains) . . . . . . . . . . . . . . . . . . . . . . . . . . (128) -- Deferral of asset (loss) gain during the year . . . . . . . . . . . . . . . . . . . (29) (9) ------- ------- Net Periodic PBOP Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 366 $ 890 ======= =======
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation for 1994 was 7.75% and 6.5% for 1993. The expected long-term after tax return on PBOP assets was 5% for both 1994 and 1993. In determining the accumulated postretirement benefit obligation, two sets of medical cost trend rates were used; for retired employees prior to age 65 and for retirees age 65 and over. Health care cost trends of 14% and 10%, respectively, were assumed for 1994, grading down over the years to 5.5% in 1999 and after. 51 Page 51 The health care cost trend rate has a significant effect on the accumulated postretirement benefit obligation and net periodic cost. A one-percentage-point increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation at December 31, 1994 by $300,000 and would increase the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $50,000. Accordingly, subsequent changes would increase or decrease the regulatory assets and liabilities discussed above. SAVINGS PLAN - The Subsidiary maintains an employee savings plan which allows participants to contribute from 1% to 10% of pre-tax compensation. Beginning January 1, 1993 the Subsidiary matches either 25 or 50 cents for each dollar contributed by the employee up to 3% of the employees' compensation depending on the Company's earnings per average common share (EPS). If EPS in the prior year exceeds 110% of dividends paid per common share, the applicable percentage is 50%; otherwise the match is 25%. The Subsidiary's contribution charged to expense in 1994 and 1993 was $60,000 and $47,000, respectively, in each case based on a 50% match. PERFORMANCE STOCK PROGRAM - The Company has a Performance Stock Program whereby restricted shares of Common Stock may be awarded annually to Officers of the Subsidiary. When the goals established by the Compensation Committee have been attained, the restrictions on the stock are removed. Amounts charged to expense pursuant to this plan were $120,000, $66,000 and $25,000 for 1994, 1993 and 1992, respectively. 52 Page 52 NOTE 3: COMMON STOCK The summary of the changes in the common stock accounts for the period January 1, 1992 through December 31, 1994, appears below:
COMMON STOCK ---------------------------------------- ISSUANCE SHARES AMOUNT EXPENSE ------ ------ ------- (THOUSANDS OF DOLLARS) Balance, January 1, 1992 . . . . . . . . . . . . . . . . . . 2,711,125 $36,256 $1,148 Stock issued through Dividend Reinvestment Plan . . . 37,868 905 2 Stock issued through Performance Stock Program . . . . 2,338 25 -- --------- ------- ------ Balance, December 31, 1992 . . . . . . . . . . . . . . . . . 2,751,331 37,186 1,150 Stock issued through Dividend Reinvestment Plan . . . 33,803 916 -- Stock issued through Performance Stock Program . . . . 3,074 66 -- Stock issued to Employee Savings 401-K Match Plan . . 1,769 50 -- --------- ------- ------- Balance, December 31, 1993 . . . . . . . . . . . . . . . . . 2,789,977 38,218 1,150 STOCK ISSUED THROUGH DIVIDEND REINVESTMENT PLAN (1) . . . . . . . . . . . . . . . . 74,053 1,728 33 STOCK ISSUED THROUGH PERFORMANCE STOCK PROGRAM . . . . . . . . . . . . . . 4,061 120 -- STOCK ISSUED TO EMPLOYEE SAVINGS 401-K MATCH PLAN . . 2,468 60 -- --------- ------- ------- BALANCE, DECEMBER 31, 1994 (2) . . . . . . . . . . . . . . . 2,870,559 $40,126 $ 1,183 ========= ======= =======
(1) Includes approximately 33,000 shares issued through the Customer Stock Purchase Plan, a 1994 amendment to the Dividend Reinvestment Plan. (2) Includes 5,847 restricted shares issued through the Performance Stock Program. 53 Page 53 NOTE 4: COMMON STOCK RIGHTS PLAN In 1988 the Board of Directors authorized a dividend distribution of one right to purchase Common Stock (Right) for each outstanding share of Common Stock. Each Right entitles the registered holder under certain circumstances to purchase from the Company one share of Common Stock (or substitute equity or debt securities) at an exercise price (subject to antidilution adjustments) of $50 per share, or under other circumstances, common stock or other securities or assets of an acquiring entity or of the Company. The Rights are not currently exercisable or separately transferable apart from the Common Stock. The Rights can be redeemed by the Board of Directors under certain circumstances at a price of $.01 per Right. The Agreement pursuant to which the Rights were issued may be amended by the Board of Directors under certain circumstances. The Rights expire on October 11, 1998. NOTE 5: ANALYSIS OF RETAINED EARNINGS The summary of the changes in Retained Earnings for the period January 1, 1992 through December 31, 1994, appears below:
1994 1993 1992 ---- ---- ---- (THOUSANDS OF DOLLARS) Balance at beginning of year . . . . . . . . . . . . . . . . $ 8,092 $ 7,102 $ 6,382 Income before preferred stock dividends of Company . . . . . 5,880 5,567 5,149 ------- ------- ------- 13,972 12,669 11,531 ------- ------- ------- Charges Related to Redemption of Subsidiary's 9 1/2% Series Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 257 -- -- ------- ------- ------- Dividends declared: Cumulative preferred, Series A, $.80 per share . . . . . 12 12 12 Cumulative preferred, Series $.90, $.90 per share . . . . 26 26 26 Common stock: 1994 $1.65 per share . . . . . . . . . . . . . . . . . . 4,637 -- -- 1993 $1.64 per share . . . . . . . . . . . . . . . . . . -- 4,539 -- 1992 $1.61 per share . . . . . . . . . . . . . . . . . . -- -- 4,391 ------- ------- ------- 4,675 4,577 4,429 ------- ------- ------- Balance at end of year . . . . . . . . . . . . . . . . . . . $ 9,040 $ 8,092 $ 7,102 ======= ======= =======
54 Page 54 NOTE 6: RESTRICTIONS ON DIVIDENDS The Company may not pay any dividends on its Common Stock unless full cumulative dividends to the preceding dividend date for all outstanding shares of Preferred Stock of the Company have been paid or set aside for payment. All such preferred stock dividends have been paid. The income of the Company is derived mainly from the earnings of its Subsidiary. At December 31, 1994, the retained earnings of the Subsidiary aggregated $9,363,000. Restrictions contained in the Subsidiary's mortgage indenture limit the amount of cash dividends payable on the Subsidiary's Common Stock to $9,113,000. The terms of the Subsidiary's outstanding Preferred Stock prohibit payment of cash dividends on the Subsidiary's Common Stock in the event of an arrearage in the payment of cumulative dividends on the preferred stock. The Subsidiary is in compliance with the preferred stock restrictions. NOTE 7: PREFERRED STOCK All or any part of any Series of either class of the Company's issued Preferred Stock may be called for redemption by the Company at any time. The per share redemption price of the Series A and Series $.90 Preferred Stock, if called by the Company, is $21.00 and $16.00, respectively. The Company is authorized to issue 400,000 shares of an additional class of Preferred Stock, $25 par value, the general preferences, voting powers, restrictions and qualifications of which are generally similar to the Company's existing Preferred Stock. No shares of the $25 par value Preferred Stock have been issued to date. The Company is also authorized to issue 1,000,000 shares of $1 par value preference stock junior to the Company's existing Preferred Stock in rights to dividends and upon liquidation of the Company. No shares of the preference stock have been issued. The Subsidiary redeemed all 30,000 shares of the $100 par, 9 1/2% Series Preferred Stock during March, 1994 with the proceeds received from the Series V, First Mortgage Bond that was issued on that date. (See Note 8 - Long-Term Debt) In 1995, the remaining $30,000 balance, or 300 shares at par, of the 4 3/4% Series Preferred Stock will be redeemed in accordance with the sinking fund provisions. 55 Page 55 NOTE 8: LONG-TERM DEBT In June, 1993, the Subsidiary issued a $5,000,000, 5 3/4%, Series T, First Mortgage Bond, which secures tax exempt Water Facilities Revenue Refunding Bonds maturing June 1, 2028, the proceeds of which were used to redeem the Subsidiary's $5,000,000, 8.1% unsecured promissory note on July 6, 1993. In September, 1993, the Subsidiary issued a $4,550,000, 5.3%, Series U, First Mortgage Bond, which secures tax exempt Water Facilities Revenue Refunding Bonds maturing September 1, 2028, the proceeds of which were used to redeem the $4,550,000, 7 1/4% Series M, First Mortgage Bond on October 4, 1993. In October, 1993, the Subsidiary issued an $8,000,000, 6.65%, Series S, First Mortgage Bond, which secures tax exempt Water Facilities Revenue Refunding Bonds maturing in 2020, the proceeds of which were used to refund the $8,000,000, 8 3/8% (plus 1% letter of credit fee), Series N, First Mortgage Bond that matured December 15, 1993. On January 4, 1994, the Subsidiary issued a $4,050,000, 6.94%, Series V, First Mortgage Bond, maturing January, 2029, the proceeds of which were used to redeem the 9 3/8%, Series L and 8 1/2%, Series O, First Mortgage Bonds. During March, 1994, an additional $8,000,000, 6.94%, Series V, First Mortgage Bond was issued. The proceeds of this transaction were used to redeem the $5,000,000, 10%, Series P, First Mortgage Bonds as well as all 30,000 shares of the Subsidiary's $100 par, 9 1/2% Preferred Stock. Substantially all utility plant is pledged as collateral for the Subsidiary's long-term debt. There are no mandatory sinking fund payments required on the outstanding First Mortgage Bonds at December 31, 1994. However, Series Q and R First Mortgage Bonds provide for an estate redemption right whereby the estate of deceased bondholders or surviving joint owners may submit bonds to the Trustee for redemption at par subject to a $25,000 per individual holder and a 3% annual aggregate limitation. 56 Page 56 NOTE 9: FEDERAL INCOME TAX EXPENSE The following is an analysis of the consolidated Federal income tax provision and a reconciliation of the consolidated expected Federal income tax, at the statutory Federal income tax rate, to the actual tax expense:
1994 1993 1992 ---- ---- ---- (THOUSANDS OF DOLLARS) Charged to operations: Current provision . . . . . . . . . . . . . . . . . . . . . . . . . . $2,563 $2,581 $2,047 ------ ------ ------ Deferred tax: Investment tax credit - amortization . . . . . . . . . . . . . . . (18) (19) (18) Capitalized interest - net . . . . . . . . . . . . . . . . . . . . 24 28 32 Depreciation - net . . . . . . . . . . . . . . . . . . . . . . . . 1,115 1,025 994 Advances and CIAC - net . . . . . . . . . . . . . . . . . . . . . 85 95 108 ------ ------ ------ Total deferred tax . . . . . . . . . . . . . . . . . . . . . . 1,206 1,129 1,116 ------ ------ ------ Total charged to operations . . . . . . . . . . . . . . . . . . 3,769 3,710 3,163 ------ ------ ------ Charged to other income: Current provision . . . . . . . . . . . . . . . . . . . . . . . . . . -- (30) 29 Deferred investment tax credit - amortization . . . . . . . . . . . (39) (40) (40) ------ ------ ------ Total charged to other income . . . . . . . . . . . . . . . . . (39) (70) (11) ------ ------ ------ Total Federal income tax expense . . . . . . . . . . . . . . $3,730 $3,640 $3,152 ====== ====== ====== Pre-tax income before preferred stock dividends of Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,683 $9,497 $8,597 ====== ====== ====== Computed tax expense at 34% . . . . . . . . . . . . . . . . . . . . . . . $3,292 $3,229 $2,923 Increase (reduction) in taxes resulting from "flow through" accounting for: Excess of book over tax depreciation . . . . . . . . . . . . . . . 163 156 129 Property taxes deducted for tax less than expense per books . . . . . . . . . . . . . . . . . . . . . . . 74 181 178 Customer conservation program costs . . . . . . . . . . . . . . . -- -- 113 Issuance expense of refunded debt issues deducted for tax in excess of expense per books . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) (85) (236) Pension costs deducted for tax less than (in excess of) expense per books . . . . . . . . . . . . . . . . . 149 121 (22) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 38 67 ------ ------ ------ Total Federal income tax expense . . . . . . . . . . . . . . $3,730 $3,640 $3,152 ====== ====== ====== Effective tax rate (% of pre-tax income) . . . . . . . . . . . . . . . . 38.5% 38.3% 36.7% ==== ==== ====
57 Page 57 NOTE 10: CONNECTICUT CORPORATION BUSINESS TAX EXPENSE The following is an analysis of the consolidated Connecticut Corporation Business tax expense and a reconciliation of the consolidated expected tax at the statutory rate to the actual tax expense:
1994 1993 1992 ---- ---- ---- (THOUSANDS OF DOLLARS) Charged to operations: Current provision . . . . . . . . . . . . . . . . . . . . . . . . . . $ 987 $ 963 $ 887 Charged to other income: Current provision . . . . . . . . . . . . . . . . . . . . . . . . . . -- (12) 9 ------- ------ ------ Total Connecticut Corporation Business tax expense . . . . . . . . . . . . . . . . . . . . $ 987 $ 951 $ 896 ======= ====== ====== Pre-tax income before preferred stock dividends of Subsidiary . . . . . . . . . . . . . . . . . . . . . . . $10,670 $10,448 $9,493 ======= ======= ====== Computed tax expense at 11.5% . . . . . . . . . . . . . . . . . . . . . . $ 1,227 $ 1,202 $ -- Computed tax expense at 12.65% . . . . . . . . . . . . . . . . . . . . . -- -- 1,201 Increase (reduction) in taxes resulting from "flow through" accounting for: Excess of tax over book depreciation . . . . . . . . . . . . . . . . (367) (348) (394) Other timing differences . . . . . . . . . . . . . . . . . . . . . . 127 97 89 ------- ------- ------ Total Connecticut Corporation Business tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . $ 987 $ 951 $ 896 ======= ======= ====== Effective tax rate (% of pre-tax income) . . . . . . . . . . . . . . . . 9.3% 9.1% 9.4% === === ===
58 Page 58 NOTE 11: TAXES OTHER THAN INCOME TAXES Taxes Other than Income Taxes consist of the following:
1994 1993 1992 ------ ------ ------ (THOUSANDS OF DOLLARS) Municipal property taxes . . . . . . . . . . . . . . . . . . . . . . . $3,331 $3,402 $3,456 Payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 473 455 Connecticut gross earnings tax . . . . . . . . . . . . . . . . . . . . 1,906 1,906 1,860 ------ ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,733 $5,781 $5,771 ====== ====== ======
NOTE 12: LINES OF CREDIT During 1994 bank lines of credit were reduced to $9,000,000 relative to the construction program. The unused lines of credit at December 31, 1994 was $6,300,000, which is similar to the previous two years. Commitment fees of approximately $14,000, $20,000, and $34,000 were paid in 1994, 1993, and 1992, respectively, on the lines of credit. At December 31, 1994, 1993, and 1992, the weighted average interest rate on short-term borrowings outstanding were 6.32%, 3.38%, and 4.03%, respectively. NOTE 13: RECOVERABLE CONTAMINATION CLEAN-UP COSTS During the latter part of 1992 it was discovered that the Subsidiary's Reynolds Bridge well field in Thomaston, Connecticut, was contaminated with methyl tertiary butyl ether (MTBE), a gasoline additive. At this time the Subsidiary is implementing an appropriate remediation program to clean up the well site. In 1994 legal action was initiated by the Company against all parties deemed responsible for such contamination in order to obtain recovery of the Subsidiary's investigation, clean-up and water treatment and supply costs. The lawsuit is still in the discovery stage. The magnitude of such costs is unknown at this time, but it is presently estimated that such costs may exceed $4,700,000 of which approximately $1,400,000 has been incurred at December 31, 1994, and $500,000 is expected to be incurred in 1995. The clean-up process may take ten years or more to complete. The Company has reflected the total estimated clean-up costs as a deferred asset in the accompanying consolidated balance sheets representing costs which management believes will be recoverable from third parties or through future rates. A related liability has been recorded representing expected future clean-up costs. The offsetting deferred asset and short and long-term liabilities have no cash flow implications, therefore, no impact is shown on the Company's cash flow statement. The Subsidiary is presently purchasing water from a public water supply system to provide service to its customers at normal levels. The Company and its legal counsel presently believe that any such costs which are not recovered from third parties should be allowed to be recovered through rates charged for water service and that the ultimate resolution of this matter will not have a material impact on the results of operations or financial condition of the Company. 59 Page 59 NOTE 14: UTILITY PLANT AND CONSTRUCTION PROGRAM The components of utility plant and equipment are as follows:
1994 1993 1992 -------- -------- -------- (THOUSANDS OF DOLLARS) Source of Supply . . . . . . . . . . . . . . . . . . . . . $ 14,814 $ 13,562 $ 13,062 Pumping . . . . . . . . . . . . . . . . . . . . . . . . . . 10,039 9,980 9,644 Water Treatment . . . . . . . . . . . . . . . . . . . . . . 35,147 35,335 34,885 Transmission and Distribution . . . . . . . . . . . . . . . 110,425 108,127 105,480 General (including intangible) . . . . . . . . . . . . . . 8,726 8,747 8,194 Held for Future Use . . . . . . . . . . . . . . . . . . . . 1,928 557 555 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . $181,079 $176,308 $171,820 ======== ======== ========
The amounts of depreciable plant at December 31, 1994, 1993, and 1992, included in total plant were $167,944,000, $163,848,000, and $159,941,000, respectively. The Subsidiary is engaged in a continuous construction program. The Subsidiary's estimated annual capital expenditures, net of amounts financed by customer advances and contributions in aid of construction, are expected to be $5,750,000 during 1995 and $6,600,000 during 1996, increasing to $11,850,000 in 1997. The 1997 projection includes engineering and initial construction phases for the modifications to the Rockville Water Treatment Plant which are anticipated to be completed by 1999. A preliminary construction cost estimate for this project is at least $20,000,000. During the period 1998 to 2000 construction expenditures for routine improvements to the water distribution system are expected to be approximately $5,000,000 each year. 60 Page 60 NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments. CASH AND TEMPORARY CASH INVESTMENTS - The carrying amount approximates fair value. FIRST MORTGAGE BONDS - The fair value of the Company's fixed rate long-term debt is based upon borrowing rates currently available to the Company. As of December 31, 1994 and 1993, the estimated fair value of the Company's long-term debt was $47,600,000 and $59,100,000, respectively, as compared to the carrying amounts of $54,600,000 and $51,600,000, respectively. The fair values shown above have been reported to meet the disclosure requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Values of Financial Instruments" and do not purport to represent the amounts at which those obligations would be settled. NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the years ended December 31, 1994 and 1993 appears below:
NET INCOME EARNINGS UTILITY APPLICABLE TO PER AVERAGE OPERATING REVENUES OPERATING INCOME COMMON STOCK COMMON SHARE ------------------ ------------------- ---------------- --------------- (THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS) Quarter 1994 1993 1994 1993 1994 1993 1994 1993 ------- ------ ------ ------ ------ ------ ------ ----- ----- First............... $ 8,864 $ 8,760 $ 2,111 $ 2,132 $1,099 $1,012 $ .39 $ .37 Second.............. 9,201 9,099 2,008 2,154 1,077 995 .38 .36 Third............... 11,022 11,230 3,467 3,501 2,518 2,372 .90 .86 Fourth.............. 9,042 9,042 2,069 2,196 1,148 1,150 .41 .41 ------- ------- ------- ------- ------ ------ ----- ----- Year............. $38,129 $38,131 $ 9,655 $9,983 $5,842 $5,529 $2.08 $2.00 ======= ======= ======= ====== ====== ====== ===== =====
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 61 Page 61 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3), the information called for by Items 10, (except for information concerning the executive officers of the Company) 11, 12, and 13 is hereby incorporated by reference from the Company's definitive proxy statement filed by EDGAR on or about March 13, 1995. Information concerning the executive officers of the Company is included as Item 4.1 of this report. 62 Page 62 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) Documents filed as part of this report: (1) Consolidated Financial Statements:
Page Number in this Report -------------- Report to Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 38 Consolidated Balance Sheets - December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . 39-40 Consolidated Statements of Capitalization - December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . 41 Consolidated Statements of Income - December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . 42 Consolidated Statements of Cash Flows - December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . 43 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 44-60
(2) Financial Statement Schedules for the years ended December 31, 1994, 1993 and 1992: Report of Independent Public Accountants on Schedules Schedule II - Valuation and Qualifying Accounts All other schedules provided for in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because of the absence of conditions under which they are required or because the required information is set forth in the financial statements or notes thereto. (3) Exhibits: Exhibits heretofore filed with the Securities and Exchange Commission as indicated below are incorporated herein by reference and made a part hereof as if filed herewith. Exhibits marked by asterisk (*) are being filed herewith. 63 Page 63
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Certificate of Incorporation of Connecticut Water Service, Inc. amended and restated September 15, 1988.(Exhibit 3.1 to Form 10-K for year ended December 31, 1989) 3.2 Certificate Amending Certificate of Incorporation of Connecticut Water Service, Inc. creating $25 par value Preferred Stock dated September 5, 1989. (Exhibit 3.1a to Form 10-K for year ended December 31, 1989) 3.3 * By-Laws, as amended, of Connecticut Water Service, Inc. as amended January 18, 1995. 3.4 Charter of The Connecticut Water Company and amendments thereto (Certificate of Incorporation) through November 13, 1960. (Exhibit 3.2 to Registration Statement No. 2-61843) 3.5 Articles of General Preferences, Voting Powers, Restrictions and Qualifications of the Preferred Stock of The Connecticut Water Company. (Exhibit 3.3 to Registration Statement No. 2-61843) 3.6 Certificate Amending Certificate of Incorporation of The Connecticut Water Company effective May 4, 1970 increasing authorized Preferred Stock. (Exhibit 3.4 to Registration Statement No. 2-61843) 3.7 Resolutions of stockholders of The Connecticut Water Company adopted November 14, 1960 creating Preferred Stock, 5 7/8% Series. (Exhibit 3.5 to Registration Statement No. 2-61843) 3.8 Certificate Amending Certificate of Incorporation of The Connecticut Water Company dated May 8, 1965 creating Preferred Stock, 4 3/4% Series. (Exhibit 3.6 to Registration Statement No. 2-61843) 3.9 Certificate Amending Certificate of Incorporation of The Connecticut Water Company dated June 20, 1968 creating Preferred Stock, 7% Series. (Exhibit 3.6 to Registration Statement No. 2-61843) 3.10 Purchase Agreement dated May 20 1968 with respect to sale of Preferred Stock, 7% Series, including Common Stock dividend restriction in Section 6(e) thereof of The Connecticut Water Company (Exhibit 3.8 to Registration Statement No. 2-61843) 3.11 Certificate Amending Certificate of Incorporation of The Connecticut Water Company dated April 10, 1975. (Exhibit 3.9 to Registration Statement No. 2-54353)
64 Page 64 3.12 Certificate Amending Certificate of Incorporation of The Connecticut Water Company dated December 22, 1980, creating Preferred Stock, 12 1/2% Series. (Exhibit 2(k) to Form 10-K for the year ended December 31, 1980) 3.13 Purchase Agreement dated December 1, 1980 with respect to sale of Preferred Stock, 12 1/2% Series. (Exhibit 2(1) to Form 10-K for the year ended December 31, 1980) 3.14 Resolution of The Connecticut Water Company Board of Directors creating Preferred Stock, 9 1/2% Series dated March 30, 1989. (Exhibit 3.13 to Form 10-K for year ended December 31, 1989) 3.15 Purchase Agreement with respect to sale of Preferred Stock, 9 1/2% Series dated March 1, 1989. (Exhibit 3.14 to Form 10-K for year ended December 31, 1989) 3.16 Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders of The Connecticut Water Company to reduce Director's Liability dated November, 1989. (Exhibit 3.15 to Form 10-K for year ended December 31, 1989) 4.1 Indenture of Mortgage and Deed of Trust from The Connecticut Water Company to The Connecticut Bank and Trust Company, Trustee, dated as of June 1, 1956. (Exhibit 4.3(a) to Registration Statement No. 2-61843) 4.2 Supplemental Indentures thereto dated as of (i) February 1, 1958 (Exhibit 4.3(b) (i) to Registration Statement No. 2-61843) (ii) September 1, 1962 (Exhibit 4.3(b) (ii) to Registration Statement No. 2-61843) (iii) January 1, 1966 (Exhibit 4.3(b) (iii) to Registration Statement No. 2-61843) (iv) July 1, 1966 (Exhibit 4.3(b) (iv) to Registration Statement No. 2-61843) (v) January 1, 1971 (Exhibit 4.3(b) (v) to Registration Statement No. 2-61843) (vi) September 1, 1974 (Exhibit 4.3(b) (vi) to Registration Statement No. 2-61843) (vii) December 1, 1974 (Exhibit 4.3(b) (vii) to Registration Statement No. 2-61843) (viii) January 1, 1976 (Exhibit 4(b) to Form 10-K for the year ended 12/31/76) (ix) January 1, 1977 (Exhibit 4(b) to Form 10-K for the year ended 12/31/76) (x) September 1, 1978 (Exhibit 2.12(b) (x) to Registration Statement No. 2-66855) (xi) December 1, 1978 (Exhibit 2.12(b) (xi) to Registration Statement No. 2-66855) (xii) June 1, 1979 (Exhibit 2.12(b) (xii) to Registration Statement No. 2-66855) (xiii) December 1, 1983 (Exhibit 4.2 (xiii) to Form 10-K for the year ended 12/31/83) (xiv) January 1, 1987 (Exhibit 4.2 (xiv) to Form 10-K for the year ended 12/31/86)
65 Page 65 (xv) May 1, 1989 (Exhibit 4.2 (xv) to Form 10-K for year ended 12/31/89) (xvi) June 1, 1991 (Exhibit 4.2 (xvi) to Form 10-K for year ended 12/31/91) (xvii) August 1, 1992 (Exhibit 4.2 (xvii) to Form 10-K for year ended 12/31/92) (xviii) October 1, 1993 (Exhibit 4.2 (xviii) to Form 10-K for year ended 12/31/93) (xix) June 1, 1993 (Exhibit 4.2 (xix) to Form 10-K for year ended 12/31/93) (xx) September 1, 1993 (Exhibit 4.2 (xx) to Form 10-K for year ended 12/31/93) (xxi) December 1, 1993 (Exhibit 4.2 (xxi) to Form 10-K for year ended 12/31/93) * (xxii) March 1, 1994 4.3 Loan Agreement dated as of October 1, 1993, between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.3 to Form 10-K for year ended December 31, 1993) 4.4 Loan Agreement dated as of June 1, 1993, between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.4 to Form 10-K for year ended December 31, 1993) 4.5 Loan Agreement dated as of September 1, 1993, between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.5 to Form 10-K for year ended December 31, 1993) 4.6 Loan Agreement dated as of June 1, 1991, between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.10 to Form 10-K for year ended December 31, 1991) 4.7 Loan Agreement dated as of August 1, 1992 between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.10 to Form 10-K for the year ended December 31, 1992) 4.8 Bond Purchase Agreement dated as of December 1, 1993. (Exhibit 4.8 to Form 10-K for year ended December 31, 1993) 10.1 Pension Plan Fiduciary Liability Insurance for The Connecticut Water Company Employees' Retirement Plan and Trust, The Connecticut Water Company Tax Credit Employee Stock Ownership Plan, as Amended and Restated, Savings Plan of The Connecticut Water Company and The Connecticut Water Company VEBA Trust Fund. (Exhibit 10.1 to Registration Statement No. 2-74938)
66 Page 66 10.2 Directors and Officers Liability and Corporation Reimbursement Insurance. (Exhibit 10.2 to Registration Statement No. 2-74938) 10.3 Directors Deferred Compensation Plan, effective as of January 1, 1980, as amended as of March 20, 1981. (Exhibit 10.3 to Registration Statement No. 2-74938) 10.4 The Connecticut Water Company Deferred Compensation Agreement dated December 1, 1984. (Exhibit 10.4 to Form 10-K for the year ended December 31, 1984) 10.5 The Connecticut Water Company Deferred Compensation Agreement dated January 1, 1989. (Exhibit 10.5 to Form 10-K for the year ended December 31, 1988) 10.6 The Connecticut Water Company Supplemental Executive Retirement Agreement with William C. Stewart. (Exhibit 10.6a to Form 10-K for year ended December 31, 1991 10.7 The Connecticut Water Company Supplemental Executive Retirement Agreement with Marshall T. Chiaraluce. (Exhibit 10.6b to Form 10-K for year ended December 31, 1991) 10.8 The Connecticut Water Company Supplemental Executive Retirement Agreement - standard form for other officers. (Exhibit 10.6c to Form 10-K for year ended December 31, 1991) 10.9 Savings Plan of The Connecticut Water Company, amended and restated effective as of January 1, 1989. 10.10 Amendment to The Connecticut Water Company Savings Plan, adopted August 19, 1992. (Exhibit 10.10 to Form 10-K for the year ended December 31, 1992) 10.11 Second Amendment to The Connecticut Water Company Savings Plan, adopted August 19, 1992. (Exhibit 10.11 to Form 10-K for the year ended December 31, 1992) 10.12 Third Amendment to The Connecticut Water Company Savings Plan, adopted August 18, 1993. (Exhibit 10.12 to Form 10-K for year ended December 31, 1993) 10.13 * Amendment to The Connecticut Water Company Savings Plan, adopted November 16, 1994. 10.14 * The Connecticut Water Company Employees' Retirement Plan as amended and restated as of January 1, 1994. 10.15 * Water Supply Agreement dated June 13, 1994, between The Connecticut Water Company and the Hazardville Water Company. 10.16 * Memorandum of Agreement dated December 11, 1957 between The Connecticut Water Company (successor to the Thomaston Water Company) and the City of Waterbury.
67 Page 67 10.17 Contract between The Connecticut Water Company and The Rockville Water and Aqueduct Company dated as of January 1, 1976. (Exhibit 9(b) to Form 10-K for the year ended December 31, 1975) 10.18 Agreement dated August 13, 1986 between The Connecticut Water Co. and the Metropolitan District. (Exhibit 10.14 to Form 10-K for the year ended December 31, 1986) 10.19 Report of the Commission to Study the Feasibility of Expanding the Water Supply Services of the Metropolitan District. (Exhibit 14 to Registration Statement No. 2-61843) 10.20 Plan of Merger dated December 18, 1978 of Broad Brook Water Company, The Collinsville Water Company, The Rockville Water and Aqueduct Company, The Terryville Water Company and The Thomaston Water Company with and into The Connecticut Water Company. (Exhibit 13 to Form 10-K for the year ended December 31, 1978) 10.21 Bond Exchange Agreements between Connecticut Water Service, Inc., The Connecticut Water Company Bankers Life Company and Connecticut Mutual Life Insurance Company dated October 23, 1978. (Exhibit 14 to Form 10-K for the year ended December 31, 1978) 10.22 Dividend Reinvestment and Common Stock Purchase Plan as amended. (Registration Statement No. 33-53211 as amended) 10.23 Contract for Supplying Bradley International Airport. (Exhibit 10.21 to Form 10-K for the year ended December 31, 1984) 10.24 Report of South Windsor Task Force. (Exhibit 10.23 to Form 10-K for the year ended December 31, 1987) 10.25 Trust Agreement for The Connecticut Water Company Welfare Benefits Plan (VEBA) dated January 1, 1989. (Exhibit 10.21 to Form 10-K for year ended December 31, 1989) 10.26 Performance Stock Plan. (Registration Statement No. 33-49058.) 24.1 * Consent of Arthur Andersen LLP
---------- Note: Exhibits 10.1 through 10.14 set forth each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form-10K. (b) No reports on Form 8-K were filed during the last quarter of 1994. 68 Page 68 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONNECTICUT WATER SERVICE, INC. Registrant By /s/ Marshall T. Chiaraluce ---------------------------- Marshall T. Chiaraluce President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Connecticut Water Service, Inc. in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Marshall T. Chiaraluce ------------------------------ Marshall T. Chiaraluce Director and March 22, 1995 (Principal Executive Officer) President and Chief Executive Officer /s/ Bertram L. Lenz ------------------------------ Bertram L. Lenz Director and Vice President - March 22, 1995 (Principal Financial and Finance and Accounting, and Accounting Officer) Treasurer /s/ William F. Guillaume Director and Vice President - March 22, 1995 ------------------------------ Engineering and Planning William F. Guillaume
69 Page 69 /S/ Francis E. Baker ------------------------------ Director March 11, 1995 Francis E. Baker, Jr. /S/ Harold E. Bigler ------------------------------ Director March 11, 1995 Harold E. Bigler, Jr. /S/ Astrid T. Hanzalek Director March 7, 1995 ------------------------------ Astrid T. Hanzalek /S/ Frederick E. Hennick Director March 4, 1995 ------------------------------ Frederick E. Hennick /S/ Marcia L. Hincks Director March 7, 1995 ------------------------------- Marcia L. Hincks Director March , 1995 ------------------------------ William C. Lichtenfels /S/ Rodolph E. Lunginbuhl Director March 6, 1995 ------------------------------ Rudolph E. Lunginbuhl /S/ Harvey G. Moger Director March 6, 1995 ------------------------------ Harvey G. Moger /S/ Robert F. Neal Director March 6, 1995 ------------------------------ Robert F. Neal /S/ Warren C. Packard Director March 6, 1995 ------------------------------ Warren C. Packard /S/ Donald B. Wilbur Director March 6, 1995 ------------------------------ Donald B. Wilbur
70 SCHEDULES 71 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE We have audited, in accordance with generally accepted auditing standards, the financial statements of Connecticut Water Service, Inc. included in this Form 10-K, and have issued our report thereon dated February 10, 1995. As discussed in Notes 1 and 2 to the financial statements, effective January 1, 1993, the Company changed its methods of accounting for income taxes and postretirement benefits other than pension. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index to financial statements and schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ----------------------- Hartford, Connecticut February 10, 1995 72 CONNECTICUT WATER SERVICE, INC. and SUBSIDIARY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance Additions Deductions Balance Beginning Charged to From End of Description of Year Income Reserves (1) Year ------------------------------------ --------- --------- ------------ ------ (Thousands of Dollars) Allowance for Uncollectible Accounts Year Ended December 31, 1994 $166 $115 $132 $149 ==== ==== ==== ==== Year Ended December 31, 1993 $256 $189 $279 $166 ==== ==== ==== ==== Year Ended December 31, 1992 $355 $196 $295 $256 ==== ==== ==== ====
(1) Amounts charged off as uncollectible after deducting recoveries 73 EXHIBITS TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 3.3 By-Laws as Amended January 18, 1995 4.2 (xxii) 22nd Supplemental Bond Indenture 10.13 Amendment to Savings Plan 10.14 Amendment to Retirement Plan 10.15 Water Supply Agreement Between CWC and Hazardville Water Company 10.16 Agreement Between CWC and City of Waterbury 24.1 Consent of Arthur Andersen LLP EX-3.3 2 EX-3.3 1 Exhibit 3.3 BYLAWS of CONNECTICUT WATER SERVICE, INC. ARTICLE I GENERAL These Bylaws are intended supplement and implement applicable provisions of law and of the Certificate of Incorporation of the Corporation with respect to the regulation of the affairs of this Corporation. ARTICLE II MEETING OF STOCKHOLDERS SECTION 1. Place of Meeting: Stockholders' meetings shall be held at the principal office of the Corporation or at such other place, either within or without the State of Connecticut, as shall be designated in the notice of meeting. SECTION 2. Annual Meeting; Business at Annual Meeting: The annual meeting of the stockholders shall be held in each year at the place, on the date and at the hour designated in the call therefor. At such meeting the stockholders shall elect the Board of Directors and shall transact such other business as shall properly be brought before them. At an annual meeting of the 2 2 stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before a annual meeting by a stockholder, the business must be an appropriate matter to be acted on by the stockholders at an annual meeting and the stockholder must have given proper and timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received by the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on a day which is not less that 120 days prior to the anniversary date of the immediately preceding annual meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder 3 3 and (d) any material interest of the stockholder in such business. The presiding officer of an annual meeting shall determine whether such proposal is or is not an appropriate matter to be acted on by the stockholders at such annual meeting, and, if the facts warrant that a matter of business was not properly brought before the meeting in accordance with the provisions of this Section 2, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be acted on at the meeting. SECTION 3. Special Meetings: Subject to Article Fourth, Section 5 of the Corporation's Certificate of Incorporation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by the concurring vote of Directors holding a majority of the total number of directorships. The general purpose or purposes for which a special meeting is called shall be stated in the notice thereof, and no other business shall be transacted at such meeting. No proposal may be brought before a special meeting unless it is directly related to the business specified in the notice of such meeting and it is properly brought before such meeting. To be properly brought before a special meeting, a proposal must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise brought before the meeting by or at the 4 4 direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For a proposal to be properly brought by a stockholder before a special meeting (other than nominations for election of Directors, which shall be governed by Article II, Section 7 of these Bylaws), the stockholder must have given proper and timely notice thereof in writing to the Secretary of the Corporation. To be a timely stockholder's notice must be delivered to or mailed and received by the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the tenth day following the date on which notice of such meeting is first mailed to stockholders. A stockholder's notice to the Secretary shall set forth as to such proposal the stockholder proposes to bring before a special meeting; (a) a brief description of the matter desired to be brought before the special meeting and the reasons why such proposal is directly related to the business contained in the notice of meeting; (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such matter; (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder; and (d) any material interest of the stockholder in the proposal. The presiding officer of a special meeting shall determine whether such proposal is or is not directly related to the business of the meeting as stated in the notice thereof, and, if the facts 5 5 warrant, that such proposal was not properly brought before the meeting in accordance with the provisions of this Section 3, and if he should so determine, he shall so declare to the meeting and any such proposal not properly brought before the meeting shall not be acted on at the meeting. SECTION 4. Notice of Meeting: Written notice of the date, time and place of each Annual Meeting and any Special Meeting, and in case of a Special Meeting, the general purpose or purposes for such meeting, shall be mailed or delivered, at least seven days prior to the date of such meeting, to each stockholder entitled to vote at a such meeting at his residence or usual place of business, as shown on the records of the Corporation, provided that anyone or more of such stockholders, as to himself or themselves, may waive such notice in writing or by attendance without protest at such meeting. SECTION 5. Quorum: The holders of a majority of the shares of the issued and outstanding stock entitled to vote at a meeting, present either in person or by proxy, shall constitute a quorum for the transaction of business at such meeting of the stockholders. If a quorum be not present at such meeting, the stockholders present in person or by proxy may adjourn to such future time as shall be agreed upon by them, and notice of such adjournment shall be given to the stockholders not present or represented at the meeting. 6 6 SECTION 6. Stockholders' Action Without Meeting: Any action which, under any provision of the Connecticut Stock Corporation Act, may be taken at a meeting of stockholders may be taken without such a meeting if consent in writing, setting forth the action so taken or to be taken, is signed severally or collectively by all of the persons who would be entitled to vote upon such action at a meeting or by their duly authorized attorneys. The Secretary of the Corporation shall file such consent or consents with the minutes of the stockholders' meetings. SECTION 7. Advance Notice of Nominations: No person shall be eligible for election as a director at any annual or special meeting of stockholders unless such person was nominated by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the following procedures. A nomination by a stockholder shall be made only if such stockholder had given proper and timely notice in writing of such stockholder's intent to make such nomination to the Secretary of the Corporation. To be timely a stockholder's notice must be delivered to or mailed and received by the Secretary of the Corporation at the principal executive offices of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, the close of business on a day which is not less that 120 days prior to the 7 7 anniversary date of the immediately preceding annual meeting, and (ii) with respect to an election to be held at a special meeting of stockholders called for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first mailed to stockholders. Each such notice shall set forth: (a) the name and address of the person or persons to be nominated; (b) the name and address, as they appear on the Corporation's books, of the stockholder making such nomination; (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder; (d) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in persons or by proxy at the meeting to nominate the person or persons specified in the notice; (e) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (f) such other information regarding each nominee proposed by the stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (g) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting shall determine, if the facts warrant, that such nomination was not made in accordance with the provision of this Section 7, and if he should so determine, he shall so declare to 8 8 the meeting and any nominations not properly made shall be disregarded. ARTICLE III SHARES Share certificates shall be in a form adopted by the Board of Directors and shall be signed by the President and by the Secretary. Such certificates shall bear the seal of the Corporation. The name of the persons to whom issued, the number of such shares which such certificate represents, the consideration for which the shares were issued and the date of issue shall be entered on the Corporation's books. ARTICLE IV DIRECTORS SECTION 1. Number, Election and Term of Office: The Board of Directors shall consist of no fewer than nine or more than fifteen persons (exclusive of directors, if any, elected by the holders of one or more series of Preference Stock, which may at any time be outstanding, voting separately as a class pursuant to the provisions of the Corporation's Certificate of Incorporation applicable thereto), the exact number to be fixed from time to time within the foregoing limits exclusively by the Board of Directors pursuant to a resolution adopted by the Board of Directors. The number of positions of the Board of 9 9 Directors, as fixed in accordance with the foregoing, is referred to herein as the "number of directorships." The directors shall be classified (exclusive of directors, if any, elected by the holders of one or more series of Preference Stock voting separately as a class) as provided in Article Fifth of the Corporation's Certificate of Incorporation, and the term of office of each director shall be as provided therein. No director shall be eligible for re-election as a director of the Corporation after such director shall have attained the age of 70; and no officer of the Corporation, other than a person who has served as Chief Executive Officer of the Corporation, shall be eligible for re-election as a director of the Corporation after such person shall no longer be an officer of the Corporation or shall have attained the age of 65. SECTION 2. Resignation and Removal of Directors: Any director of the Corporation may resign and any director may be removed from office, but only in accordance with the provisions of Article Fifth of the Corporation's Certificate of Incorporation. SECTION 3. Vacancies: Newly created directorships resulting from any increase in the authorized number of directorships and vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal 10 10 from office or other cause shall be filled by the Board of Directors in accordance with the provisions of Article Fifth of the Corporation's Certificate of Incorporation, and any director elected to fill any newly created directorship or vacancy shall hold office for such term as is specified therein. SECTION 4. Powers: The property, business and affairs of the Corporation shall be managed by the Directors who may exercise all power and do all the things that may be done by the Corporation subject to provisions of law, the statutes of the State of Connecticut, the Certificate of Incorporation, these Bylaws and any vote of the stockholders. SECTION 5. Committees: The Board of Directors, by the affirmative vote of Directors holding a majority of the number of directorships, may appoint from the Directors an executive committee and such other committee as it may deem appropriate and may, to the extent permitted by law, delegate to such committees any of the powers of the Board of Directors. A majority of the committee shall have the power to act. All committees shall keep full records of their proceedings and shall report the same to the Board of Directors. SECTION 6. Compensation: The Directors may be paid their expenses, if any, of attendance of each meeting of the Board of Directors and may be paid a fixed sum for attendance at 11 11 each meeting of the Board of Directors or a stated salary as directors, or both. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 7. Directors Emeritus: There shall be a class of Directors Emeritus, eligibility for which shall be limited to those Directors who have served for thirty or more consecutive years on the Board of Directors of the Corporation or its predecessor Companies and who, by reason of attaining the age of seventy, have become ineligible for further election to the Board of Directors of the Corporation. Election to the position of Director Emeritus shall be for life, unless such a person earlier resigns, and shall be effective upon the affirmative vote of a majority of Directors present at a duly constituted meeting of the Corporation's Board of Directors. The position of Director Emeritus shall be in recognition of past contributions to the Corporation, and any person so elected shall have no duties or responsibilities to the Corporation. No Director Emeritus shall be entitled to vote on any matter presented to the Board. The Board of Directors by annual resolution may invite one or more Directors Emeritus to attend Board meetings for the succeeding twelve months, in which event such person or persons shall be 12 12 compensated at the same rate paid to each Director for attendance at such meetings. ARTICLE V MEETINGS OF DIRECTORS SECTION 1. Annual Meetings: A regular meeting of the Board of Directors shall be held without notice immediately after the Annual Meeting of stockholders, or as soon thereafter as convenient. At such meeting the Board of Directors shall choose and appoint the officers of the Corporation who shall hold their offices, subject to prior removal by the Board of Directors, until the next annual meeting or until their successors are chosen and qualify. SECTION 2. Regular Meetings: All other regular meetings of the Board of Directors may be held without notice at such date, time and place as the Board of Directors may determine and fix by resolutions. SECTION 3. Special Meetings: Special meetings of the Board of Directors may be held upon call of the President, or upon call of any one or more Directors. SECTION 4. Notice: Written or oral notice of the date, time and place of all special meetings of the Board of Directors shall be given to each Director personally or mailed to his/her 13 13 residence or usual place of business at least two days prior to the date of the meeting, provided that any one or more Directors, as to himself or themselves, may waive such notice in writing before or after a meeting or by attendance without protest at such meeting. SECTION 5. Quorum: Directors holding a majority of the number of directorships shall constitute a quorum. Except as otherwise provided by law or these Bylaws, all questions shall be decided by vote of a majority of the Directors present at any meeting of the Board of Directors at which a quorum is present. SECTION 6. Director Participation in Meeting by Telephone: A Director may participate in a meeting of the Board of Directors by means of conference telephone or similar communications equipment enabling all Directors participating in the meeting to hear one another, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting. SECTION 7. Directors' Action Without Meeting: If all the Directors severally or collectively consent in writing to any action taken or to be taken by the Corporation, such action shall be as valid as though it has been authorized at a meeting of the Board of Directors. The Secretary of the Corporation shall file 14 14 such consent or consents with the minutes of the meeting of the Board of Directors. ARTICLE VI OFFICERS SECTION 1. Title, Election and Duties: The Board of Directors shall appoint a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers as the Directors may from time to time deem appropriate. The duties of the officers of the Corporation shall be such as are specified below and such as usually pertain to such offices, as well as such as may be prescribed from time to time by the Board of Directors. SECTION 2. President: The President shall preside at all meetings of the Board of Directors and stockholders, shall have general charge and direction of the business of the Corporation and shall perform such other duties as are properly required of him by the Board of Directors. SECTION 3. Vice President: A Vice President shall act in the place of the President in the event of the absence or incapacity of the President and shall have such other duties as may from time to time be prescribed by the Board of Directors. SECTION 4. Secretary: The Secretary shall keep the minutes of the meetings of stockholders and the Board of 15 15 Directors and shall give notice of all such meetings as required in these Bylaws. He shall have custody of such minutes, the seal of the Corporation and the stock certificate records of the Corporation, except to the extent some other person is authorized to have custody and possession thereof by a resolution by the Board of Directors. SECTION 5. Treasurer: The Treasurer shall keep the fiscal accounts of the Corporation including an account of all moneys received or disbursed. ARTICLE VII SEAL The corporate seal shall consist of a circular disc with the name of the Corporation and the words "Connecticut" and "Seal" thereon. ARTICLE VIII INDEMNIFICATION OF STOCKHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND OTHERS The Corporation shall, to the fullest extent permitted by and in accordance with the Connecticut Stock Corporation Act, indemnify each person who is or was a stockholder, director, officer, employee or agent of the Corporation and each other person who may be entitled to indemnification under said Act. 16 16 ARTICLE IX AMENDMENTS These Bylaws may be amended, added to, rescinded or repealed by the affirmative vote of directors holding a majority of the authorized directorships or by the affirmative vote of a majority of the voting power of the shares entitled to vote thereon, provided notice of the proposed change was given in the notice of the meeting, or, in the case of a meeting of the Board of Directors, in a notice given not less than two days prior to the meeting; provided, however, that, notwithstanding any other provisions of these Bylaws or any provisions of law or the Corporation's Certificate of Incorporation which might otherwise permit a less vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock (as that term is defined in Article Fifth of the Corporation's Certificate of Incorporation) required by law, the Corporation's Certificate of Incorporation or these Bylaws, the affirmative vote of the holders of at least 80 percent of the combined voting power of all the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal Sections 2, 3, or 7 of ARTICLE II of these Bylaws, Section 1, 2 or 3 of ARTICLE IV of these Bylaws or this proviso in this ARTICLE IX. As amended January 18, 1995. EX-4.2 3 EX-4.2 1 Exhibit 4.2 THE CONNECTICUT WATER COMPANY TO STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION TRUSTEE TWENTY-SECOND SUPPLEMENTAL INDENTURE DATED AS OF MARCH 1, 1994 2 TABLE OF CONTENTS
Page ---- ARTICLE I - AMENDMENT OF ORIGINAL INDENTURE . . . . . . . . . . . . . 3 ARTICLE II - ADDITIONAL PROVISIONS . . . . . . . . . . . . . . . . . 5
3 THIS TWENTY-SECOND SUPPLEMENTAL INDENTURE, dated and entered into as of March 1, 1994, by and between THE CONNECTICUT WATER COMPANY, a corporation duly organized and existing under and by virtue of the laws of the State of Connecticut, having its principal office and place of business in Clinton, County of Middlesex and State of Connecticut (herein sometimes called the "Company"), and STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION (successor to The Connecticut Bank and Trust Company), a national banking association duly organized and existing under and by virtue of the laws of the United States, having its principal office and place of business in Hartford, County of Hartford and State of Connecticut, as trustee (herein sometimes called the "Trustee"): WHEREAS the Company executed and delivered to (i) the original Trustee, The Connecticut Bank and Trust Company, an Indenture of Mortgage and Deed of Trust dated as of June 1, 1956, and twelve (12) indentures supplemental thereto (said instruments being herein sometimes called, respectively, the Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, et seq. through the Twelfth Supplemental Indenture), (ii) The Connecticut Bank and Trust Company, N.A., the successor to The Connecticut Bank and Trust Company, three (3) indentures supplemental to the Original Indenture (said instruments being herein sometimes called, respectively, the Thirteenth Supplemental Indenture, the Fourteenth Supplemental Indenture and the Fifteenth Supplemental Indenture), (iii) The New Connecticut Bank and Trust Company, N.A., the successor to The Connecticut Bank and Trust Company, N.A., one (1) indenture supplemental to the Original Indenture (said instrument being herein sometimes called the Sixteenth Supplemental Indenture), (iv) State Street Bank and Trust Company of Connecticut, National Association, the successor to The New Connecticut Bank and Trust Company, N.A., five (5) indentures supplemental to the Original Indenture (said instruments being herein sometimes called, respectively, the Seventeenth Supplemental Indenture, the Eighteenth Supplemental Indenture, the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture), in all cases to secure its First Mortgage Bonds wherein it is provided that the bonds secured thereby may be issued in one or more series and each series, other than the First Mortgage Bonds, Series A, and First Mortgage Bonds, Series B, shall be created by an indenture supplemental thereto designating the new series to be created and describing and defining the bonds of such series; WHEREAS, on September 17, 1990, State Street Bank and Trust Company of Connecticut, National Association acquired and succeeded to all rights, title, interest, authority and appointment of The New Connecticut Bank and Trust Company, N.A., as Trustee under the Indenture, which succession and appointment were ratified and confirmed by the Board of Directors of the Company on May 15, 1991. 4 -2- WHEREAS the Company has determined to provide for the amendment of Section 10.03 of the Original Mortgage in compliance with the provisions of Section 16.04 of the Original Mortgage. WHEREAS all acts, proceedings and things necessary to authorize the execution and delivery of these presents and to make these presents and the Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth Supplemental Indenture, the Seventh Supplemental Indenture, the Eighth Supplemental Indenture, the Ninth Supplemental Indenture, the Tenth Supplemental Indenture, the Eleventh Supplemental Indenture, the Twelfth Supplemental Indenture, the Thirteenth Supplemental Indenture, the Fourteenth Supplemental Indenture, the Fifteenth Supplemental Indenture, the Sixteenth Supplemental Indenture, the Seventeenth Supplemental Indenture, the Eighteenth Supplemental Indenture, the Nineteenth Supplemental Indenture, the Twentieth Supplemental Indenture and the Twenty-First Supplemental Indenture (said twenty-three instruments being herein sometimes collectively referred to as the "Indenture") a valid mortgage to secure the payment of the principal of and interest on all bonds at any time issued and outstanding under the Indenture equally and ratably in accordance with the terms of said bonds, have been done and performed; NOW, THEREFORE, THIS TWENTY-SECOND SUPPLEMENTAL INDENTURE WITNESSETH: That THE CONNECTICUT WATER COMPANY, in consideration of the premises and of the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of said bonds by the owners thereof and of the sum of One Dollar lawful money of the United States of America to it duly paid by the Trustee, the receipt whereof is hereby acknowledged, in order to secure the payment both of the principal of and interest on all bonds that may at any time be issued and outstanding under the Indenture according to their tenor and effect and the performance and observance by the Company of all the covenants expressed and implied in the Indenture and in said bonds, without intending in any way to limit or to impugn the validity of the grant of after-acquired property contained in the Original Indenture, has given, granted, bargained, sold, released, conveyed, aligned, assigned, confirmed, transferred, mortgaged, warranted, pledged and set over and does by these presents give, grant, bargain, sell, release, convey, alien, assign, confirm, transfer, mortgage, warrant, pledge and set over unto State Street Bank and Trust Company of Connecticut, National Association (successor to The Connecticut Bank and Trust Company, The Connecticut Bank and Trust Company, N.A. and The New Connecticut Bank and Trust Company, N.A.), as trustee, and to its 5 -3- successors in the trusts hereby and in said Original Indenture created and to them and their assigns forever: All and singular the premises, property and franchises of the Company constructed or acquired since the delivery of the Twenty-First Supplemental Indenture (other than property of the nature of that excluded by the granting clauses of the Original Indenture and property properly released from the lien of the Indenture under the terms thereof). TO HAVE AND TO HOLD all said franchises and property, real, personal and mixed, conveyed, transferred, assigned, mortgaged or pledged by the Company as aforesaid or intended so to be unto the Trustee, and to its successors in said trust and to them and their assigns forever; IN TRUST, nevertheless, for the purposes, with the powers and subject to the agreements, covenants and conditions set forth and expressed in the Original Indenture as heretofore and hereby supplemented, it being agreed as follows, to wit: ARTICLE I AMENDMENT OF ORIGINAL INDENTURE Section 10.03 of the Original Indenture is hereby amended to read as follows: SECTION 10.03. (a) While in possession of the mortgaged property and not in default, the Company may, subject to compliance with the requirements of Subsection (b) hereof, (1) dispose of any of its office furniture, furnishings or equipment and any machinery, apparatus, appliances, tools and implements, materials or other movable property, free from the lien of this Indenture, which may have become worn out, disused or undesirable for use; provided that upon so doing the Company shall substitute therefor other property suitable to its business and of equal or greater value, and shall subject such substituted property to the lien hereof; (2) sell, exchange or otherwise dispose of property having an aggregate cost or fair market value, whichever is less, of not more than $5,000; provided that the aggregate cost or fair market value, whichever is less, of all such sales, exchanges or dispositions does not exceed $100,000 in any calendar year; and provided further that the Trustee has received the written certificate of any duly authorized officer of the Company stating that (i) it is no longer necessary or desirable in the proper conduct of the Company's business, or it is otherwise no longer in the best interests of the Company to utilize or operate such property, and (ii) the value and operation of all of the Company's properties subject to the lien hereof, as an entirety, and the 6 -4- security for the bonds, will not thereby be adversely affected; (3) grant, either with or without consideration, easements, rights-of-way, leases, licenses, authority or permits, for fixed periods of time or in perpetuity, over or with respect to any of its property; provided that the Trustee has received the written certificate of any duly authorized officer of the Company stating that (i) the granting of any such easements, rights-of-way, leases, licenses, authority or permits does not substantially impair the continued use and enjoyment by the Company of the property over or in respect of which said easements, rights-of-way, leases, licenses, authority or permits are granted for the purpose for which such property is used by the Company, and (ii) the value and operation of all the Company's properties subject to the lien hereof, as an entirety, and the security for the bonds, will not thereby be adversely affected; and (4) sell, release, surrender, abandon or otherwise dispose of, or assent to or procure a modification of, either with or without consideration, any easement, right-of-way, lease, license, authority or permit over private property or under which it utilizes or operates any of its properties; provided that the Trustee has received the written certificate of any duly authorized officer of the Company stating that (i) it is no longer necessary or desirable in the proper conduct of the Company's business, or it is otherwise no longer in the best interests of the Company, to utilize or operate such properties or to comply with the terms and provisions of such easement, right-of-way, lease, license, authority or permit, and (ii) the value and operation of all the Company's properties subject to the lien hereof, as an entirety, and the security for the bonds, will not thereby be adversely affected. (b) The net cash proceeds, if any, received by or on behalf of the Company in consideration for any of the transactions contemplated by clauses (2), (3) and (4) of subsection (a) hereof, shall be deposited with the Trustee. Any property received by the Company in consideration for any of said transactions shall be subject to the lien hereof. (c) In case the Company proposes to transfer or otherwise dispose of or has transferred or otherwise disposed of any property under the conditions authorized by subsection (a) hereof, the Trustee shall, from time to time, execute such instruments of disclaimer, release, quitclaim, waiver, consent or confirmation as may be appropriate upon receipt by the Trustee of a certificate of any duly authorized officer of the Company requesting such action by the Trustee; generally describing the transfer or other disposition; describing the property transferred or disposed of or to be transferred or disposed of; stating that such transfer or other disposition thereof is authorized by subsection (a) hereof; stating that a written disclaimer, release, quitclaim, waiver, consent or confirmation by the Trustee is appropriate; stating that 7 -5- no event of default has happened and is continuing; and stating that such officer has been duly authorized by the Company to provide such certificate. (d) In case the Company proposes to transfer or otherwise dispose of or has transferred or otherwise disposed of any property of the character excepted from the lien hereof, the Trustee may, from time to time, execute such instruments of disclaimer, release, quitclaim, waiver, consent or confirmation as may be appropriate upon receipt by the Trustee of a certificate of any duly authorized officer of the Company requesting such action by the Trustee; generally describing the transfer or other disposition and the property transferred or disposed of or to be transferred or disposed of; stating that such property is not subject to the lien hereof; stating that a written disclaimer, release, quitclaim, waiver, consent or confirmation by the Trustee is appropriate; and stating that such officer has been duly authorized by the Company to provide such certificate. ARTICLE II ADDITIONAL PROVISIONS Section 2.01. The Company covenants that it is lawfully seized and possessed of the property described in the granting clauses of this Twenty-Second Supplemental Indenture and that it will warrant and defend the title to said property to the Trustee for the equal pro rata benefit of the holders of all bonds at any time outstanding under the Indenture against the claims and demands of all persons whatsoever. Section 2.02. For any default by the Company in the covenants, stipulations, promises and agreements herein contained, the Trustee and the bondholders shall have the same rights and remedies, subject to the same limitations, as are provided in the Original Indenture. Section 2.03. The Company covenants that the recitals of fact and statements contained in this Twenty-Second Supplemental Indenture are true, and that the Company is not in default in any respect under any of the provisions of the Original Indenture as heretofore amended or of any of the outstanding bonds. Section 2.04. Whenever reference is herein in this Twenty-Second Supplemental Indenture made to a Section or Article of the Original Indenture and such Section or Article has been heretofore amended, then such reference shall be to such Section or Article as so amended, whether or not herein expressly so stated. 8 -6- Section 2.05. The Company hereby expressly ratifies, adopts, renews, confirms and continues in full force and effect, without limitation, each and every covenant, agreement, condition and provision contained in the Original Indenture as heretofore amended. Section 2.06. This Twenty-Second Supplemental Indenture shall be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, THE CONNECTICUT WATER COMPANY has caused these presents to be signed in its name and behalf by its President or Vice President and its corporate seal to be hereunto affixed and attested by its Secretary or Assistant Secretary, and, to evidence its acceptance of the trusts hereby created, STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION has caused these presents to be signed in its name and behalf and its corporate seal to be hereunto affixed and attested by its authorized officials, on the dates hereinafter set forth in the acknowledgement clauses but as of the day and year first above written. THE CONNECTICUT WATER COMPANY Attest: By /s/ Bertram L. Lenz --------------------------- Vice President /s/ Vincent F. Susco, Jr. -------------------------- Secretary Signed, sealed and delivered by The Connecticut Water Company in the presence of: /s/ Wendy L. Mahon -------------------------- /s/ Lynn Robinson -------------------------- 9 -7- STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION Attest: /s/ Steven Freedman By /s/ Cauna M. Antonacci ------------------------ ---------------------------- Signed, sealed and delivered by State Street Bank and Trust Company of Connecticut, National Association in the presence of: /s/ W. Jeffrey Kramer ----------------------------- /s/ William Callahan ----------------------------- 10 -8- STATE OF CONNECTICUT ) ) ss. Clinton COUNTY OF MIDDLESEX ) On this the 14th day of March, 1994, before me appeared Bertram L. Lenz, Vice President, and Vincent F. Susco, Jr., Secretary, of THE CONNECTICUT WATER COMPANY, a corporation, each of whom severally acknowledged himself to be such respective officer, and Bertram L. Lenz acknowledged that he, as such Vice President, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such Vice President, and Vincent F. Susco, Jr., acknowledged that he, as such Secretary, being authorized so to do, affixed the corporate seal of said corporation to the foregoing instrument and attested the same. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Annette F. Scharf ----------------------------- Notary Public My commission expires: 8/31/97 11 -9- STATE OF CONNECTICUT ) ) ss. Hartford COUNTY OF HARTFORD ) On this the 11th day of March, 1994, before me appeared Cauna M. Antonacci, Assistant Vice President and Steven M. Freedman, Assistant Secretary of STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, a national banking association, each of whom severally acknowledged himself or herself to be such respective officer, and Cauna M. Antonacci acknowledged that he or she, as such Assistant Vice President, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the association by himself or herself as such Assistant Vice President, and Steven M. Freedman acknowledged that he or she, as such Assistant Secretary, being authorized so to do, affixed the seal of said corporation to the foregoing instrument and attested the same. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Christina Van Ryzin ------------------------ Notary Public My commission expires: Nov. 30, 1998 EX-10.13 4 EX-10.13 1 Exhibit 10.13 AMENDMENT The Connecticut Water Company Savings Plan is hereby amended by adding the flowing new provisions: "DIRECT ROLLOVER (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at any time and in the manner prescribed by the plan administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) Definitions. (1) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a) (9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, and annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. 2 However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) Distributee: A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (4) Direct rollover: A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. COMPENSATION LIMITATION In addition to other applicable limitations set forth in the plan, and notwithstanding any other provision of the plan to the contrary, for plan years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a) (17) (B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination Period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For plan years beginning on or after January 1, 1994, any reference in this plan to the limitation under Section 401(a) (17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision." 3 CERTIFICATE The undersigned hereby certifies that the Amendment to The Connecticut Water Company Savings Plan, effective as set forth in said Amendment, was duly adopted by the Board of Directors of The Connecticut Water Company on November 16, 1994 and is in full force and effect. 11/23/94 /s/ Vincent F. Susco, Jr. ---------------------------- -------------------------------- Date Corporate Secretary -------------------------------- EX-10.14 5 EX-10.14 1 Exhibit 10.14 THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN Amended and Restated as of January 1, 1994 (except as otherwise indicated herein) 2 AMENDMENT AND RESTATEMENT OF THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN THE CONNECTICUT WATER COMPANY, a corporation organized and existing under the laws of the State of Connecticut, with its principal place of business at Clinton, Connecticut, pursuant to ARTICLE XI, Section A of The Connecticut Water Company Employees' Retirement Plan and Trust, dated October 23, 1957, as amended, does hereby further amend and restate said Plan in its entirety, effective as of January 1, 1994, except as otherwise indicated herein, as follows: 3 TABLE OF CONTENTS ARTICLE I INTRODUCTION ARTICLE II DEFINITIONS ARTICLE III PARTICIPATION ARTICLE IV NORMAL RETIREMENT ARTICLE V EARLY RETIREMENT ARTICLE VI POSTPONED RETIREMENT ARTICLE VII TERMINATION OF EMPLOYMENT AND VESTED RIGHTS ARTICLE VIII DISABILITY ARTICLE IX PRE-RETIREMENT DEATH BENEFIT ARTICLE X NORMAL AND OPTIONAL FORMS OF RETIREMENT INCOME ARTICLE XI FIDUCIARIES-ADMINISTRATION OF THE PLAN ARTICLE XII METHOD OF FINANCING ARTICLE XIII AMENDMENT OR TERMINATION ARTICLE XIV GENERAL PROVISIONS
4 CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN ARTICLE I INTRODUCTION 1.1 This Plan shall be known as The Connecticut Water Company Employees' Retirement Plan. 1.2 The purpose of this Plan is to provide eligible Employees with retirement income benefits which will provide periodic income during the Employees' retirement years, and support their beneficiaries upon the death of such Employees. 1.3 It is the intention of the Company that The Connecticut Water Company Employees' Retirement Trust, which is a part of this Plan, shall meet the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and shall be qualified and exempt under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended from time to time. I-4 5 ARTICLE II DEFINITIONS Unless otherwise required by the context, the terms used herein shall have the meanings set forth in the remaining paragraphs of this Article II. 2.1 Actuarial Equivalent shall mean a benefit of equivalent current value to the benefit which would otherwise have been provided to the Participant, determined as described in Exhibit I attached to and made part of this Plan. 2.2 Actuary shall mean an actuary selected by the Committee who has been "enrolled" in accordance with ERISA. 2.3 Administrator shall mean the person or persons designated by the Committee in accordance with Article XI as the Administrator of the Plan within the meaning of Section 3(16) of ERISA. 2.4 Affiliated Company shall mean any company which is included within a "controlled group of corporations" within which the Company is also included, as determined under Section 1563 of the Code without regard to Subsections (a)(4) and (e)(3)(C) of said II-2 6 Section 1563. Notwithstanding the foregoing, with respect to the benefit limitation set forth in Section 4.4 of this Plan, such determination under Section 1563 shall be made assuming the phrase "more than 50 percent" were substituted for the phrase "at least 80 percent" each place it appears in Section 1563(a)(1). 2.5 Anniversary Date shall mean January 1 of each year commencing on or after January 1, 1958. 2.6 Annual Earnings shall mean the regular basic earnings paid to a Participant by his Employer during a Plan Year, excluding any other items of compensation such as overtime earnings, bonuses, or contributions made by the Employer to or under any form of employee benefit program expressed on an annual basis. For hourly Employees, Annual Earnings shall mean the average hourly straight time rate, determined by dividing total straight time earnings by actual hours worked, times 2080 hours. Notwithstanding the foregoing, any amounts which would otherwise be Annual Earnings and which are deferred by a Participant pursuant to a cash or deferred arrangement qualified under Section 401(k) of the Code or a cafeteria plan pursuant to Section 125 of the Code shall, with the exception of Sections 4.4 and II-3 7 4.5 hereof, be regarded as Annual Earnings for purposes of this Plan. In addition to other applicable limitations set forth in the Plan, and notwithstanding any provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the Annual Earnings of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner of Internal Revenue for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA' 93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under II-4 8 Section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If Annual Earnings for any prior determination period is taken into account in determining an employee's benefits accruing in the current Plan Year, the Annual Earnings for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150.000. 2.7 Average Earnings shall mean the average Annual Earnings earned during the sixty consecutive months of highest Annual Earnings of a Participant (or during his total Employment if less than 60 months). 2.8 Beneficiary shall mean any person entitled to receive benefits under the Plan which are payable upon the death of a Participant. 2.9 Board shall mean the Board of Directors of the Company. II-5 9 2.10 Code shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.11 Committee shall mean the Committee as provided for in Article XI. 2.12 Company shall mean The Connecticut Water Company, a Connecticut corporation, or any successor thereto. 2.13 Contingent Annuitant shall mean any person designated by a Participant and entitled to receive benefits pursuant to the Contingent Annuitant Option described in Section 10.3(b). 2.14 Covered Compensation shall mean for each Participant the average of the contribution and benefit bases in effect under Section 230 of the Social Security Act for each year in the thirty-five (35) year period ending with the year in which the Participant attains the Social Security Retirement Age. The determination for any Plan Year preceding the year in which the Participant attains the Social Security Retirement Age shall be made by assuming that there is no increase in the bases described herein after the beginning of the Plan Year and before the Participant attains the Social Security Retirement Age. II-6 10 2.15 Credited Service shall mean the number of years of service as an Employee, in completed twelfths of a year commencing with the Employee's earliest date of hire and ending on the earlier of his Termination Date or Retirement Date, subject to adjustment as follows: (a) a full year of Credited Service shall be granted for each Plan Year for which an Employee completes at least 1,000 Hours of service; (b) no credit shall be granted for any Plan Year in which an Employee has less than 1,000 Hours of service; except that (i) for each Employee, pro rata credit shall be granted for the Plan Year in which the Employee was hired if he is a Participant and is credited with at least 2,000 Hours of service in the next succeeding Plan Year and (ii) for each Employee, pro rata credit shall be granted for the Plan Year in which the earlier of the Employee's Termination Date or Retirement Date occurs if he was a Participant and was credited with at least 2,000 Hours of service in the immediately preceding Plan Year; and (c) no credit shall be granted for any period of employment during which an Employee waived his II-7 11 right to participate in the Plan pursuant to Section 3.3. For purposes of this Section 2.15, pro rata credit shall be granted in completed twelfths of a year, based upon a full year of 1,000 Hours of service, but no more than one full year of Credited Service shall be granted with respect to any Plan Year. 2.16 Effective Date shall mean November 1, 1957. 2.17 Employee shall mean any person who is engaged in rendering personal services to the Employer other than as an independent contractor. 2.18 Employer shall mean the Company and any Participating Company. 2.19 Employment shall mean the service of an Employee with an Employer or a Predecessor Company. 2.20 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulations issued pursuant thereto. II-8 12 2.21 Fiduciary shall mean any person who exercises discretionary authority or control over the management of the Plan, assets held under the Plan or disposition of Plan assets; who renders investment advice for direct or indirect compensation as to assets held under the Plan or has any authority or responsibility to do so; or who has any discretionary authority or responsibility in the administration of the Plan; but only to the extent required by ERISA. 2.22 Hour shall mean: (a) each hour for which the Employee is directly or indirectly paid, or entitled to payment, by the Employer for the performance of duties (to be credited as of the time when the duties are performed); (b) each hour for which the Employee is directly or indirectly paid, or entitled to payment, by the Employer for reasons other than the performance of duties, such as vacation or holidays (to be credited in accordance with Labor Department Regulation 2530.200b-2(c) or any successor regulation); and II-9 13 (c) each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer (to be credited as of the time to which the award or agreement pertains). The same hour shall not be credited under more than one of the above clauses. In determining Hours of service for the purposes of clause (b) above, the provisions of Labor Department Regulation 2530.200b-2(b) or any successor regulation shall be applicable. Hours of service shall also include each hour, based on the Employee's standard work week and work day as in effect from time to time, during which an Employee is absent from work: (i) temporarily, on account of illness or with the consent of the Employer for a period not to exceed six months. In the event of any absence approved by the Employer and exceeding six months the Committee shall establish uniform rules for the inclusion or exclusion of any hour as an Hour of service on account of such absence in excess of six months; or II-10 14 (ii) on account of service in the armed forces of the United States, provided that the Employee returns to work within the period during which his reemployment rights are guaranteed by applicable Federal law following his or her discharge or severance from such service. 2.23 Participant shall mean any Employee who is or becomes eligible to participate in the Plan pursuant to Article III and who has taken all the steps required by said Article III to participate in the Plan. 2.24 Participating Company shall mean any Affiliated Company which is designated by the Board as a Participating Company under the Plan and whose designation as such has become effective and has continued in effect. The designation shall become effective only when it shall have been accepted by the Board of Directors of the Participating Company. A Participating Company may revoke its acceptance of such designation at any time, but until such acceptance has been revoked, all of the provisions of the Plan and amendments thereto shall apply to the Employees (and their Beneficiaries) of the Participating Company. In the event the designation of a Participating Company as such is revoked by the Board of Directors of the Participating Company, the Plan II-11 15 will be deemed terminated only as to such Participating Company in accordance with Article XIII. 2.25 Plan shall mean The Connecticut Water Company Employees' Retirement Plan set forth in its entirety in this document and the Trust Agreement, as this document and such Agreement may be amended from time to time. 2.26 Plan Year shall mean each calendar year, except that the period beginning on November 1, 1957 and ending on December 31, 1958 shall be considered the first Plan Year. 2.27 Predecessor Company shall mean any organization which was acquired by the Employer or an Affiliated Company. 2.28 Retirement Date shall mean a Participant's Normal, Early or Postponed Retirement Date as defined in Articles IV through VI, whichever is applicable. 2.29 Retirement Income shall mean a Participant's monthly benefit payable beginning on his Retirement Date. 2.30 Social Security Retirement Age shall mean the age used as the retirement age under Section 216(1) of the Social Security Act, except that such Section shall be II-12 16 applied without regard to the age increase factor and as if the early retirement age under Section 216(1)(2) of the Social Security Act were 62. 2.31 Spouse shall mean the spouse to whom a Participant shall be married on the date payment of his benefits commences or to whom a Participant shall be married at the time of his death. 2.32 Termination Date shall mean the date on which the Participant ceases to be an Employee other than by reason of retirement. 2.33 Trust Agreement shall mean The Connecticut Water Company Employees' Retirement Trust entered into between the Company and the Trustee to carry out the purposes of the Plan, as set forth herein, which Trust Agreement shall form a part of the Plan. 2.34 Trustee shall mean the Trustee selected by the Company in accordance with Article XII. 2.35 Trust Fund or Fund shall mean the cash and other properties held and administered by the Trustee in accordance with the provisions of the Trust Agreement and the Plan. II-13 17 2.36 Vesting Service shall mean the number of years of service as an Employee, in completed twelfths of a year, commencing with the Employee's earliest date of hire and ending on the earlier of his Termination Date or Retirement Date, subject to adjustment as follows: (a) a full year of Vesting Service shall be granted for each Plan Year in which an Employee completes at least 1,000 Hours of service; (b) no Vesting Service shall be granted for any Plan Year in which an Employee has less than 1,000 Hours of service; except that (i) for each Employee, pro rata vesting credit shall be granted for the Plan Year in which the Employee was hired if he is a Participant and is credited with at least 2,000 Hours of service in the next succeeding Plan Year, and (ii) for each Employee, pro rata vesting credit shall be granted for the Plan Year in which the earlier of the Employee's Termination Date or Retirement Date occurs if he was a Participant and was credited with at least 2,000 Hours of service in the immediately preceding Plan Year. (c) no Vesting Service shall be granted for any period II-14 18 of employment during which an Employee waived his right to participate in the Plan pursuant to Section 3.3. For purposes of this Section 2.36, pro rata vesting credit shall be granted in completed twelfths of a year, based upon a full year of 2,000 Hours of service, but no more than one full year of Vesting Service shall be granted with respect to any Plan Year. Masculine pronouns used herein shall refer to men or women or both and nouns and pronouns when stated in the singular shall include the plural and when stated in the plural shall include the singular, wherever appropriate. II-15 19 ARTICLE III PARTICIPATION 3.1 Former Employees. Any person who either retired or terminated Employment prior to June 3, 1975 shall be entitled to benefits in accordance with the Plan as in effect on his Retirement Date or Termination Date, whichever is applicable. 3.2 Current and Future Employees. Except as provided for in Section 3.3, each Employee shall participate in the Plan, as described herein provided that he has completed 1,000 Hours of service within the consecutive 12-month period beginning on his date of hire. Any Employee who had at least one Hour of service on or after January 1, 1988, who fulfilled the 1,000 Hours of service requirement as of January 1, 1988, but who has been excluded from participation in the Plan because of the prior provisions of the Plan which excluded Employees hired at or after age 60, shall retroactively participate in the Plan as of January 1, 1988. Employees affected by this rule of retroactive Plan participation shall have their years of service commencing January 1, 1988 counted toward their Credited Service. In the event an Employee fails to III-15 20 complete 1,000 Hours of service as described above, he shall participate in the Plan after completing 1,000 Hours of service in any Plan Year beginning after his date of hire. If a Participant terminates his employment but is rehired by the Employer, he shall again be eligible to participate in the Plan as of his date of rehire. 3.3 Waiver of Participation. Any Employee may waive his right to become a Participant under this Plan by electing such waiver in writing on a form supplied by the Administrator. Such Employee may, also in writing, withdraw such waiver and, subject to Section 3.2, be eligible to participate in this Plan. III-16 21 ARTICLE IV NORMAL RETIREMENT 4.1 Normal Retirement Date. The Normal Retirement Date of a Participant shall be the first day of the month coinciding with or next following his 65th birthday, or the fifth anniversary of his entry into the Plan, if later, but in no event later than the first day of the month coinciding with or next following his 70th birthday. 4.2 Basic Retirement Income. The monthly Basic Retirement Income with payments commencing at Normal Retirement Date under this Plan is equal to 1/12 of the sum of (a) plus (b) where: (a) equals the sum of 1.2% of Average Earnings up to Covered Compensation and 1.5% of Average Earnings in excess of Covered Compensation multiplied times years of Credited Service prior to January 1, 1981, and (b) equals the sum of 1.45% of Average Earnings up to Covered Compensation and 1.75% of Average Earnings in excess of Covered Compensation times years of Credited Service after December 31, 1980. IV-3 22 Notwithstanding the foregoing, the minimum Basic Retirement Income with payments commencing at Normal Retirement Date under this Plan is equal to 1/12 of $1,000, except that for an Employee who has less than 10 years of Credited Service, the $1,000 shall be reduced by the ratio of Credited Service to 10 years. Unless otherwise provided under the Plan, the accrued benefit of each "section 401(a)(17) employee" under this Plan will be the greater of the accrued benefit determined for the employee under 1 or 2 below: (1) the employee's accrued benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the employee's total years of Service taken into account under the Plan for the purposes of benefit accruals, or (2) the sum of: (a) the employee's accrued benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in IV-4 23 accordance with Section 1.401(a)(4)-13 of the Treasury Regulations, and (b) the employee's accrued benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the employee's Years of Service credited to the employee for Plan Years beginning on or after January 1, 1994, for purposes of benefit accruals. A "section 401(a)(17) employee" means an Employee whose current accrued benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on Annual Earnings for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded $150,000. 4.3 Normal Retirement Income. The Retirement Income of a Participant who retires on his Normal Retirement Date shall be determined as follows: (a) If the Participant does not have a Spouse and has made no election as to the form of payment of IV-5 24 pension benefits, then his Retirement Income shall be equal to his Basic Retirement Income as determined under Section 4.2 and shall be paid in the form of a Straight Life Annuity. (b) If the Participant has a Spouse and has not made a qualified waiver of the 50% Contingent Annuitant Option described in Subsection 10.3(b) with his Spouse as Contingent Annuitant, his Retirement Income payable as of the date payment of his Retirement Income commences shall equal the product of (i) and (ii) where: (i) equals the Basic Retirement Income as determined under Section 4.2, and (ii) equals the Actuarial Equivalent factor for such Contingent Annuitant Option, and shall be paid in the manner described under such optional form. (c) If the Participant elects an optional form of payment under Article X, his Retirement Income payable as of the date payment of his Retirement Income commences shall equal the product of (i) and (ii) where: IV-6 25 (i) equals his Basic Retirement Income as determined under Section 4.2, and (ii) equals the Actuarial Equivalent factor for the particular optional form elected as of the date payment of his Retirement Income commences, and shall be paid in the manner described under such optional form. 4.4 Maximum Benefit. Except as set forth below, in no event shall the Basic Retirement Income of a Participant under the Plan exceed one twelfth of the lesser of (i) $90,000, or (ii) 100% of the Participant's Average Compensation for the three (3) consecutive Plan Years during which the Employee was an active Participant and received the greatest Compensation from the Employer. For the purposes of this Section, Compensation shall mean all compensation of the Participant from the Employer. For Plan Years commencing on or after January 1, 1987, the foregoing maximum benefit shall be subject to adjustment as follows: (a) The $90,000 amount referred to in (i) shall be subject to an annual cost of living adjustment as provided by Treasury Regulations in effect from IV-7 26 time to time under Section 415 of the Code and shall be increased to the extent necessary to equal the Participant's current accrued benefit (as defined in Section 235(g)(4) of the Tax Equity and Fiscal Responsibility Act of 1982) as of September 30, 1983; (b) In the case of a Participant who has less than ten (10) years of Plan participation, the maximum benefit shall be reduced by multiplying the maximum benefit stated above by a fraction the numerator of which is the number of years of Plan participation (or parts thereof) with the Employer and the denominator of which is 10; (c) In the event that the Participant's retirement benefits commence prior to his Social Security Retirement Age, the maximum dollar limitation referred to in (i) shall be reduced in such manner as the Secretary of the Treasury shall prescribe which is consistent with the reduction for old-age insurance benefits commencing before the Social Security Retirement Age under the Social Security Act, provided, however, that the interest rate assumption used may not be less than five percent (5%) to reflect such early commencement; IV-8 27 (d) If the Participant's retirement benefits commence subsequent to his Social Security Retirement Age, the maximum dollar limitation referred to in (i) shall be increased so that it is the Actuarial Equivalent of the maximum dollar limitation referred to above, provided, however, that the interest rate assumption may not exceed five percent (5%) to reflect such late commencement; (e) Any benefit payable in a form other than a straight life annuity must be adjusted to an actuarially equivalent straight life annuity before applying the limitations of this Section 4.4. The interest rate assumption used to determine actuarial equivalence will be the greater of the interest rate specified in the definition of Actuarial Equivalent or five percent (5%). The annual benefit does not include any benefits attributable to employee contributions or rollover contributions, or the assets transferred from a qualified plan that was not maintained by the Employer. No actuarial adjustment to the benefit is required for (1) the value of a qualified joint and survivor annuity, (2) the value of benefits that are not directly related to retirement benefits (such as qualified disability IV-9 28 benefits, pre-retirement death benefits, and post-retirement medical benefits), and (3) the value of post-retirement cost-of-living increases made in accordance with the Federal Income Tax Regulations. (f) Notwithstanding anything in this Article to the contrary, the maximum benefit for any individual who is a Participant as of January 1, 1987 shall not be less than the Participant's accrued benefit under the Plan expressed as an annual benefit within the meaning of Code Section 415(b)(2) and determined as if the Participant had separated from service as of December 31, 1986. For purposes of this clause, in determining the amount of such Participant's accrued benefit, the following shall be disregarded: (1) any change in the terms and conditions of the Plan after May 5, 1986; and (2) any cost of living adjustment occurring after May 5, 1986. Notwithstanding the foregoing, so long as the Employer does not maintain a defined contribution plan in which the Participant participates, the maximum benefit limitation stated above shall not be deemed to be exceeded if the retirement benefits payable with IV-10 29 respect to a Participant hereunder (and under any other defined benefit plan which the Employer may establish) do not exceed $10,000 for the Plan Year or for any prior Plan Year; provided that in the case of a Participant who has less than ten (10) years of Plan participation, the $10,000 figure shall be adjusted in the manner provided in (b) above. 4.5 Additional Limitation-Members of Defined Contribution Plan. In the case of any Participant who is entitled to benefits due to Employer contributions under any defined contribution plan maintained by the Employer, in addition to the limitations under Section 4.4 hereof, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any Plan Year may not exceed 1.0. The "defined benefit plan fraction" for any Plan Year is a fraction (a) the numerator of which is the projected annual benefit of the Participant under this Plan (determined as of the close of the Plan Year), and (b) the denominator of which is the lesser of: (1) the product of 1.25 multiplied by the maximum dollar limitation in effect under Section 415(b)(1)(A) of the Code for such Plan Year, or (2) the product of 1.4 multiplied by the amount which may be taken into account under Section 415(b)(1)(B) of the Code for such Participant for such IV-11 30 Plan Year. The "defined contribution plan fraction" for any Plan Year is a fraction (a) the numerator of which is the sum of the annual additions to the Participant's account as of the close of the Plan Year, and (b) the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of service with the Employer: (1) the product of 1.25 multiplied by the maximum dollar limitation in effect under Section 415(c)(1)(A) of the Code for such Plan Year (determined without regard to Section 415(c)(6) of the Code), or (2) the product of 1.4 multiplied by the amount which may be taken into account under section 415(c)(1)(B) of the Code for such Participant for such Plan Year; provided, however, that the foregoing denominator may instead, at the election of the Administrator, be determined in accordance with the special transition rule set forth in Section 415(e)(6) of the Code, and further provided that the defined contribution plan fraction may be reduced in accordance with Section 235(g)(3) of the Tax Equity and Fiscal Responsibility Act of 1982. In the event that the said projected annual benefit of a Participant under this Plan should cause the aforesaid limitation to be exceeded, the Administrator shall have the right to accomplish the aforementioned compliance by reducing or limiting IV-12 31 either benefits under this Plan in the manner set forth above or annual additions under any defined contribution plan in the manner set forth in such defined contribution plan, and may vary the extent to which the reduction or limitation will be applied to either, provided that any such reduction or limitation shall be made in a nondiscriminatory manner. IV-13 32 ARTICLE V EARLY RETIREMENT 5.1 Early Retirement Date. A Participant may retire on the first of any month between his 55th and 65th birthdays, provided he has then completed at least 10 years of Credited Service, any such date being his Early Retirement Date. Any such Participant may elect to receive his Retirement Income commencing on his Early Retirement Date in a reduced amount as set forth in Section 5.2 or to receive his Retirement Income commencing on his Normal Retirement Date as determined under Section 4.3 based on his Average Earnings and Credited Service as of his Early Retirement Date. 5.2 Early Commencement. A Participant who retires in accordance with the provisions of Section 5.1 and elects to have payment of his Retirement Income commence on his Early Retirement Date shall be entitled to receive a reduced Annual Retirement Income in the form stated in Section 4.3. The amount of such reduced Retirement Income shall equal (a) times (b) where: (a) equals such Participant's Normal Retirement Income as determined under Section 4.3 based on his Average Earnings and his Credited Service as of V-12 33 his Early Retirement Date and with the Actuarial Equivalent factors described in Subsections 4.3(b) and 4.3(c) being determined as of his Early Retirement Date; and (b) equals the appropriate percentage factor from the following table:
Complete Years by Which Early Retirement Date Early Retirement Precedes Age 65 Percentage Factors ----------------------- ------------------ 10 .72 9 .76 8 .80 7 .84 6 .88 5 .92 4 .96 3 1.00 2 1.00 1 1.00 0 1.00
5.3 Delayed Commencement of Pension. A Participant who retires in accordance with the provisions of Section 5.1 but elects to have payment of his Retirement Income commence at a later date, may defer such commencement of payment to the first of any subsequent month which is not later than his Normal Retirement Date. Notice of the selected payment commencement date must be given to the Administrator at least 30 days prior to such date. The amount of pension payable to the Participant V-13 34 shall be determined in accordance with Section 5.2, except that the selected payment commencement date shall be considered the Participant's Early Retirement Date for purposes of this benefit determination. V-14 35 ARTICLE VI POSTPONED RETIREMENT 6.1 Delayed Retirement. Subject to the provisions of Article XIV, Section 14.1, any Employee may remain in the Company's employment after his Normal Retirement Date. 6.2 Commencement of Pension. A Participant whose retirement is postponed beyond his Normal Retirement Date shall begin receiving his monthly Retirement Income on the first day of the month coinciding with or next following his actual retirement. The amount and form of the Participant's Retirement Income payable monthly commencing on his Postponed Retirement Date shall be the same as the Participant's Retirement Income that would have been had he retired on his Normal Retirement Date except the Basic Retirement Income shall be determined based on Credited Service and Average Earnings of the Participant as of his Postponed Retirement Date. The Retirement Income shall be offset by the Actuarial Equivalent of the total benefit distributions made to the Participant by the close of the Plan Year pursuant to Section 14.9. If the Participant should die after Normal Retirement VI-4 36 Date, but before his actual retirement date, it shall be presumed that the Participant had retired as of the first day of the month coinciding with or next preceding his date of death. VI-5 37 ARTICLE VII TERMINATION OF EMPLOYMENT AND VESTED RIGHTS 7.1 Vesting Requirements. A Participant whose Employment is terminated other than by retirement, disability or death, and prior to having completed 5 years of Vesting Service shall not be entitled to any benefit under this Plan. A Participant whose Employment is terminated after having completed at least 5 years of Vesting Service shall be entitled to receive a Retirement Income equal to his Vested Benefit determined as of his Termination Date as set forth in Section 7.2. 7.2 Vested Benefit. A Participant's Vested Benefit shall be the Retirement Income payable at Normal Retirement Date in the form and amount as set forth in Section 4.3 based on his Average Earnings and Credited Service as of his Termination Date, multiplied by the applicable percentage specified below:
If Years of Vesting Then Vested Service Are Percentage Is ------------------- ------------- Less than 5 0% 5 or more 100%
VII-3 38 Notwithstanding the foregoing, a Participant shall be 100% vested upon the later of his 65th birthday or the fifth anniversary of his entry into the Plan. 7.3 Commencement of Payments. Retirement Income payments in the form stated in Section 4.3 shall commence at the terminated Participant's Normal Retirement Date unless the Participant elects in writing on a form supplied by the Administrator to have reduced payments commence at an earlier date provided that such earlier date shall not be prior to the first day of the calendar month coinciding with or next following the terminated Participant's attainment of age 55. Such written election must be received by the Administrator at least six months prior to the commencement of benefits. If a terminated Participant elects to have payments commence prior to his Normal Retirement Date, the terminated Participant's Retirement Income shall be reduced by .5% for each complete month by which the date payments commence precedes his Normal Retirement Date. VII-4 39 ARTICLE VIII DISABILITY 8.1 Eligibility and Disability Determination. If a medical examiner selected by the Employer certifies that an Employee who has completed 5 years of Credited Service is mentally or physically disabled for further performance of duty and that such disability is likely to be permanent, such that the Employee is considered eligible for a full disability pension under the provisions of the Social Security Act, this Employee may be terminated and he shall be entitled to a monthly benefit in amount and form described below. 8.2 Disability Benefit. The monthly income of an Employee who becomes eligible for a monthly benefit in accordance with Section 8.1 shall equal the Basic Retirement Income as determined in Section 4.2 based on his Average Earnings and his Credited Service as of his Termination Date reduced by the appropriate Early Retirement Percentage Factor from Subsection 5.2(b) (with a Percentage Factor of .72 if his Termination Date precedes age 65 by more than 9 complete years). 8.3 Form and Commencement of Payments. An Employee who becomes eligible for a monthly benefit in accordance VIII-3 40 with Section 8.1 shall receive such benefit in the form stated in Section 4.3 commencing on the first day of the month next following his Termination Date; provided, however, that no payments shall be made under this Article VIII while the Employee is receiving disability benefits from the Employer's long-term disability plan. 8.4 Recovery. A Participant whose Employment is terminated in accordance with Section 8.1 and subsequently recovers, shall be considered an active Employee with Credited Service both before and after termination of Employment aggregated for purposes of determining all benefits under this Plan. VIII-4 41 ARTICLE IX PRE-RETIREMENT DEATH BENEFIT 9.1 Death While Employed and Eligible for Early Retirement. If a Participant dies while he is actively employed and eligible for Early Retirement as provided in Section 5.1 but before the earlier of his actual date of retirement or Normal Retirement Date, his surviving Spouse (if designated or deemed his Beneficiary in accordance with Section 9.4), if any, shall receive monthly benefits equal to 50% of the Retirement Income the Participant would have received under Section 5.2 had he retired early as of the first day of the month coinciding with or next preceding his date of death and elected the 50% Contingent Annuitant Option under Subsection 10.3(b) with his Beneficiary as Contingent Annuitant. Payment shall commence on the first day of the calendar month following the Participant's death and shall continue each month thereafter through the month in which the Beneficiary's death occurs. If a Participant dies while he is actively employed and eligible for Early Retirement as provided in Section 5.1 but before the earlier of his actual date of retirement or Normal Retirement Date, with no surviving Spouse designated or deemed his Beneficiary, his Beneficiary (as determined in accordance with Section IX-3 42 9.4), if any, shall receive a death benefit. This death benefit shall be paid in the form of a lump sum which shall be the Actuarial Equivalent of the Retirement Income which the Beneficiary would have received had the Participant retired on the date of his death with the optional form of benefit under Subsection 10.3(d) (Five Years Certain and Life Option) in effect. 9.2 Death After Early Retirement But Before Commencement of Pension. If a Participant retires on his Early Retirement Date but dies before payment of his Retirement Income commences, his surviving Spouse (if designated or deemed his Beneficiary in accordance with Section 9.4), if any, shall receive monthly benefits equal to 50% of the Retirement Income the Participant would have received under Section 5.3 had he elected to have payment of his Retirement Income commence as of the first day of the month coinciding with or next preceding his date of death and elected the 50% Contingent Annuitant Option under Subsection 10.3(b) with his Spouse as Contingent Annuitant. If a Participant retires on his Early Retirement Date but dies before payment of his Retirement Income commences with no surviving Spouse designated or deemed IX-4 43 his Beneficiary, his Beneficiary (as determined in accordance with Section 9.4), if any, shall receive a death benefit. This death benefit shall be paid in the form of a lump sum which shall be the Actuarial Equivalent of the Retirement Income which the Beneficiary would have received had the Participant retired on the date of his death with the optional form of benefit under Subsection 10.3(d) (Five Years Certain and Life Option) in effect. 9.3 Death Before Retirement. (a) Unless waived within the Waiver Period pursuant to a qualified waiver as described in Section 10.2, if a Participant who is no longer actively employed dies after attaining the Earliest Retirement Age, the Participant's surviving Spouse (if any) shall receive the same benefit that would be payable if the Participant had retired with the 50% Contingent Annuitant Option as described in Subsection 10.3(b) on the day before the Participant's date of death. (b) Unless waived within the Waiver Period pursuant to a qualified waiver as described in Section 10.2, if a Participant dies on or before attaining the IX-5 44 Earliest Retirement Age, the Participant's surviving Spouse (if any) shall receive the same benefit that would be payable if the Participant had: (i) separated from service on the date of death, or date of actual separation from service, if earlier, (ii) survived to the Earliest Retirement Age, (iii) retired with an immediate 50% Contingent Annuitant Option as described in Subsection 10.3(b) at the Earliest Retirement Age, and (iv) died on the day after the Earliest Retirement Age; provided, however, that in calculating the benefit of a surviving Spouse of a Participant who dies while actively employed, the Retirement Income to which the Participant would have been entitled at his Normal Retirement Date shall be reduced in accordance with the formula described in Section 5.2, rather than that described in Section 7.3. IX-6 45 (c) For purposes of this Section 9.3, a surviving Spouse shall begin to receive payments at the later of (i) the date of the Participant's death, or (ii) the Earliest Retirement Age, unless such surviving Spouse elects a later date. (d) For purposes of this Section 9.3, the following definitions shall apply: (i) Waiver Period: The period which begins on the date the Participant separates from service and ends on the date of the Participant's death. (ii) Earliest Retirement Age: The earliest date on which, under the Plan, the Participant could have elected to receive retirement benefits. (e) For the period during which a Participant who is no longer actively employed has not waived the pre- retirement survivor annuity described in this Section 9.3, the Participant's Retirement Income shall be reduced as follows:
Reduction in Retirement Income Attained Age for each Month of Coverage ------------ ------------------------------ Under 45 1/120% 45-54 1/60% 55 and over 1/24%
IX-7 46 9.4 Designation of Beneficiary. The Administrator shall provide to each actively employed Participant at least 90 days before the date on which he meets the age and service requirements for early retirement, a form on which he may designate his Beneficiary. The person whom a Participant designates as his Beneficiary must be his Spouse, unless a qualified waiver of the qualified pre-retirement survivor annuity has been made in accordance with Section 10.2. If such a qualified waiver has been made, the Participant's Beneficiary for this purpose must be one of the following: the Participant's spouse, father, mother, sister, brother, son or daughter. The beneficiary may also be a legal ward living with and dependent on the Participant at the time of his death. If the Participant dies after satisfying the requirements for early retirement, and has not designated a Beneficiary, his Beneficiary shall be his Spouse, if living; otherwise, he shall have no Beneficiary and no payments shall be made pursuant to this Article IX. IX-8 47 ARTICLE X NORMAL AND OPTIONAL FORMS OF RETIREMENT INCOME 10.1 Normal Form of Payments. If a Participant does not make a timely election of one of the optional forms of payment described below, then his Retirement Income shall be payable in the form and amount under Section 4.3, if he retires as of his Normal or Postponed Retirement Date; under Section 7.3, if he terminates his employment other than by reason of death, disability or retirement; and under Section 8.3, if he is disabled. 10.2 Election of Optional Form of Payment. A Participant whose Retirement Income is otherwise payable under the Normal Form may elect in writing to the Employer to receive his benefit under one of the optional forms set forth in Section 10.3. The Administrator shall provide to each active Participant and each terminated Participant with a vested interest whose benefits have not yet commenced, by personal delivery or mail, at least 90 days before the date on which he meets the age and service requirements for early retirement, the following information in written nontechnical language: (1) a general description of the Normal Form and optional forms of payment and the availability of the X-7 48 election not to receive the Normal Form; (2) a general explanation of the relative financial effect of an election not to receive the Normal Form; (3) the right to make, and the effect of, a revocation of a previous election not to receive the Normal Form; (4) the rights of a Participant's Spouse; and (5) notification of the availability upon written request of a written explanation of the financial effect (in dollars per annuity payment) upon the particular Participant's annuity of an election not to take the Normal Form. The Administrator shall furnish this additional information to a Participant by personal delivery or first-class mail within 30 days from the date of the Participant's written request. An election of an optional form of payment pursuant to Section 10.3 shall not be effective unless it is filed with the Administrator within the 90-day period before pension benefit payments are to commence. Notwithstanding the foregoing, if a Participant requests the additional information described in clause (3) above, he shall have the right to elect an optional form of payment for a period of at least 90 days following the day this information is personally delivered or mailed and the commencement of his benefits may be delayed until the form of payment is determined. X-8 49 Notwithstanding the foregoing, no election of an optional form of benefit or election to waive the pre-retirement survivor annuity by a married Participant will be effective without a qualified waiver. Such waiver must be in writing and may only be made with the written consent of the Participant's Spouse. The Spouse's consent to a waiver must be witnessed by the Administrator or his representative or by a notary public. Notwithstanding the foregoing requirement of spousal consent, if the Participant establishes to the satisfaction of the Administrator that such written consent may not be obtained because there is no Spouse or the Spouse cannot be located, a waiver will be deemed to be a qualified waiver. Any consent necessary under this provision will be valid only with respect to the Spouse who signs the consent, or in the event of a deemed qualified waiver, the designated Spouse, if any. Additionally, a revocation of a prior qualified waiver may be made by a Participant without the consent of the Spouse at any time before the date payment of benefits commences. The number of revocations shall not be limited. 10.3 Optional Forms of Payment. The optional forms of benefit payment available shall be the Actuarial X-9 50 Equivalent of the Retirement Income otherwise payable to the Participant. (a) Straight Life Annuity Option - Retirement Income payable monthly during the Participant's lifetime, with no further payments on his behalf after his death. If this option is elected, the Participant's Retirement Income shall equal his Basic Retirement Income without actuarial adjustment except as provided for election of early commencement of payments, as applicable. (b) Contingent Annuitant Option - Retirement Income payable monthly during the Participant's lifetime with the provision that after his death such Retirement Income shall be continued to the Contingent Annuitant, in the same or a lesser amount, as specified by the Participant, during the life of such Contingent Annuitant. The lesser percentage which may be specified by a Participant shall be either 75% or 50% of the Participant's Retirement Income. Except as provided for in Article IX, if a Participant shall elect the Contingent Annuitant Option and he shall die before the earlier of his X-10 51 Early Retirement Date, or Normal Retirement Date, whichever is applicable, his Contingent Annuitant shall not be entitled to any Retirement Income under this Plan. If a Participant shall elect the Contingent Annuitant Option and his Contingent Annuitant shall die before the Participant does, but such death occurs after the retirement of the Participant, the Participant shall continue to receive the Retirement Income payable to him prior to the death of his Contingent Annuitant. (c) Ten Years Certain and Life Option - Retirement Income payable monthly during the Participant's lifetime and in the event of the Participant's death within a period of 10 years after benefits hereunder have commenced, the Actuarial Equivalent of the value of the Retirement Income remaining to be paid during the aforementioned 10-year period shall be paid to the Participant's Beneficiary in a lump sum within 5 years of the date of the Participant's death. Except as provided for in Article IX, if a Participant shall elect the Ten Years Certain and X-11 52 Life Option and he shall die before the earlier of his Early Retirement Date, or Normal Retirement Date, whichever is applicable, his Beneficiary shall not be entitled to any Retirement Income under this Plan. If a Participant shall elect the Ten Years Certain and Life Option and his Beneficiary shall die before the Participant does, but such death occurs after the retirement of the Participant, the Participant shall continue to receive the Retirement Income payable to him prior to the death of his Beneficiary and shall designate a new Beneficiary. (d) Five Years Certain and Life Option - Retirement Income payable monthly during the Participant's lifetime and in the event of the Participant's death within a period of 5 years after benefits hereunder have commenced, the Actuarial Equivalent of the value of the Retirement Income remaining to be paid during the aforementioned 5-year period shall be paid to the Participant's Beneficiary in a lump sum within 5 years of the date of the Participant's death. X-12 53 Except as provided for in Article IX, if a Participant shall elect the Five Years Certain and Life Option and he shall die before the earlier of his Early Retirement Date, or Normal Retirement Date, whichever is applicable, his Beneficiary shall not be entitled to any Retirement Income under this Plan. If a Participant shall elect the Five Years Certain and Life Option and his Beneficiary shall die before the Participant does, but such death occurs after the retirement of the Participant, the Participant shall continue to receive the Retirement Income payable to him prior to the death of his Beneficiary and shall designate a new Beneficiary. For purposes of the optional forms of payment set forth in Subsections (b), (c) and (d) hereof, the Participant's Beneficiary shall be designated on a form provided by the Administrator. Any person may be designated a Beneficiary for these purposes; provided, however, that if no other Beneficiary shall have been effectively designated, the executor or administrator of the Participant's estate shall be deemed his Beneficiary. X-13 54 10.4 General Limitation. Anything in the foregoing to the contrary notwithstanding, no method of distribution may be made under this Article which would result in the Actuarial Equivalent of a Contingent Annuitant's or Beneficiary's interest equaling or exceeding 50% of the Actuarial Equivalent of the Participant's full retirement benefit, both equivalents being determined as of the Participant's actual Retirement Date. 10.5 Lump Sum Distributions. Anything in the Plan to the contrary notwithstanding, the Committee shall pay benefits to a Participant who retires or otherwise terminates Employment with the Employer in a lump sum; provided, however, that the lump sum value of such benefits may not exceed (or have ever exceeded) $3,500 (or such greater amount as may be permitted by law or regulation at the time of payment); and, provided, further, that such distribution must be made by the end of the second Plan Year following the Plan Year in which termination of employment occurs. A Participant who receives a lump sum distribution pursuant to this Section 10.5 shall forfeit all Credited Service accrued prior to such distribution, and such forfeited Credited Service shall be disregarded if such Participant is subsequently reemployed by the Employer unless the Participant repays the entire amount of the X-14 55 distribution, plus interest compounded annually from the date of the distribution at the rate of 5 percent per year, prior to the earlier of (1) the expiration of the fifth consecutive Plan Year in which the Participant completed 500 or fewer Hours of service or (2) the fifth anniversary of the date of the Participant's reemployment. 10.6 Direct Rollover. (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) Definitions. (1) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the X-15 56 credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the X-16 57 distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving Spouse and the Employee's or former Employee's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the Spouse or former Spouse. (4) Direct rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. X-17 58 ARTICLE XI FIDUCIARIES - ADMINISTRATION OF THE PLAN 11.1 Appointment of Named Fiduciary. The Committee is hereby designated as the Named Fiduciary of the Plan. 11.2 Authority of Named Fiduciary. Subject to the provisions of Section 11.4, the Committee shall have the authority to control and manage the operation and administration of the Plan in accordance with the terms hereof. 11.3 Discharge of Duties - Fiduciaries. Any Fiduciary with respect to the Plan shall discharge its duties solely in the interest of the Participants and Beneficiaries for the exclusive purpose of providing benefits to Participants and Beneficiaries and defraying reasonable expenses of administering the Plan. In addition any Fiduciary with respect to the Plan shall discharge its duties with the care, skill, prudence and vigilance under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. XI-12 59 11.4 Delegation of Duties. The Committee shall have authority and discretion to designate or appoint in writing (i) persons to carry out specified fiduciary responsibilities, other than Trustee responsibilities, to manage and control the assets of the Plan, and (ii) investment advisors and managers to manage (including the power to acquire and dispose of) any assets of the Plan. Any such person shall serve at the pleasure of the Committee and may resign by delivering a written notice to the Committee. Any delegation of duties shall be made and acknowledged in writing and shall clearly state the powers and duties so delegated. 11.5 Appointment of Committee. The Board shall appoint the Committee which shall consist of not less than three members, who shall serve at the pleasure of the Board. The members of the Committee shall elect a chairman and a secretary, the latter of whom may, but need not be, a member of the Committee. 11.6 Meetings. The Committee shall hold meetings upon such notice, and at such place or places, and at such intervals as it may from time to time determine. 11.7 Quorum. A majority of the members of the Committee at any time in office shall constitute a quorum for the XI-13 60 transaction of business. All resolutions or other actions taken by the Committee shall be by vote of a majority of those present at a meeting of the Committee; or without a meeting by instrument in writing signed by a majority of the members of the Committee. 11.8 Expenses. The reasonable expenses incident to the operation of the Plan, including premiums for termination insurance payable to the Pension Benefit Guaranty Corporation, the compensation of the Trustee, Actuary, attorney, advisors, Fiduciaries, and such other technical and clerical assistance as may be required, shall be paid out of the Fund, but the Employer in its discretion may elect at any time to pay part or all thereof directly, and any such election shall not bind the Employer as to its right to elect with respect to the same or other expenses at any other time to have such compensation paid from the Fund. 11.9 Powers and Duties of the Committee. In addition to any implied powers and duties which may be needed to carry out the provisions of the Plan, the Committee, subject to the provisions of Section 11.4, shall have the following specific powers and duties. XI-14 61 (a) To make and enforce such rules and regulations as it shall deem necessary or proper for the efficient administration of the Plan; (b) To interpret the Plan and to decide any and all matters arising hereunder; including the right to remedy possible ambiguities, inconsistencies or omissions; provided, however, that all such interpretations and decisions shall be applied in a uniform and nondiscriminatory manner to all Employees similarly situated; (c) To compute the amount of Retirement Income which shall be payable to any Participant, Spouse or Beneficiary in accordance with the provisions of the Plan; and (d) To authorize disbursements from the Fund, any instructions of the Committee to the Trustee to be evidenced in writing and signed by a member of the Committee delegated with such authority by a majority of the Committee. 11.10 Administrator. The Committee may designate an Administrator of the Plan, and may delegate to the Administrator such duties as the Committee may decide XI-15 62 including the responsibility to prepare and file, or to cause to be prepared and filed, such reports, descriptions, summaries financial and other statements as may be required from time to time under applicable provisions of ERISA, within the time prescribed for the preparation or filing of such documents, and to furnish such reports, statements and documents to Participants and Beneficiaries of the Plan as may be required by ERISA, within the time specified for furnishing such documents. Any such designation and delegation shall be made in the manner provided in Section 11.4. 11.11 Agent for Service. The Committee, or the Administrator if one shall be appointed, shall be the agent for service of legal process in connection with any claim or proceeding relating to the Plan. 11.12 Use of Enrolled Actuary. The Company shall employ or engage an Actuary to make actuarial valuations of the liabilities under this Plan and to recommend the amounts of contributions to be made and to perform such other services deemed necessary or advisable in connection with the administration of the Plan. 11.13 Bonding; Liability of Committee. The Committee, or its delegee, shall ensure that each Fiduciary of the Plan, XI-16 63 including members of the Committee, is bonded in accordance with ERISA. The Employer shall indemnify and hold harmless each member of the Committee, the Administrator, and any Director or Employee held to be a Fiduciary with respect to the Plan from any liability, claim, demand, suit or action of any type arising from any action or failure to act; provided that such person acted in good faith and in a manner he reasonably believed to be in the best interests of the Participants and Beneficiaries and consistent with the provisions of the Plan and, with respect to any criminal action or proceeding, that he had no reasonable cause to believe his conduct was unlawful. 11.14 Reliance on Reports and Certificates. The Committee, and its delegees, shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports which will be furnished by an Actuary, accountant, controller, counsel or other person who is employed or engaged for such purposes. 11.15 Member's Own Participation. No member of the Committee may act, vote or otherwise influence a decision of the Committee specifically relating to his own participation under the Plan. XI-17 64 11.16 Claims Procedure. Each Participant and Beneficiary of the Plan shall submit all claims for benefits, claims relating to the amount or manner of any distribution, and any other request relating to any account, in writing, to the Administrator of the Plan. The Administrator shall within a reasonable period of time, but not later than 60 days after receipt thereof, either approve or deny such claim or request either wholly or in part, and notify the claimant in writing of the action taken. 11.17 Notice of Denial. If such claim or request is wholly or partially denied, the written notice of the Administrator shall set forth in a manner calculated to be understood by the claimant: (a) specific reasons for the denial; (b) specific references to the pertinent Plan provisions on which the denial is based; (c) specific reference to any additional material or information necessary for the claimant to perfect review of the claim and an explanation of why such material or information is necessary; and XI-18 65 (d) an explanation of the Plan's claims review procedure. If the notice of the denial is not furnished to the Participant in accordance with this Section within a reasonable period of time, such Participant's claim shall be deemed denied. 11.18 Review. Upon denial of such a claim or request, the claimant shall be entitled within 60 days after the receipt of written notice of denial by the Administrator: (a) to request, in writing, a review by the Committee of the denial; (b) to review pertinent documents; and (c) to submit issues and comments in writing. The Committee shall render a decision on its review of the denial promptly, but not later than 60 days after the receipt of the request for review, unless special circumstances require an extension of time, in which case a decision shall be rendered not later than 120 days after the receipt of a request for review. XI-19 66 If the Committee's decision on review is not furnished to the Participant within the time limitations described herein, the claim shall be deemed denied upon review. The decision of the Committee shall be in writing and shall set forth reasons therefor stated in a manner calculated to be understood by the claimant, including specific references to the pertinent Plan provisions. Determinations, decisions and other actions of the Committee, taken in accordance with the provisions hereof shall be final, conclusive and binding on all parties. XI-20 67 ARTICLE XII METHOD OF FINANCING 12.1 Appointment of Trustee. The Trustee under the Plan will be appointed by the Board, with such powers, as to investments, reinvestment, control and disbursement of the Fund, as set forth in the Trust Agreement, or in such Trust Agreement as modified from time to time. The Board may remove the Trustee at any time on the notice required by the terms of such Trust Agreement, and upon such removal or upon the resignation of any such Trustee, such Board will designate a successor Trustee. 12.2 The Employer shall contribute to the Trust Fund such amounts as are deemed necessary by an Actuary to fund the benefits provided by the Plan on an acceptable basis in accordance with Title I, Section 302 and Title II, Section 1013 of ERISA. Any actuarial gains arising from actual experience under the Plan will be used to reduce future Employer contributions and will not be used to increase any benefits payable under the Plan. All contributions made under this Plan are made on the condition that they are deductible under Section 404 of the Code. XII-10 68 12.3 Except as provided in Section 12.6, all Employer contributions when made to the Trust Fund and all property of the Trust Fund, including income from investments and all other sources, shall be retained for the exclusive benefit of Participants, Spouses, or their Beneficiaries and shall be used to pay benefits provided hereunder or to pay expenses of administration of the Plan and the Trust Fund to the extent not paid by the Employer. 12.4 The Employer shall not be required to make, but may make in any calendar or fiscal year, any contributions to the Trust Fund in any amount which is greater than the amount specified in Section 12.2. The timing of all contributions shall be entirely discretionary with the Employer to the extent permitted by ERISA. 12.5 Participants will not be required or permitted to make contributions to the Plan. 12.6 Amounts forfeited by any Participant shall be used to reduce Employer contributions. XII-11 69 ARTICLE XIII AMENDMENT OR TERMINATION 13.1 Right to Amend or Terminate. The Employer hopes and expects to continue the Plan indefinitely. Nevertheless, each Employer maintains the right to suspend, terminate, or completely discontinue contributions under the Plan with respect to its Employees and the Board may terminate the Plan for any reason at any time; subject to the requirement that the Administrator shall file a notice of intent to terminate with the Pension Benefit Guaranty Corporation ("PBGC") at least 60 days prior to the proposed date of termination of the Plan, and shall comply with all other provisions of ERISA or the PBGC relating to plan terminations. In addition, the Board may amend or modify the Plan from time to time, provided, however, that no such action shall adversely affect Participants to the extent of their vested benefits, nor shall such action decrease a Participant's accrued benefit or eliminate an optional form of distribution. Notwithstanding the foregoing, however, any modification or amendment of the Plan may be made retroactively, if necessary or appropriate to qualify or maintain the Plan as a Plan meeting the requirements of the Code and ERISA. Upon any termination or partial XIII-3 70 termination of the Plan all accrued benefits, to the extent funded, shall become nonforfeitable on the date of the termination. 13.2 Change in Vesting. If an amendment or a change in the top-heavy status of the Plan changes the vesting schedule of the Plan, as set forth in Section 7.2 hereof, any Participant having three (3) or more years of service on the date which is sixty (60) days after such amendment or change is adopted or becomes effective (or, if later, sixty (60) days after written notice of the amendment is given) may, no later than the end of the election period, elect to remain subject to the vesting schedule in effect prior to such amendment or change. For purposes of the foregoing, the "election period" shall begin on the date the amendment changing the vesting schedule is adopted or the date on which the Plan's top-heavy status is changed and shall end no earlier than the latest of the following dates (provided that in the case of a change in the Plan's top-heavy status, only clause (b) shall apply): (a) the date which is 60 days after the day the Plan amendment is adopted; XIII-4 71 (b) the date which is 60 days after the day the Plan amendment becomes effective or the top-heavy status of the Plan changes; or (c) the date which is 60 days after the day the Participant is issued written notice of the Plan amendment by the Employer or Administrator. 13.3 Mergers, Consolidations and Transfers. The Plan shall not be automatically terminated by the Employer's acquisition by or merger into any other company, but the Plan shall be continued after such merger provided the successor company agrees to continue the Plan. All rights to amend, modify, suspend, or terminate the Plan shall be transferred to the successor company, effective as of the date of the merger. The merger or consolidation with, or transfer of assets and liabilities to, any other qualified retirement plan shall be permitted only if the benefit each plan participant would receive if the plan were terminated immediately after such merger or consolidation, or transfer of assets and liabilities, would be at least as great as the benefit he would have received had the Plan been terminated immediately before any such transaction. XIII-5 72 13.4 Distribution of Funds upon Termination. In the event the Plan shall be terminated or contributions permanently discontinued, the then present value of benefits vested in each Participant in accordance with Article VII shall be determined as of the Plan termination date and the assets of any Fund then held by the Trustee as reserves for Retirement Income for Participants under this Plan shall be allocated to the extent that they shall be sufficient, after providing for expenses of administration, in the order of precedence set forth below: (a) There shall first be set aside an amount which will provide Retirement Income for Participants, Spouses, or Beneficiaries who were receiving benefits or who were eligible to receive benefits at least three years prior to termination of the Plan based on Plan provisions in effect five years prior to the date of the Plan's termination. (b) There shall next be set aside an amount which will provide all other benefits insured by the PBGC. (c) There shall next be set aside an amount which will provide all other vested benefits, under the XIII-6 73 provisions of the Plan on its termination date, but which are not incurred under ERISA. (d) Finally, there shall be set aside an amount which will provide all other accrued benefits for Participants who were not vested as of the date of Plan termination. If the assets of the Fund held by the Trustee as reserves for Retirement Income for Participants of the Plan, as of the date of the Plan is terminated, are not sufficient to provide in whole the amounts required within the classes described above, such assets will be allocated pro rata within the class in which the amounts first cannot be provided in full. Allocation in any of the above listed categories is adjusted for any allocation already made to the same Participant under a prior category. Allocation of assets may be modified by the Internal Revenue Service to meet nondiscrimination requirements. After all liabilities of the Plan have been satisfied, the Employer shall be entitled to any balance of the Fund which shall remain. XIII-7 74 13.5 Provision of Benefits. The Retirement Income payable in accordance with Section 13.3 shall be provided through continuance of the existing Trust Agreement or through a new instrument entered into for that purpose or through the purchase of nontransferable annuity contract or contracts from a commercial life insurance company or by a combination thereof. If the allocations produce Retirement Income of less than $120 a year, a lump sum payment which is the Actuarial Equivalent of such Retirement Income may be paid in lieu thereof. 13.6 Special Limitations. Subject to the limitations expressed in Sections 4.3, 4.4 and 13.4, if, at any time prior to June 3, 1985 the Plan shall be terminated or the full current cost of the Plan shall not have been met, then the amount of the contributions by the Employer, or funds attributable thereto, that may be applied for the benefit of any Participant who on June 3, 1975 is one of the 25 highest paid Employees and whose anticipated annual Normal Retirement Income resulting from contributions of the Employer is more than $1,500 shall not exceed: (a) the greater of $20,000 or an amount computed by multiplying the number of years or parts thereof XIII-8 75 from June 3, 1975, to the date of failure to meet the full current costs of the Plan or the date of termination of the Plan, as the case may be, by 20% of the first $50,000 of the Employee's average Annual Earnings during the five year period preceding the date of failure to meet the full current costs of the Plan or the date of termination of the Plan, or (b) such larger amount as may be permissible under relevant laws and regulations at the time in force. The provisions of this Section shall not restrict the current payment of full benefits called for by the Plan to any person while the Plan is in full effect and its full current costs have been met; nor shall it restrict payment of any benefit withheld for a prior year (under the foregoing provisions) after all deficits for all prior years and full current costs have been met. Notwithstanding the otherwise applicable restrictions on distributions of benefits incident to early Plan termination, a Participant's otherwise restricted benefit may be distributed in full upon such Participant's depositing with an acceptable depository property having a fair market value equal to 125% of XIII-9 76 the amount which would be repayable had the Plan terminated on the date of the lump sum distribution. If the fair market value of the property held by the depository falls below 110% of the amount which would be repayable if the Plan were then to terminate, additional property necessary to bring the value of the property held by the depository up to 125% of such amount shall be deposited. XIII-10 77 ARTICLE XIV GENERAL PROVISIONS 14.1 No Guarantee of Employment. The Plan shall not be deemed to constitute a contract between an Employer and any Employee or to be a consideration for, or an inducement for, the employment of any Employee by an Employer. Nothing contained in the Plan shall be deemed to give any Employee the right to be retained in the service of any Employer or to interfere with the right of the Employer to discharge or to terminate the service of any Employee at any time without regard to the effect such discharge or termination may have on any rights under the Plan. 14.2 Payments to Minors and Incompetents. If a Participant, Contingent Annuitant or Beneficiary entitled to receive any benefits hereunder is a minor or is deemed by the Committee or is adjudged to be legally incapable of giving valid receipt and discharge for such benefits, they will be paid to such persons as the Committee might designate or to the duly appointed guardian. Such payment shall, to the extent made, be deemed a complete discharge of any liability for such payment under the Plan. XIV-9 78 14.3 Nonalienation of Benefits. To the extent permitted by law and with the exception of payments pursuant to a qualified domestic relations order within the meaning of Section 414(p) of the Code, no benefit payable under this Plan will be subject in any manner to anticipation, alienation, assignment, garnishment, or pledge; and any attempt to anticipate, alienate, assign, garnishee or pledge the same will be void; and no such benefits will be in any manner liable for or subject to the debts, liabilities, engagements, or torts of any Participant; and if any Participant is adjudicated bankrupt or attempts to anticipate, alienate, assign, or pledge any benefits, then such benefits will, in the discretion of the Committee, cease, and in this event, the Committee will have the authority to cause the same or any part thereof to be held or applied to or for the benefit of such Participant, his Spouse, his children or other dependents, or any of them, in such manner and in such proportion as the Committee may deem proper. 14.4 Purchase of Annuities. If the Committee for any reason deems it advisable, the Retirement Income benefits payable at retirement date under the Plan may be provided through the purchase of non-transferable annuities from such insurance company or companies as XIV-10 79 may be approved by the Committee. Payment thereof will be made from the Fund held by the Trustee. 14.5 Notwithstanding any other provision of the Plan, a former Participant shall not be entitled to payment of duplicate benefits upon again becoming a Participant. 14.6 A Participant shall not, with or without cause be divested of any annual benefits that are vested under the terms of the Plan. 14.7 Governing Law. The provisions of the Plan will be construed according to the laws of the State of Connecticut, subject to ERISA. 14.8 Preservation of Prior Methods of Payment. Notwithstanding any of the methods of payment of benefits provided in Articles IX and X, in the case of a Participant who has made a designation prior to January 1, 1984 which conforms to the requirements of Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 and which provides that one or more of the payment methods contained in the Plan prior to January 1, 1984 shall apply to such Participant's benefits, the Participant and any Beneficiary shall be entitled to receive such benefits in accordance with the payment XIV-11 80 methods in effect under the Plan prior to January 1, 1984. The Committee shall be authorized to disregard any designation, or any portion thereof, which has been made in accordance with the preceding sentence if it determines that such action is necessary to preserve the tax qualification of the Plan. 14.9 Commencement of Benefits. In no case shall distributions of benefits under the Plan be made or commence later than April 1 of the calendar year following the calendar year in which a Participant attains age 70 1/2 whether or not he has retired or otherwise terminated his Employment at that time; provided that, however, if a Participant had attained age 70 1/2 before January 1, 1988 and was not a five percent (5%) owner at any time during the Plan Year ending with or within the calendar year in which the Participant had attained age 66 1/2 or any subsequent Plan Year, such Participant may elect to delay his distribution until the calendar year in which the Participant retires, and, provided further, that if a Participant has made a designation prior to January 1, 1984 which conforms to the requirements of Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982, distributions of benefits under the Plan XIV-12 81 may be made or commence in accordance with the terms of such designation. 14.10 Notwithstanding any other provision of the Plan, in no event shall a Participant's benefit payments under the Plan decrease due to any increase in such Participant's social security benefits. 14.11 Suspension of Benefits. (a) Except for payments required by Section 14.9 hereof, benefits under this Plan are payable only after termination of employment; provided, however, that benefits shall be paid to a Participant who is otherwise entitled to receive benefits hereunder even if such Participant has not terminated Employment, but only if such Participant does not complete at least 40 Hours of service during a calendar month in Section 203(a)(3)(B) service, within the meaning of Section 203(a)(3)(B) of ERISA and Section 2530.203-3 of the Code of Federal Regulations. In addition, normal or early retirement benefits in pay status will be suspended for each calendar month during which the Participant completes at least 40 Hours of service in Section 203(a)(3)(B) XIV-13 82 service. In accordance with the foregoing, the actuarial value of benefits which commence later than a Participant's Normal Retirement Date will be computed without regard to amounts which would have been suspended under the preceding sentences as if the Participant had been receiving benefits since Normal Retirement Date. (b) If benefit payments have been suspended, payments shall resume no later than the first day of the third calendar month after the calendar month in which the Participant ceases to be employed for at least 40 Hours of service for a calendar month in Section 203(a)(3)(B) service. The initial payment upon resumption shall include the payment scheduled to occur in the calendar month when payments resume and any amounts withheld during the period between the cessation of such Section 203(a)(3)(B) service and the resumption of payments. (c) No payment shall be withheld by the Plan pursuant to this Section unless the Plan notifies the Participant by personal delivery or first class mail during the first calendar month or payroll period in which the Plan withholds payments that XIV-14 83 his or her benefits are suspended. Such notification shall contain a description of the specific reasons why benefit payments are being suspended, a description of the Plan provision relating to the suspension of payments, a copy of such provisions, and a statement to the effect that applicable Department of Labor regulations may be found in Section 2530.203-3 of the Code of Federal Regulations. In addition, the notice shall inform the Participant of the Plan's procedures for affording a review of the suspension of benefits. Requests for such review may be considered in accordance with the claims procedure adopted by the Plan pursuant to Section 503 of ERISA and applicable regulations. (d) The amount suspended shall be an amount equal to the portion of a monthly benefit payment derived from Company contributions. (e) This paragraph does not apply to the minimum benefit to which the Participant may become entitled under the top-heavy rules of Article XV. XIV-15 84 ARTICLE XV TOP-HEAVY PLAN PROVISIONS (Paragraphs 15.1 - 15.10 provide definitions for Article XV) 15.1 Compensation. Compensation of an Employee which is reportable on Form W-2 for the calendar year ending with or within the Plan Year. 15.2 Key Employee. Any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the Determination Period was an officer of the Employer with Compensation greater than 150 percent of the dollar limitation under Section 4l5(c)(1)(A) of the Code, an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer if such individual's Compensation exceeds the dollar limitation under Section 4l5(c)(1)(A) of the Code and such individual's ownership interest exceeds 1/2 percent, a 5-percent owner of the Employer, or a 1-percent owner of the Employer who has Compensation of more than $150,000. The determination of who is a Key Employee shall be made in accordance with Section 416(i)(1) of the Code. XV-8 85 15.3 Top-Heavy Plan. For any Plan Year beginning after December 31, 1983, this Plan is top-heavy if any of the following conditions exists: (a) If the Top-Heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (b) If this Plan is a part of a Required Aggregation Group of plans (but which is not part of a Permissive Aggregation Group) and the Top-Heavy Ratio for the Required Aggregation Group of plans exceeds 60 percent. (c) If this Plan is a part of a Required Aggregation Group of plans and part of a Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60 percent. 15.4 Top-Heavy Ratio. (a) If the Employer maintains one or more defined benefit plans and the Employer has not maintained any defined contribution plan (including any simplified employee pension plan) which during the Determination Period(s) has or has had account XV-9 86 balances, the Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the Present Values of accrued benefits of all Key Employees as of the Determination Date(s) (including any part of any accrued benefit distributed in the Determination Period(s)), and the denominator of which is the sum of the Present Values of all accrued benefits (including any part of any accrued benefit distributed in the Determination Period(s)), determined in accordance with Section 416 of the Code and the Regulations thereunder. (b) If the Employer maintains one or more defined benefit plans and the Employer maintains or has maintained one or more defined contribution plans (including any simplified employee pension plan) which during the Determination Period(s) has or has had any account balances, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the Present Values of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees, determined in accordance with (a) above, and the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees as of the Determination Date(s), and the denominator of XV-10 87 which is the sum of the Present Values of accrued benefits under the aggregated defined benefit plan or plans, determined in accordance with (a) above for all Participants, and the sum of the account balances under the aggregated defined contribution plan or plans for all Participants as of the Determination Date(s), all determined in accordance with Section 416 of the Code and the Regulations thereunder. The account balances under a defined contribution plan in both the numerator and denominator of the Top-Heavy Ratio are adjusted for any distribution of an account balance made in the Determination Period. (c) For purposes of (a) and (b) above, the value of account balances and the Present Value of accrued benefits shall be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Section 416 of the Code and the Regulations thereunder for the first and second plan year of a defined benefit plan. The account balances and accrued benefits of a Participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not received any compensation from any Employer XV-11 88 maintaining the plan at any time during the Determination Period shall be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the Regulations thereunder. Deductible Employee contributions shall not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits shall be calculated with reference to the Determination Date(s) that falls within the same calendar year. 15.5 Permissive Aggregation Group. The Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. 15.6 Required Aggregation Group. (1) Each qualified plan of the Employer in which at least one Key Employee participated during the Determination Period, and (2) any other qualified plan of the Company which enables a plan described in (1) to meet the requirements of XV-12 89 Sections 410(a)(4) and 410 of the Code during the Determination Period. 15.7 Determination Date. For any Plan Year, the last day of the preceding Plan Year. 15.8 Determination Period. The Plan Year containing the Determination Date and the four (4) preceding Plan Years. 15.9 Valuation Date. For purposes of computing the Top-Heavy Ratio, the Valuation Date shall be the normal annual valuation date for the Plan. 15.10 Present Value. For purposes of computing the Top-Heavy Ratio, any benefit shall be discounted only for mortality and interest as follows: Interest rate: 5% Mortality table: 1971 TPF&C Forecast Mortality Table 15.11 If the Plan is or becomes a Top-Heavy Plan in any Plan Year beginning after December 31, 1983, the following provisions shall supersede any conflicting provision in the Plan. (a) Vesting. XV-13 90 Notwithstanding the provisions of Section 7.2, a Participant's Vested Benefit shall be the Retirement Income payable at Normal Retirement Date in the form and amount as set forth in Section 4.3 based on his Average Earnings and Credited Service as of his Termination Date, multiplied by the applicable percentage specified below:
If Years of Then Vested Vesting Service Are Percentage Is ------------------- ------------- less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 but less than 6 80% 6 or more 100%
Notwithstanding the foregoing, a Participant shall be 100% vested upon the later of his 65th birthday or the fifth anniversary of his entry into the Plan. In the event of a change in the top-heavy status of the Plan, Section 13.2 of the Plan shall apply. (b) Minimum Accrued Benefit. (i) Notwithstanding any other provision in this Plan except (iii), (iv) and (v) below, for any Plan Year in which this Plan is a Top XV-14 91 Heavy Plan, each Participant who is not a Key Employee and has completed 1,000 Hours of service shall accrue a benefit (to be provided solely by Employer contributions and expressed as a life annuity commencing at normal retirement age) of not less than two percent of his or her highest average Compensation for the five consecutive years for which the Participant had the highest Compensation. The minimum accrual is determined without regard to any Social Security contribution. The minimum accrual applies even though under other Plan provisions the Participant would not otherwise be entitled to receive an accrual, or would have received a lesser accrual for the year because (1) the non-Key Employee fails to make mandatory contributions to the Plan, (2) the non-Key Employee's Compensation is less than a stated amount, (3) the non-Key Employee is not employed on the last day of the accrual computation period, or (4) the Plan is integrated with Social Security. (ii) No additional benefit accruals shall be provided pursuant to (i) above to the extent XV-15 92 that the total accruals on behalf of the Participant attributable to Employer contributions will provide a benefit expressed as a life annuity commencing at age 65 that equals or exceeds 20 percent of the Participant's highest average Compensation for the five consecutive years for which the Participant had the highest Compensation. (iii) The provisions in (i) above shall not apply to any Participant to the extent that the Participant is covered under any other plan or plans of the Employer which provide(s) for the minimum allocation or benefit applicable to Top-Heavy Plans. (iv) All accruals of Employer derived benefit, whether or not attributable to years for which the Plan is a Top-Heavy Plan, may be used in computing whether the minimum accrual requirements of Section (ii) above are satisfied. (c) Additional Limitation - Members of Retirement Plan. With respect to any Plan Year for which the Plan is determined to be a Top-Heavy Plan, XV-16 93 paragraphs (2)(B) and (3)(B) of Section 415(e) of the Code, as incorporated in Section 4.5 hereof, shall be applied by substituting "1.0" for "1.25" in the calculation of the defined benefit and defined contribution fractions unless the requirements of Section 416(h)(2) of the Code are met. XV-17 94 THE CONNECTICUT WATER COMPANY EMPLOYEES' RETIREMENT PLAN EXHIBIT I This Exhibit is attached to and made a part of the Plan. Actuarial Equivalent shall mean a benefit of equivalent current value to the benefit which would otherwise have been provided to the Participant. The factors used to determine equivalencies shall be determined as follows: - 50% Contingent Annuity Option 90% (less)(plus) .5% for each year by which the age of the Contingent Annuitant (is less than)(exceeds) the age of the Participant. Such factor not to exceed 1.0. - 75% Contingent Annuity Option 86% (less)(plus) .6% for each year by which the age of the Contingent Annuitant (is less than)(exceeds) the age of the Participant. Such factor not to exceed 1.0. - Lump Sum Distribution Actuarial Equivalent factors shall be determined using the UP-1984 Mortality Table and, for any Plan Year, the interest rates promulgated by the Pension Benefit Guaranty Corporation for the purposes of determining the present value of a lump sum distribution on plan 95 termination for the month containing the first day of such Plan Year. - Five-Year Certain and Life Option: 98% - 10-Year Certain and Life Option: 93% -12- 96 APPENDIX A SPECIAL EARLY RETIREMENT BENEFIT A.1 Eligibility A special early retirement benefit, as set forth in Section A.2 hereof, shall be offered to all eligible Participants; provided, however, that said special early retirement benefit shall not be available to any Eligible Participant if fewer than six (6) Eligible Participants elect to retire and receive such benefit. For purposes of this Appendix A, the term 'Eligible Participant' shall mean each Participant who as of September 1, 1991 (a) will have completed ten (10) or more years of Credited Service, and (b) will have attained the age of fifty-five (55). Each such Eligible Participant will be offered the special early retirement benefit described in Section A.2 and may make a written election during an election period beginning on July 10, 1991 and ending at 4:30 P.M. on August 9, 1991 to retire on September 1, 1991 and receive such special early retirement benefit commencing as of said date; provided, however, that such Eligible Participant either electing or declining to retire and receive the special early retirement benefit described in Section A.2 may revoke said decision during the period beginning on August 10, 1991 and ending at 4:30 P.M. 97 on August 16, 1991, after which date such decision shall be irrevocable. A.2 Special Early Retirement Benefit Each Eligible Participant who, pursuant to Section A.1, has elected to retire and receive the special early retirement benefit shall be credited with an additional five (5) years of Credited Service for purposes of the calculation of the benefit under Articles IV, V and VI and, if such retirement occurs prior to attainment of age sixty-two (62), shall receive an additional benefit of $500 each month ending with the month in which such Eligible Participant attains age sixty-two (62). A.3 Limitation The limitations of Section 415 of the Code, as set forth in Section 4.4, shall apply to the special early retirement benefit and, for purposes of Section 415(b)(5)(D) of the Code, the adoption of the special early retirement benefit shall be considered a change in benefit structure, unless otherwise provided by Treasury Regulations or other determinative authority. -4- EX-10.15 6 EX-10.15 1 Exhibit 10.15 WATER SUPPLY AGREEMENT This Agreement made this 13th day of June, 1994, by and between THE CONNECTICUT WATER COMPANY, having its principal office in the Town of Clinton, County of Middlesex and State of Connecticut (the "Company"), and THE HAZARDVILLE WATER COMPANY, having its principal office in the Town of Enfield, County of Hartford and State of Connecticut ("HWC"). W I T N E S S E T H : WHEREAS, the Company has agreed to construct and operate a regional pipeline to be owned by the Town of Somers and/or the State of Connecticut for the purpose of providing water service to certain areas outside the present boundaries of the Company's Somers System; and WHEREAS, HWC has need of water from the Company to be delivered to HWC through said regional pipeline for limited use in HWC's service area; and WHEREAS, HWC and the Company mutually desire to establish an agreement pursuant to which the Company would provide water to HWC to meet such needs. NOW THEREFORE, It is mutually agreed between the parties hereto as follows: 2 -2- 1. (a) The Company shall enter into one or more contracts with the Town of Somers and/or the State of Connecticut with respect to the construction, operation and maintenance of a regional water pipeline to be constructed from the Company's Somers System to the Rye Hill Circle area in Somers, Connecticut (herein, the "Regional Pipeline"). These contractual arrangements will be substantially in the form of Exhibit A hereto (which exhibit is the Installation and Service Agreement dated as of June 5, 1992 between the Company and the Town of Guilford, Connecticut), but with such changes therein as may be satisfactory to the Company. HWC shall enter into an agreement or agreements with the Town of Somers and/or the State of Connecticut with respect to the construction of a water distribution system within the exclusive service area (herein "ESA") of HWC, as determined by the Upper Connecticut River Water Utility Coordinating Committee, such system to be interconnected with the Regional Pipeline and provide water service within the Rye Hill Circle area. HWC may, from time to time enter into additional similar agreements with respect to other homes within the ESA of HWC. Said contracts between HWC and the Town of Somers and/or the State of Connecticut shall contain such provisions as to ownership and use thereof by HWC as shall be acceptable to HWC. The Company or HWC, as the case may be, in its sole discretion, may modify or supplement any of its contractual arrangements as it considers appropriate. (b) Said agreements between the Company and the Town of Somers and/or the State of Connecticut shall provide that the said Town and/or State shall own the Regional Pipeline for a term of sixty-one years, with the Regional Pipeline then being conveyed to the Company at no cost to the Company; provided, however, that said agreements shall also expressly provide that, after such conveyances upon expiration of said sixty-one year period, (i) the Company shall be permitted, without limitation as to time and at no cost (whether direct or indirect) to the Company, to continue to utilize the entire Regional Pipeline for the purposes, including the transmission of water in such quantities, then utilized by the Company or thereafter deemed 3 -3- necessary or desirable by the Company; and (ii) HWC shall be permitted to utilize the Regional Pipeline as permitted by this Agreement, without limitation as to time and at no additional cost to HWC beyond (A) the costs to HWC reflected in this Agreement and (B) HWC's proportionate share of those additional costs incurred by the Company as a result of ownership of the Regional Pipeline. 2. (a) Said agreements between the Company and the Town of Somers and/or the State of Connecticut shall include obligations on the part of the Company to maintain in good working order all improvements constructed by the Town of Somers and/or the State of Connecticut for the aforesaid Regional Pipeline and any distribution system or domestic service lines extending from the Regional Pipeline to areas not within the ESA of HWC. Such maintenance and operation by the Company of the Regional Pipeline and the aforesaid improvements shall be in accordance with the standards set by the State of Connecticut Department of Public Health and Addiction Services ("DPHAS") or any successor agency and the State of Connecticut Department of Public Utility Control ("DPUC"). (b) Said agreements between HWC and the Town of Somers and/or the State of Connecticut shall include obligations on the part of HWC to maintain in good working order any and all such improvements, all in accordance with standards set by DPHAS and DPUC. 3. (a) The Company hereby agrees to provide potable water, fire protection and related services to HWC but only for resale by HWC solely to customers of HWC who are within the ESA of HWC and for whom HWC has received specific approval to serve from the Connecticut Department of Environmental Protection. The water supplied by the Company under this Agreement shall meet all federal, state and other water quality requirements applicable to the Company. The Company shall indemnify and hold harmless HWC for any and all costs, 4 -4- fees, expenses, damages and loss of any type or nature incurred as a result of any failure of the Company to comply with the aforesaid water quality requirements. (b) HWC agrees to, and does hereby consent to, all operations of the Company contemplated by this Agreement. 4. (a) HWC will pay the established charges (based on the size of the master meter located on the Regional Pipeline at the boundary of the ESA of HWC and the quantity of water used) for all water supplied hereunder in accordance with the established rates of the Company's Somers System, which rates may from time to time be revised with the approval of the DPUC. The charges by the Company to HWC shall also include, without limitation, the Company's then existing standard inch foot charges as calculated for the Regional Pipeline, standard charges for all private fire connections made to the Regional Pipeline, standard charges for any and all hydrants installed along the Regional Pipeline within the ESA of HWC as may be authorized from time to time by the Town of Somers and standard charges for each service connection made to the Regional Pipeline. HWC shall be billed for all water delivered to HWC through the Regional Pipeline, as measured by the meters contemplated by Section 10 hereof, except that water taken directly from the Regional Pipeline as a result of main breaks, fire protection or flushing shall be excluded. The Company will bill HWC for meter charges and other charges and rates in accordance with its rules and regulations, except to the extent otherwise directed by the DPUC. (b) Notwithstanding the provisions of subsection (a), at such time as HWC complies with the requirements of Section 8(a) hereof, and is capable of inserting water into the Regional Pipeline, HWC shall continue to pay all other charges then applicable in accordance with subsection (a) hereof and, in addition, the quarterly bill for the last quarter of each calendar year 5 -5- thereafter during the term of this Agreement shall include, in addition to all other amounts payable by HWC under subsection (a) hereof, a minimum purchase charge equal to (1) the amount, if any, by which (A) the amount of water delivered by the Company to HWC, as measured by the master meter, during the twelve month period immediately preceding the month in which HWC so complies with Section 8(a) hereof (adjusted, if necessary, to reflect a full year's consumption), exceeds (B) the amount of water actually purchased pursuant to this Agreement from the Company by HWC during such calendar year, times (2) the then applicable rates of the Company. (c) The Company agrees to provide and be responsible for providing water for public and private fire service along the length of the Regional Pipeline through the use of direct connections to the Regional Pipeline, including the installation and maintenance of hydrants in the Town of Somers. The Company will bill any such service within the ESA of HWC to HWC as provided in subsection (a) hereof. (d) The rates at which HWC shall resell water purchased by HWC from the Company pursuant to this Agreement to HWC's customers shall be set by the DPUC. 5. (a) The maximum amount of water which the Company shall be obligated to provide to HWC pursuant to this Agreement shall in no event exceed 100,000 gallons in any one day. The Company shall be under no obligation to supply amounts of water to HWC pursuant to the Regional Pipeline in excess of said 100,000 gallons per day, except for emergency use in the event of a fire or main break within that portion of the ESA of HWC serviced through the Regional Pipeline, and excluding water lost from the Regional Pipeline as a result of main breaks or flushing. 6 -6- (b) The Company will design, and use its best efforts to operate, the Regional Pipeline so that the Regional Pipeline is capable of delivering 1,100 gallons per minute at a residual pressure of 50 psi at the intersection of George Wood Road and Rye Hill Circle. The Pipeline will be designed to provide adequate service up to ground elevation 400 USGS datum. The Company undertakes only to supply water to HWC in such quantity existing in the Company's Somers System at any time. The Company will make all reasonable efforts to prevent interruptions of service and, when such interruptions occur, will endeavor to reestablish service with the shortest possible delay consistent with the safety of customers and the general public. (c) The parties hereto will jointly apply to DEP for a diversion permit with respect to 100,000 gallons per day of water to be sold by the Company to HWC through the Regional Pipeline pursuant to this Agreement. It shall be the Company's obligation to obtain any and all such approvals (other than the diversion permit and approval of this Agreement by the DPUC) as may be required to enable the parties to carry out this Agreement. HWC agrees to cooperate with the Company in pursuing any such approvals which may be needed. The Company shall undertake primary responsibility for obtaining the requisite diversion permit from DEP, and HWC shall cooperate with respect thereto. 6. The Company shall be permitted to extend, enlarge and expand the Regional Pipeline and/or to interconnect with said Pipeline at any time and from time to time in such manner as the Company deems necessary or desirable in connection with its operations. HWC hereby grants the Company such approvals as may be necessary or desirable to enable the Company to effect such extensions, enlargements, expansions and interconnections within the ESA of HWC. Nothing in this section is intended to address the issue of what entities may provide water service within the ESA of CWC or of HWC. 7 -7- 7. Upon compliance with all water quality and technical engineering requirements deemed by the Company to be reasonably necessary, using good standard engineering practice, to ensure proper operation of the Regional Pipeline and upon payment of all reasonable costs relating to said interconnection: (i) HWC may interconnect with the Regional Pipeline in order to provide water service to homes experiencing present or future pollution problems; and (ii) additionally, upon confirmation by DPUC of compliance by HWC with the interconnection requirements set forth in the third paragraph of Section II of the so-called Rye Circle Memorandum of Understanding dated May 3, 1994 (the "MOU"), HWC may interconnect with the Regional Pipeline any portion of the HWC system within the ESA of HWC now or hereafter in existence. 8. (a) Upon compliance with the requirements of Section 7, HWC may, through one or more of the interconnections contemplated by Section 7(ii), insert water into the Regional Pipeline and thereby utilize the Regional Pipeline to supply water to existing or future customers of HWC located within the ESA of HWC; provided, however, that HWC shall (i) inject into the Regional Pipeline only potable water which meets all federal, state and other water quality requirements applicable to either the Company or HWC; (ii) be fully responsible for complying, and shall indemnify and hold harmless the Company for any and all costs, fees, expenses, damages and loss of any type or nature incurred as a result of any failure of HWC to comply, with the aforesaid water quality requirements and standards, and any and all technical or operational conditions reasonably requested by the Company to ensure proper operation and maintenance of the Regional Pipeline and HWC's interconnections thereto; and (iii) be limited to a total use of the Regional Pipeline to transmit a maximum of 400,000 gallons of water per day, regardless of whether such water is purchased from the Company or supplied to the Regional Pipeline by HWC, it being the intent of this clause (iii) that the aggregate amount of 8 -8- water (A) sold by the Company to HWC pursuant to this Agreement, and (B) inserted by HWC into the Regional Pipeline pursuant to this Section 8 (a) shall in no event exceed 400,000 gallons per day (except for emergency use for fire flow). (b) HWC may also construct or receive contributions of additional plant which, subject to the requirements of Section 7, may be interconnected to the Regional Pipeline to fulfill HWC's service obligations within its ESA in the vicinity of the Regional Pipeline. 9. (a) HWC will install at its expense all necessary pipes, valves, meters and pits and other appurtenances required to effect any and all interconnections between HWC and the Regional Pipeline, including water meters. The Company shall have the right to approve the design, construction and operation of all connections to the Company water system and the Regional Pipeline, and all meter vaults, metering devices, and any other appurtenances thereto. The cost of all such work shall be paid by HWC. Meters and piping up to the main line gate valve on the Company side of each meter pit shall be and at all times remain the property of the entity then owning the applicable portion of the Regional Pipeline. The Company shall be responsible for the maintenance of the meters. The necessity for, and selection of, all connections, materials, and the location thereof shall be within the sole and exclusive judgment of the Company and shall be based solely upon good water utility engineering practices to ensure proper operation and maintenance of the Regional Pipeline and to preserve the ability of the Company and of HWC to carry out their respective rights and obligations under this Agreement; provided that no meters shall be required on those interconnections to the Regional Pipeline where HWC is not capable of inserting water into the Regional Pipeline. (b) HWC agrees that any and all modifications to its existing water supply system that are necessary or desirable to enable it to accept delivery of water delivered through the Regional 9 -9- Pipeline shall be undertaken by HWC at its own expense. Any such interconnections will be made only within the ESA of HWC within the Town of Somers. (c) HWC shall, at its expense, obtain such permits and other rights which may be necessary or desirable to enable HWC to interconnect with the Regional Pipeline. 10. The measurement of water delivered to HWC shall be undertaken by the Company. Such flow measurements shall be made by approved metering devices to be installed on the Regional Pipeline at the border of the ESA of HWC and at such other locations (such as at the border of the ESA of HWC and the ESA of the Company's Northern Division if the Regional Pipeline is so extended, and at those interconnections where HWC is capable of inserting water into the Regional Pipeline), as may be deemed necessary by the Company to ensure proper calculation of the amount of water actually delivered by the Company to HWC. All such metering devices shall be inspected at least annually and calibrated periodically by the Company. A copy of the inspection and calibration reports shall be provided to HWC. HWC shall have the right, upon reasonable notice to the Company, to inspect each such meter. The Company shall give HWC reasonable notice of each annual inspection and calibration of such meters and HWC shall have the right to be present during such operations. 11. The Company shall operate and maintain the Regional Pipeline in accordance with customary water utility engineering practices. HWC shall operate and maintain that portion of its water system connected at any time to the Regional Pipeline in accordance with customary water utility engineering practices and with the guidelines set forth below: (i) HWC shall use its best efforts to minimize the wasteful use of water within that portion of its service area connected to the Regional Pipeline. Should the Company impose 10 -10- restrictions on water use on its customers (e.g., sprinkling bans) HWC shall likewise impose such restrictions on its customers within said area. The imposition of said restrictions shall be within the sole and exclusive discretion of the Company. Nothing in this Agreement shall prevent HWC from imposing its own restrictions above and beyond those imposed by the Company. (ii) HWC shall ensure that all users connected to that portion of its water system connected to the Regional Pipeline who raise the water pressure install suitable backflow prevention devices as required by state or federal law. HWC shall ensure that all users connected to that portion of its water system connected to the Regional Pipeline which repump the water supplied by HWC do all such repumping on a schedule approved by HWC and in conformance with all existing cross connection regulations. 12. HWC shall, and to the extent necessary shall cause those customers of HWC served through the Regional Pipeline to, comply in all respects with all of the rules and regulations of the Company which may from time to time be in effect and approved by the DPUC and applicable to the matters contemplated by this Agreement. 13. The Company shall bill HWC monthly for fire protection and quarterly for water purchased and all other charges. All bills for services rendered or obligations payable hereunder shall be due and payable within thirty (30) days of the receipt of a bill therefor by HWC. Any amount remaining unpaid after such 30-day period shall thereafter bear interest to the date of payment at a rate per annum equal to (i) the prime rate of interest of Fleet Bank of Connecticut, as established and announced by such bank from time to time, plus (ii) 2 percent. If HWC fails to pay any sum due under this Agreement or otherwise fails to comply with any other provision of this Agreement, HWC will pay to the Company, to the extent permitted by law, such further 11 -11- amounts as shall be sufficient to cover the cost and expenses, including without limitation reasonable attorneys' fees, incurred by the Company in collecting any sums due hereunder or in otherwise enforcing any of its rights. In addition to any other rights which it may have, the Company shall have the right to refuse to provide water service to HWC if it has failed to make any payment required by this Agreement for more than 60 days after receipt of a bill therefor. 14. HWC agrees that, except as specifically provided in this Agreement, it will indemnify and save the Company harmless from and against any and all loss, cost, liability or damage incurred directly or indirectly by the Company as a result of any negligence or misconduct on the part of HWC, its employees or agents, in connection with the construction or use of any of the HWC interconnections with the Regional Pipeline and the taking by HWC of any action contemplated by this Agreement. The Company agrees that, except as specifically provided in this Agreement, it will indemnify and save HWC harmless from and against any and all loss, cost, liability or damage incurred directly or indirectly by HWC as a result of any negligence or misconduct on the part of the Company, its employees or agents, in connection with the Company's operation or use of the Regional Pipeline and the taking by the Company of any action contemplated by this Agreement. 15. Neither the Company nor HWC shall be liable in damages or otherwise for any failure to perform any obligation, except that HWC shall not be relieved of its payment obligations under this Agreement because of any failure which is occasioned by or in consequence of any act of God, act of public enemy, war, blockages, insurrection, riot, epidemic, land slide, lightning, earthquake, fire, storm, flood, washout, civil disturbance, strike, lockout or other industrial disturbance, power failure, explosion, breakage or accident to machinery or lines of pipe, failure or want of water supply, binding order, decree, regulation 12 -12- or judgment of any court or governmental authority or any other cause, whether of the kind enumerated or otherwise, not completely within the control of the Company or HWC, as the case may be, which act, omission, or circumstance the Company or HWC, as the case may be, is unable to prevent or overcome by the exercise of due diligence ("force majeure"). It is understood and agreed that the settlement of any such existing or impending strike, lockout or other industrial disturbance shall be entirely within the discretion of the Company or HWC, as the case may be, and that the foregoing requirement that any force majeure shall be beyond the complete control of the Company or HWC, as the case may be, and shall be prevented or overcome by the exercise of due diligence shall be deemed to be fulfilled even though such strike, lockout or other industrial disturbance may not be settled and could have been settled by acceding to the demands of the opposing party. It also is understood and agreed that the foregoing requirement that any force majeure shall be beyond the complete control of the Company and shall be prevented or overcome by the exercise of due diligence shall be deemed to be fulfilled even though any such force majeure may not be prevented or overcome and could have been prevented or overcome had the Company undertaken treatment or other techniques with respect to water delivered and sold pursuant to this Agreement if such techniques exceed the treatment or other techniques undertaken by the Company with respect to water supplied by the Company from the same sources to its retail customers. 16. The Company assumes no responsibility for operation and maintenance of any portion of the water systems constructed and owned by HWC. 17. The respective obligations of the parties hereto are subject to the following conditions precedent: 13 -13- (i) Such approval of this Agreement as may be required by the DPUC and the DPHAS. (ii) (a) Delivery to the Company of an opinion of counsel for HWC that HWC has authority to enter into this Agreement and carry out all of its obligations hereunder, and that this Agreement has been duly authorized, executed and delivered on behalf of HWC and is a legal, valid and binding agreement enforceable against HWC in accordance with its terms; and (b) Delivery to HWC of an opinion of counsel for the Company that the Company has authority to enter into the Agreement and carry out all of its obligations hereunder, and that this Agreement has been duly authorized, executed and delivered on behalf of the Company and is a legal, valid and binding agreement enforceable against the Company in accordance with its terms. (iii) Approval by DPUC of rates for HWC to be charged to those customers of HWC served from the Regional Pipeline, which rates observe the principles set forth in the first paragraph of Section II of the MOU. (iv) Assurances, satisfactory to the Company and to HWC, that, except for the incremental costs, if any, of increasing the joint application to the DEP for the diversion permit contemplated by Section 5(b)) from 62,500 gallons per day to 100,000 gallons per day, which incremental cost will be paid by HWC, neither the Company nor HWC shall bear any costs, and shall be fully reimbursed for all expenses, incurred directly or indirectly with respect to obtaining such diversion permit; and 14 -14- (v) the receipt by HWC of written confirmation by DPHAS of the principle set forth in the last sentence of Section IV of the MOU. 18. This Agreement shall be effective as of the date of satisfaction (or waiver) of the last of the conditions set forth in Section 17 and, unless sooner terminated by mutual agreement, shall remain in full force and effect until December 31, 2060. 19. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. 20. In the event of any dispute or disagreement between the parties either with respect to the interpretation of any provisions of this Agreement or with respect to the performance by the Company or by HWC hereunder, then upon the written request of either party, each of the parties will appoint a designated officer whose task it will be to meet for the purpose of endeavoring to resolve such dispute or to reach agreement upon a mutual satisfactory alternative dispute resolution mechanism. The designated officers shall meet at a mutually agreeable location as often as the parties reasonably deem necessary in order to gather and furnish to the other all information with respect to the matter in issue which the parties believe to be appropriate and germane in connection with its resolution. Such officers shall discuss the problem and/or negotiate in good faith in an effort to resolve the dispute without the necessity of any formal proceeding and/or to reach agreement upon a mutually satisfactory alternative dispute resolution mechanism. All verbal and written communications between the parties and issued or prepared in connection with this section shall be deemed prepared and communicated in furtherance, and in the context, of dispute settlement, and shall be exempt from discovery and production, and shall not be admissible in evidence (whether as an admission or otherwise), in 15 -15- any proceedings for the resolution of the dispute. No formal proceedings for the litigation of such dispute shall be commenced until either of the designated officers concludes in good faith that continued negotiations of the matter in issue does not appear likely to produce a mutually acceptable resolution or agreement upon a mutually satisfactory alternative dispute resolution mechanism. 21. This Agreement constitutes the complete agreement of the parties. No amendment of this Agreement shall be effective unless in writing and signed by each of the parties hereto. 22. All communications under this Agreement shall be in writing and shall be mailed by first class mail, postage prepaid, to the addressee's respective address as shown below, marked for attention as there indicated, or at such other address as such addressee may have furnished in writing to the other party hereto: The Connecticut Water Company 93 West Main Street Clinton, CT 06413 Attention: Vice President-Operations and The Hazardville Water Company 10 Kearney Road, Suite 301 Needham, MA 02194 Attention: Jonathan S. Avery, President 23. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. 16 -16- IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first above written. THE CONNECTICUT WATER COMPANY By /s/ Marshall T. Chiaraluce ----------------------------------- Its President and CEO ------------------------------------ THE HAZARDVILLE WATER COMPANY By /s/ Jonathan S. Avery ----------------------------------- Its President ------------------------------------ EX-10.16 7 EX-10.16 1 Exhibit 10.16 AMENDMENT TO THE MEMORANDUM OF AGREEMENT ENTERED INTO DECEMBER 11, 1957 BETWEEN THE CITY OF WATERBURY AND THE THOMASTON WATER COMPANY The Connecticut Water Company (successor to The Thomaston Water Company), a corporation organized and doing business in the State of Connecticut and having its principal office in the Town of Clinton, County of Middlesex and State of Connecticut (the "Company") and the City of Waterbury, a municipal corporation chartered by the State of Connecticut, situated in New Haven County in said state, acting hereby by the hand of its Mayor duly authorized by the Board of Aldermen of the City of Waterbury (the "City"), hereby agree to amend the Memorandum of Agreement dated December 11, 1957 between the Company and the City (the "Original Agreement") as follows: 1.) All references to The Thomaston Water Company or to the Company in the Original Agreement (as hereby amended, the Original Agreement is herein referred to as "the Agreement") now refer to its successor, The Connecticut Water Company. 2.) Section 1 of the Original Agreement is deleted and the following Section 1 inserted in its place: "1.) The City agrees to sell to the Company up to 650,000 gallons per day of treated water to be made available to the Company at the connection (the "Connection") between the City's water system and the Company's water system located on Reynolds Bridge Road in Thomaston, Connecticut. The City's obligation to make 2 -2- such sales, and the Company's obligation to purchase and pay for such water, shall continue for the term of this Agreement; provided, however, that the Company shall be under no obligation to take, or to pay for, any such water whose quality does not meet State or Federal standards. The Company agrees to purchase from the City at least 739,125,000 gallons of treated water over the five year period beginning on January 1, 1993, which amount represents an average of 405,000 gallons per day over said five year period." 3.) Section 3 of the Original Agreement is deleted and the following Section 3 inserted in its place: "3.) a.) The Company agrees to pay the City for all water taken through the Connection pursuant to this Agreement. Except as specified in this Section 3 and in Section 5 hereof, and notwithstanding any other provisions of this Agreement, no other charges or expenses shall be payable by the Company to the City. b.) The Company agrees to pay the City for water at the Current Rate (as defined in Section 3(c)) until the cumulative difference between the total amount billed to the Company by the City at the Current Rate from January 1, 1993 through the date of said calculation and the total amount that would have been so billed at the Established Rate (as defined in Section 3(c)) shall equal $585,000. c.) The Current Rate is 110% of the current Standard Rate Schedule of the City for service within the City, and the Established Rate shall be $1.00 3 -3- for each 100 cubic feet of water delivered to the Company. The Established Rate equals 110% of the cost of service rate determined by the City as the City's cost of providing service under this Agreement. d.) Once the cumulative difference between the amount billed to the Company by the City at the Current Rate and the amount that would have been so billed at the Established Rate equals $585,000, the City shall thereafter bill the Company at the Established Rate for all subsequent usage. e.) (i) The Established Rate, as defined in Section 3(c), shall remain unchanged through the first five years of this Agreement. Subsequent to January 1, 1998, the Established Rate shall change in proportion to any changes in the City's standard Rate Schedule in effect on December 31, 1994. Should the City adopt a rate schedule that includes multiple customer classes and/or rate blocks, the Established Rate shall change in proportion to the City's weighted average rate. (ii) In addition, if during the term of this Agreement, the City incurs additional expenses for capital improvements, excluding those related to increased capacity, made to its treatment plant(s), transmission system(s) or reservoir facilities which are upgradient to the Connection and which relate directly to providing service to the Company through the Connection, which expenses are not reflected in the Established Rate, as the Established Rate may be changed from time to time, then commencing on January 1, 1998 or on January 1 of the year following completion of said capital improvements, whichever is later, the Company shall pay, in 4 -4- addition to the Established Rate, a one-time charge equal to 1.7% of said excess expenses, said payment to be made in a manner mutually acceptable to both parties." 4.) Section 4 of the Original Agreement is deleted and the following Section 4 inserted in its place: "4.) (i) This Agreement shall be effective as of the date first above written. This Agreement shall be in full force and effect and shall be binding on the Company and the City for ten (10) years from the effective date, as long as the Company shall not be in default of its obligations hereunder. Further, the Company shall have the right of automatic renewal of this Contract for six (6) additional periods of ten (10) years, under the same terms and conditions unless the Company decides to reject the right to renew. Said rejection of the automatic right to renew must be given to the Mayor of the City in writing at least six (6) months prior to the time for renewal. To the extent required by law, said six (6) automatic renewals will be contingent upon approval of the DPHAS, pursuant to Public Act 85-142. (ii) Notwithstanding the provisions of clause (i) above, the City shall have the unilateral right to terminate this Agreement from the point of the first contract renewal onwards. Any such termination shall be effective on the later of (1) the date which is five years after the City has delivered its notice of termination in writing to the Company, except the Company shall have the right to extend the date by two years if needed to secure the 5 -5- necessary permits and complete needed construction, and (2) the date on which the City shall have paid to the Company an amount equal to the prorated share of the sum of (a) $585,500 plus (b) any amounts paid by the Company to the City pursuant to the requirements of clause (ii) of Subsection 3(e) hereof. The prorated share shall be an amount equal to the sum of the amounts referred to in (a) and (b) of the preceding sentence, multiplied by a percentage, the denominator of which shall be 70, and the numerator of which shall be a number equal to the difference between (A) 70, and (B) the number of full years which will have been completed under the Agreement by such termination date. Such payment may be made by the City within the five-year period contemplated by clause (1) above through a reduction in the water rates payable by the Company during such period or in any other manner mutually acceptable to both parties. 5.) A new Section 6 is added to the Original Agreement as follows: "6.) The City will deliver water ready for consumption to the Company. The City will not be held liable for the failure to deliver water as aforesaid in the event of ruptured mains, acts of God, or other failure resulting from acts beyond the control of the City; provided, however, the City shall make every reasonable effort to prevent interruptions of service and, when such interruptions occur, shall endeavor to re-establish service with the shortest possible delay consistent with the safety of its customers and the general public. It is understood and agreed that the City will not in any event be liable to users of water in the system of the Company for damages for interrupting or diminishing the supply of water in 6 -6- Thomaston, nor shall the City in any event be liable for damages arising out of any injuries to persons or property on account of said installation, lack of water supply or water pressure. It is further agreed that the Company, its successors or assigns, shall save the City harmless from claims by any of its customers on account of lack of water supply or water pressure attributable to the Connection." 6.) A new Section 7 is added to the Original Agreement as follows: "7.) It is agreed that whenever this Agreement is terminated, the Company and the City shall automatically be returned to their respective positions as in effect under the terms of the Original Agreement prior to the execution of this Amendment." 7.) A new Section 8 is added to the Original Agreement as follows: "8.) The respective obligations of the parties hereto are subject to, and contingent upon, such approval of this Agreement as may be required by the Connecticut Department of Public Utility Control ("DPUC") and the Connecticut Department of Public Health and Addiction Services ("DPHAS"). The Company shall be responsible for the preparation of the DPUC application for approval and the City shall be responsible for preparation of the DPHAS application for approval." All other provisions of the Original Agreement other than as affected by the foregoing amendments are hereby ratified and affirmed and shall remain in full force and effect. 7 -7- In Witness Whereof, the parties have hereunto executed this Amendment as of the 4th day of November, 1994. Signed and delivered in the presence of /s/ Michele DiAcri THE CONNECTICUT WATER COMPANY --------------------------------------- /s/ William F. Guillaume By /s/ Marshall T. Chiaraluce -------------------------------------- ------------------------------- Its President /s/ William J. Cook III THE CITY OF WATERBURY --------------------------------------- /s/ Eileen Walsh By /s/ Edward D. Bergin ---------------------------------------- ------------------------------- Its Mayor 8 -8- STATE OF CONNECTICUT ) ) ss. Clinton COUNTY OF MIDDLESEX ) Personally appeared Marshall T. Chiaraluce, duly authorized officer of The Connecticut Water Company, signer and sealer of the foregoing instrument and acknowledged the same to be the free act and deed of said corporation, and his free act and deed as the duly authorized officer of The Connecticut Water Company, before me. Elizabeth D. Lebert ------------------------------------------ Notary Public STATE OF CONNECTICUT ) ) ss. Waterbury COUNTY OF NEW HAVEN ) Personally appeared Edward D. Bergin, mayor of the City of Waterbury, the signer and sealer of the foregoing instrument and acknowledged the same to be his free act and deed and the free act and deed of the City of Waterbury, before me. William J. Cook ------------------------------------------ Commission of the Superior Court Approved as to Form ----------------------------- Corporation Counsel EX-24.1 8 EX-24.1 1 Exhibit 24.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accounts, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File No. 2-9822. /s/ Arthur Andersen LLP Hartford, Connecticut March 10, 1995 EX-27 9 EX-27
OPUR1 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 PER-BOOK 140,784 881 7,932 21,644 0 171,241 38,943 0 9,040 47,983 0 772 54,600 0 0 0 0 30 0 0 67,856 171,241 38,129 4,756 23,718 28,474 9,655 165 9,820 3,940 5,880 38 5,842 4,675 0 10,895 2.08 2.08